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Author: sectoranalyst   |   Latest post: Wed, 13 Nov 2019, 4:41 PM

 

MISC Berhad - Fleet Expansion From New Exxon Mobil LNG Contracts

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What Happened?

  • MISC secured two LNG time charter (tenure: 15 years) contracts (start: 1Q 2023) from Exxon Mobil valued at USD711mn. The newbuild vessels will operate in international waters and will be built by Samsung Heavy Industries.

Our Take

  • This announcement does not come as a surprise given that we had earlier highlighted industry newsflow indicating that ExxonMobil has prioritized MISC to undertake the first of a series of LNG newbuilds. Therefore, we do not discount the possibility of more traction in LNG contract awards from Exxon Mobil.
  • The new contract wins come hot on the heels of 2 new LNG contracts (stake: 51%) awarded by Mitsubishi Corporation (tenure: 18 years) earlier in Sept-19. Similar to the latter, the new Exxon Mobil contracts signify diversification from MISC’s traditional client - namely parent, Petronas. All four newbuild contracts fall within management’s guidance of FY19 growth capex of USD1bn (capex per LNG vessel: >USD200mn). It will result in LNG fleet expansion to 33 vessels (current: 29).
  • Assuming long term charter rates of USD80K per day (Aug-19: USD72K), we estimate pretax profit boost of RM80mn p.a from both vessels. However, we do not incorporate earnings contribution from the new contracts - given that it lies beyond our forecast period.

Impact

  • Maintain earnings forecasts.

Valuation

  • On the back of strong momentum in contract awards, large tender opportunities, and enhanced earnings visibility we upgrade MISC’s target multiple to 20.5x (previous: 19x). This implies a slight premium above historical average of 19x forward P/E. We believe this is justified given MISC’s enlarged LNG fleet, diversification into provision of DP Shuttles, and potential entry into the FPSO space.
  • DP Shuttles have superior earnings profile (versus Petroleum tankers) given that it is a less commoditized vessel class. Meanwhile, the lucrative FPSO segment is now experiencing traction in both tenders and awards.
  • Management has identified prospective pipeline project tenders valued northwards of USD4bn. A sizeable chunk of this comprises bids for offshore FPSOs - including Mero-3 FPSO, Limbayung in Malaysia (value: USD750mn) as well as Ubud (USD600mn-800mn) and Erawan in Thailand.
  • As a result of the above, our target price (TP) is raised to RM8.60 (previous: RM8.20). Maintain Hold. A rerating catalyst would be award of the sizeable USD2bn Petrobras Mero-3 FPSO. MISC’s profile would be raised significantly in the FPSO space if the Group manages to nab either the Mero-3 or Mero-4 projects.

Source: TA Research - 11 Oct 2019

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