Investment Highlights

• We maintain our HOLD recommendation on MISC with unchanged forecasts and fair value of RM6.65/share, which is at a 20% discount to our revised sum-of-parts valuation of RM8.31/share. This implies an FY19F EV/EBITDA of 8x, below its 2-year average of 10x but in line with AP Moller-Maersk.

• MISC has signed 5-year time charters worth US$133mil for 2 liquefied natural gas (LNG) carriers known as LNG Portovenere and LNG Lerici to operate in international waters with LNG Shipping S.p.A. (LSS).

• MISC will be completing the acquisition of these proprietary vessels, which have individual capacities of 65,000 cubic metres, soon from LSS, which in turn is chartering them on a sale-and-leaseback arrangement.

• The charter for LNG Portovenere is expected to commence in December 2018 with LNG Lerici in the following month. LSS is wholly owned by Italy-based oil operator Eni S.p.A.

• The daily charter rate translates to US$36,438, which appears low compared with 3-year time charter rates of US$85,750 in October 2018. This is due to the lower tonnage and age of the vessels, which we understand were built in the late 1990s.

• Assuming project IRR rates of 10%, we estimate that the capex for these 2 vessels will reach US$45mil each, which leads to a minimal impact to the group's FY19F earnings and low net gearing level of 0.2x.

• MISC currently operates 29 LNG vessels with 3 on the spot market. Charter rates are currently buoyant due to tightening capacity amid the winter season as October daily spot rates surged 60% to US$146,250 from September, while 3-year time charters have risen 23% to US$85,750. For 2018 to date, 3-year time charters have increased 22% to US$71,388 from the 2017 average of US$58,369.

• Globally, 77 LNG vessels are expected to be delivered while 79 vessels will fall out of charter from 2019 until 2021. Nevertheless, the outlook for LNG charter rates are brightening on the back of rising electricity demand in Asia, Latin America and Africa.

• The stock currently trades at a fair FY19F EV/EBITDA of 8.6x, in line with AP Moller-Maersk, and supported by attractive dividend yields of 5%.

Source: AmInvest Research - 28 Nov 2018