Investment Highlights

• We maintain our BUY recommendation on MISC with unchanged forecasts and sum-of-parts derived fair value of RM9.75/share, which implies an FY19F EV/EBITDA of 10x, at parity to its 2-year average of 10x and with AP Moller-Maersk.

• MISC has secured charters worth US$526mil (RM2.2bil) for 3 additional new Suezmax-sized DP (Dynamic Positioning) 2 shuttle tankers from Petrobras of Rio de Janeiro (Petrobras), commencing in 2022.

• These 3 new vessels will join 6 new DP2 shuttle tankers which were earlier contracted by Petrobras, of which 1 was already delivered while another 5 are scheduled later this year.

• Recall that in May 2018, MISC secured 10-year charters worth US$645mil for 4 DP2 Suezmax-sized shuttle tankers for Petrobras, translating to a daily charter rate of US$44K. Based on MISC’s schedule of vessel deliveries, 3 shuttle tankers are expected in 1H2020 and another 3 in 2H2020.

• While the announcement on Bursa Malaysia did not reveal the tenure of the new charters, we estimate the daily rate for the 3 new vessels at US$48K based on a similar 10-year tenure as the earlier contracts.

• This translates to a decent increase of 9% over a 2-year period, which is a premium of 49% above the 2019 average for Suezmax daily spot charter rates.

• Nevertheless, the December spot rates for Suezmax vessels are currently much higher seasonally at US$71K, up 40% month-on-month.

• Nevertheless, tanker rates have generally improved YoY with daily charter rates for Suezmax vessels, rising 69% vs. VLCC, soaring 2.3x to US$95K and Aframax up 52% to US$67K, even though the winter season in the northern hemisphere appears to be relatively mild.

• Even though currently 40% of MISC’s 65 existing petroleum vessels are on spot charters, we estimate that a 10% increase in average charter rates could raise MISC’s FY20F earnings by 9%.

• Given the improved petroleum charter rate outlook amid rising offshore activities globally, the stock currently trades at an undemanding FY20F EV/EBITDA of 9x – below its 2- year average of 10x and further supported by good dividend yields of 4%.

Source: AmInvest Research - 6 Feb 2020