Investment Highlights

• We maintain our HOLD rating on MISC with an unchanged sumof-parts based fair value of RM8.50/share which implies an FY21F EV/EBITDA of 9x, at parity to its 2-year average
• Following an analyst briefing yesterday, our forecasts are maintained. These are the briefing’s salient highlights:
  • While drydocking activities this year were half of 2019 levels, the liquefied natural gas (LNG) segment’s earnings fell 32% QoQ to RM239mil from reduced charter days due to the Covid-19 lockdown which curtailed utilisation rates.
  • Even though management aims to reduce exposure to spot rates, the proportion of spot to term charter for the petroleum and chemical division instead rose to 35:65 in 3QFY20 from 24:76 in 2QFY20 due to reduced lightering activities in North America against the backdrop of constrained utilisation levels of refineries given the depressed economic outlook.
  • The proportion of MISC’s Aframax on spot is currently 51%, Suezmax 19% and very large crude carriers (VLCC) 9%.
  • Similar to our view, management does not expect the winter season in the northern hemisphere to substantively spur tankage demand as in the previous cycles given the current glut. Nevertheless, the possibility of a severe winter could brighten prospects by ramping up short-term demand.
  • Interest charges have fallen by 23% QoQ to RM78mil notwithstanding flattish QoQ gross debt at RM13bil due to the sharp drop in LIBOR rates to 0.2% currently from 1.45% in March this year.
  • As mentioned in our update on 14 October, the VLCC Bunga Kasturi Dua has been selected for conversion into Petrobras’ US$2bil Mero floating production, storage and offloading (FPSO) vessel. However, the sale by AET for this conversion is an internal transfer that did not generate any gains or losses to the group.
  • As MISC made a slight provision of US$2mil for the FPSO vessel Angi following its contract expiry in December last year, management does not expect any further large impairments in 4QFY20. Recall that the group has made 9MFY20 provisions of RM2.3bil, largely for the legal set-back of the Gumusut Kakap semi-floating production system, which is likely to be dragged out in the courts over the next 2–3 years.
  • MISC reported a 9MFY20 loss of RM599mil (including noncash impairments) but still declared a dividend of 21 sen to date. We expect the group to maintain FY19 dividend of 33 sen, which translates to a 4QFY21 DPS of 12 sen.
• The stock currently trades at a fair FY21F EV/EBITDA of 8x - 1 standard deviation below its 3-year average of 9x.

Source: AmInvest Research - 18 Nov 2020