Investment Highlights

• We maintain BUY on MISC with a lowered sum-of-parts-based fair value of RM7.75/share (from RM8.50/share), which reflects a premium of 3% from our 4-star ESG rating. This also implies an FY21F EV/EBITDA of 9x, at parity to its 2-year average.

• While awaiting an analyst briefing later today, we have cut MISC’s FY21F–FY23F earnings by 4%–16% on lower charter rate assumptions for the petroleum division given the ongoing soft demand for very large crude carriers (VLCC).

• The group’s 1QFY21 core net profit of RM434mil, excluding net impairments of RM24mil and unrealised forex gains of RM20mil, came in below expectations, accounting for 20% of our FY21F net profit and 22% of consensus. As a comparison, 1Q accounted for a higher range of 24%–36% of FY18–FY20 core net profit. The group declared a first interim dividend of 7 sen (flat YoY), which was within our expectations.

• The group’s 1QFY21 core net profit fell by 12% QoQ mainly due to the absence of a one-time gain, which materialised in 4QFY20 from a 5-year charter extension for MISC’s 49%-owned floating production, storage and offloading (FPSO) vessel Espirito Santo in the BC-10 field, Campos Basin off Brazil.

• The liquefied natural gas (LNG) segment, which accounted for 52% of 1QFY21 operating profit, registered a 27% QoQ rise to RM301mil from higher chartering days. Likewise, the petroleum segment registered a turnaround, rebounding to a 1QFY21 operating profit of RM34mil from a 4QFY20 loss of RM78mil due to higher blended charter rates and vessel utilization.

• The offshore segment’s 1QFY21 operating profit rose 39% QoQ to RM239mil from lumpy construction gains from the US$2bil Mero-3 FPSO (to be renamed Marechal Duque de Caxias). The worst performing division was heavy engineering which plunged to a 1QFY21 loss of RM102mil on reduced ongoing projects and marine repair & maintenance jobs during the prolonged winter season, together with additional cost provisions for a delayed project completion.

• Following the wintering season, VLCC spot rates dropped 91% QoQ amid persistent weak demand. However, Aframax spot rates surged 3.6x QoQ to US$19,612/day while Suezmas climbed 83% QoQ to US$12,098/day due to a temporary blockage by the Evergreen container vessel at the Suez Canal.

• Looking forward, the gradual easing of Opec+ quotas from May–July 2021 and gradual rollouts of Covid-19 vaccinations towards the second half of the year offer brighter prospects for the petroleum segment. Together with the upcoming delivery of 2 LNG carriers, 5 VLEC and 2 DPST this year, these underpin our FY22F earnings growth expectations. MISC currently trades at a fair FY21F EV/EBITDA of 8x – 1 standard deviation below its 3-year average of 9x.

Source: AmInvest Research - 6 May 2021