Investment Highlights

• We maintain BUY on MISC with an unchanged sum-of-parts-based fair value of RM7.75/share, which reflects a premium of 3% from our 4-star ESG rating. This also implies an FY22F EV/EBITDA of 8x, 1 standard deviation below to its 3-year average of 9x.

• Pending analyst briefing later, we have fine-tuned FY22F–FY23F earnings as MISC’s FY21 core net profit of RM1,761mil (-18% YoY), excluding net disposal gains of RM54mil and unrealised forex gain of RM16mil, was largely within our and market expectations.

• Also as expected, MISC declared a final dividend of 12 sen (unchanged YoY), which translates to a flattish FY21 DPS of 33 sen. We introduce FY24F earnings with a mild growth of 7% premised on a conservative 3% rise in petroleum tanker rates.

• The group’s 4QFY21 core net profit increased by a mild 6% QoQ to RM442mil mainly from higher JV contributions driven by escalated charter rates. However, this was partially offset by lower lease-accounting recognition for engineering, procurement and construction margins for the US$2bil Mero 3 floating production, storage and offloading (FPSO) (to be renamed Marechal Duque de Caxias) project in the offshore business segment together with additional cost provisions in the heavy engineering division.

• 4QFY21 tanker spot rates substantively improved QoQ with Aframax tankers surging 3.1x to US$13K/day, Suezmax 2.4x to US$11K/day and very large crude carrier (VLCC) 75% to US$3.8K/day. Hence, MISC’s petroleum tanker business managed to turn around from a 3QFY21 loss of RM8mil to a 4QFY21 operating profit of RM43mil in tandem with a 9% revenue increase, driven mainly by a sharp improvement in charter rates.

• Liquefied natural gas (LNG) operating profit, which contributed 54% of FY21 group operating profit, rose 9% QoQ to RM314mil on a 3% revenue expansion in 4QFY21.

• The offshore segment’s 4QFY21 operating profit fell 44% QoQ to RM136mil mainly from lower margin recognition of the Mero 3 FPSO construction-cycle, expected to be delivered in 2H2024. The worst performing division continued to be the heavy engineering segment with 4QFY21 loss escalating by 5.2x QoQ to RM104mil from higher cost provisions. The marine repair business continued to be impacted by customers shifting to Singapore which has less stringent Covid-19 border restrictions.

• Going forward, we expect modest improvement to petroleum tanker rates as OPEC+ plans to raise production levels, which are 700–800K barrels/day below agreed quotas currently. Additionally, MISC’s spot-to-term charter mix has improved from 32% in 3Q2021 to 29% currently. Together with the delivery of 6 dynamic positioning shuttle tankers and 2 VLCCs this year, this is expected to support FY22F earnings growth prospects.

• MISC currently trades at an attractive FY22F EV/EBITDA of 8x – 1 standard deviations below its 3-year average of 9x.

Source: AmInvest Research - 17 Feb 2022