Investment Highlights

• We maintain BUY on MISC with a slightly higher sum-of-parts based fair value (FV) of RM7.99/share (from RM7.95/share previously) after raising the gas assets and solutions segment’s valuation with the latest long-term LNG time charter award. Our FV also reflects a premium of 3% for our unchanged 4-star ESG rating.

• Our FV implies an FY23F EV/EBITDA of 10x, 0.5 standard deviation above its 3-year average of 9x.

• MISC have secured time charter contracts with Exxon Mobil Corporation’s wholly-owned SeaRiver Maritime LLC. (SeaRiver) for 2 newbuild liquefied natural gas (LNG) carriers to operate in international waters.

• These 174K cubic meters LNG carriers, which are slated to commence operations in 2026, will be chartered to SeaRiver for a 10-year firm period. MISC also secured a reputable shipbuilder for the construction of these vessels in South Korea’s yard.

• This award marks closer ties between MISC and Exxon Mobil, bringing the total number of contracts with the oil supermajor to 4 vessels. Recall that back in October 2019, MISC had secured 15-year time charter contracts with SeaRiver for 2 LNG carriers with an estimated contract value of US$711mil, which are scheduled to be delivered by 1QFY23.

• We also gather that these vessels will be equipped with ecoefficient technologies such as X-DF 2.1 engines with intelligent control by exhaust recycling (iCER) and air lubrication systems which will lead to lower carbon footprints, in line with the group’s goal to achieve net-zero carbon emissions by 2050.

• Assuming a time charter rate of US$90K/day, newbuild LNG carrier price of US$220mil per vessel, 50:50 debt-equity financing ratio, as well as a conservative project IRR of 8%, we estimate that these long-term time charter contracts could add 4% to FY26F earnings and 1% to its SOP, while raising its FY24F net gearing ratio of 13% currently to a still comfortable 18%. As the new LNG contributions will only materialise after 3 years, we maintain FY22F-FY24F earnings.

• All in, we are positive on this charter award that again highlights the robust outlook within MISC’s gas assets and solutions segment, which accounted for 74% of 1HFY22 group operating profit. As at end-2QFY22, the group owns and runs a fleet of 30 LNG carriers while expecting the delivery of 2 newbuild units by 1QFY23.

• We are also bullish on the near-term outlook for the LNG segment with elevated spot and time charter rates on the back of tight supply of vessels on the market as well seasonally stronger demand for LNG ahead of winter. MISC currently trades at a compelling FY23F EV/EBITDA of 8x, 11% below its 3- year average of 9x, while offering decent dividend yield of 5%.

Source: AmInvest Research - 3 Oct 2022