Investment Highlights

• We maintain BUY on MISC with an unchanged sum-of-parts based fair value (FV) of RM7.99/share, which 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’s 25%-owned consortium with Nippon Yusen Kabushiki Kaisha, Kawasaki Kisen Kaisha and China LNG Shipping has secured long-term time charter contracts from QatarEnergy for 5 units of newbuild liquefied natural gas (LNG) carriers with capacities of 174K cubic meters. These vessels, which will be built by Hudong-Zhonghua Shipbuilding, are slated to commence charters from 2025 onwards.

• This is the consortium’s second round of contract awards by QatarEnergy this year, after a similar contract win of 7 newbuild LNG carriers back in August this year. This is against the backdrop of Qatar’s ambitious North Field LNG expansion, which aims to significantly boost the emirates’ LNG production capacity from the current 77 million tonnes per annum (mtpa) to 126 mtpa by 2027.

• Based on our assumptions of time charter rates of US$100K/day, newbuild LNG carrier price of US$220mil per vessel, 50:50 debt-equity financing ratio, as well as a conservative project IRR of 10%, we estimate that these longterm time charter contracts could slightly add 2% to FY26F earnings and 1% to its SOP given MISC’s huge asset base.

• These capex will raise its FY24F net gearing ratio of 18% currently to a still comfortable 19%. As these new LNG carriers will only start making contributions from 2025 onwards, we maintain FY22F-FY24F earnings.

• All in, we are positive on these charter awards which would help broaden the recurring income base within its gas assets & solutions segment (which account 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 vessels by 1QFY23.

• We expect the company’s 3QFY22 results, which are scheduled to be announced on 18 November 2022, to record QoQ earnings improvement, buoyed by better performance from the gas assets & solutions and petroleum & product shipping segments on the back of higher daily charter rates.

• We remain positive on the near-term outlook for LNG shipping operations given increased spot and time charter rates amid a tight supply of vessels on the market as well as seasonally stronger demand for LNG ahead of the winter cycle.

• MISC currently trades at an undemanding FY23F EV/EBITDA of 8x, 11% below its 3-year average of 9x, while offering decent dividend yield of 5%.

Source: AmInvest Research - 4 Nov 2022