Investment Highlights

• We reiterate BUY on MISC with a higher sum-of-parts (SOP) based fair value of RM8.11/share (from RM7.99/share previously), which also reflects a premium of 3% for our unchanged 4-star ESG rating. Our FV also implies an FY23F EV/EBITDA of 9x, at parity to its 3-year average of 9x.

• Pending an analyst briefing later today, we raise our FY22FFY23F earnings by 4-5% to account for stronger earnings from the petroleum & product shipping segment amid improved tanker freight rates.

• MISC’s 9MFY22 core net profit (CNP) of RM1,446mil (stripping off RM6mil gains on disposal of ships and RM7mil write-back of impairment loss on receivables) came in above expectations at 87% of our FY22F net profit and 92% of consensus forecasts. To put into perspective, 9H accounted for 77-81% of FY19-21 full-year CNP.

• The group declared a third interim dividend of 7 sen, bringing 9MFY22 dividend per share to 21 sen (flat YoY).

• YoY, the group’s 9MFY22 revenue rose by 28% YoY to RM9.7bil on the back of higher freight rates in the petroleum & product shipping segment’s mid-sized tankers as well as higher progress billings from the conversion of floating, production, storage and offloading vessel (FPSO) Mero 3. However, despite the higher revenue, 9MFY22 CNP was relatively flattish as a result of:
  i. lower earnings from the offshore business on margin compression amid increased construction costs of Mero 3, which offset stronger EBIT performance from all other segments (particularly the petroleum & product shipping operations which surged by 2.6x YoY on strengthened freight rates);
  ii. lower share of profit from joint venture companies;
  iii. and higher finance costs.

• QoQ, MISC’s 3QFY22 CNP skyrocketed 3x YoY to RM796mil in tandem with a 34% increase in revenue to RM3.6bil, mainly stemming from exceptionally better earning contributions from the petroleum & product shipping segment (partially aided by and an US$1mil one-off compensation for a charter renegotiation) and offshore business, with both segments registering an EBIT acceleration of 4x QoQ.

• For the offshore business segment, the stronger QoQ performance was also due to low base effect as its 2QFY22 earnings were severely impacted by cost provisions for the Mero 3 project amid increased construction costs arising from global supply chain disruptions and recent lockdowns in parts of China.

• The petroleum & product shipping segment became the primary earnings contributor at 46% of 3QFY22 group EBIT, followed by the gas assets & solutions (34%) and offshore business (18%) segments.

• The near-to-medium term outlook for MISC remains promising given the group’s fleet expansion plans backed by improved spot rates in LNG and petroleum tankers as well as healthy demand for FPSOs amid elevated oil prices, with gas assets and solutions enjoying a robust EBIT margin of 47% in 9MFY22.

• MISC currently trades at a compelling FY23F EV/EBITDA of 8x, 11% below its 3-year average of 9x.

Source: AmInvest Research - 17 Nov 2022