Investment Highlights

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

• We maintain our earnings forecasts following an engagement session with MISC’s newly appointed president/CEO Captain Rajalingam Subramaniam last Friday. These are the key takeaways:
  • Management affirms that its current catch-up plan for the Mero 3 floating, production, storage and offloading (FPSO) vessel is progressing well, with the conversion works on track to be completed in 2H2024 after accounting for a 6- month delay. The delay was due to Covid-19 restrictions in China and global supply chain disruptions.
  • To mitigate future delays, the group will be taking preemptive measures, which would involve switching shipyards when the current contractor CIMC Raffles completes its works in July 2023. MISC is also in talks with other shipbuilders to secure their yards for the vessel’s precommissioning works.
  • As for the Petrobas project, MISC is still negotiating to waive liquidated damages and penalties due to the delayed delivery of the FPSO.
  • Management also guided that the potential stake divestment for Mero 3 will only materialize when the vessel commences charter in late-2024.
  • In the offshore division, MISC is focusing on the timely delivery of Mero 3. Hence, the group will be cautious on bidding for future projects. MISC is also exploring options to develop floating carbon storage units as it sees enormous growth opportunities in the carbon capture and storage space. The offshore business division accounted for 18% of 9MFY22 group EBIT.
  • Despite shrinking fleet size in the petroleum shipping operations, management expects the segment’s near-term growth to be resilient backed by improved asset quality and the recent surge in tanker freight rates.
  • MISC intends to maintain the current spot exposure level for its petroleum tankers even though tanker rates are rising. The average term-to-spot ratio of the petroleum & product shipping division was stable at 72:28 in 3QFY22. This is close to management’s targeted 20% spot exposure threshold.
• MISC Currently Trades at a Compelling FY23F EV/EBITDA of 8x, 11% Below Its 3-year Average of 9x.

Source: AmInvest Research - 19 Dec 2022