We maintain HOLD on MISC with unchanged sum-of-parts (SOP) based fair value of RM7.79/share, which implies an FY23F EV/EBITDA of 8.7x, slightly lower than its 3-year average of 9x. It also reflects a premium of 3% for our unchanged 4-star ESG rating.
We deem MISC’s 1QFY23 core net profit (CNP) of RM689mil within expectation despite coming at 31%-32% of our FY23F earnings and street’s. This is premised on anticipation of a subsequent drop in petroleum tanker charter rates alongside lower seaborne crude shipping volume over the coming quarters on softening oil demand and production cutsby the Organisation of Petroleum Exporting Countries.
Thus, we keep our FY23F-FY25F unchanged. The group also declared an interim dividend of 7 sen/share, which is flat YoY.
YoY, 1QFY23 revenue grew by 7% underpinned by higher sales contributions from petroleum & product shipping operation amid higher petroleum tanker freight rates. This more than offset lower revenue from the offshore business segment on lower construction progress achieved for floating production storage and offloading (FPSO) Mero 3.
With the higher revenue, 1QFY23 CNP surged by a larger 84% YoY mainly backed by increased earnings from petroleum tankers operations. The offshore business also recorded higher earnings despite moderatingsegmentalrevenue due tolow-base effect as 1QFY22 was severely impacted by elevated construction costs for FPSO Mero 3 amid global supply chain disruption and lockdowns in China.
QoQ, 1QFY23 revenue was down by 26% mainly due to a sharp decline in contribution from the offshore business division on reduced construction revenue from FPSO Mero 3. In tandem with the decreased revenue, 1QFY23 CNP contracted by 26% on lower earnings from all key segments.
In particular, the offshore segment’s EBIT dropped by 47% QoQ due to lower construction earnings from Mero 3. Meanwhile, EBIT from petroleum & product shipping (-23% QoQ) as well as gas assets & solutions (-16% QoQ) segments have also declined, weighed down by lower freight rates and charter contract expiries.
The gas assets & solutions segment remained as the largest earnings contributor, accounting for 47% of 1QFY23 group EBIT, followed by the petroleum & products shipping solutions (38%) and offshore business (20%) segments.
We Attended An Analyst Briefing Yesterday With the Following Key Takeaways:
In 1QFY23, the petroleum & product shipping division’s average term-to-spot ratio (TSR) continued to improve QoQ to 84:16 from 77:23 in 4QFY22, supported by the TSR increases from 30:70 to 47:53 for VLCC, 92:8 to 96:4 for Aframax and 73:27 to 86:14 for Suezmax. Management also highlighted that the current average term exposure of its fleet exceeds its targeted range of 70%-80%, which guarantees a stable earnings stream despite giving up possible stronger earnings from future elevated spot freight rates.
The ongoing conversion of Mero 3 continues to progress as planned and has reached a completion stage of 85% as at the end of 1QFY23, up from 75% in 4QFY22. The floater is on track to be delivered to Petrobras in 2QFY24 and scheduled to commence charter in 2HFY24.
Management maintains its capex guidance of US$1bil for 2023 despite substantial cash proceeds to be received from Petronas Gas due to the US$234mil early settlement of capex hire fees payable (the outstanding lease receivables which were capitalised based on capex spent on vessels) for the remaining charter period of its 2 floating storage units at LNG Regasification Terminal Sungai Udang.
The group’s LNG carrier fleet has seen a vessel namely Puteri Delima Satu expired in January 2023, which partially contributed to lower earnings in 1QFY23. We also understand that another 2 vessels are expected to subsequently expire in 2023, followed by another 3 vessels in 2024.
The delivery of 2 new LNG carriers, namely Seri Damai and Seri Daya, to ExxonMobil’s wholly-owned SeaRiver Maritim is expected to partially make up for the earnings vacuum from upcoming LNG contract expiries.
MISC currently trades at a fair FY23F EV/EBITDA of 8.9x, close to its 3-year average of 9x.
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