Investment Highlights

• We maintain HOLD call on MISC with an unchanged fair value of RM7.79/share based on a sum-of-parts (SOP) valuation. Our fair value, which incorporates a 3% premium from our 4-star ESG rating, reflects a FY24E of 14.8x, below its 5-year average of 18.3x.

• Upstream reported that Thailand’s PTTEP initiated a pre-qualification process for floating production, storage and offloading (FPSO) suppliers as part of its evaluation towards future options for the deep-water Kikeh field development, located at Block K offshore Sabah. A tender is expected by 2024.

• This implies a replacement of the current charter contract for FPSO Kikeh, under a 51:49 JV by MISC and SBM Holdings, which runs up to Jan 2028. The current vessel has a production capacity of 120k barrels of oil per day (bopd) and a total storage capacity of 2mil barrels of oil (mmbbls).

• Upstream cites that industry sources have suggested for a replacement as the age of the vessel will reach 50 years by 2024. In 2Q2023, PTTEP reported that the Kikeh field encountered operational issues and was suspended for 1.5 months for inspection of the vessel. Subsequently, the operation was restored and production was accelerated to planned levels.

• Additionally, the replacement is also expected to be a smaller vessel due to a lesser production capacity of 40k-46k bopd given the maturing of the development which would imply a potential decline in production.

• Companies suggested to be up for the job include MISC, Yinson, Bumi Armada and MTC Group. Given Petronas’s equity stake of 51% in MISC and the group’s experience with the Kikeh field since the inception of the charter contract in 2007, we opine that MISC has a strong chance to win the replacement charter contract if it were to happen.

• Assuming the current charter contract is not renewed upon expiry and MISC were to win the replacement contract, we estimate this could accrete a slight +1.2% to MISC’s SOP based on a capex assumption of US$500mil, project IRR of 12%, WACC of 7.6% and 60:40 debt-to-equity structure.

• MISC currently trades at a fair FY24F PE of 13.3x, 25% below its 5-year average of 18.3x given the weaker global economic outlook next year.

Source: AmInvest Research - 4 Oct 2023