Investment Highlights

• We maintain our HOLD call on MISC with a slightly higher fair value of RM7.81/share (from an earlier RM7.79) based on a sum-of-parts (SOP) valuation (Exhibit 2). Our fair value, which incorporates a 3% premium from our unchanged 4-star ESG rating, reflects a FY24E of 14.8x, at 1 SD below its 5-year average of 18.3x.

• The higher SOP stems from increased net present value contribution from the offshore segment due to the inclusion of charter revenues from a floating storage unit (FSU) for Pengerang LNG (Two) (PLNG2) that is expected to commence commercial operations by 2Q2025. Hence, we also raise FY25F earnings by 0.7%.

• MISC has entered into a binding Heads of Agreement (HoA) with Petronas Gas’ 65%-owned PLNG2 for the supply, operation and maintenance of a Liquefied Natural Gas (LNG) FSU which will be deployed at the Petronas LNG Regasification Terminal Pengerang (RGTP) in Johor.

• The charter, which is worth up to a sum of US$213.7mil (RM1.02bil) for a period of 20 years, will involve the conversion of MISC’s LNG carrier Puteri Delima Satu (Exhibit 1), which has a capacity of 137.5k-cubic meter (m3) and is currently in lay-up. Upon completion, the FSU will be deployed at the RGTP in Johor.

• The group reports that the FSU is designed to receive shore power to reduce emissions while improving the operational efficiency of PLNG2.

• We gather that the cost of conversion for a large LNG carrier benchmark at 174k m3 to a FSU was about US$100mil to US$150mil in 2022, according to a report by the Korean Economic Daily.

• We estimate that the contract would provide an incremental SOP of +0.2% to MISC, based on a capex assumption of US$100mil, project IRR of 8.0%, WACC of 7.0% and a 70:30 debt-to-equity structure.

• MISC currently trades at a fair FY24F PE of 13.6x, 26% below its 5-year average of 18.3x given a weaker global economic outlook next year

Source: AmInvest Research - 1 Nov 2023