Investment Highlights

• We maintain HOLD call on MISC with an unchanged sum-ofparts (SOP) based fair value of RM7.81/share, which implies an FY24F EV/EBITDA of 8.4x, slightly below its 3-year average of 9x (Exhibit 1). This reflects a 3% premium for our unchanged 4-star ESG rating (Exhibit 4).

• Chevron, in its capacity as the 51.7% shareholder and operator for Block B8/32 in the Gulf of Thailand, has confirmed that it is temporarily replacing MISC’s floating storage and offloading (FSO) vessel Benchamas 2 with another MISC vessel following a hull incident back in March 2023 which experienced a seal malfunction during maintenance works which caused a sea water breach.

• We gather that repair works for FSO Benchamas 2 may take up to 18 months for completion. The FSO has been performing passthrough operations to an offtake tanker since October 2023 after the safe removal of oil was completed in the previous month.

• The replacement storage vessel is MISC’s own FPSO Bunga Kertas which is undergoing repair works since its class was suspended by the American Bureau of Shipping (ABS) in February 2022 due to hull integrity issues. The vessel is expected to replace Benchamas 2 in 2Q2024, according to Chevron.

• FPSO Bunga Kertas was previously attached to the Abu, Abu Kecil, Bubu, North Lukut and Penara (AAKBNLP) and PM 318 production sharing contracts (PSC) offshore Peninsular Malaysia, then owned by Petronas Carigali and Jadestone Energy. The charter is expected to end sometime in 2024. We understand that Petronas had initially considered other plans for the FPSO including divestment or earlier decommissioning of 12 months ahead of schedule.

• Sources from Upstream have previously informed that the vessel may require extensive repairs and steel renewal works to bring it to a safe working state, particularly to Chevron’s standards and applicable regulations.

• Assuming FPSO Bunga Kertas is contracted at the same charter rates as a replacement storage tanker, we see the development as a neutral earnings impact as it provides temporary reprieve for the group. However, we remain cautious for now as we are cognizant over the capex that may be required for the repair works for FSO Benchamas 2. We currently already assume an expanded FY25F capex programme of RM4.4bil (+26% YoY), which could cover this additional expenditure.

• MISC appears fairly valued at a current FY24F EV/EBITDA of 8.9x, close to its 3-year average of 9x.

Source: AmInvest Research - 31 Jan 2024