Investment Highlights

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

• According to Upstream, MISC is in advanced talks with various Chinese financial entities and investors to partially divest equity in its Merechal Duque de Caxias floating producing storage and offloading vessel (Mero 3) to be stationed at Brazil’s Mero field in the Santos Basin.

• A consortium, led by China Merchants Financial Leasing, is focused on acquiring a portfolio of FPSO assets in key countries, including Brazil and Guyana, that are linked to sizeable reserves and operated by companies with strong credibility and financial stability. Members include CNIC Corporation Limited, Siyuan Investment, China-Portugese Speaking Countries Cooperation and Development Fund.

• Sources indicate discussions are currently centered on financial and commercial terms. The investment is contingent on successful start of operations at the Mero oil fields later this year. Recall that the FPSO has commenced sail away in mid-February with the scheduled start date sometime in August 2024.

• We see this as a step in the right direction as it allows MISC to partially monetise its investment and improve the internal rate of return (IRR) for the project, estimated to be at a relatively low level of 8.3%, 300-400bps lower than the typical guidance of low-teens by its peers. Additionally, this would also lower the risk profile and strengthen the balance sheet of MISC’s FPSO business segment.

• According to our current NPV of RM1.8bil for the FPSO, the 30% stake is equivalent to an indicative disposal value of RM549.7mil – 4% of MISC’s FY24F net debt of RM14bil.

• Moving forward, we believe MISC will take a more cautious approach to the subsector despite the strong demand environment as the value chain remains constrained due to the lack of capacity at shipbuilding yards. We gather from management that it will bid for tenders that are more commercially viable and jointly with strong partners.

• MISC currently trades at a fair FY24F EV/EBITDA of 8.9x, close to its 3-year average of 9x.

Source: AmInvest Research - 21 Feb 2024