Investment Highlights

• We downgrade MISC to HOLD from BUY as the share price h appreciated to our unchanged sum-of-parts based fair va (FV) of RM8.60/share, which implies a FY24F EV/EBITDA of 8. broadly at par to its 5-year average of 9x .

• The group’s 1QFY24 core net profit of RM669.6mil was ahead expectations at 28% of our earnings forecast and 29% of stree For reference, the 1Q had accounted for 24% of earnings average in the past 3 years.

• We raise our earnings forecast for FY24F-FY25F by 10-13’% account for stronger earnings contribution from the Marine Heavy Engineering (MHE) segment due to our improved outlo for the sector with the phasing out of legacy contracts.

• The group declared a first interim dividend per share (DPS) 17 sen, which translates to a payout of 47% - in-line with historical trends. Moving forward we expect the group maintain DPS at current levels, broadly in line with its histori trend.

• YoY, MISC 1QFY24 revenue rose by 18% driven primarily by MHE segment which saw good progress from ongoing projec This had offset lower EPCC revenues from FPSO Mero 3 wh is nearing tail-end of its construction phase. However, 1QFY CNP was flattish at +1.5%, as operating margins compressed 2.

• QoQ, the group’s 1QFY24 revenue declined by 15% due a bro based decline, weighed mostly by the offshore segment wh saw lower EPCC recognition from FPSO Mero 3 (which is in-l with expectations). Nevertheless, 1QFY24 CNP was mo neutral as it remained flattish yet again supported by strong operating margins at +3.8pts as the MHE continued its recov momentum and a lower effective tax rate of 2.2% (from 5.

• Salient highlights from the analyst briefing:
  
  ➢ The group reports accounting recognition progress of 9 for FPSO Mero 3. Recall the vessel has sailed away voyage the client’s oilfield in mid-February. Management updates t the vessel has received provisional acceptance and will followed by the hook-up and commissioning process over next 2 months. Target first oil remains in 3QFY24.
  
  ➢ The group’s term-to-spot ratio during the quarter for Petroleum segment stood at 90:10, whilst for the Gas segm is at 80:20.

• Guidance from management indicates that shipping industry outlook will see broad-based strength in the near- term, as follows:
  
  ➢ Prospects for liquefied natural gas (LNG) shipping will remain positive, driven by demand growth in Asia. Global liquefaction capacity is expected to increase in 2024 with final investment decision (FID) for LNG facilities amounting to 150-200 metric tonne per annum (mtpa).
  
  ➢ The petroleum shipping market is expected to benefit from strong Atlantic exports and increased crude imports to Asia. However, a tight tonnage supply environment over the next 2 years (up to 2025) will support high spot rates.
  
  ➢ The offshore segment continues to see an uptrend in the global FPSO market, driven primarily by projects in Latin America and Asia-Pacific, backed by a 6.5% increase in global offshore exploration and production capex in 2024.
   
• MISC appears to be fairly valued at FY24F EV/EBITDA of 8.6x, close to its 5-year average of 9x.

Source: AmInvest Research - 31 May 2024