• Overview. MISC 1Q21 core profit declined by 44% yoy to RM438m mainly dragged by softer Petroleum tanker rate (refer Chart 1-3) and cost provision made by MMHE segment for the delay in Bokor CPP project. Revenue was largely flattish at RM2.5bn as lower revenue from Petroleum segment was offset by FPSO Mero 3 construction. On qoq basis, core profits eased by 9% due to the weaker JV contribution, which was boosted by FPSO Espirito Santo’s 5 years contract extension by Shell Brazil in previous quarter.
   
• Key highlights. In Petroleum segment, MISC took delivery of Eagle Pillar DPST vessel while re-delivered 2 VLCC (Eagle Vermont and Eagle Virginia) and disposed 1 Aframax (Eagle Tampa). This reduced the number of operated vessels to 64 (4Q20: 66). It also reduced the spot charter contracts in the portfolio mix to 33% (4Q20: 35%), which is in tandem with its long-term strategy to favour term charter contracts. In Offshore segment, it sold two unutilised assets i.e. MOPU SATU and MOPU DUA.

• Against estimates: Below. 3MFY21 profit lagged our estimate at 17% but within consensus’ estimate at 22%. The deviation against our forecast was mainly due to our optimistic view in recovery of tanker rate. We cut our FY21-23F earnings by 23-28% (Table 4) to account for lower tanker rate assumption as well as the changes made to MMHE’s earnings forecast due to Jerun EPCIC project award.

• Dividend. A 1st interim DPS of 7 sen was declared which is similar to 1Q20 DPS. This implies a payout ratio of 70%.

• Our call. Maintain our BUY call on MISC with lower SOP-derived TP of RM8.10 (from RM8.40) (see Table 3). We favour MISC due to (i) proxy for growth in frontier oil and gas development projects, (ii) recurring income from its asset-leasing business model and (iii) above-market dividend yield of c.5%.

Source: BIMB Securities Research - 6 May 2021