Overview. MISC 3Q21 core profit declined 33% qoq mainly due to the absence of the one-off gain from contract renegotiation in Petroleum segment. Revenue, however, still grew by 14% contributed by new operating VLEC vessels as well as construction progress of Mero 3 FPSO (offshore segment) and Kasawari CPP projects (heavy engineering segment). On yoy basis, 9MFY21 core profit declined by 13%, dragged by weak Petroleum segment as tanker rate was impacted by OPEC+ production cut.

Key highlights. MISC chartered-in 2 aframaxes in the quarter (i.e. Pacific Ruby and Nave Atropos). This increased the number of operated Petroleum vessels to 61 (2Q21: 59). Meanwhile, its spot vessels rose to 32% (2Q21: 28%) in the portfolio mix due to less volume from its lightering services offered in the US Gulf.

Against estimates: Inline. 9MFY21 core profit was within our estimate at 73% but ahead of consensus’ at 84%.

Dividend. A 3 rd interim DPS of 7 sen was declared which is similar to 3Q20 DPS. This brings total 9M21 DPS to 21 sen which implies a payout ratio of 64%.

Outlook. Tanker rate is expected to continue to improve on the back of stronger oil demand as vaccination in emerging markets catch up with developed nations. Earnings will also be supported by delivery of 13 new vessels (6 DPSTs, 5 VLCCs and 2 LNG carriers) up until 2023.

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

Source: BIMB Securities Research - 19 Nov 2021