• Overview. MISC 1Q22 core PATAMI declined 21% qoq and 18% yoy to RM358m mainly due to higher finance cost as well as lower income from JV company. Recall that JV income was high in 4Q21 due to contract extension of FPSO Kikeh. At EBIT level, however, earnings improved 33% qoq and 12% yoy to RM489m due to (i) better earnings from its LNG segment, and (ii) lower loss at MMHE due to cost provision made in prior quarter. This is partially offset by higher construction cost for FPSO Mero 3 due to China’s lockdown, causing a 3-month delay as compared to initial schedule.

• Key highlights. The number of its operated Petroleum vessels declined to 58 (4Q21: 59 vessels). It took delivery 3 DPST vessels (Eagle Campos, Eagle Canoas and Eagle Colatina) and 1 VLCC (Eagle Valence) while it disposed 1 aframaxes (Bunga Kelana 9) and re-delivered 3 LR2 vessels and 1 Chemical vessel. Overall, exposure to spot market increased to 35% (4Q21: 29%) of the portfolio mix.

• Against estimates: Inline. 1Q22 core earnings made up 17% and 18% of ours and consensus’ forecast respectively. We deem this as within forecast as we expect stronger earnings in coming quarters.

• Dividend. A 1 st interim DPS of 7 sen was declared which is similar to 1Q21 DPS. This implies a payout ratio of 87.5%.

• Outlook. The company is expecting another 3 DPST and 1 VLCC for the remainder of the year. This, coupled with higher exposure to stronger spot charter rate in Aframax and Suezmax, will contribute to stronger earnings in coming quarters.

• 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 - 27 May 2022