• Overview. MISC 3Q22 core PATAMI grew by 193% QoQ and 93% YoY to RM797mn mainly buoyed by strong earnings from Petroleum tanker segment as well as weaker Ringgit against US dollar. The Petroleum segment’s operating profit rose sharply to RM470mn (2Q22: RM115mn). This is on the back of (i) compensation for contract renegotiation amounting to RM241mn and (ii) rising average tanker rate which benefitted from the reshuffling of oil trade amidst EU’s ban on Russian imports.

• Key highlights. The number of its operated Petroleum vessels stands at 58 vessels with exposure to spot market maintained at 28% of the portfolio mix. The company also recently secured another 5 newbuild LNG vessels contract from QatarEnergy, under a consortium with Nippon Yusen, Kawasaki Kisen and China LNG Shipping. This brings to a total of 12 newbuilding LNG carriers awarded by QatarEnergy to the consortium.

• Against estimates: Inline. 9M22 core earnings of RM1.4bn is largely comparable to 9M21. This is in line with our estimate or at 71% but ahead of consensus’ forecast at 89%.

• Dividend. A 3 rd interim DPS of 7 sen was declared which is similar to 3Q21 DPS. This brings YTD DPS to 21sen which implies a payout ratio of 65%.

• Outlook. Earnings outlook remain favourable in 4Q22 with (i) rising Petroleum tanker rate, (ii) weaker Ringgit, (iii) steady construction profit recognition from FPSO Mero 3 project and (iv) recurring income from LNG vessel long-term time charter.

• Our call. We maintain our BUY call on MISC with unchanged SOP-derived of RM7.85 which implies 1x FY23 P/B (see Table 3) which offers a potential return of c.14%. 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 5%.

Source: BIMB Securities Research - 21 Nov 2022