MISC 1Q23 core PATAMI grew 92% YoY to RM688mn mainly boosted by a sustained strength in petroleum tanker rate. Earnings declined by 24% on QoQ basis however hampered by weaker construction gains from FPSO Mero 3 project as well as some weakness in earnings from LNG and Petroleum segments. Overall, 1Q23 earnings was still within our estimate at 29% of full year forecast but it came ahead of consensus forecast at 31%. We expect MISC to continue benefitting from elevated tanker rate as tanker orderbook-to-total fleet ratio has fallen to a record-low of 2.5%, indicating potential supply constraint over the next 2 years. Hence, we maintain our BUY call on MISC with unchanged TP RM8.00. Muted response from the market towards rising tanker rate offers great trading opportunity to the accumulate the stock.

• Within expectation. 3M23 core earnings of RM688mn was in line with our estimate at 29% but ahead of consensus’ forecast at 31%.

• Dividend. A 1 st interim DPS of 7 sen was declared, similar to 1Q22 DPS. This implies a payout ratio of 50%.

• QoQ. Core earnings declined by 24% to RM688mn as revenue dropped by 26% to RM3.1bn. This is mainly due to weaker Offshore segment. The segment revenue plunged by 62% to RM584mn whereas profit was almost halved to RM166mn. The weakness was due to slower progress of FPSO Mero 3 construction. The FPSO remains on track for delivery by 1H24.

• YoY. Revenue rose by 7.4% mainly driven by stronger petroleum tanker segment. The segment revenue rose 37% to RM1.2bn from RM887mn whereas operating profits soared to RM312mn from RM32mn.

• Outlook. We expect earnings to remain robust in coming quarters to be driven by escalating petroleum tanker rates. In medium term, earnings will be boosted by the commencement of FPSO Mero 3 lease charter which is set to begin in early FY25. The construction progress of the vessel has reached 85% physical completion and it is on-track for delivery in mid-2024.

• Our call. We maintain our BUY call on MISC with unchanged SOP-derived of RM8.00 which implies 1x FY23 P/B (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 5%.

Source: BIMB Securities Research - 25 May 2023