• MISC plans to convert Puteri Delima Satu LNG carrier into an FSU that will be operating for Petgas’ Pengerang LNG Regas Terminal (RGT). The vessel is expected to be chartered for 20 years until 2045 for a total contract value of USD213.8mn.

• We estimate minimal impact to bottomline at RM10-15mn or 1% to MISC annual profit. Nonetheless, its MMHE unit could also benefit from the conversion works given its past experience in converting MISC FSU Tenaga Satu back in 2011.

• On a side note, we observed that the benchmark for Petroleum tanker rate is rebounding by more than 60% following the IsraelHamas conflict. We believe this will sustain its Petroleum segment profit as well as boosting the sentiment over the stock.

• Maintain our BUY call on MISC with a higher SOP-derived TP of RM10.10 which implies 17x FY24F P/E.

Converting Puteri Delima Satu LNG Carrier into Pengerang FSU

MISC announced that it has entered into a binding heads of agreement for provision of supply, operation and maintenance of floating storage unit (FSU) with Petgas’ Pengerang LNG (Two) Sdn Bhd for a contract value of up to USD213.7mn. The charter period is for 20 years beginning from 2025. The company plans to convert its Puteri Delima Satu LNG carrier which already completed her long-term charter in early 2023 into the FSU.

Minimal Earnings Contribution

We are neutral on the announcement as we estimate minimal impact to annual profit at RM10-15mn or c.1%. Nonetheless, MMHE (MISC’s another subsidiary) could also benefit from the conversion works given that it has completed similar works for MISC’s FSU Tenaga Satu (later renamed as FSU Lekas 1) back in 2011.

Petroleum Tanker Rate is Rebounding Since Israel-Hamas Conflict

In near term, we remain optimistic with MISC’s earnings outlook amidst prevailing elevated petroleum tanker rate. This is further bolstered by risk-aversion due to Israel-Hamas conflict. Note that Baltic Dirty Tanker Index has risen by more than 60% to 1,450 points since the war erupted on 7th Oct 2023 (Chart 1).

Maintain BUY with higher TP RM10.10

We reiterate our BUY call on MISC with higher SOP-derived of TP of RM10.10 (from RM10.00) (see Table 1). We foresee multiple key rerating catalysts on the stock coming from (i) new upcycle in tanker rate, (ii) new income stream from CCS value chain, (iii) maiden income from FPSO Mero 3 beginning FY25, and (iv) potential new FPSO contract award post-delivery of FPSO Mero 3.

Source: BIMB Securities Research - 31 Oct 2023