• Maintain BUY (TP: RM10.10). MISC 9M23 core PATAMI of RM1.7bn (+20% YoY) was inline with both our and consensus’ estimate at 72% and 73% respectively. Stripping one-off cost provision in FPSO segment, 3QFY23 core earnings was robust, rose by 17% QoQ to RM557mn underpinned by lower losses at MMHE and sustained earnings in Gas and Petroleum segments from elevated charter rate. A 3rd interim DPS of 7 sen was declared which is similar to 3Q23 DPS. This brings YTD DPS of 24sen (9M22: 21sen). We expect MISC to benefit from rising tanker rate following the Israel-Hamas crisis. We maintain our BUY call on MISC with unchanged SOP-derived TP RM10.10.

• Key Highlights. Headline PATAMI declined 4.7% QoQ and 47.4% YoY to RM431mn mainly due to (i) cost provision for FSO Benchamas, which was involved in an accident in early 2013 estimated, at RM100mn. Excluding this, core PATAMI rose by 17% QoQ to RM557mn on lesser loss at MMHE. However, core PATAMI still declined 30% YoY from RM797mn due to a one-off gain recognition from contract renegotiation amounted to RM241mn in 3Q22.

• Earnings forecast. No changes to our earnings forecast.

• Outlook. We expect earnings to remain robust in coming quarters to be driven by escalating petroleum tanker rates following the HamasIsrael conflict. This is further supported by delivery of 2 new VLCCs in 4Q23. In medium term, earnings will be boosted by the commencement of FPSO Mero 3 lease charter which is set to begin in late FY24/early FY25. The construction progress of the vessel has reached 92% physical completion and it is on track for delivery in 1Q24 and commissioning in 2Q24. We are affirmative with its strong earnings outlook given the rise in charter rate of Petroleum and Gas carriers as well as strong demand for FPSO newbuild.

Source: BIMB Securities Research - 23 Nov 2023