• We are sanguine on MISC’s expansion in lucrative FPSO business. The FPSO Mero 3 is in commissioning stage and it is expected to boost MISC’s earnings by 10-15% in 2H24.

• Following the delivery of the vessel, the company have the capacity to undertake a new FPSO project. We foresee a new contract award over the next 12 months underpinned by the strong demand from global oil companies.

• Given its stronger cashflow from FPSO Mero 3, we expect the company to maintain dividend payout of 36sen similar to FY23, implying a 4.2% yield.

• Maintain MISC as a BUY with unchanged TP of RM10.30. Our TP is derived using SOP method which implies 1.1x FY24 P/B and 17x FY24F P/E.

Anchoring on FPSO for Growth

We remain excited with MISC’s growth as FPSO Mero 3 has inched closer towards its first oil discovery, potentially in 3Q24, at the earliest. This would mark the beginning of its 22.5 years charter period which will lead to a step-up in in its operating cashflow. This is a very large vessel that garners a daily charter rate of USD800k/day (based on our estimate), equivalent to the income of 12 LNG carriers or 20 petroleum tankers. Given tight supply condition and strong demand amidst higher offshore O&G development capex spending, a new FPSO project award may be on the horizon in 2024 further bolstering its outlook. MISC is capable to undertake a new project given its healthy balance sheet with low net gearing of 26% (1Q24).

Petroleum and LNG Segments to Remain Steady

The petroleum tanker rate is expected to remain elevated amidst shortage of vessels owing to higher tonne-mile demand. The newbuild orderbookto-total fleet ratio is languishing at a record-low of circa 7%. The fleet supply is not likely to increase significantly over the coming years due to construction lead times as well as limited available yard capacity in Asia which are already fully occupied with new orders for container ships and LNG/gas carriers/, therefore will bode well for AET’s petroleum tankers. Meanwhile, LNG/gas segment should contribute to steady earnings owing to fixed long-term charter contract. The company has 17 new LNG carriers on order (including 12 carriers under JV ownership) with targeted delivery over FY25-27F.

Maintain BUY on MISC with TP of RM10.30

We maintain our BUY call on MISC with unchanged SOP-derived TP of RM10.30. This implies 1.1x FY24 P/B and 18x FY24F P/E (refer table 1). 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) decent dividend yield of c.4-5%.

Source: BIMB Securities Research - 17 Jul 2024