• Maintain BUY (TP: RM10.30). MISC 9M24 core PATAMI of RM1.6bn (-8% YoY) lagged our estimate at 62%. 3Q24 core PATAMI declined 42% YoY to RM326mn due to (i) weaker LNG segment, (ii) weaker FPSO segment due to lower construction profit from FPSO Mero 3, and (iii) stronger ringgit. A third interim DPS of 8sen was declared which brings 9M24 DPS totalling 24sen (9M23 DPS: 24sen). No change to our earnings forecast as FPSO Mero 3 maiden lease charter and reversal in ringgit strength will boost 4Q24 result. Maintain our BUY call on MISC with an unchanged SOP-derived TP of RM10.30.

• Key Highlights. Earnings from Gas segment was affected by expiry of term charter contract of LNG vessel. Now, 6 vessels are operated on the spot market (vs 2Q24: 4 vessels) and at a softer rate. Offshore segment turned to red in 3Q24 no thanks to lower construction revenue from FPSO Mero 3. Profit from Petroleum segment was weaker by 16% QoQ but it was still higher than previous year amidst elevated tanker rate. Income from MMHE was also weaker than 2Q24 which was boosted by non-recurring gain from successful claim of cost recovery for additional cost provided in prior year.

• Earnings Forecast. No change.

• Outlook. The earnings weakness in 3Q24 will be temporary in view of (i) commencement of lease charter income from FPSO Mero 3 beginning early Nov 24 , (ii) higher income from Gas segment from delivery of 17 new LNG carriers (2025: 4 vessels; 2026: 11 vessels; 2027: 2 vessels), and (iii) reversal in ringgit strength. The company has also entered into an MoU with Bumi Armada to explore a potential merger of its Offshore business. Management explained that this was inline with its earlier plan to seek a strategic partner for that particular business. With Bumi Armada in the picture, the company will be able to leverage on the latter’s pool of talents in project development and engineering capability while better allocate its capital towards other opportunities in green/RE business.

Source: BIMB Securities Research - 15 Nov 2024