News

• MISC announced that it has been awarded a contract for the lease and operations of a Floating, Storage and Offloading Ves sel (“FSO”) for the FSO Benchamas 2 Project by Chevron Offshore (Thailand) Limited (“COTL”) in the Gulf of Thailand (“the Con tract”).

• The Contract, valued at approximately US$230m, is for duration of 10 years with COTL having the right to extend for up to 5 extensions of one year each.

• The scope of work under the Contract includes engineering, procurement, construction, installation, commissioning, lease and operations of the FSO Benchamas 2 Project, which is expected to commence operations by the second quarter of 2018.

Financial Impact

• While it’s a pos itive to the group, the financial impact to the group is expected to be small for the group’s s tandards.

• Based on our back of the envelop calculations, we arrive at an accretive value of 2.14sen/share for the contract firm value to the group on the assumption of (i) 55% EBITDA margin and (ii) 7% WACC. The accretive value is regarded as insignificant given the group’s much larger as set bas e.

• We also understood that an old AET-owned petroleum tanker asset under MISC’s umbrella would be redeployed for the project therefore the group’s CAPEX (undisclosed) would be manageable (mainly involving refurbishment and retrofit works).

• No debt financing, in our opinion, would be utilised to finance the project given the group’s comfortable balance s heet pos ition.

Pros/Cons

• Outlook:

• Tanker: Anticipate stronger 2H16 especially for the Petroleum tanker segment as refiners ramp up towards the winter season in 4Q16.

• LNG: Expect slight improvement in performance in 2H this year as Puteri Anggun has come off charter in 3Q16 while 2 new LNG vessels for MISC are expected to come on stream in 3Q and 4Q this year.

• Offshore: Growth would be anchored by GKL earnings consolidation while MMHE remains a concern due to orderbook shrinkage.

Risks

• Oversupply of LNG, petroleum and chemical ships, depressing charter rates.

• Increase in bunker cost.

• Slow recovery of global economy.

• Hike in tax.

Forecasts

• Maintained.

Rating

• Buy

• Positives – 1) Sustaining Petroleum tanker charter rate; and 2) Strong support from Parent Group, Petronas.

• Negatives – 1) Continued oversupply of LNG and chemical tanker; and 2) Low order-book replenishment by MMHE.

Valuation

• We maintain our SoP-driven TP at RM9.50 and BUY call on the stock.

• Positive view is maintained at the stock premised on (i) sustaining Petroleum tanker rates and (ii) resilience in its Offshore business with long term contracts.

Source: Hong Leong Investment Bank Research - 24 Aug 2016