News

• AET Tanker, a subsidiary of MISC, has secured 2 contracts for DP2 shuttle tankers (1 for 5 years worth US$200m and 1 for 7 years worth US$275m) for operations in oilfields in the Norwegian Continental Shelf of North Sea and southern Barents Sea.
• Pursuant to the awards, MISC would commission Samsung Heavy Industries to build two DP2 shuttle tankers for delivery in 2019 before chartering them to Statoil. Financial Impact
• Implied revenue p.a. for both contracts secured is US$40m p.a.
• Assuming asset cost of US$100m/vessel, 4% interest cost with 80% loan financing of asset value and 10 years tanker useful life, we estimate each tanker to contribute net profit of circa US$6m p.a (RM29m).
• A slight positive to the group as it provides long term recurring income with decent margins. However, we are not factoring in the contract in our forecast due to lack of contract details at this juncture. Pros/Cons Outlook:
• LNG: We expect vessel oversupply to persist globally with ongoing new deliveries in 2017-19. Current total orderbook for LNG vessels stands at 27% of global fleet.
• Tanker: 2017 is expected to be a rather flattish year for tanker rates. Demand outlook has improved slightly post OPEC cut as more US export into Asia has increased overall tonne-mile demand. Nevertheless, high fleet growth will continue to put pressure on overall tanker rates.
• Offshore & Heavy Engineering: Heavy Engineering will continue to be marginally profitable while Offshore will improve slightly in 2017 due to full year recognition of GKL and improvement in charter rate of GKL post successful VO claim.

Risks

• Oversupply of LNG, petroleum and chemical ships, depressing charter rates.
• Increase in bunker cost.

Forecasts

• Earnings forecast maintained.

Rating

HOLD (↔)

• Earnings headwinds persist with Petroleum tanker rates expected to remain depressed this year while its LNG division would face long term headwinds as its long term charters come to expiry while new LNG contracts are significantly less profitable.

Valuation

• We maintain our SoP-driven TP at RM7.52 and HOLD call on the stock.

Source: Hong Leong Investment Bank Research - 23 Jun 2017