MISC and Avenir LNG Ltd (via a JV company Future Horizon - where MISC holds 51% stake and Avenir 49% stake), has been awarded a TCP (time charter party contract) by Petronas for the provision of one LNG bunker vessel for 3 years, commencing in 1Q20. We estimate that GP margins could be in the region of ~60% for the JV co. However in terms of earnings contribution, it won’t move the needle. Assuming a PAT margin of 20%, we estimate that this contract will add c.0.20% to MISC’s FY20 earnings. We maintain our HOLD call and SOP based TP of RM7.06.

NEWSBREAK

MISC and Avenir LNG Ltd (via a JV company Future Horizon - where MISC holds 51% stake and Avenir 49% stake), has been awarded a TCP (time charter party contract) by Petronas for the provision of one LNG bunker vessel, for operations primarily in Malaysian and Singaporean waters. Petronas will charter the LNG bunker vessel for a period of 3 years with an estimated contract amount of RM117m (USD28m) which is expected to commence by 1Q20.

HLIB’s VIEW

The first of its kind for MISC. We are not totally surprised by this announcement, given that we are expecting a strong finish for MISC in 2019. However, the chartering of an LNG bunker vessel marks the entrance of MISC into a new business segment. We understand that given the urgency of Petronas’s desire to acquire the services of an LNG bunker vessel, MISC had to team up with Avenir (who owns the vessel) so that it can be deployed by 1Q20. We understand that it would take c.18-24 months for a newbuild to come online had MISC done the job solo.

High margins. MISC will not incur any capex for this contract as the vessel is owned by Avenir and is to be injected into the JV; we understand that operating costs and profits will be spilt based on the equity portions. We are of the opinion that margins for this contract is quite robust, assuming a daily operating costs of c.USD10,000/day which translates to USD3.7m ex-deprecation costs per annum, against a revenue of USD9.3m per annum, this implies that GP margins could be in the region of c.60% for the JV co. Overall, this is positive to MISC and we don’t discount an extension to this current agreement or MISC venturing to build one on a longer TCP. However in terms of earnings contribution, it won’t move the needle, assuming a PAT margin of 20%- we estimate that this contract will add c.0.20% to MISC’s FY20 earnings.

Forecast. We keep our earnings unchanged as the contract award is rather small.

Maintain HOLD and TP RM7.06. Maintain our SOP-driven TP of RM7.06 and our HOLD recommendation on the counter. The stock has a dividend yield of 3.8% assuming MISC maintains its dividend payout of 30sen/share.

Source: Hong Leong Investment Bank Research - 3 Oct 2019