MISC announced that it has signed an agreement with Exxon Mobil Corporation for the time charter of 2 new build LNG carriers for a period of 15 years firm. The vessels are expected to come into service by 1Q23 and will be built by Samsung Heavy Industries. Capex amounts to c. USD406.2m, whilst the contract value translates to a DCR of c. USD65,000-USD70,000 per vessel. On a standalone basis, we estimate that the award adds c.RM0.05 to our SOP; however we also take the opportunity to adjust our USDMYR assumptions to 4.20 (in line with our house view of an average range of 4.20-4.30 for FY20) from 4.10. Consequently our SOP increases to RM7.35 (from RM7.06).

NEWSBREAK

MISC announced that it has signed an agreement with Exxon Mobil Corporation for the time charter of two new build LNG carriers for operations in international waters. The vessels will be chartered for a firm period of 15 years with an estimated contact value of USD711m. The vessels will be constructed by Samsung Heavy Industries and are expected to commence operations by 1Q2023.

HLIB’s VIEW

Bread and butter. This announcement is positive for MISC but the DCR is a bit soft, after benchmarking against a market charter rate of USD80,000 per day (modern tonnage 3 year time charter as of June 2019), MISC’s contract value of USD711m translates to a DCR of c.USD65,000-70,000 per vessel. We understand that MISC’s equity stake in this venture is 100% given that the award was to its 2 wholly owned subsidiaries (Polaris 1 and Polaris 2). It is understood that the Capex for these 2 vessels will amount to c. USD406.2m. Net gearing as at 1H19 stood at 0.21x with a cash balance of RM6.7bn, MISC would be able to complete this job with relative ease.

Forecast. Unchanged as the earnings contributions won’t kick in till 2023.

Maintain HOLD, TP increases to RM7.35. Our SOP-driven TP increases to RM7.35 (from RM7.06) as we factor in the incremental effect of these 2 LNG vessels to our SOP and adjust our MYR/USD assumption to 4.20 (from 4.10) which is in line with our house view of an average range of USDMYR 4.20-4.30 for FY20. On a standalone basis, we estimate that the job only adds c.RM0.05 to our SOP. Maintain HOLD recommendation on the counter. Based on management’s capex target of USD1bn for FY19, this award is in line with our expectations as per management’s guidance. The stock has a dividend yield of 3.7% assuming MISC maintains its dividend pay-out of 30sen/share.

Source: Hong Leong Investment Bank Research - 11 Oct 2019