MISC announced that it has been awarded a contract by Petrobras for the time charter of 3 new build Suezmax Class Dynamic Positioning2 (DP2) shuttle tankers for operations in the Brazilian basin. The vessels are expected to commence operations in 2022. Our channel checks highlights that Suezmax shuttle tankers are going for DCR’s of c.USD61,000/day. Working backwards – a contract value of USD175.2m/ Suezmax vessel implies that these charters have tenures of c. 8 years. We maintain our SOP-driven TP of RM8.26 and HOLD rating.

NEWSBREAK

MISC announced that it has been awarded 3 long-term time charter contracts by Petróleo Brasileiro S.A (Petrobras) for the time charter of 3 new build Suezmax Class Dynamic Positioning 2 (DP) shuttle tankers for operations the Brazilian basin (in addition to the 6 – of which 4 are under construction). The vessels charter tenure was not disclosed, whilst the contract value is for USD525.6m. The vessels are expected to commence operations in 2022.

HLIB’s VIEW

A strong start in FY20. Our channel checks highlights that Suezmax shuttle tankers are going for DCR’s of c.USD61,000/day (average for November and December 2019 – reflective of seasonal winter peak, vessel shortage and IMO 2020 compliance). Working backwards – a contract value of USD175.2m/ Suezmax vessel implies that these charters have tenures of c.8 years, although based on the previous award by Petrobras for the same class vessel, we believe the tenure is closer to 10 years (implying a DCR closer to c.USD50,000/day). This announcement is positive for MISC, it is understood that the capex per vessel amounts to c.USD90m-100m. Net gearing as at 9M19 stood at 0.19x with a cash balance of RM7.4bn, MISC would be able to complete this job with relative ease.

A trusted partner of Petrobras. We understand that this is the third time Petrobras has engaged MISC to charter Suezmax class DP2 shuttle tankers. MISC was awarded an undisclosed contract for 4 Suezmax DP2 shuttle tankers in May 2018 – which are under construction at this juncture. Recall that in December, AET was awarded a similar job for a 152,700 DWT DP2 vessel for delivery in 2020 for operations in Brazilian waters for Shell. It is understood that the vessel is IMO NOx Tier 3 compliant, built to the latest and highest technical standards and installed with a ballast water treatment system and is equipped with high-power thrusters, generators and the latest position reference system fully capable of operating in harsh weather conditions. We don’t discount that this award would be for a similar spec vessel considering it is destined for operations in similar waters.

Forecast. Unchanged as the earnings contributions won’t kick in till 2022.

Maintain HOLD with TP of to RM8.26. We maintain our SOP-driven TP of RM8.26, recall that we had imputed a higher PBV multiple of 1.5x for petroleum segment (from 1.0x) in our 3Q19 results note to account for the better operating environment for its Petroleum division and thus valuations are quite reflective of this award. The stock has a dividend yield of 3.8% assuming MISC maintains its dividend pay-out of 30sen/share.

Source: Hong Leong Investment Bank Research - 6 Feb 2020