MISC recorded 3Q21 core earnings of RM423m (-6% QoQ, +48% YoY), bringing 9M21 core earnings to RM1,261m (-21% YoY). We deem the results to be below ours but within consensus expectations at 65% of our full-year forecast (consensus: 73%). We trim our FY21f net profit forecast by 11% while leaving our FY22-23f estimates unchanged. Maintain BUY with a relatively unchanged SOP-derived TP of RM7.67 after accounting for in-house changes to 66.5%- owned MMHE. We like MISC because of the defensive nature of the name as it provides relatively stable dividend yield of 4.5%.

Below ours but within consensus. MISC recorded 3Q21 core earnings of RM423m (-6% QoQ, +48% YoY), bringing 9M21 core earnings to RM1,261m (-21% YoY) after adjusting for (i) impairments on assets and receivables totalling RM130m and (ii) a one-off gain from the compensation from a contract renegotiation amounting to RM175m. We deem the results to be below ours but within consensus expectations at 65% of our full-year forecast (consensus: 73%). Key variance against our forecast was due to the drag from its Petroleum division registering lower blended time charter equivalent (TCE) and lower earnings days with tonnage oversupply and depressed freight rates due to lower seaborne oil trade activities globally and oil production cuts by OPEC+. Portfolio mix for its petroleum segment is at 68:32 term to spot.

Dividend. Third interim dividend of 7.0sen/share (ex-date: 2 Dec 2021, payment: 14 Dec 2021) was declared, bringing 9M21 DPS to 21.0sen/share, as expected.

QoQ. Core earnings were down 6% as MISC’s Petroleum division flipped into the red due to lower TCE and lower earning days as mentioned above.

YoY. Core earnings were up 48% attributed to: (i) improved performance from its LNG division due to higher earning days, delivery of Diamond Gas Victoria in July 2021 and the lease commencement of six very large ethane carriers (VLECs), and (ii) an additional ~RM100m revenue contribution from the construction of Mero -3 FPSO project from Petrobras. However, it was slightly mitigated by the group’s Petroleum division due to lower TCE and lower earning days, as mentioned above.

YTD. Core earnings were down 21% YoY due to: (i) lower spot charter rates in its LNG division; and (ii) suppressed petroleum tanker rates with tonnage oversupply and depressed freight rates due to low seaborne oil trade activities globally and production cuts by OPEC+.

Outlook. We expect a flattish 4Q21 as the group guided that it will book in some construction and interest costs for the Mero-3 FPSO in the upcoming quarter, but will be somewhat mitigated by improving LNG spot rates in the winter season. Fluctuation in tanker rates are still the largest risk factors for MISC in our view. We expect 2022 to be a better year for its petroleum tanker division as oil demand and trade recovers.

Forecast. Cut FY21f net profit forecast by 11% to account for lower spot charter rates for the year. No changes to FY22-23f estimates.

Maintain BUY – TP of RM7.67. We maintain our BUY rating with a relatively unchanged TP of RM7.67 (from RM7.69 previously) after accounting for in-house changes to 66.5%-owned MMHE. We like MISC because of: (i) defensive nature of the name due to its portfolio of long-term charters which will provide long-term cash flows; and (ii) its relatively stable dividend payout policy of 33sen/year. This translates into a decent dividend yield of 4.5% annually based on current share price.

Source: Hong Leong Investment Bank Research - 19 Nov 2021