We attended MISC’s Net Zero and Sustainability Stakeholder’s Engagement session yesterday and pencilled our key takeaways from the briefing. We highlight that MISC currently has very strong sustainability ratings as it is: (i) a member of Dow Jones Sustainability Indices; (ii) a constituent of FTSE4Good Bursa Malaysia Index for 8 consecutive years in the running; and (iii) has achieved a full score in FTSE4Good Bursa Malaysia for its Governance Theme for 3 consecutive years. Overall, we maintain HOLD on MISC with an unchanged SOP-derived TP of RM7.67/share. We think that downside is supported for MISC due to its: (i) defensive nature of the name due to its portfolio of long-term charters which will provide consistent, recurring cash flows; and (ii) its relatively fixed dividend payout policy of 33sen/year.

We summarise MISC’s Net Zero and Sustainability Stakeholder’s Engagement session yesterday, as below:

1) MISC currently has very strong sustainability ratings as it is: (i) a member of Dow Jones Sustainability Indices; (ii) a constituent of FTSE4Good Bursa Malaysia Index for eight consecutive years in the running; and (iii) has achieved a full score in FTSE4Good Bursa Malaysia for its Governance Theme for three consecutive years.

2) On the environmental (E) pillar, MISC is committed to its net-zero greenhouse gas emission by 2050 (similar to Petronas). However, in the short to medium-term, MISC aims for a 50% GHG Intensity Reduction by 2030 for shipping operations compared to 2008 (used as a base year). These gases include carbon dioxide (CO2), methane (CH4) and nitrous oxide (N2O). The group’s multiple GHG reduction pathways are expected to reduce MISC Group’s total GHG emissions by 88% compared to its business as usual (BAU) scenario by 2050.

3) Towards decarbonisation, MISC is one of the six strategic partners to the Global Maritime Forum (GMF) with a mission to shape the future of global seaborne trade to increase sustainable long-term economic development and human wellbeing. MISC is also a member of “Getting to Zero Coalition”, which is an alliance of more than 150 companies within the maritime, energy, infrastructure and finance sectors, supported by key governments and international governmental organisations. This Coalition is committed to develop commercially viable deep sea zero emission vessels powered by zero emission fuels into operation by 2030.

4) The group mentioned that it will continuously improve its energy efficiency design and operations, progressively renew its fleet to low/zero-carbon based fuel. Also, it aims to collaborate with strategic partners on developing zero-carbon emission vessels. Over the long-term, MISC targets to adopt nature-based carbon removal and increase the usage of renewable energy mix.

5) MISC has 4 group waste targets:
- Target 1: to reduce 27% in plastic waste generation per vessel (2019-2025) and to reduce 19% in plastic waste generation per personnel on-board (2019-2025).
- Target 2: 40% paper reduction per vessel in 2019-2025.
- Target 3: To maintain an annual 3R (Reuse, Recycle and Recover) rate of > 95% for hazardous wastes generated
- Target 4: To increase the annual 3R rate of >70% from 8% non-hazardous waste generated (2021-2025).

6) For the Social (S) pillar, MISC aims to grow its diversity – gender, nationality, multi generations and cultural diversity to reflect its growing geography and client footprint. The group also aims to create an environment of equity and meritocracy that provides opportunities for its workforce.

7) For the Governance (G) pillar, MISC aims to: (i) continuously embed a culture of strong corporate governance and business ethics and conduct; and (ii) to enhance cybersecurity framework and safeguard its operations. MISC also aims to drive sustainable practices with its suppliers. It has implemented an ESG supply chain assurance program emphasising on sustainable sourcing, circular economy, health & safety and business ethics compliance. The aim is to create a cascade of sustainable practices which promote a circular economy and low-carbon economy throughout the supply network.

Forecast. Unchanged.

Maintain HOLD, TP of RM7.67. We believe that current share price has already priced-in the positives of higher petroleum spot tanker rates and with narrowed upside to our unchanged SOP-derived TP of RM7.67, we maintain our HOLD call on MISC. We think that downside is supported for MISC due to its: (i) defensive nature of the name due to its portfolio of long-term charters which will provide consistent, recurring cash flows; and (ii) its relatively fixed dividend payout policy of 33sen/year. This translates into a decent dividend yield of 4.6% annually based on current share price.

Source: Hong Leong Investment Bank Research - 27 Jul 2022