MISC recorded a 4Q22 core net profit of RM899m (+65% QoQ, +92% YoY) and FY22 core net profit of RM2,082m (+17% YoY). We deem the results to be above expectations at 121%/113% of our/consensus full-year forecasts. Key variance against our estimates was mainly due to better-than-expected showing from the group’s offshore segment – buoyed by higher-than-forecasted construction recognition revenue for the conversion of the Mero 3 FPSO project. Post-results and briefing, we raise our FY23-24f estimates by 7% and 5% respectively mainly to account for: (i) higher petroleum tanker charter rates; and (ii) increased Mero 3 construction profit margin assumptions. All in, we maintain HOLD on MISC with a higher TP of RM7.48/share.

Above expectations. MISC recorded 4Q22 core net profit of RM899m (+65% QoQ, +92% YoY) and FY22 core net profit of RM2,082m (+17% YoY) after having adjusted predominantly for: (i) RM15.3m gain on disposal of ships; (ii) RM1.6m of write-offs of ships & PPE; (iii) RM31.2m of write-back of impairment loss; (iv) RM29.1m impairment loss on receivables; (v) RM566.7m impairment of non-current assets; and (vi) RM241m gain on one-off compensation for a contract renegotiation in the tanker segment. We deem the results to be above expectations at 121%/113% of our/consensus full-year forecasts. Key variance against our estimates was mainly due to better-than-expected showing from the group’s offshore segment – buoyed by higher-than-forecasted construction recognition revenue for the conversion of the Mero 3 FPSO project.

Dividend. Fourth interim dividend of 12.0sen/share (ex-date: 28 Feb 2023, payment: 15 March 2023) was declared, bringing FY22 DPS to 33 sen/share, which was well expected.

QoQ. 4Q22 core net profit was up 65% QoQ, mainly attributed to the significantly higher construction recognition of the Mero 3 FPSO – where profits doubled for the segment.

YoY. 4Q22 core net profit was up 92% YoY mainly due to an improved performance from MISC’s petroleum tanker division – attributed to the elevated petroleum tanker rates in 2H22.

YTD. FY22 core net profit increased 17% YoY due to: (i) an improved performance from MISC’s petroleum tanker division; (ii) the successful turnaround in the group’s 66.5% owned MMHE for the year.

Outlook. We are forecasting MISC’s performance in FY23 to be slightly weaker in view of a normalisation in petroleum tanker rates due to production curbs from the members of OPEC+, which will keep oil supply tight throughout the year. Term to spot portfolio mix for its petroleum segment stands at: (i) VLCC (30:70); (ii) Suezmax (70:30); and (iii) Aframax (92:8). We derive comfort that Mero 3’s completion stands at 75% as at end-Dec 2022 and is on-track for delivery in May 2024.

Forecast. Post-results and briefing, we raise our FY23-24f estimates by 7% and 5% respectively mainly to account for: (i) higher petroleum tanker charter rates; and (ii) increased Mero 3 construction profit margin assumptions.

Maintain HOLD, higher TP at RM7.48. With narrowed upside to our revised SOP derived TP of RM7.48, we maintain HOLD on MISC. However, we think that downside is also supported for MISC due to its: (i) the defensive nature of the name due to its portfolio of long-term charters which will provide consistent, recurring cash flows; and (ii) its fixed dividend payout policy of 33sen/year (4.5% yield).

Source: Hong Leong Investment Bank Research - 16 Feb 2023