• LNG and Petroleum segments will progressively see additional capacities added to the current fleet in the coming 3 years. Mero-3 FPSO will see final acceptance in 2024.
• Share price correction of c.15% since late Sept could be attributable to lacklustre improvement in petroleum freight rates as we move into the winter season. Selling possibly overdone supported by 5% dividend yield
• Near-term earnings prospect looks muted with rates continue to remain suppressed on the back of weak global demand. Retain Hold with lower TP of RM6.80

4 LNG and 6 VLEC Vessels on Their Way

MISC will see 4 of its total of 29 LNG vessels due for expiry by 1Q21, all of which are currently running on spot term charters. With 8M20 spot rates falling by 23% yoy, the renewal rates will likely be lower. Notwithstanding this, the new LNG and VLEC vessel deliveries in the coming years should help sustain current earnings. 2 new LNG vessels will be delivered by end-2021, and another 2 by 1H23. All 6 of its VLEC vessels are targeted to be delivered by 1H21.

Limbayong Back on the Radar

After many delays on the award of FPSO Limbayong, partly due to the crash in the oil price in early 2020, Upstream reported that Petronas has reopened the tender, targeted for submissions in January 2021. This FPSO continues to be a Malaysiafocused project, with invited bidders including Sabah International Petroleum, MTC Group, Bumi Armada, Yinson and MISC (the latter 2 had a joint bid prior to the tender being shelved). With MISC securing Mero-3 and Yinson’s much awaited PDB called off, both parties may still work together for a joint bid. Bidding will now be done in RM, rather than in US$. The new FPSO will now have capacities of 40,000bpd oil and 18m cbm gas with a storage capacity of 600,000bbl.

Maintain Hold

We cut our FY20E EPS by 8% to factor in the weaker petroleum rates, but raise our FY21-22E EPS by 8-13% to include the new VLEC deliveries. MISC’s recent share price fall may have priced in the rate weakness to a certain extent. Even so, new deliveries will unlikely contribute much to FY21 earnings growth on normalization in petroleum tanker profit. As such, we retain our Hold rating with a lower SOTPbased TP at RM6.80. A re-rating catalyst would be securing Limbayong FPSO.

Source: Affin Hwang Research - 20 Oct 2020