We are positive on the contract win as it helps to provide a long-term secured income stream to MISC. Furthermore, this is its second contract from Statoil, suggesting that the company is increasing their footprint in such niche market in the North Sea. No changes to our estimates and thus, we are maintaining our MARKET PERFORM call on the counter with an unchanged target price of RM8.04/share. Two DP2 shuttle tankers contract secured. Yesterday, MISC announced that its wholly-owned subsidiary AET Tanker Holdings Sdn Bhd has been awarded a long-term contract to own and operate two specialist DP2 offshore loading shuttle tankers from Statoil ASA (Statoil) for operations in oilfields on the Norwegian Continental Shelf of the North Sea, Norwegian Sea and the southern Barents Sea. The estimated contract value will either be a 5-year charter period with a sum of USD200m or a 7-year contract period with a sum of USD275m. It will be decided by the client and announced by end of the year.

Second win from Statoil. We are positive on the contract win as it helps to provide long-term quality secured income to MISC. Furthermore, this is its second contract from Statoil, suggesting that the company is increasing its footprint in such niche market in the North Sea. Currently, MISC owns four DP shuttle tankers with the specifications of 105k-125k dwt, of which two are chartered to Statoil. The two new 125k dwt DP shuttle tankers will be built by Samsung Heavy Industries and slated for delivery in 2019.

Minimal earnings contribution. Based on the back of envelope calculations, each vessel would contribute USD55k/day charter income for the 5-year contract period. We believe it is more attractive to secure the 7-year contract period given that the charter rates are only 2% less than the 5-year contract with additional two years term. Assuming a net margin of 10%, this contract will contribute c. RM16.5m/annum (<1% of our FY17E earnings) to MISC. Despite having minimal earnings impact to MISC?s earnings base, it helps to moderate any downturn in the cyclical spot market for the other vessels.

No change to our estimates as it is within our capex assumption of USD1.0b/annum for FY17-18. Maiden earnings from these two vessels will start to contribute in FY19.

Maintain MARKET PERFORM. MISC is looking for market recovery within the petroleum shipping space at earliest by 2H17, backed by sustainable demand and moderation of fleet growth. Meanwhile, LNG charter rates are still under pressure due to overcapacity, which is likely to last until 2018 and charterers are seeking shorter contract term of 7- 10 years instead of 15-20 years. All in, we maintain our TP of RM8.04 pegged to an unchanged FY18 PBV 0.9x, which is -0.5SD to the 5-year mean. Having said that, MISC?s balance sheet remains healthy with net gearing of 0.2x, allowing it to seek opportunistic brown field replacement projects and shallow-water assets requirement in the region.

Risks to our call: Lower-than-expected charter rates and worse-than- expected slowdown of the global economy.

Source: Kenanga Research - 23 Jun 2017