Last Friday, MISC announced the award of a charter contract from Petrobras to own and operate four Suezmax petroleum vessels. No contract value stated. Charter period is ten years commencing 2020, and as such, we made no changes to FY18-19E numbers given minimal immediate impact. Upgrade to OUTPERFORM, with unchanged TP of RM7.15, as we view the recent sell-down to be overdone, with current levels offering decent dividend yield of c.5%.

Contract from Petrobras. Last Friday, MISC announced that it was awarded a long-term charter contract to own and operate four specialist DP2 Suezmax size Shuttle Tankers from Petrobras in international and Brazilian waters. The charter period is ten years, expected to commence in 2020. These new vessels will be in addition to its existing two DP2 ships currently being chartered to Petrobras in the Brazilian Basin. No contract value or charter rates were disclosed.

Minimal immediate-term impact. With the charter only commencing in FY20, we believe there should be very minimal impact towards FY18- 19E earnings. As such, we are making no changes to our FY18-1E numbers. The four petroleum vessels in the contract would be in addition to 75 petroleum vessels fleet operated by MISC as at end- 1Q18 (or an addition of 5%), of which 6 vessels are Suezmax.

Our rough guesstimate of the charter rate is around c.USD20k/day, based on our observations of current spot, 1-year and 3-year charter market rates for Suezmax charters. This would translate to roughly a guesstimate figure of RM106m additional revenue impact per year (in context, this represents c.1% of current group revenue levels), based on our rough back-of-envelop calculations with an assumption of RM4.00/USD exchange rate and 330 days per year utilisation. These vessels should also already be incorporated within the management- guided group capex of USD5b for the next five years.

On a bigger picture, the additional charters for MISC from Petrobras could signify the latter’s recognition of MISC’s expertise and capabilities within the petroleum tanker space, which may help improve MISC’s chances of further contract tenders. Similarly, with MISC’s healthy balance sheet and low net-gearing of 0.2x, the group is currently well- positioned for further opportunistic investments.

Upgrade to OUTPERFORM, given the heavy sell-down over the second-half of the month, with price deterioration of over 14% since 15 May 2018, which we opine is overdone. At current prices, MISC offers a decent dividend yield of c.5%. Additionally, MISC should be a beneficiary of a weakening Ringgit given that its main functioning currency is the USD. We keep our TP unchanged at RM7.15, based on FY19E PBV of 0.9x, which is roughly -0.5S.D. from its 5-year mean.

Risks to our call include: (i) weaker-than-forecasted charter rates, (ii) stronger-than-expected MYR/USD exchange rates, (iii) lower-than- expected number of operating vessels, and (iv) slowdown of global economy.

Source: Kenanga Research - 28 May 2018