Yesterday, MISC announced securing two five-year LNG charter contracts worth USD133m. We are positive on the contract wins, with estimated earnings contribution of RM45m per year (or 3% to our FY19E eanings) with estimated capex of USD44m for vessels acquisition to have minimal balance sheet impact (net-gearing of 0.2x). No change to FY18-19E numbers, as we deem the wins to be within our assumptions. Maintain MP and TP of RM6.65.

Two new LNG charters. Yesterday, MISC announced that it has signed two time charter contracts with LNG Shipping S.p.A, a wholly- owned subsidiary of Eni S.p.A, for the vessels known as: (i) LNG Portovenere, and (ii) LNG Lerici, with expected commencement in Dec- 2018 and Jan-2019, respectively. The vessels will be chartered for a 5- year period with an estimated combined contract value of USD133m. The contracts are pursuant to a Memorandum of Agreement, which resulted in MISC acquiring ownership of the vessels.

Positive on the contract wins. Overall, we are positive on the contract win as it signifies MISC’s continued efforts in attempting to further grow its LNG shipping segment, which is currently its largest earnings contributor. Moreover, on a bigger picture, the contract may also indicate the market’s gradual move away from longer-term charters (e.g. 7-10 years) in favour for more shorter-to-mid-term charters, which could be advantageous for MISC as it allows to company to better capitalise on recovering LNG shipping charter rates. The contract would also bring its fleet of operating LNG vessels to 31, from 29 as at end- 3Q18.

Financial impact. Assuming a margin of 40% and MYR/USD exchange rate of RM4.20/USD, we estimate the contracts to contribute roughly RM45m/year (or 3% of FY19E earnings). Meanwhile, we estimate capex of roughly USD44m for the vessels acquisition – minimal impact towards its balance sheet, with net-gearing of 0.2x as at end-3Q18. All- in, we are opting to make to no changes to our current FY18-19E numbers, as we deem the contract wins to still be within our assumptions.

Maintain MARKET PERFORM, seeing a lack of any major re-rating catalyst in the short-to-medium term, plagued by stagnating petroleum shipping spot-rates from vessel oversupply in the market, thus leading to sustained losses in its petroleum shipping segment; with a portfolio mix of 59% term and 41% spot charters. Our TP is kept unchanged at RM6.65, pegged to valuations of 0.85x PBV. At these levels, our call is backed by decent dividend yields of 4-5%.

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

Source: Kenanga Research - 28 Nov 2018