MISC - Maiden LNG Bunker Vessel

By Steven Chan / steven.chan@kenanga.com.my

MISC, in a 51:49 JV with Avenir, has been awarded a 3-year charter contract by Petronas for one LNG bunker vessel, with contract value of USD28m and expected commencement by 1Q20. The smallish contract size means inconsequential earnings and balance sheet impact, but we are positive on the contract nonetheless, as it represents MISC’s first entry into bunker vessel space. Maintain OUTPERFORM and TP of RM8.80.

LNG bunker vessel charter contract. MISC, through collaboration with Avenir LNG Limited, has been awarded a time charter party by Petronas for the provision of one LNG bunker vessel for operations primarily in Malaysian and Singaporean waters. A joint-venture company, Future Horizon (L) Pte Ltd, will be formed to manage the commercial operations of the vessel, with ship management to be provided by MISC. The JV entity will be 51% owned by MISC and 49% by Avenir. The charter will be for a period of three years with an estimated contract value of USD28m (or RM117m), and expected commencement by 1Q20.

Dipping its toe into bunker vessels. Given the smallish contract size, we expect inconsequential earnings (i.e. <1% of FY20E) and balance sheet impact (net-gearing of 0.2x as at end-2Q19). Nonetheless, we are positive on the contract as it represents MISC’s first venture into bunker vessels. As such, we believe this could lead to more job wins from this space moving forward.

Outlook ahead. Elsewhere, MISC is also eyeing to tap the global FPSO market, identifying it as one of the key growth areas for the company moving forward. We gathered that the company is preparing a bid for a mega-FPSO project in Brazil by end of this year, with a capex of ~USD2b. Meanwhile for the shorter-term, a low earnings base in FY18A could potentially set rebounds potential for the coming 1-2 years (FY19E earnings growth of +30%).

Maintain OUTPERFORM, with unchanged TP of RM8.80, pegged to 1.1x PBV on FY20E at +2SD from its 5-year mean. No changes made to FY19-20E numbers.

All things aside, we continue to like MISC given its stable dividend fetching ~4% yield, which is one of the better ones among FBMKLCI constituent stocks, thus providing some defence for the stock, while also helping to limit the share’s downside risks over the longer-term.

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

Source: Kenanga Research - 3 Oct 2019