MISC has been awarded a charter contract for two LNG carrier vessels by Exxon Mobil, worth USD711m for a firm period of 15 years commencing 1Q23. We believe the charters could contribute ~RM100m/year to earnings, although balance sheet impact could be relatively small. Nonetheless, we are positive on the awards, increasing the company’s exposure in longer-term charters. Maintain OUTPERFORM with TP of RM8.80.

Two new LNG vessel charter contract. MISC announced that it has signed two time charter parties with Exxon Mobil Corporation for the time charter of two newbuild LNG carriers for operations in international waters. The vessels will be chartered for a firm period of 15 years, with an estimated combined contract value of ~USD711m. The charters are expected to commence in 1Q23. The vessels will be constructed by Samsung Heavy Industries of Korea.

Impact of the new charters. Assuming 50% PBT margin, the new charters could lead to an earnings impact of ~RM100m per year (~6% of our FY19-20E forecasts). Meanwhile, we guesstimate capex for the two vessels to be around the ballpark figure of ~USD180m (or ~RM756m) – relatively little impact to its balance sheet with current netgearing of 0.2x (net-debt of RM7.4b as at end-2Q19). Postcommencement, the two new LNG vessels will add on to MISC’s current LNG fleet of 29 vessels.

Overall, we are positive on the two new contracts, with this being the third contract win announcement YTD, displaying the company’s ability in sustaining fleet growth, as well as being an indication of the group’s continued efforts in increasing its exposure to longer-term charters.

Outlook ahead. Elsewhere, MISC is also eyeing to tap into 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, low earnings base in FY18A could potentially set-up some earnings 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. Given the commencement date of the charter at 1Q23, we made no changes to our 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 - 11 Oct 2019