MISC’s has secured a 20-year FSU contract with Pengerang LNG worth USD213.7m (RM1b). We estimate that the contract will contribute c. RM7.2m recurring annual PAT from FY25, which is beyond our forecast period. We maintain our forecasts but lift our TP marginally to RM7.62 (from RM7.60). Maintain MARKET PERFORM.

FSU job in the bag. MISC has announced on Bursa Malaysia that is has entered into heads of agreement (HOA) for the operation and maintenance of FSU with Pengerang LNG (Two) Sdn Bhd (PLNG2SB), with an estimated contract value of up to USD213.7m (RM1b). MISC will convert one of its Puteri Satu Class LNG carriers, namely Puteri Delima Satu, which completed her long-term charter in early 2023 and currently lay-up, into the Floating Storage Unit (FSU) for the abovementioned provision.

Contract win a positive with recurring earnings expected. We are positive on the win as the new contract would result in the FSU contributing for 20 years (from start-up in 2025). Project execution risk is low for this contract as the group has already executed multiple LNGrelated projects previously; hence we expect the project to be completed on time with minimal hiccups operationally. Based on our assumptions, the FSU would contribute RM7.2m per annum starting FY25.

Background on Puteri Delima. Puteri Delima (vessel to be converted for FSU contract) was a LNG shipping vessel built by MISC back in 2002 and has been consistently contributing to the group’s LNG segment earnings until early 2023. Therefore, we feel encouraged by the announcement as the contract has breathed new life into the aging LNG vessel (21 years old).

Forecasts. Our earnings are maintained as the announced FSU contract would only start contributing in FY25.

Based on 7.6% WACC and 80:20 debt to equity ratio of the FSU project financing, our model suggests that the contract would contribute additional DCF value of RM0.02/share to our SoP valuation. Within our DCF model, we have assumed project IRR of 11% (consistent with average IRR for LNG and FPSO projects based on historical data). As a result, our SoP TP is revised up slightly to RM7.62 (from RM7.60).

We like MISC due to its : (i) recent fleet expansion and modernization across key divisions, (ii) success in securing mega FPSO projects (i.e. Mero-3), and (iii) margin expansion coupled with smoother earnings following diversification to less commoditized specialist vessels (e.g. DP Shuttles, VLECs). However, demand for petroleum tankers will likely be dampened by OPEC+’s latest production cuts. Maintain MARKET PERFORM.

Risks to our call include: (i) lower-than-expected utilisation and spot rates for petroleum fleet, (ii) additional cost overruns and project delays for Mero-3, and (iii) further production cuts by major oil producers.

Source: Kenanga Research - 1 Nov 2023