Kenanga Research & Investment

MISC - Three LNG Charter Contracts in the Bag

Publish date: Tue, 02 Apr 2024, 10:56 AM

MISC has secured three 15-year time-charter contracts from Qatar Energy, commencing in 2026. We estimate the daily charter rate (DCR) at USD120,000, which shall potentially add RM75m net profit to MISC per annum. We maintain our forecasts but lift our TP by 2% to RM7.69 (from RM7.51) and maintain our MARKET PERFORM call.

MISC has secured three time-charter contracts for assets named Polaris Five, Polaris Six, and Polaris Seven with Qatar Energy, covering a firm period of 15 years starting from 2026. These three LNG vessels will be constructed by Samsung Heavy Industries. We estimate that the DCR for each of the three vessels could be around USD120,000, at a slight premium to recent market rates to reflect bigger ship capacity.

The potential capex for the three vessels is estimated at USD780m, based on the latest market price and referencing the capacity of 165,000 cbm from MISC's Feb 2024 monthly newsletter, similar to the ship capacity for its 2022 contract win from Qatar Energy. The latest vessel investment will increase MISC's net gearing of 0.26x as at end- Dec 2023 to 0.35x which ais still highly manageable.

Assuming an 80:20 debt-to-equity ratio and a 75% EBITDA margin, the three new vessels will contribute RM75m net profit annually, accounting for 4% of FY24F earnings. We do not foresee any issues with project execution given its involvement in a similar contract for Qatar Energy as part of a consortium that includes MISC, Kawasaki Kisen Kaisha, Nippon Yusen Kabushiki Kaisha, and China LNG Shipping.

Forecasts. Maintained as contributions from the three vessels will not come in during our forecast period.

Valuations. However, we lift our SoP-TP by 2% to RM7.69 (from RM7.51), having reflected enhancement from the three new LNG vessels based on DCF with a WACC of 7%. Our TP also reflects a 5% premium given a 4-star ESG rating as appraised by us (see page 5).

We like MISC due to: (i) recent fleet expansion and modernization, (ii) success in securing mega FPSO projects (i.e. Mero-3) and new contracts from international clients, and (iii) margin expansion coupled with improved earnings visibility following diversification into less commoditized specialised vessels However, incoming FPSO Mero 3 project’s execution risks remain high particularly when final acceptance is expected to approach in 4QC24. Maintain MARKET PERFORM

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

Source: Kenanga Research - 2 Apr 2024

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