• Contract award for 2 DP shuttles

• Contract duration to be determined later

• Positive on the news

• Maintain NEUTRAL with unchanged TP of RM7.90

Contract award for 2 DP shuttles. MISC announced in a Bursa filing that it has been awarded a long term contract to own and operate two 125,000dwt specialist DP2 Offshore Loading Shuttle Tankers from Statoil ASA (Statoil), with operations centered in oilfields in the North Sea, Norwegian Sea and the southern Barents Sea.

Contract duration to be determined later. The contract period will be determined by Statoil before end-2017, for either a period of 5 years (US$200m) or 7 years (US$275m) with delivery scheduled in 2019. With the awarding of the contract, MISC has commissioned Samsung Heavy Industries for shipbuilding. While no capex figure was mentioned, we believe it should not pose any hindrance to MISC, which has a net gearing of 0.16x.

Positive on the news. MISC currently owns and operates 4 similar vessels, primarily ploughing the North Sea region. Hence, the new award would not pose any major hurdles to MISC. Overall, we are positive on the news as the securing of long-term contracts increases MISC’s petroleum tanker segment vessel delivery pipeline, of which it has 6 vessels scheduled for delivery between 2017 and 1H2019. In addition, the award comes amid a challenging petroleum tanker market which faces an oversupply of capacity.

Maintain NEUTRAL with unchanged TP of RM7.90 based on sum-of-parts valuation. Our NEUTRAL call is premised on the oversupply of tonnage in both the LNG and petroleum segments which exerts pressure on charter rates. Impetus for us to revisit our call on MISC include 1) a drastic change in supply-demand dynamics occur driving the LNG or petroleum transportation market closer to equilibrium, 2) the securing of sizable projects in the offshore segment and 3) earnings accretive acquisitions.

Source: MIDF Research - 23 Jun 2017