INVESTMENT HIGHLIGHTS

• Contract award for four DP Shuttle Tankers

• Contract duration for 10 years beginning from 2020

• Positive on the award

• Revise earnings downwards amid short term volatility in tanker market

• Maintain NEUTRAL with reduced TP of RM6.13 per share

Contract award for 4 DP shuttle tankers. MISC announced in a Bursa filing that it has been awarded a long term contract to own and operate four specialist DP2 Suezmax size Shuttle Tankers from Petrobras of Brazil for operations in international and Brazilian waters.

Contract duration. The firm charter contract period will be for 10 years. Subsequently, MISC has commissioned a Korean shipyard to build the vessels expected for delivery in 2020, to be contracted to Petrobras. Each vessels will be installed with high power thrusters and generators that are fully capable of operating in harsh weather conditions. While no capex figure was mentioned, we believe it should not pose any hindrance to MISC which has a net gearing of 0.19x as of 31 March 2018.

Our view. In the Brazilian Basin, MISC currently owns and operates two AET DP2 shuttle tankers for Petrobras. Hence, the new award should not pose any major hurdles to MISC. Overall we are positive on the news as the long term charter contracts increases MISC’s petroleum tanker segment delivery pipeline in the long run. Note that that such contracts do not entail any bunker costs as it is borne by the charterer. Moreover, the award comes amid a challenging petroleum tanker market which faces an oversupply in the market.

Earnings forecast. The contract coupled with a possible pickup in scrapping activities will bode well for MISC’s petroleum segment in the long run in terms of freight rates. However, we are exercising further caution in the petroleum tanker market for the near term amidst a confluence of factors such as; (i) fresh U.S sanctions on Iranian oil exports that could further deteriorate earnings of the petroleum segment and; (ii) falling Venezuelan output. Therefore we are revising our earnings forecast downwards for FY18 and FY19 by -7.0% and - 5.0% to reflect this situation.

Source: MIDF Research - 28 May 2018