MISC Berhad Maintain NEUTRAL

(3816 | MISC MK) Main | Transportation & Logistics

Contract awards slowly gaining traction Unchanged Target Price: RM7.99

KEY INVESTMENT HIGHLIGHTS

• MISC and Avenir formed a JV company to manage the commercial operations of an LNGBV

• Petronas LNG awarded the JV company with a time charter party contract for a provision of one LNG bunkering vessel worth approximately RM117.0m, commencing in 1QFY20

• Contract is expected to provide additional earnings of RM8.0m per annum starting from FY20

• Earnings estimates for FY19 and FY20 unchanged

• Maintain NEUTRAL with an unchanged TP of RM7.99 per share

MISC teams up with Avenir. MISC Berhad (MISC) in collaboration with Avenir LNG Limited (Avenir) has been awarded a Time Charter Party by Petronas LNG Sdn Bhd (PLSB) for the provision of a 7,500m3

LNG Bunker Vessel (LNGBV) owned by Avenir to be operated in Malaysian and Singaporean waters. The service is in addition to the transport services for small-scale terminals in the region. The collaboration between both MISC and Avenir is reflected through the formation of a joint venture company, Future Horizon (L) Pte Ltd (FHLPL), which will manage the commercial operations of the LNGBV whereas ship management services will be provided by Eaglestar Shipmanagement (L) Pte Ltd. FHLPL will be 51% owned by MISC while the remaining to be owned by Avenir.

Estimated financial impact to MISC. The estimated contract value awarded by PLSB is USD28.0m (approximately RM117.0m) for a period of three years commencing from 1QFY20. Taking into account of MISC’s stake in FHLPL, we estimate that the revenue attributable to MISC from the said contract is circa RM19.9m per year. Assuming PBT margins of 40%, this translates to an additional PBT of approximately RM8.0m per annum. The expected contribution from this contract is below 1.0% of the PBT estimated for FY20.

Our view. Although this latest contract award has a rather small value and is the second award so far in 2019, we expect more contracts especially for the offshore segment to be dished out from October 2019 onwards as guided by the management. Meanwhile, we note that the said contract signifies MISC’s efforts to venture into non-conventional LNG solutions for niche markets in pursuit of long term sustainable returns.

Earnings estimates. No changes made to our earnings estimates for FY19 and FY20 as the impact from said time charter contract is minimal. Our forecasts have also not incorporated the potential job wins related to FPSO segment by MISC pending announcements which are expected to roll out in 4QFY19.

Target price. We are also maintaining our target price at RM7.99 per share Our TP is derived by pegging our FY20 book value per share to a 1.0x price-to-book value, which is +1.0 standard deviation above its five-year average.

Source: MIDF Research - 3 Oct 2019