DEVELOPMENT

• MISC Bhd (MISC) had announced a few developments in its operations, which includes: o Shipbuilding contracts signed with Samsung Heavy Industries Co. Ltd. (SHI) for the construction of 2 newbuild LNG carriers (LNGCs). The new LNGCs will enter time charters with PETRONAS LNG Ltd. (PLL). The LNGCs will be delivered in CY27 and chartered for 15 years. o A letter of intent (LOI) was signed with PETRONAS LNG Sdn. Bhd. (PLSB) for the provision of long-term LNG shipping services to PLSB and/or its subsidiaries which involves the time charter of the new LNGs. o Agreement with PLSB to the early termination of the time charters of 3 existing steam LNGCs - Seri Ayu, Seri Angkasa and Seri Begawan - with the last charter in CY27/28. Additionally, MISC entered time charters for 2 LNGCs - Seri Alam and Seri Amanah - upon expiry (CY25 and CY26) of their existing time charters. MISC will receive monetary compensation from PLSB for the former.

OUR VIEW

• In line with MISC's sustainable strategies. These developments are in support of MISC's strategic intent to rejuvenate its LNG fleet with modern and efficient vessels. This is also a part-and-parcel of achieving GHG emission and intensity reduction by 2030, in accordance with its internal sustainability strategies, as well as external policies and regulations by the International Maritime Organisation (IMO) 2020 Sulphur Cap and GHG Reduction Strategy.
• Bright outlook for LNGCs. Additionally, LNG continues to be seen as a key component in energy transition, by reducing reliance on coal and lowering GHG emissions. In the local front, Malaysia is poised to be the world's leading LNG exporter, in line with the increased investments in LNG infrastructures, including LNGCs, regasification terminals and pipelines to cater for the increased demand. We believe the LNG market is likely to contribute significantly to Malaysia's economy in the long run.
• Maintain positive but cautious on LNG market volatility. With the growing demand expected for LNG in the Asian region, we opine that these transactions are timely and apt. The demand for LNG, notably in East and Southeast Asia, is expected to rise in tandem with the increased discovery of gas fields within the region. All in all, we maintain positive on these transactions. Despite the optimistic outlook for LNG demand, we noted that there are risk factors to consider, including: (i) gas market volatility affecting LNG prices, (ii) environmental challenges in terms of methane emissions from LNG combustion, and (iii) capital-intensive development and maintenance for LNG infrastructure. The transactions may also be affected by commercial, project execution and operational risks. However, given MISC's expertise in the maritime industry, we believe the group would take appropriate action plans to mitigate these challenges.
• We make no changes to our forecast projection for MISC at this juncture, considering that the shipbuilding project will only commence in CY27 and furthermore to enter time charters. We maintain our BUY call, with a target price of RM9.75.

Source: MIDF Research - 2 Oct 2024