Overall, we are positive on the group’s increasing commitments towards ESG, whilst our outlook on the company mostly unchanged. BUY with TP of RM8.10 pegged to 1.1x PBV. We still like the name as a blue-chip dividend play (~5% yields), coupled with its ESG commitments

All-in-all, the group seems prepared to meet IMO’s decarbonisation strategies, and stands behind its recent investments into dual-fuel LNG vessels as a more environmental-friendly option. Moving forward, the group will also continue its existing strategy of retiring old fleets that are deemed too uneconomical to be retrofitted, with upcoming newer fleets to be well equipped to meet stricter emission targets. While the group does not have an internal carbon emission target, management has guided that it is something that the group is working on. Management is also seeking to further increase its ESG disclosure by end-FY21. MISC will be open to future sources of propulsion (e.g. hydrogen fuel) once the technology is ready in the far future to replace the existing combustion propulsions.

After securing the Mero 3 FPSO project in 2020, the group is currently looking to preserve its capital and is not expected to pursue any large projects for the next 1-2 years, even despite a rise in global FPSO tender opportunities. This would also mean that the group will not be participating in bids for Total’s Suriname oil project, dismissing news articles from Upstream. However, one project the group is looking to participate is Limbayong FPSO, offshore Sarawak. Capex size is expected to be ~USD500m, with project award date likely to be in 3QFY21. Over the longer-term, MISC says it targets to land another major FPSO project in next five years, coupled with another 2-3 small/mid-sized ones.

Spot tanker rates to remain challenging. Management has also stated that it expects petroleum tanker charter rates to remain weak, and is not expected to recover to 2020 levels anytime soon. This would translate to continued weak performance for its petroleum shipping segment, of which 33% is exposed to the spot market (as at 1QFY21).

Source: Rakuten Research - 2 Jun 2021