The five charter renewals for MISC’s  Puteri Class LNGCs  end investors’ earlier  concerns  over  its  soon-to-be  expired  charters  not  being renewed.  As  its  five  newbuild  vessels  will  also  engender  a  much needed  fleet  expansion  and  boost  sustainable  earnings,  we  lift  our long-term  DCF  earnings  estimate  from  LNG  shipping  and  raise  our SOP-based TP to MYR9.56 (25% upside) from MYR9.38. Maintain BUY.

Five new vessels and charter renewals each. MISC has entered into a novation  agreement  with  Petronas  and  Hyundai  Heavy  Industries (009540  KS,  NR) to construct five newbuild liquefied natural gas carriers (LNGCs), which will be delivered in Sep 2016-Dec 2017. This will involve an expenditure of c.USD1.1bn  (or USD220m per LNGC). MISC has also entered  into  a  15-year  time -charter  agreement  with  Petronas  LNG  SB (PLSB), with an option to extend for an additional five years. Separately, it  also  agreed  to  extend  the  charters  of  five  refurbished  Puteri  Class LNGCs  on  a  time-charter  basis  for  another  10  years  for  each  vessel,expected  to  commence  from  Sep  2015  to  Sep  2017.  We  believe  itscapex should be sufficiently funded by internal means,  with  the  need to raise  substantial  borrowings  being  minimal  –  given  MISC’s  growing earnings base. Its FY14 cash pile stood at MYR4.84bn.

Forecasts.  While  these  developments  were  widely  anticipated  by  the market, we have not input the  earnings contribution from the  new  LNGsinto our estimates.  Daily time -charter rates  that were locked in could be at c.USD83,000  by then,  with an average  PBT margin of approximately 50%  and  implying  a  full-year  contribution  of  c.USD15.2m/vessel annually.  At  its  LNG  shipping  unit’s  FY14  PBT  of  USD483.6m,  this implies  an  average  PBT  of  USD16.67m  per  LNGC.  We  estimate additional PBT contributions from the new vessels  in FY16  (one  LNGC) and FY17 (four LNGCs) at c.USD5.9m and c.USD28.5m respectively. By FY18, all five new LNGCs may contribute annual PBT of USD76.9m. We also lift  our  FY16F  earnings  for  its  LNG  shipping  segment upon  MIS securing the time-charter  renewal contracts, as these were likely locked in  at  higher  rates  of  USD79,200/day  (vs  USD50,000/day  previously assumed).  Still,  as  the  renewed  charters  will  only  begin  in  Sep  2015 onwards  – later  than  we had expected  – we trim  our FY15F earnings  by USD4.4m.  Thus, our FY15F/16F  earnings are tweaked  by  -0.6%/+3.3% respectively. We also introduce our FY17 numbers, whereby we forecastearnings to grow by 7.2% YoY, driven by the five new LNGCs in its fleet.

Maintain BUY,  as the higher DCF earnings from LNG  shipping  lifts our SOP-derived TP to MYR9.56 from MYR9.38. 

Source: RHB