An official blog in I3investor to publish research reports provided by RHB Research team.
All materials published here are prepared by RHB Investment Bank Bhd. For latest offers on RHB Invest trading products and news, please refer to: http://www.rhbinvest.com
RHB Investment Bank Bhd Level 3A, Tower One, RHB Centre Jalan Tun Razak Kuala Lumpur Malaysia
Downgrade to NEUTRAL from Buy, MYR7.79 TP, 6% upside with c.5% yield. MISC’s 1Q22 results are within our expectations, but fell short of the Street estimate. Our downgrade is premised on our caution over the potential cost overrun on the Mero 3 project, which is now 40% completed with a 3-month delay in its progress. MISC is still in discussions with Petrobras over the new deadline, as opposed to the original final acceptance scheduled for 1H24.
1Q22 core earnings of MYR373m (+13% YoY, 34% QoQ) are in line with our but below Street projections,at 24% and 19% of full-year estimates. A first DPS of 7 sen was declared (1Q21: 7 sen), as expected.
Results review. MISC’s 1Q core profit improved 34% QoQ and 13% YoY to MYR373m, on the back of a stronger LNG segment and narrower losses from heavy engineering as a result of lower cost provisions. This was offset by a weaker offshore performance (-11% QoQ, -50% YoY), no thanks to higher Mero 3 construction cost provisions arising from the global supply chain disruption and the recent lockdowns in China. As for the petroleum segment, revenue rose 5% QoQ and 12% YoY due to higher freight rates – but profit (-24% QoQ, -6% YoY) remained under pressure, being dragged by lower margins.
Earnings to recover in FY22F. Management guided that the Mero 3 project cost has risen by 5-7%, and does not discount the possibility of further provisions if the supply chain disruption and China lockdown continues. Currently, Mero 3 is 40% completed, with a 3-month delay in its progress. MISC is still in discussions with Petrobras over the new deadline, vs the original final acceptance that was scheduled for 1H24. On the other hand, its term-to-spot ratio within the petroleum division decreased to 65:35 from 71:29 in 4Q21, predominantly led by a higher number of VLCCs turning to spot charters. As such, the improvement in Aframax and Suezmax rates could then be offset by weakness in the VLCC spot charters. Where there is one Dynamic Positioning (DP2) Shuttle Tanker 2 LNG carriers to be delivered in 2H22, there are also two, two and then three LNG long-term contracts due in 2022, 2023 and 2024. Its current bidbook is c.USD2-3bn, on which the company sees better opportunities in securing new LNG and offshore contracts.
We maintain our earnings estimates and SOP-based TP of MYR7.79 after rolling forward our valuation base year to FY23F and ascribing higher capex for Mero 3. MISC’s balance sheet remains solid, with net gearing well kept at 0.28x as at 1Q22. We have a 0% ESG premium or discount applied, since its ESG score of 3.0 is on par with our country median. Downside risks to our call: Weaker-than-expected petroleum tanker rates, and unexpected contract cancellations of long-term contracts.
This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....