• Keep BUY, with new SOP-derived MYR8.04 from MYR7.79 TP, 13% upside and c.5% yield. We are positive on the additional five LNG carrier charter contracts secured by MISC’s 4-party consortium with other established Asian shipping companies, which should increase its recurring income base. We believe the company stands a chance to win more gas projects amidst strong global LNG demand and continues to benefit from the strong USD.

• Another five contracts from Qatar Energy. MISC, through a consortium (25% equity stake each) with Nippon Yusen Kabushiki Kaisha, Kawasaki Kisen Kaisha, and China LNG Shipping, was awarded long-term time charter contracts by Qatar Energy for another five newbuild LNG carriers. These vessels, which will be built by Hudong-Zhonghua Shipbuilding, are expected to commence operations by 2025.

• Expanding its LNG fleet size. We are positive on the contract wins, as it will expand MISC’s current LNG fleet size of 30 (effectively by 1.25 vessels) and provide recurring income in the long term. Including the seven vessels win secured back in August, this brings to a total of 12 vessels awarded by Qatar Energy to the consortium (effectively 3 vessels). The consortium partners are established Asian shipping companies. These five vessels will have a capacity of 174,000 cbm each, similar to previous win.

• While there is limited disclosure on the contract details, we believe the daily charter rates are similar to those of the previous win, in the range of USD80-90,000/day. This is despite LNG charter rates strengthening in the past few months as tenders were submitted at an earlier stage. Spot charter rates have surged >200% in some regions and average 1-year and 3-year time charters have also increased by 30% and 12% MoM to USD175,000/day and USD125,000/day in September. At the same time, the cost of building a new vessel has escalated by >40% to as high as USD244m in September (+1.7% MoM). As we are guided that the firm tenure is kept below 20 years, it is likely to be in the range of 10-15 years.

• BUY. Assuming each vessel costs USD220m, with 15-year firm tenure and USD90,000/day DCR, the IRR would be c.9%. At 7.5% WACC and 25% equity stake, we value the contracts at MYR0.02/share and should contribute MYR25-30m net profit (<2% of FY23F earnings). As MISC’s balance sheet is solid, with a net gearing at 0.3x in 2Q22, we believe it is capable of funding the equity portion of net capex estimated at USD83m, assuming 70% debt financing. We increase our earnings estimates by 2- 7% after adjusting our FX assumptions upwards accordingly. Our SOP- based TP includes a 0% ESG premium/discount, based on its 3.0 ESG score.

• Risks: Weaker-than-expected petroleum tanker rates and contract cancellations of long-term contracts.

Source: RHB Research - 4 Nov 2022