We recently visited Mero 3 FPSO at CIMC Raffles Shipyard in Yantai, China. We came back from the visit feeling more confident in MISC’s ability to bid for and complete future FPSO projects. Given its clean audit results, Mero 3 will be the first FPSO to head directly to Brazil’s offshore oil field without stopping for further audit. Mero 3 also broke the record by achieving more than 28mn safe man-hours with zero LTI. Considering Mero 3’s clean audit and exceptional safety profile, we believe MISC will be the top contender for future FPSO projects. No change to our earnings forecasts. Maintain Buy with an unchanged TP of RM8.00/share based on 15.5x CY24 EPS.

Site Visit to Mero 3 at Yantai, China

We recently visited Mero 3 FPSO at CIMC Raffles Shipyard in Yantai, China. We came back from the visit feeling more confident in MISC’s execution of Mero 3 and the group’s ability to bid for and complete future FPSO projects.

To recap, Mero 3, formally named as FPSO Marechal Duque de Caxias on 17 Jan 2024, has processing capacity of 180k barrels of oil per day and 12mn cubic metres of natural gas per day as well as storage capacity of 1.45mn barrels of oil. Mero 3 is MISC’s first FPSO contract with an international client not linked to its majority shareholder Petronas.

First FPSO to Directly Reach Brazil’s Offshore Oil Field

Mero 3 has completed all the prerequisites for sailaway, including audit by the Brazilian National Agency of Petroleum, Natural Gas and Biofuels (ANP), DNV engineering safety studies and customs declaration. In fact, Mero 3 is the first FPSO with no non-conformance to ANP’s audit at this stage. The clean audit result enables Mero 3 to head directly to its site in the Mero Field, about 180km offshore Rio de Janeiro in Libra Block, Brazil. Mero 3 will be the first FPSO to head directly to Brazil’s offshore oil field without stopping at Brazilian shallow waters for further audit by ANP.

Potential Bonus of Standby Rates

Mero 3’s planned departure date is 18th February 2024 while the expected arrival date is on 15th May 2024 (around 87 days of travelling). Mero 3 will commence its 22.5-year charter upon first oil/final acceptance expected on 2nd August 2024. If FPSO is ready as scheduled but Petrobas is not prepared to receive it, MISC will be entitled to bonus standby rates (90-95% of DCR), which is not included in the term of the charter.

Exceptional Safety Profile

Mero 3 boasts an exceptional safety profile, breaking the record by achieving more than 28mn safe man-hours with zero lost-time injuries (LTI). The perfect record was only broken recently when a worker suffered a fracture after slipping on an icy surface. Even so, Mero 3 managed to achieve 30mn man-hours with only 1 LTI.

Outlook of Offshore Segment

We understand that MISC is currently bidding for other FPSO projects in Brazil and West Africa. The group intends to cap construction of FPSO projects at one big and one small FPSO at any given time. According to management, Mero 3 qualifies as the highest tier of project in terms of complexity from Petrobas. Considering Mero 3’s clean audit results and exceptional safety profile, we believe MISC will be the top contender for future FPSO projects.

Impact

No change to our earnin

Valuation

Maintain Buy with an unchanged TP of RM8.00/share based on 15.5x CY24 EPS.

Source: TA Research - 6 Feb 2024