Investment Highlights

• We maintain HOLD on MISC with an unchanged sum-of-parts (SOP) based fair value of RM8.21/share, which also reflects a premium of 3% for our unchanged 4-star ESG rating. This implies an FY22F EV/EBITDA of 10x, 1 standard deviation above its 3-year average of 9x.

• MISC, through a 4-party consortium with Nippon Yusen Kabushiki Kaisha, Kawasaki Kisen Kaisha and China LNG Shipping (Holdings), has been awarded a long-term time charter parties contract by QatarEnergy to provide 7 units of 174,000 m3 newbuild liquefied natural gas carriers (LNGCs).

• These LNGCs will be built by Hyundai Heavy Industries and are expected to commence operations under long-term charters starting from 2025.

• While all four consortium members including MISC will each effectively own a 25% stake in the awarded LNGCs, we note that joint venture companies will be formed to manage operations of these vessels.

• Assuming a conservative IRR of 10%, LNGC newbuild price of US$200mil per vessel, 50:50 debt-to-equity ratio and 15- year charter firm period, we estimate the long-term time charter award could slightly increase MISC’s FY25F core net profit by 3% given the group’s huge asset base while raising its FY24F net gearing ratio of 12% currently to a still comfortable 16%.

• Overall, we are positive on this charter award as it will further expand MISC’s gas assets and solutions segment, which accounted for 76% of 1QFY22 group total operating profit. The group currently owns and runs 30 LNG vessels as of end- 1QFY22 while expecting the delivery of 2 newbuild units by 1H2023.

• Within its LNG shipping operations, time charter contracts for 2 vessels are expected to expire in 4QFY22. However, management previously hinted at potential contract extensions with Petronas. Subsequently, contracts for another 2 vessels are also scheduled for expiry in 2023.

• Recall that LNG spot rates were trending downward in 1QFY22 as Asian-bound cargoes were diverted to Europe due to the Russia-Ukraine conflict coupled with weaker LNG demand from China induced by stringent lockdowns. Since then, the average spot rates have doubled from US$39K/day in March 2022 to US$81K/day in June 2022 (Exhibit 2).

• We expect the company’s 1HFY22 results, which will be announced on 18 August 2022, to be in line with expectations. MISC currently trades at a compelling FY23F EV/EBITDA of 8x, 11% below its 3-year average of 9x.

Source: AmInvest Research - 11 Aug 2022