• The Edge reported that MISC is likely in discussion with Bumi Armada’s shareholders to acquire a substantial stake in the latter.

• We are unconvinced with such idea given the current landscape of limited funding opportunity to finance new FPSO project that would offer more lucrative return over the long-term charter contract.

• Separately, there will be 2 local FPSO projects in the horizon namely for Salam-Patawali oilfield and Kikeh FPSO replacement project. As the largest owner of FPSO in Malaysia, we believe MISC will be evaluating to participate in this project.

• The stock price has gained by 32% over the past 12-months. However, we still see upside to the stock price. Maintain our BUY call on MISC with an unchanged SOP-derived TP of RM10.30 which implies 18x FY24F P/E.

Rumors on MISC Taking Stake in Bumi Armada

TheEdge reported that MISC is in discussion with shareholders of Bumi Armada to take a substantial stake in the latter. The company has also replied to questions from TheEdge that it is actively exploring investment opportunities that have the potential to add value to its shareholders.

Our View

We are unconvinced that MISC is taking such step as we believed that there is lack of economic sense for that transaction to happen. This is primarily due to abundance of investment opportunities elsewhere that can generate substantial returns to shareholders. For example, there are strong demand for FPSO currently amidst the upcycle in offshore development projects. We understand that MISC is evaluating new FPSO project opportunity as ongoing project in hand (i.e. FPSO Mero 3) is close to completion. Locally, as reported by Upstream news, there will be tenders for 2 FPSO projects namely new Salam-Patawali FPSO (ConocoPhillips) and Kikeh replacement FPSO (PTTEP). Given the funding issues that are been facing by the company and FPSO players globally, we think the said acquisition is a waste of financial resource.

Maintain BUY on MISC with TP of RM10.30

We maintain our BUY call on MISC with unchanged SOP-derived TP of RM10.30. This implies 1.1x FY24 P/B and 18x FY24F P/E. We favour MISC due to (i) proxy for growth in frontier oil and gas development projects through FPSO projects, (ii) recurring income from its assetleasing business model and (iii) decent dividend yield of c.4-5%.

Source: BIMB Securities Research - 8 Jul 2024