• Maintain BUY (TP: RM10.30). MISC 1H24 core PATAMI of RM1.3bn (+7% YoY) was inline with both our and consensus’ estimate at 49% and 50%. 2Q24 core PATAMI grew 16.9% YoY to RM558mn mainly due to recovery in MMHE segment from huge cost provision incurred in 2Q23. A second interim DPS of 8sen was declared which bring 1H24 DPS totalling 16sen (1H23 DPS of 17sen). We remain optimistic on its outlook as we see it as one of beneficiaries from upcycle in O&G development capex. Maintain our BUY call on MISC with an unchanged SOP-derived TP of RM10.30.

• Key Highlights. 2Q24 core PATAMI declined by 20% QoQ due to (i) 31% decline in income from Gas segment to RM249mn (1Q24: RM361mn) due to contract expiry of LNG vessel and higher vessel operating cost, and (ii) income from Offshore segment plunged by 50% QoQ to RM73.2mn (1Q24: RM147mn) on lower construction revenue from FPSO Mero 3 which is at tail-end of construction phase and adjustment of cost provision. However, this was partially offset by (i) stronger MMHE result that rose to RM79mn (1Q24: RM14mn) aided by successful claim of cost recovery pertaining to huge cost provision of c.RM450mn incurred in FY23, and (ii) better result from Petroleum segment of RM402mn (1Q24: RM390mn).

• Earnings forecast. No change.

• Outlook. We expect MISC to post robust earnings in 2HFY24 to be driven by (i) stronger Offshore segment from commencement of lease charter operation from FPSO Mero 3, (ii) turnaround at MMHE following completion of loss-making ‘legacy projects’, and (iii) elevated petroleum tanker rate (refer to Chart 1). In the medium term, income from Gas segment will be boosted by delivery of 17 new LNG carriers including 12 vessels under operation of JV company. The schedule of deliveries are as follow: 4 vessels in 2025, 11 vessels in 2026, and 2 vessels in 2027.

Source: BIMB Securities Research - 26 Aug 2024