Brighter offshore, LNG and shuttle tanker prospects seen for MISC


KUCHING: MISC Bhd’s (MISC) outlook have been viewed positively, driven by improving jobs prospects in the offshore, liquified natural gas (LNG), and shutter tanker segments.

In a report, the research team at AmInvestment Bank Bhd (AmInvestment) said it upgraded its call on MISC from ‘buy’ to ‘hold’ premised on its higher earnings expectations and given its significantly improving job prospects.

“(MISC’s) management has indicated that prospects over the past two months have substantively improved from the project scarcities experienced during the first half of the financial year 2019 (1HFY19).

“Hence, MISC expects an active bidding market to materialise in all its key segments, offshore floaters, LNG and shuttle tankers,” it said.

However, it noted that its forecasts have not reflected the potential US$1 billiponprojects which MISC expects to secure over the next 12 months, pending official announcements progressively starting from October this year. This is only a portion of the over US$4 billion potential investments which could be in the pipeline.

“The largest of the group’s tender prospects will be the US$2 billion Mero-3 floating production, storage and offloading (FPSO) vessel for Petrobras, which will have a capacity of processing 180,000bpd of oil and 12mil cubic metres of natural gas per day,” it highlighted.

The research team also pointed out that MISC, in a technical joint venture with Siemens Group and SGXlisted Sembcorp Marine, is running against Modec and SBM Offshore in the bid which is expected to open December this year.

“An award is likely by April 2020 with operational commencement in 2024. Assuming a project IRR of 12 per cent weighted average cost of capital (WACC) of 6.5 per cent and equity stake of 50 per cent, we estimate that a successful bid could raise the group’s sum-of-parts (SOP) by 45 sen per share,” it added.

MISC is also bidding together with Yinson Holdings for Petronas Carigali’s Limbayong FPSO against Sabah International Petroleum and a consortium between MTC Group and India’s Shapoorji Pallonji Oil & Gas.

“Together with multiple LNG vessel and shuttle prospects emerging in North America, Australia and Qatar, the group expects to be bidding for long-term charters to provide accretive step-ups in its sustainable earnings base,” it explained.

Meanwhile, AmInvestment said VLCC and Suezmax tanker rates are currently higher year-on-year (y-o-y) by nine to 81 per cent, with the coming seasonality towards the end of the year likely to drive them even higher depending on the severity of the northern hemisphere’s winter cycle.

“Management reaffirmed that MISC’s earnings will not be impacted by the IMO2020 regulations on low-sulfur marine fuel by January 2020 as the group has been in preparation since 2017,” it added.

Overall, AmInvestment noted that the stock currently trades at an attractive FY20F enterprise value per earnings before interest, tax, depreciation and amortisation (EBITDA) of eight-folds – 20 per cent below its two-year average, and supported by fair dividend yields of four per cent.