MISC Berhad is favoured by research houses, as it had secure a contract worth USD213.7 million, or RM1 billion, over 20 years for the provision of supply, operation and maintenance of FSU to a Pengerang LNG (Two) Sdn Bhd (PLNG2SB).
Kenanga, in its Company Update note today (Nov 1), said as the expected operational date for the contract in 2025 as well its expected recurring earnings, it maintains its earnings forecasts.
“We estimate the contract will contribute to a c.RM7.2million recurring annual PAT from FY25, which is beyond our forecast period.
“Based on 7.6% WACC and 80:20 debt to equity ratio of the FSU project financing, our model suggests that the contract would contribute
additional DCF value of RM0.02/share to our SoP valuation.
“Within our DCF model, we have assumed project IRR of 11% (consistent with average IRR for LNG and FPSO projects based on historical data),” it said.
As a result, the research house said its SoP TP is revised up slightly to RM7.62 from RM7.60. It also maintains its MARKET PERFORM call.
Kenanga said MISC will convert one of its Puteri Satu Class LNG carriers, namely Puteri Delima Satu, which completed her long-term charter in early 2023 and currently lay-up, into the Floating Storage Unit (FSU) for the said provision.
“Contract win a positive with recurring earnings expected. We are positive on the win as the new contract would result in the FSU
contributing for 20 years (from start-up in 2025).
“Project execution risk is low for this contract as the group has already executed multiple LNG-related projects previously, hence we expect the project to be completed on time with minimal hiccups operationally,” it said.
It added Puteri Delima (vessel to be converted for FSU contract) was a LNG shipping vessel built by MISC back in 2002 and has been consistently contributing to the group’s LNG segment earnings until early 2023.
“Therefore, we feel encouraged by the announcement as the contract has breathed new life into the aging LNG vessel (21 years old),” it said.
Its risks to our call include lower-than-expected utilisation and spot rates for petroleum fleet.
Meanwhile, Maybank Investment Bank Berhad (Maybank IB) echoes Kenanga sentiment on MISC albeit mildly, and upgrades its HOLD call to BUY, with a revised SOP-TP of MYR7.87 from MYR7.19.
“We revise FY23-25E net profit forecasts by +7%,+1%,+5% respectively, with dividend payout estimates of 37sen/40sen/40sen (from a fixed payout of 33sen previously).
“Based on our estimates of: DCR of USD25k; EBITDA margin of 80%; PAT margin of 30%; and long-term USD/MYR assumption of 4.5, this job will contribute about MYR10.5 million to MISC’s bottom-line annually, which is less than 1% of our FY25E net profit estimates.
“With that, we are only mildly positive on this development,” it said.
Similar to Kenanga, Maybank IB also pointed out that MISC will be making use of its unutilised asset to convert its Puteri Delima Satu LNG carrier for the job.
“We estimate the conversion capex to be USD50m and the IRR for this venture to be at a healthy level of 15%. Besides that, based on our findings, we highlight that 2 more LNG leases are set to expire in FY23E, Letici and Puteri Nilam, while 3 more charters are set to expire in FY24E, Portovenere, Puteri Zamrud Satu and Puteri Firuz Satu.
Both research houses like MISC for different reasons. For Kenanga, it highlighted the recent fleet expansion and modernization across key divisions while Maybank likes defensive nature from its LT LNG charters which provide recurring cash flows.
Maybank IB’s risks to call include abrupt changes in the momentum of petroleum tanker rates and bunker prices may lead to lower earnings for MISC.
