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MISC shares up 16 sen after securing Qatari LNG shipping charter contracts

Shares in MISC Bhd rose as much as 16 sen in the morning trading session on Thursday (Aug 11) on news that MISC via a consortium bagged liquefied natural gas (LNG) shipping charter contracts from Qatar’s state-owned energy company QatarEnergy.

At 10.30am, MISC pared some of its gains, but was still up 10 sen or 1.4% at RM7.23 with 122,700 shares traded. The stock earlier had risen to a high of 16 sen or 2.24% to RM7.29 from its last closing price of RM7.13.

In a Bursa Malaysia filing on Wednesday, MISC said the shipping company via a consortium with Nippon Yusen Kabushiki Kaisha (NYK), Kawasaki Kisen Kaisha Ltd (K-Line) and China LNG Shipping (Holdings) Ltd (CLNG) had been awarded LNG shipping charter contracts by QatarEnergy for seven new LNG carriers (LNGCs), which will be built by Hyundai Heavy Industries Co Ltd.

MISC, however, did not specify the value and duration of the LNG shipping charter contracts which will involve LNGCs with a capacity of 174,000m3 each.

MISC is a 51%-owned subsidiary of Malaysian national oil company Petroliam Nasional Bhd (Petronas).

MISC said it has agreed on the principal terms for the consortium and each consortium member will have an equal equity interest of 25% in each awarded LNGC.
According to MISC, it will enter into shareholders’ agreements with the consortium through MISC’s wholly owned subsidiary Portovenere and Lerici (Labuan) Private Ltd.

In a separate statement on Wednesday, MISC president/group chief executive officer Datuk Yee Yang Chien said MISC remains committed towards promoting a sustainable future for the LNG industry.

Meanwhile, eight out of the 13 active analysts covering the stock have “hold”, “market perform” and “neutral” recommendations despite MISC’s share price rising 19 sen year to date. The remaining five analysts have rated MISC with “add”, “buy” and “outperform” calls.

Hong Leong Investment Bank Research analyst Jeremie Yap in a note said the latest contract win will only improve MISC’s FY25 estimated earnings by less than 3% on a 25% stake based on the research house’s back-of-the-envelope estimates and as such the firm was only mildly positive on this development.

Yap, who maintained a “hold” call on MISC with an unchanged target price (TP) of RM7.67, opined that downside is supported for MISC due to its defensive nature and its portfolio of long-term charters which will provide consistent, recurring cash flows.

This is in addition to MISC’s relatively fixed dividend payout policy of 33 sen per year, translating into a decent dividend yield of 4.6% annually based on current share price, which has already priced in the positives of higher petroleum spot tanker rates.

Kenanga Research analyst Steven Chan, who maintained “market perform” albeit with a slightly lower TP of RM7.55 (from RM7.70), was positive on the contract win, being a continued replenishment to its LNG fleet although immediate earnings impact may be smallish.

His back-of-envelope calculations suggest an average earnings per year impact of roughly RM31 million, taking into account MISC’s 25% stake, based on three estimated assumptions namely charter period of circa 15 years, capital expenditure (capex) per vessel of circa US$230 million — broadly in line with current newbuild market rates, and internal rate of return (IRR) of circa 9%.

“Being the main bread and butter for MISC, the LNG segment continues to be the group’s biggest earnings and cash flow contributor. This contract win will further strengthen its current LNG fleet of circa 30 vessels,” said Chan.

With more than 10 long-term LNG contracts expected to expire in the coming three to four years, Chan expects the group to be more aggressive in its bidding activities in order to make up for the anticipated short-fall of cash flows.

This is as the market rates for three-year LNG carrier charters are currently near a multi-year high, and hence, upcoming contracts secured would yield much better returns should some of these older vessels be repurposed.

“Meanwhile, we understand that the group is also aggressively bidding for a floating production, storage and offloading (FPSO) contract for TotalEnergies’ Cameia project in Angola, in partnership with Saipem.

“Looking ahead, we expect the upcoming 2QFY22 reported earnings to be weaker, as we anticipate the group to recognise impairments and provisions following the continued delays and cost escalations for its Mero-3 FPSO, currently undergoing conversion and fabrication works at CIMC Raffles shipyard in China,” added Chan.

RHB Research analyst Sean Lim, who kept a “neutral” call and TP of RM7.79, was positive on the seven LNG carrier charter contracts secured by MISC’s four-party consortium with other established Asian shipping companies, which should increase its recurring income base.

“At 7.5% weighted average cost of capital (WACC), US$220 million per vessel, and 9% IRR, we value these contracts at 10 sen per share and expect [them] to contribute circa RM35 million to RM40 million net profit from 2025.

“As MISC’s balance sheet is solid, with net gearing at 0.28 times in 1Q22, we believe it is capable of funding the equity portion of net capex, estimated at US$120 million, assuming 70% debt financing,” said Lim.
Source: The Edge Markets

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