Date: October 14, 2024
Broker: UOB Kay Hian
Company Overview
MISC Berhad (MISC MK) is a shipping company involved in the transportation and offshore services sectors. It operates Very Large Crude Carriers (VLCCs), Suezmaxes, and Aframaxes in its petroleum fleet. In addition, it has an offshore fleet that includes Floating Production Storage and Offloading (FPSO) units. The company employs finance lease accounting for assets with long-term charter contracts.
Share Price and Target Price
- Current Share Price: RM7.81
- Target Price: RM10.10
- Upside Potential: +29.3%
Stock Information
- GICS Sector: Industrials
- Bloomberg Ticker: MISC MK
- Shares Issued (Million): 4,463.7
- Market Cap (RM Million): 38,165.0
- Market Cap (US$ Million): 8,111.2
- Average 3-Month Daily Turnover (US$ Million): 7.6
- 52-Week High/Low: RM8.90/RM7.03
Major Shareholders
- Petroliam Nasional Bhd (Petronas): 51.1%
- Employees Provident Fund: 11.6%
Financial Highlights (Forecasts)
- Net Turnover (2024F): RM15,731 million
- EBITDA (2024F): RM5,722 million
- Net Profit (2024F): RM2,601 million
- Earnings Per Share (EPS, 2024F): 58.3 sen
- Price-to-Earnings Ratio (2024F): 14.7x
- Dividend Yield (2024F): 3.8%
Strategic Updates and Key Developments
1. FPSO Marechal Duque de Caxias (Mero-3) Update
MISC’s FPSO Mero-3 has received its Operational Safety Documentation (DSO) approval from Brazil’s Petroleum Agency (ANP), marking a near-completion of its commissioning phase. The company expects first oil from this platform by early October 2024. The approval is seen as a critical milestone, although the Brazilian Institute of Environment and Renewable (IBAMA) is yet to grant the operating license.
The Brazilian Federal Agencies Crisis had previously delayed the permitting process due to strikes and budget cuts, impacting production timelines.
2. Petroleum Segment
Tanker rates in the petroleum segment are expected to remain strong despite a drop in seaborne oil cargo volumes in 1H24. Tanker demand has increased due to longer sailing distances via the Cape of Good Hope. Although the market may normalize in 2025, tanker supply growth remains limited. Time charter (TC) rates and newbuild crude tanker prices increased by 7% year-on-year in 1H24, with second-hand tanker prices up by 15%.
3. Liquefied Natural Gas Carriers (LNGC) Market
The global LNG carrier market faces headwinds with fleet expansion outpacing liquefaction capacity. MISC’s 2Q24 results showed lower earnings from its gas segment due to weak renewal rates and spot LNG vessel utilization. Approximately 54 new LNGCs have been added to the global fleet in 2024, with more scheduled for 4Q24/1Q25 delivery. Spot rates for modern LNG tankers have fallen to US$60,000 per day, far below the breakeven rate of US$90,000-100,000 per day.
Leadership Changes
Former CEO, Captain Rajalingam Subramaniam, joined Fleet Management Limited (FML) as “CEO Elect” in October 2024. His departure from MISC in August 2024 had raised market speculation about potential strategic shifts, including possible merger rumors with Bumi Armada.
Petronas has restructured MISC to become part of its core business portfolio, combining its maritime segment with the gas division. This is seen as a response to adapt to evolving energy trends and the need to reconsolidate the gas value chain, especially with a decline in local revenue sources for Petronas.
Financial Projections (2024-2026)
- Revenue Growth (2024F): 10.2%
- EBITDA Growth (2024F): 13.8%
- Net Profit Growth (2024F): 22.5%
Environmental, Social, and Governance (ESG) Updates
Environmental Initiatives:
MISC is investing in LNG-dual and ammonia-fueled vessels to achieve its goal of reducing greenhouse gas emissions by 50% by 2030, with a long-term aim for net-zero emissions by 2050. The company also promotes green ship recycling to minimize waste from outdated vessels.
Social Initiatives:
The company has a diverse workforce, with employees representing over 20 nationalities, and females constituting more than 23% of onshore staff. Safety metrics also show strong performance, with a Lost Time Injury Frequency (LTIF) of 0.09.
Governance Initiatives:
MISC has received a 5/5 rating under the FTSE4Good governance and supply chain management criteria.
Risks and Valuation
The LNG carrier market’s uncertain outlook due to overcapacity remains a key risk. However, MISC’s petroleum segment continues to benefit from strong tanker rates. The company’s long-term earnings potential is supported by its strategic importance to Petronas and growth in its petroleum and offshore segments, particularly the Mero-3 FPSO project.
The stock is valued at a target price of RM10.10, based on a sum-of-the-parts (SOTP) valuation, and trades at a 2025F PE multiple of 16x. The valuation reflects MISC’s competitive positioning and potential synergies with Petronas’ strategic growth and logistic ambitions.
