Smooth sailing for MISC in 2H19 on new job wins


MISC Bhd expects a strong second half of the year (2H19) with new contract wins and contract execution.

MISC rose 33 sen or 4.6% to RM7.49 as investors piled into the energy-based logistics company amid upgrades by analysts on expectations of higher earnings in the near future.

Analysts raise their valuation of MISC after a briefing with its CEO Yee Yang Chien (picture) who expects a busy 2H19 for the group on the back of their maiden job wins.

Hong Leong Investment Bank Bhd (HLIB) expects the Petroliam Nasional Bhd-controlled group to benefit from project execution going forward.

“A lot of projects last year will be delivered by November (two shuttle tankers won in 2017 will be delivered in October; however, we won’t see meaningful contributions until 2020). Next year, five more shuttle tankers will be contributed on a full-year basis.

“The group has a mezzanine of assets coming into service in 2020-2022, thus boosting operating cashflows,” it said in a report yesterday.

HLIB Research noted that the 1H19 was a slow period as very few tenders came to the market.

“However, in the past two months, a lot of things came to life as all invitations to bid became official. Management guided that MISC should have a busy finish in December,” it said.

MISC has a capital expenditure (capex) target of US$1 billion (RM4.19 billion) in its financial year of 2019 (FY19) with a very strong chance of securing a sizeable job for their shipping division comes October.

“We understand (that) the combined tender book for the group is US$4 billion at this juncture. With respect to the Libra’s field (Brazil) Mero 3 — a floating production storage and offloading (FPSO) unit — the invitation to bid came out from Petróleo Brasileiro SA (Petrobras) in July and will be submitted mid-December.

“MISC has secured partners for the engineering, procurement and construction portion and is now working on securing the funding. Management guided the award outcome will only come in late first quarter of 2020 (1Q20),” it said.

On petroleum shipping, HLIB Research stated that the lightering business is a recurring business, but will shrink over time given the race to develop terminals with very large crude carrier offloading capabilities, as well as pipelines in the Gulf of Mexico.

Five years ago when shale oil became a phenomenon, MISC’s management took a stance that the lightering business had entered its sunset phase.

“MISC will right-size ahead of time, however, for now, it is benefitting from export lightering side given that the US is now an exporter of oil,” it said.

HLIB Research has a ‘Hold’ call on MISC with a target price of RM6.99. It noted that MISC’s operating cashflow has improved 45% year-on-year in 1H19 on the back of stronger earnings.

“We believe MISC will maintain its dividend per share at 30 sen this year for expansionary capex, implying a dividend payout of 78% yielding 4.2%.

The greenfield FPSO projects remain the growth focus for its offshore segment, but the investment banks did not factor any project wins in the near term pending crystallisation of bids.

AmInvestment Bank Bhd upgraded MISC to ‘Buy’ with a higher fair value of RM8.70 per share (from an earlier RM6.65 per share), due to its higher earnings expectations and the removal of a 20% holding company discount to AmInvestment higher sum-of-parts valuation on MISC, given its significantly improving job prospects.

“Our FY20F-FY21F earnings have been raised by 4%-14% on an increased number of shuttle tankers which will be operating in Brazil — an incremental two in 4Q19 and five in FY20F.

“Recall that in May last year, MISC secured 10 year-charters for four specialist DP2 Suezmax-size shuttle tan- kers from Petrobras,” it said.

AmInvestment added that MISC management indicated prospects over the past two months have improved from the project scarcities experienced during 1H19.

“MISC expects an active bidding market to materialise in all its key segments, offshore floaters, liquefied natural gas and shuttle tankers.

“However, our forecasts have not reflected the potential US$1 billion worth of projects 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,” it said.