MISC’s LNG transport business fuels rise in 3Q earnings

Notwithstanding market volatility, the operating income of the asset solutions segment is expected to remain fairly stable

by ANIS HAZIM / Pic credit: misc.com.my

MISC Bhd’s net profit for the third quarter ended Sep 30, 2021 (3Q21) surged to RM401 million from RM258.3 million in the corresponding quarter last year on higher revenue.

Its revenue for the quarter rose 30.7% to RM2.69 billion compared to RM2.06 billion in the same quarter last year.

In a filing to Bursa Malaysia yesterday, the energy logistics and engineering approved a third tax-exempt dividend of seven sen per share in respect of the financial year 2021 (FY21) amounting to RM312.5 million.

The proposed dividend will be paid on Dec 14 to shareholders registered at the close of business on Dec 3.

Earnings per share for the quarter increased to nine sen versus 5.8 sen in 3Q20.

Despite a surge in European gas demand due to lower wind and solar power generation, MISC noted spot charter rates in the liquefied natural gas (LNG) shipping market remained relatively steady in 3Q21.

“LNG shipping rates are expected to strengthen towards the year-end on account of high winter season demand in Europe and Asia,” the company noted in its exchange filing yesterday.

It added that Asian LNG demand is likely to remain robust although the price of natural gas is stronger.

This is due to China’s facing power outages in its northern regions with its policy of curbing coal consumption leading to gas shortages.

“Notwithstanding the market volatility, the operating income of the LNG asset solutions segment is expected to remain fairly stable, underwritten by its portfolio of long-term charters,” it added.

It also noted that the prolonged impacts of the pandemic and the OPEC+’s production cuts continue to have an adverse effect on the petroleum shipping market, especially in the crude sector.

MISC added that the medium-term prospects remain positive for the tanker market with likely improvements focused on the second half of 2022.

The company expects tanker demand to return close to 2019 levels, driven by OPEC+’s phased supply increases and continued economic recovery.

AmInvestment Bank Bhd (AmInvest) maintained a ‘Buy’ on MISC with an unchanged sum-of-parts-based fair value of RM7.75 per share, which reflects a premium of 3% from its 4-star environmental, social and corporate governance rating.

“We maintain our forecasts as MISC’s nine months of FY21 core net profit of RM1,432 million (14% year-on-year), excluding net impairments of RM74 million and unrealised foreign exchange gain of RM12 million, was within our expectations but above consensus, accounting for 77% of our FY21F net profit and 82% of street’s,” a report by the investment bank yesterday noted.

In the quarter, only the LNG and offshore businesses were profitable. LNG operating profit rose 7% quarter-on-quarter (QoQ) to RM314 million with the delivery of Diamond Gas Victoria in July this year and LNG carrier Diamond Gas Crystal in May 2021, AmInvest stated.

MISC’s offshore segment’s 3QFY21 operating profit climbed 30% QoQ to RM243 million mainly from the construction of the US$2 billion (RM8.36 billion) Mero 3 (to be renamed Marechal Duque de Caxias) floating production and offloading vessel, expected to be delivered in the second half of 2024.

The group’s heavy engineering segment continued to suffer loss on higher cost provisions while the marine repair business was impacted by customers shifting to Singapore.

“Going forward, we expect modest improvement to petroleum tanker rates as OPEC+ plans to raise production levels by two million barrels from August to December 2021 amid the winter season, which is usually the peak tanker cycle. Together with the delivery of six dynamic positioning shuttle tankers and two very large capacity tankers next year, this is expected to support MISC’s FY22F earnings growth prospects,” the report noted.