MARC expects some pressure on financial performance over the near term as new LNG deliveries will be chartered at prevailing charter rates
KUALA LUMPUR: Liquefied natural gas (LNG) shipper MISC is unlikely to see much interest from investors, given the weak cyclicality in the heavy engineering arm, as well as weak freight rates in the crude tanker shipping space, says CIMB Research.
It said on Tuesday while aframax tanker rates have rallied in recent weeks due to disruptions caused by the hurricanes in the Gulf of Mexico, the rally is likely to fizzle out once congestion clears.
The research house said that very large container carriers (VLCC) and suezmax rates continue to languish, reflecting the shipping oversupply.
“One risk that MISC is facing is the future of the charter of two LNG carriers to Yemen LNG, i.e. the Seri Balquis and Seri Balhaf,” it said.
These two charters were suspended from 1Q16 due to the ongoing civil war, but MISC resumed revenue recognition from 1Q17 (without corresponding cash receipts) on the assurance from Yemen LNG that it will make good the charter hire payments. With no end to the strife in sight, the final outcome may not be so clear-cut.
CIMB Research issued the report on news that MISC is selling its 45% stake in Centralised Terminals Sdn Bhd (CTSB) to Dialog Group Bhd
for RM137m, and also recover its RM56m shareholder loan to CTSB.
The counterparty to the transaction is MISC’s JV partner, Dialog Group, which owns the other 55% stake in CTSB.
CTSB is the 80% shareholder of Langsat Terminal (One) Sdn Bhd and Langsat Terminal (Two) Sdn Bhd, which together own 647,000 cbm of tank terminals that are solely chartered to oil trader Trafigura for the storage of clean petroleum products.
Neither MISC nor Dialog revealed the gains that MISC is expected to make from this divestment.
“But in our estimate, CTSB’s book value was likely RM172mil as at 30 June 2017, of which MISC’s 45% stake would amount to RM77mil. With its equity stake valued at RM137mil, MISC may pocket an exceptional disposal gain of RM60mil in FY17F,” it said.
CIMB Research said the bigger winner, however, is Dialog. In its estimate, the two Langsat terminals are worth some RM930mil on an equity DCF valuation basis, assuming an 8.2% cost of equity and discounting cashflows to equity until the end of the land lease in 2037F.
Hence, the equity discounted cashflow value attributable to MISC should be RM335mil. It added that it appears that Dialog is buying MISC’s stake worth RM335mil for only RM137m, or a 60% discount, based on its internal calculations.
“MISC is likely exiting its non-core activities in order to build a war chest for its priorities in the offshore or shipping space,” it said.
In August 2016, MISC won a US$230mil contract to supply Chevron with the FSO Benchamas 2 Project in the Gulf of Thailand.
In June 2017, Statoil awarded MISC long-term charter contracts for two specialist DP2 shuttle tankers, in addition to the two already on charter to Statoil.
“We believe that MISC is planning to further grow its portfolio of shipping and offshore assets with long-term charters,” it said.
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