MISC: It will be survival of the fittest

Market tussle: Yee (left) cautions that 2017 would be a more difficult year for AET in the petroleum tanker segment given the expected higher delivery of new vessels during the year. With him is MISC chairman Datuk Ab. Halim Mohyiddin.

CEO expects 2017 to be another ‘rough and tough’ year

MISC Bhd is still cautious when it comes to expansion and its growth of assets will only be propelled by secured long-term employment or contracts despite the stabilising oil price.

The energy-shipping company is one of a few oil and gas companies that has managed to ride the prolonged storm of weak oil prices since three years ago.

“Despite oil prices hovering at higher levels today than in 2016, we believe 2017 will be another rough and tough year for service providers in the oil and gas supply chain.

“In our opinion, optimism has yet to return unless oil prices trend higher.

“We feel that the higher trend could be a possibility in 2018.

“Meanwhile, it is still the survival of the fittest for this year,” president and group chief executive officer Yee Yang Chien tells StarBizWeek.

Crude oil prices crashed below the crucial US$70 per barrel level and went all the way down since late 2014, dragging with it the market and locally, the ringgit plunged to a five-year low.

Many oil and gas companies are still suffering from oversupply of assets and higher provisions due to this.

The price of crude oil has now stabilised at around US$53 per barrel.

MISC, on the other hand, posted a growth in net profit with its bottomline rising to RM2.58bil in 2016, compared with RM2.47bil in 2015, on the back of RM9.6bil in revenue.

“We have been very successful in our business and asset portfolio rebalancing initiatives over the years and the fruits of those initiatives are now clearly seen.

“This strategy is clearly seen in 2016 as our present portfolio of floating production, storage and offloading (FPSO) and floating, storage and offloading (FSO) as well as liquefied natural gas (LNG) vessels and dynamic positioning shuttle tankers, all on long term employment underwrote our financial performance in 2016 despite the challenging market conditions with weak energy prices.

“Today, we have four core business areas that we will focus on developing and growing in the coming years. For 2017, we expect the delivery of two new LNG carriers and two long-range 2 tankers, all will be delivered for long term employments.

“We have another two more new LNG carriers and up to six new petroleum tankers scheduled for delivery in 2018,” says Yee.

Offshore business

Looking at stabilising crude oil prices now, Yee believes MISC’s offshore business division, which houses its portfolio of floating production systems such as FPSOs and its petroleum shipping business housed under AET, will be the first to benefit from any further uptick in oil prices.

“We are already beginning to see new opportunities appearing in 2017 for these two segments and we would certainly desire to secure some attractive projects in the months to come.

“In addition, we also benefited from the completion of the buyback of 50% of Gumusut Kakap FPS, fully consolidating 100% of income contribution of this semi-submersible production system that is deployed on a long term charter,” he says.

That said, Yee cautions that 2017 would be a more difficult year for AET in the petroleum tanker segment given the expected higher delivery of new vessels during the year.

“2015 was a good year for us and we were able to sustain the performance in 2016 despite generally weaker market conditions compared to 2015.

“Our reported profits for AET may appear lower for 2016 compared to 2015 but this is due largely to an accelerated depreciation policy that we adopted in 2016 whereby we shorten the assumed economic useful life of our vessels.

“We are bracing for a weaker market condition for the petroleum tanker segment in 2017 but we believe we will remain profitable and continue to generate healthy operating cashflow to fund our future growth pursuits,” he says.

On heavy engineering business via its subsidiary Malaysia Marine and Heavy Engineering Holdings Bhd (MMHE), Yee says they can only expect better prospects for the heavy engineering business in 2018 or beyond.

“However, it does not mean MMHE will just be sitting around, hoping to wait out the tough years.

“On the contrary, the management has been actively developing new business segments that it could branch out into as part of a natural extension of the present services and activities presently undertaken,” says Yee.

In retrospect, Yee believes the difficult years that MISC has endured in the past have taught many valuable lessons that they have taken to heart.

“We also believe that we are financially fit to take on the test of 2017.

“Although activities and projects in the energy space are far and few between, there are still potential projects being considered.

“We will strive to sustain our financial performance in 2017 from the past year in with a particular focus on generating a targeted level of operating cash flow that will fund our pipeline of growth projects in the coming years.

“This year we will also sow the seeds of greater success for MISC if we are successful in filling the growth pipeline with a right mix of new projects,” says Yee.

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