MISC's outlook brightens on more contract wins


Maybank IB Research points out that MISC is tendering for five offshore jobs in Brazil, Malaysia, Thailand and Qatar. It’s tender pipeline is about US$4bil with the bulk of it in offshore projects, and the remaining in LNG and petroleum segments.

KUALA LUMPUR: The tide is turning in favour of MISC BHD, bolstered by the group's expanding fleet in Brazil and the prospects of big contract wins.

Most analysts, who attended the company's briefing last Wednesday came out bullish about the energy shipper's outlook. The stock jumped 4.6% on Thursday, before ending the week with another 3.5% gain.

At RM7.75 on Friday, the stock was traded at its highest level in almost four years.

That exceeded Maybank Investment Bank Research's recent upgraded target price of RM7.70 but still below UOB Kay Hian Malaysia Research's more optimistic RM8.20 target price.

The upgrade was unexpected considering the fact that crude oil prices are on a decline.

MISC's share price rose by almost 5% a day after the briefing to close at RM7.49 apiece.

This values the company at RM33.4bil in market capitalisation and at a historical price-earnings ratio of 21 times.

Last year, shares of the oil & gas maritime provider traded as low as RM5.48 a piece due to declining earnings.

Some analysts are targeting higher earnings by MISC in the next three years. This is largely stemming from its increasing fleet size in Brazil coupled with potential contract wins, especially for the floating production storage and offloading (FPSO) project worth US$2bil by Petróleo Brasileiro S.A. (Petrobras).

The project is expected to have a capacity of processing 180,000bpd of oil and 12mil cubic metres of natural gas per day.

Maybank IB Research, AmInvestment Bank Research and UOB Kay Hian Malaysia Research all raised their recommendations to a “buy” call on MISC.

On the contrary, TA Securities Research, maintained its sell call on MISC. The research house said that while the prospects from MISC’s tender-book appear “exciting”, it prefers to stay on the sidelines until MISC secures a major project.

“We are cautious of project award delays,” it says in a report.

MISC is a shipping company controlled by the national oil company Petroliam Nasional Bhd. It has a fleet of more than 120 ships ranging from liquified natural gas vessels to petroleum products ships. It is also one of the world’s largest FPSO operators.

MISC is also in the oil and gas (O&G) fabrication business through its 66% stake in Malaysia Marine and Heavy Engineering Holdings Bhd (MMHE).

“The stock currently trades at an attractive financial year 2020 forecast EV/EBITDA of eight times. This is 20% below its two-year average, and supported by fair dividend yields of 4%,” says AmInvestment Research in a report.

The research house raised its forecast for MISC’s FY2020-FY2021 earnings by 4% and 14% respectively on an increased number of shuttle tankers which will be operating in Brazil. MISC’s deployment will increase from two vessels in the fourth quarter FY2019 to five vessels by FY2020.

Notably, MISC secured a contract in May last year for 10 year-charters for four specialist DP2 Suezmax-size shuttle tankers from Petrobras.

“Management has indicated that prospects over the past two months have substantially improved from the project scarcities experienced during the first half of FY2019.

“Hence, MISC expects an active bidding market to materialise in all its key segments, offshore floaters, LNG and shuttle tankers,” AmInvest Research says.

The research house forecast didn’t include any potential contract wins.

Meanwhile, Maybank IB Research points out that MISC is tendering for five offshore jobs in Brazil, Malaysia, Thailand and Qatar. It’s tender pipeline is about US$4bil with the bulk of it in offshore projects, and the remaining in LNG and petroleum segments.

“We think MISC has a high probability of securing two jobs including Petrobras’ Mero 3 FPSO in Brazil,” it says in a note to clients.

The Petrobras Mero contract is expected to be awarded in April next year,

“MISC, in a technical joint venture with Siemens Group and SGX-listed Sembcorp Marine, is running against Modec and SBM Offshore in the bid, which is expected to open in December this year,” says AmInvest.

However, UOB Kay Hian points out MISC is lacking an international track record for FPSO projects and that this could impede its chances of securing the Mero 3 contract.

The research house also said: "We believe due to a scarcity of quality FPSO contenders worldwide, and with heavyweights SBM Offshore, Modec and YINSON already reaching full capacities with large FPSOs in their books, Petrobras may opt to diversify its pool of FPSO suppliers," it says.

UOB Kay Hian has raised its FY2019-FY2021 net profit forecast on MISC by 2%, 8% and 9% respectively supported by the latter's shuttle tanker earnings and an upgrade for its joint-venture income as the floating storage and offloading vessel (FSO) Sao Vang’s delivery is on track.

Last October, MISC’s 51%-owned joint venture with PetroVietnam Technical Services Corporation had won a time charter contract to lease a FSO for US$176 mil. The FSO will be deployed for the Sao Vang and Dai Nguyet Development Project in offshore Vietnam.

The other major potential project to be grabbed by MISC is Petronas’ Limbayong FPSO with a capex of between US$600mil-US800mil.

The job could be awarded by the end of this year.

AmInvest Research says MISC and Yinson Holding are bidding for Petronas Carigali’s Limbayong FPSO against Sabah International Petroleum and a consortium of MTC Group and India’s Shapoorji Pallonji Oil & Gas.

It is worth noting that the MISC’s share price has risen more than 15% year to date. It has been outperforming the broader market that saw the FBM KLCI index decline by 5.4% year to date.

In 2016, MISC’s shares were trading at more than RM9 a piece, before it fell by almost 40% due to an oversupply in the marine sector amid a plunge in crude oil prices.

With Brent crude oil trading at about US$60 per barrel and further downside risk of oil prices in the coming months due to an increase in supply of shale oil from the US and an intensifying trade war between China and the US that would affect demand for oil, a delay in contracts by oil majors could pose a risk for O&G service providers.
   

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