MISC LNG tanker Camellia
PETALING JAYA: MISC Bhd
’s role in a consortium to build and charter seven new liquified natural gas (LNG) vessels to QatarEnergy is a welcomed move but requires further details.
The lack of details has led analysts to maintain their valuations on the energy shipping group on calculations that the earnings impact from the contracts will be small.
MISC announced on Wednesday that it had, via a consortium with Nippon Yusen Kabushiki Kaisha, Kawasaki Kisen Kaisha and China LNG Shipping, been awarded a long-term time charter contract by QatarEnergy for seven 174,000 cubic metres newbuild LNG carriers to be built by Hyundai Heavy Industries.
Each consortium member will have a 25% stake, with the charters starting from 2025 onwards.
“Based on our estimated assumptions of charter period of 15 years, capital expenditure per vessel of US$230mil (RM1.1bil) and internal rate of return of 9%, our back-of-envelope calculations suggest an average earnings per year impact of roughly RM31mil, taking into account MISC’s 25% stake.
“Impact towards the group’s balance sheet should also be minimal,” Kenanga Research said in a report yesterday.
While the earnings impact may be small, the research house said the contract win further strengthens MISC’s LNG segment, which contributed about 88% of its core earnings in the first quarter of 2022.
The newbuilds will take MISC’s LNG fleet to 30 tankers.
Kenanga Research added that with over 10 long-term LNG contracts expected to expire in the coming three to four years, MISC will be more aggressive in its bidding activities in order to make up for the anticipated shortfall of cash flows.
“The market rates for three-year LNG carrier charters are currently near a multi-year high and the upcoming contracts secured would yield much better returns should some of these older vessels be repurposed,” it stated.
MISC is understood to be aggressively bidding for a floating production storage and offloading vessel (FPSO) contract for TotalEnergies’ Cameia project in Angola, in partnership with Saipem.
Kenanga Research also expects MISC’s upcoming second-quarter earnings to be weak due to impairments and provisions following the continued delays and cost escalations for its Mero-3 FPSO, which is currently undergoing conversion and fabrication works at the CIMC Raffles shipyard in China.
The research house has maintained its “market perform” call on MISC but lowered its target price (TP) to RM7.55 from RM7.70 previously, after switching its valuation methodology to a sum-of-parts approach from one-time price-to-book value previously.
Hong Leong Investment Bank Research also expects a small impact on MISC’s earnings from the QatarEnergy charters. It has stuck to its “hold” call on MISC with a TP of RM7.67.
“We believe the current share price has already priced-in the positives of higher petroleum spot tanker rates,” it said.
