PETALING JAYA: MISC Bhd may see potential impairments ahead despite having booked some of it in 2020.
This may happen due to a recent High Court decision to dismiss MISC’s application to set aside a US$331mil (RM1.45bil) arbitration award related to the Gumusut Kakap floating platform that is being claimed by Shell.
However, according to UOB Kay Hian Research (UOBKH), the company can still file an appeal on the matter by the end of this month.
The research house, which has maintained its “buy” call on the counter with a sum-of-parts-based target price of RM8.20, said this year may see the company capturing more contracts.
“This is especially so in the liquified natural gas (LNG) sector and supported by relatively strong petroleum earnings.
“Spot tanker rates may continue to correct in the near term on uncertainties in crude demand after the Russia crude export price cap became effective,” UOBKH said.
However, it said that the firm remained profitable compared to 2021 levels, noting that 2023 petroleum earnings should remain strong.
“As 70% of MISC’s petroleum fleet is on long-term charters, these rates are generally less volatile and lag behind the spot rate. Long-term charters may have positive support from macro trends such as energy security matters due to geopolitical events,” it said.
UOBKH opined that LNG new build demand remained strong, as Qatar needs about 100 LNG carriers for its North Field expansion, while only 65 Qatar orders had been firmed up so far.
“For the offshore segment, MISC guided it will avoid securing another mega floating production, storage and offloading (FPSO) until the FPSO Mero-3 is delivered by 2024.
“We think that MISC may still remain active in the FPSO market by bidding for early stage engineering contracts only, or smaller FPSOs that do not require heavy capital expenditures,” the research house said.
UOBKH said the decision to stay out of new large FPSO projects for the time being is because MISC needs to ensure optimal capital allocation.
This is to avoid having its net debt to earnings before interest, taxes, depreciation and amortisation ratio exceeding three times, the research house said.
“This is not a debt covenant, but is a condition set by rating agencies like S&P Global. Breaching this condition may trigger downgrade of the ratings of the US$3bil (RM13.13bil) bonds from BB-,” UOBKH noted.