MISC’s latest FSU deal a positive

Kenanga Research estimated this contract will contribute RM7.2mil a year to MISC from 2025, with minimal hiccups operationally.

PETALING JAYA: Analysts are bullish on MISC Bhd as its recent announcement on the contract with Pengerang LNG (Two) Sdn Bhd is geared to increase its earnings for the next 20 years.

MISC said on Tuesday it entered into an agreement for the supply, operation and maintenance of a floating storage unit (FSU) worth up to RM1.02bil starting from 2025. Pengerang LNG is a 65% owned subsidiary of Petronas Gas Bhd.

MISC will convert one of its Puteri Satu Class LNG carriers, namely Puteri Delima Satu, which completed her long-term charter in early 2023 and is currently laid-up, into the FSU for the deal.

In a note, Kenanga Research estimated this contract will contribute RM7.2mil a year to MISC from 2025, with minimal hiccups operationally.

“Project execution risk is low for this contract as the group has already executed multiple LNG-related projects previously, hence we expect it to be completed on time,” the research house stated.

It added it liked MISC for its recent fleet expansion, its success in securing the large project and its margin expansion post diversification to less commoditised specialist vessels.

However, the demand for petroleum tankers may be dampened by the Organisation of the Petroleum Exporting Countries’ production cuts, Kenanga Research warned.

“We will maintain a ‘market perform’ call on MISC with an increased target price (TP) of RM7.62 per share from RM7.24 with earnings maintained as the announced contract will only start contributing in 2025,” it noted.

Similarly, TA Research views the contract positively as this extends the commercial life of the Puteri Delima Satu LNG vessel beyond 20 years and provides long-term earnings visibility.

“MISC previously disclosed its intention to extend the useful life of LNG vessels via routine drydocking exercises, believing that the useful life of these vessels may stretch up to 25 to 30 years,” TA Research said.

It added that assuming the FSU is in operation by the second quarter of 2025, this will improve MISC’s financial year 2025 (FY25) earnings by 0.4%.

TA Research tweaked its forecast earnings and maintained a “buy” call on MISC with a TP of RM8.60 a share.

Meanwhile, Hong Leong Investment Bank (HLIB) Research said the new contract was not a surprise since the long-term charter for Puteri Delima Satu, which PETRONAS had no intention of extending, had expired and was laid up in January this year.

HLIB Research said another two of MISC’s contracts for LNG carriers Puteri Nilam and Letici are due for expiry this year while three more, for Portovenere, Puteri Zamrud Satu and Puteri Firuz Satu, will expire the following year, thus bringing the company’s long-term legacy contracts to an end.

“Hence, we believe MISC is currently evaluating the prospects of these vessels, especially the entire Puteri class,” the research house said.

HLIB Research said the capital expenditure for the conversion work had not been disclosed but an estimation of RM10mil a year for MISC’s bottom line has been noted by the company.

The research house maintained its “buy” rating on MISC with a TP of RM7.81 per share backed by the defensive nature of the companies logistics group and portfolio of long-term charters, as well as MISC’s attractive forecast dividend yield of 5.1% to 5.8% for FY23 to FY24 for a solid blue-chip name.