KUALA LUMPUR: Kenanga Research has lifted its target price on MISC Bhd
after projecting additional earnings from time-charter contracts for three newbuild LNG carriers signed with Qatar's state-owned oil firm.
The three contracts with Qatar Energy, announced in a filing with Bursa Malaysia yesterday, are for a firm period of 15 years starting from 2026.
"Assuming an 80:20 debt-to-equity ratio and a 75% earnings before interest, tax, depreciation and amortisation (Ebitda) margin, the three new vessels will contribute RM75mil net profit annually, accounting for 4% of FY24F earnings," said the research firm in a company update.
Kenanga said it estimates the daily charter rate of each of the three vessels to be about US$120,000, at a slight premium to recent market rates to reflect bigger ship capacity.
"The potential capex for the three vessels is estimated at US$780mil, based on the latest market price and referencing the capacity of 165,000 cbm from MISC's February 2024 monthly newsletter, similar to the ship capacity for its 2022 contract win from Qatar Energy.
"The latest vessel investment will increase MISC's net gearing of 0.26x as at end-Dec 2023 to 0.35x, which is still highly manageable," it said.
The research firm said it does not foresee any issues with project execution given MISC's involvement in a similar contract for Qatar Energy as part of a consortium that includes MISC, Kawasaki Kisen Kaisha, Nippon Yusen Kabushiki Kaisha, and China LNG Shipping.
Kenanga, which has a "market perform" recommendation on MISC, raised its target price to RM7.69 from RM7.66 previously.
It said it favours the group due to its recent fleet expansion and modernisation as well as its success in securing mega FPSO projects such as Mero-3 and new clients from international clients.
It noted also the group's margin expansion coupled with improved earnings visibility following diversification into less commoditised specialised vessels.
"However, incoming FPSO Mero 3 project’s execution risks remain high particularly when final acceptance is expected to approach in 4QC24," said Kenanga.
Meanwhile, RHB Research said MISC has to lock in much stronger charter rates than the current spot rate to fetch decent project returns, given the elevated asset prices.
"While there is limited disclosure on the contract, we note that the project IRR could be rather unexciting, as asset prices are now more expensive compared to MISC’s previous contract win," said the research firm in a note.
RHB estimated the cost of building a new vessel at about US$265mil, which is 14% higher than the average cost in 2022.
Assuming that capex is locked in at US$260mil, it estimated that the daily charter rate would need to be at US$90,000-110,000 a day to fetch a project IRR of 7-10%.
"Note that spot charter rates fell below US$50,000 a day at end-March – lower than the average one- and three-year time charter rates of US$65,000 a day and US$70,000 a day in January."
RHB maintained its "buy" call on MISC and target price of RM8.94
