Investment Highlights

• We maintain our BUY call on MISC with a higher sum-of- parts based fair value (FV) of RM8.60/share (from RM8.50/share previously), which implies FY24F EV/EBITDA of 8.8x, broadly at par to its 5-year average of 9x . The FV also reflects a premium of 3% for our unchanged 4- star ESG rating .

• The group entered into long-term time charter contracts with QatarEnergy for 3 units of newbuild liquefied natural gas (LNG) carriers with capacities of 174k cubic meters. The firm period of the charter is 15 years with commencement in 2026.

• This is MISC’s third win from QatarEnergy as part of its ambitious LNG fleet expansion programme which aims to support production capacity from the North Field in Qatar and Golden Pass in the US. Prior wins by the group in 2022 had been through a 25% stake in a consortium involving Nippon Yusen Kabushiki Kaisha, Kawasaki Kisen Kaisha and China LNG Shipping.

• Based on our assumptions of time charter rates of US$100k/day, newbuild LNG carrier price of US$225mil per vessel, 70:30 debt-to-equity financing ratio and a conservative IRR of 10%, we estimate these long-term time charter contracts will add 3.4% to its FY26F earnings and 1.2% to its SOP given MISC’s huge asset base.

• Additionally, we expect to see FY26F net gearing rise to 16% from 15%, broadly within comfortable levels in our view.

• We view the contract win as largely positive as it provide further upside to the group’s recurring earnings segment. For reference, the Gas Assets & Solutions segment accounted for 23% of FY23 group revenue.

• Notably, we believe MISC’s latest win through a 100% stake, rather than its previous shared JV structure, reflect its strong balance sheet position and credibility within the shipping space.

• Despite current 3-month term charters currently seeing a weaker trend at US$60k/day, we believe the outlook for the LNG market remains positive in the long run premised on its role as the ideal transitional fuel to support energy security, particularly for developing nations.

• MISC currently trades at an EV/EBITDA of 7.4x, below its 5- year average of 9x.

Source: AmInvest Research - 2 Apr 2024