MISC 1H23 core PATAMI of RM1.2bn (+85% yoy) was inline with both our and consensus’ estimate at 49% and 52% respectively. Despite large loss at MMHE in 2Q23, earnings remain robust at RM477mn as it was boosted mainly by a sustained strength in petroleum tanker rate. We expect tanker rate to remain elevated amidst new supply constraint from (i) limited yard availability for newbuild, and (ii) concern on carbon emission on newbuild vessels. As MISC stock price remain a laggard to rising tanker rate, coupled with higher DPS declared for 2Q23, we believe it is attractive to accumulate the stock now. Hence, we maintain our BUY call on MISC with unchanged TP RM10.00.

• Within expectation. 1H23 core earnings of RM1.2bn (+85% yoy) was in line with both our and consensus’ estimate at 49% and 52% respectively.

• Dividend. A 2 nd interim DPS of 10 sen was declared which is higher than 2Q22 DPS of 7sen. This brings YTD DPS of 17sen (1H22: 14sen).

• QoQ. Core earnings declined by 30% to RM477mn mainly dragged by losses at MMHE. The company’s bottomline was affected by additional cost provisions as a result of revised schedule for Kasawari CPP project. On the flip side, its revenue was more than doubled to RM1.05bn.

• YTD. Revenue rose marginally by 9% to RM6.6bn mainly driven by stronger petroleum tanker segment and higher revenue from MMHE. Meanwhile, EBIT rose 32% to RM1.2bn as higher income from petroleum tanker and FPSO segments are more than enough to offset large losses at MMHE.

• Outlook. We expect earnings to remain robust in coming quarters to be driven by escalating petroleum tanker rates. In medium term, earnings will be boosted by the commencement of FPSO Mero 3 lease charter which is set to begin in early FY25. The construction progress of the vessel has reached 89% physical completion and it is on-track for delivery in mid-2024.

• Our call. We maintain our BUY call on MISC with unchanged SOPderived of TP of RM10.00 which implies FY24F P/B of 1.1x and P/E of 17x (see Table 3). We foresee multiple key re-rating catalysts on the stock coming from (i) new upcycle in tanker rate, (ii) new income stream from CCS value chain, (iii) maiden income from FPSO Mero 3 beginning FY25, and (iv) potential new FPSO contract award postdelivery of FPSO Mero 3.

Source: BIMB Securities Research - 25 Aug 2023