MISC has entered into a 40:50:10 JV with MITSUI O.S.K. Lines Ltd (MOL) and Petronas CCS Ventures Sdn Bhd (PCCSV) to own and operate liquefied carbon dioxide (LCO2) carriers. Given that the LCO2 shipping industry is still in its nascent stage, we do not foresee immediate earnings impact on MISC. We maintain our forecasts, TP of RM7.69 and our MARKET PERFORM call.

MISC has entered into a 40:50:10 JV with MOL and PCCSV to own and operate liquefied carbon dioxide (LCO2) carriers. The parties will collaborate and leverage on their individual capabilities to explore potential business opportunities, specifically in developing LCO2 carriers for transporting LCO2 to CO2 storage sites in Malaysia.

While no carriers have been announced yet, we estimate that the capex for LCO2 carriers will be lower compared to LNG vessels, as LCO2 cryogenic tanks need to maintain CO2 at -50°C to -60°C, whereas LNG vessel storage tanks must operate at temperatures below -160°C.

Compared to the USD200m-USD300m estimated capex for LNG newbuilds, we believe that the LCO2 vessel capex will be significantly lower at an estimated USD60m-USD80m due to its lower technological complexity.

MISC possesses the balance sheet strength to invest in more LCO2 carriers, and we believe the operations would not pose a challenge for the group. However, the LCO2 vessel industry is still in its infancy, making the economics of such ships largely uncertain. Notable projects currently under development include the Northern Lights project, Kawasaki Heavy Industry project, and Mitsubishi Shipbuilding project.

Forecasts. Maintained.

Valuations. However, we maintain our SoP-TP of RM7.69 that also reflects a 5% premium given a 4-star ESG rating as appraised by us (see page 5).

We like MISC due to: (i) recent fleet expansion and modernization, (ii) success in securing mega FPSO projects (i.e. Mero-3) and new contracts from international clients, and (iii) margin expansion coupled with improved earnings visibility following diversification into less commoditized specialised vessels However, incoming FPSO Mero 3 project’s execution risks remain high particularly when final acceptance is expected to approach in 4QCY24. Maintain MARKET PERFORM

Risks to our call include: (i) lower-than-expected utilisation and spot rates for its fleet, (ii) Mero-3 additional cost overruns and project delays, and (iii) further production cuts by major oil producers.

Source: Kenanga Research - 14 May 2024