• Keep BUY and MYR8.12 TP, 14% upside with c.5% FY24F yield. Postour site visit, we believe MISC’s LNG carriers should deliver stableearnings, with the possibility of being traded on the spot or re-deployedfollowing the expiry of their charters. MISC’s LNG outlook remains upbeat,and it will only build new vessels backed by firm contracts with decentproject returns. We continue to like its steady operating cash flow, andanticipate a boost from the Mero 3 project from 2H24 onwards. The stockis trading at an undemanding 14x FY24F P/E (-1.5SD from its 5-year mean).

• Seri Alam site visit. Last week, MISC welcomed analysts to its Bintulu LNGcomplex to visit one of its LNG carriers, Seri Alam. This Malaysian-flaggedvessel was built in 2005 by a Korean shipyard, and is on a 20-year termcharter with Petronas LNG. It has four cargo tanks with a total capacity of145,572 cu m. We boarded the vessel and toured the control room, engineroom and deck, while its captain explained the LNG loading process whichusually takes about 14 hours. Some of Seri Alam’s usual destinations areJapan, China, Korea Taiwan and Thailand.

• Outlook. MISC’s gas segment – which has 31 LNG carriers, two floatingstorage units or FSU and six very large ethane carriers or VLEC – is itslargest earnings contributor, and accounted for 61% of total operating profitin 9M23. Recall that MISC currently owns and operates 31 LNG carriers, ofwhich four are on spot charters while the remainder are on long-termcharters. There will be three and five vessel charters expiring in 2024 and2025. MISC will be considering various options including contract extensionand re-deployment opportunities to trade the vessel on the spot, beforescrapping these vessels. Its LNG outlook remains positive, andmanagement believes that clients are willing to offer decent rates despitethe elevated asset prices. Although there is a trend of relatively shorter-termcharter periods of 10-15 years vs 20-25 years previously, MISC will onlybuild new vessels backed by firm contracts with decent project returns.

• Energy Efficiency Existing Ship (EEXI) and carbon intensity indicator(CII) compliance status. At present, MISC’s gas segment is the biggestemitter of greenhouse gases within the group – it was behind 61% of thegroup’s total emissions in 2022. We were guided that most LNG carriershave been retrofitted to be compliant with International MaritimeOrganisation (IMO) regulations, in terms of EEXI and CII ratings. MISC isaiming to achieve a minimum "C" rating in CII.

• With no changes in our estimates, our SOP-based TP stays at MYR8.12.This includes an unchanged 4% ESG discount, as its ESG score of 2.8 istwo notches below the country median. MISC’s 3Q23 DPS dropped QoQ to7 sen from 10 sen DPS in 2Q23, but we believe it is still capable of payinga full year DPS of 36 sen (FY22: 33sen) in FY23-25F. Its balance sheetremains solid, with net gearing still at 0.29x as of 3Q23.

Source: RHB Securities Research - 11 Dec 2023