Review

• MISC Bhd’s 4QFY23 result came in above expectations. FY23 core profit of RM2.4bn (+1.9% YoY) accounts for 109% of ours and consensus’ full-year forecasts. The earnings beat was mainly attributed to better-than-expected performance in the Petroleum Shipping segment, which benefitted from higher charter rate.

• The group declared a fourth interim dividend of 12sen/share (4QFY22: 12sen/share), bringing FY23 DPS to 36sen (FY22: 33sen).

• Gas Assets (USD): 4QFY23 core PBT dropped 27.4% QoQ and 39.8% YoY respectively due to higher operating expenses including repair costs, voyage costs and bunker costs.

• Petroleum (USD): 4QFY23 core PBT soared 51.9% QoQ in line with seasonal increase in charter rate during winter months. Core PBT for the quarter was comparable to corresponding quarter last year.

• Offshore (USD): 4QFY23 core PBT turned from LBT of USD15mn to PBT of USD20mn as there was an additional repair cost provision of c.USD20mn relating to an incident involving FSO Benchamas 2 in March 2023. Quarterly core PBT dropped 52.4% YoY in line with lower project progress in Mero 3 as the project is nearing the end of construction.

• Marine and Heavy Engineering (USD): The group registered core PBT of USD2.0mn in 4QFY23 from LBT of 22.0mn in 3QFY23 due to cost recoveries that more than offset some additional cost provisions for project delays. On a YoY basis, quarterly core PBT doubled YoY in line with higher revenue from ongoing projects.

• YTD: FY23 core profit increased 1.9% YoY supported by better charter rate for Petroleum Shipping segment despite heavy losses in the heavy engineering segment.

Key Takeaways

From Conference Call

• Mero 3 sail away on 24 Feb 2024: Mero 3’s sail away was delayed from original planned 18 Feb 2024 due to weather conditions but management is confident that it has sufficient buffer to catch up to reach its final location and commence first oil on time, expected on 2 August 2024. Charter rate (c.USD700k/day according to Upstream) will start on first oil.

• No intention to divest MHB: Despite suffering losses in the Heavy Engineering segment from cost provisions, MISC has no intention to divest subsidiary Malaysia Marine and Heavy Engineering Bhd (MHB). MISC will assist MHB in ensuring the upcoming projects are completed with high quality and delivered in a timely manner.

• Higher dividends to stay: According to management, they will strive to maintain the absolute amount of dividend paid every year. This suggests thatthe 36sen DPS for FY23 (vs 33sen in FY19-FY22) is expected to stay or even increase in the coming years.

Impact

• After incorporating FY23 numbers, we adjust our FY24/FY25 earnings forecasts by 0.8%/2.5% respectively. We also take this opportunity to introduce FY26 earnings forecast of RM2.4bn.

Valuation

• We roll forward our base year and arrive at a higher TP of RM8.30/share (previously RM8.00/share) pegged to 15.5x CY25 EPS. Maintain Buy.

Source: TA Research - 28 Feb 2024