Review

• MISC Bhd’s 1HFY24 core profit of RM1.2bn (+6.6% YoY) came in within expectations at 54% and 52% of ours and consensus’ full-year forecasts.
• The group declared a second interim dividend of 8sen/share (2QFY23:10sen/share).
• Gas Assets (USD): 2QFY4 revenue decreased 11.6% QoQ mainly due to lower earning days from contract expiries and lower charter rates. Core PBT was pushed further down by 36.8% QoQ due to higher vessel operating costs.
• Petroleum (USD): 2QFY4 revenue decrease by 3.8% QoQ due to lower earning days. This is despite higher freight rates. However, core PBT rose 5.8% QoQ Due to Higher Margin.
• Offshore (USD): 2QFY4 revenue decreased 19.5% QoQ mainly due to lower recognition of revenue from the conversion of a Floating, Production, Storage and Offloading unit (“FPSO”) following lower project progress.Core PBT of USD5mn Decreased to LBT of USD19mn Due to Adjustmenton Cost Provisions Relating to An Asset.
• Marine and Heavy Engineering (USD): 2QFY4 revenue decreased 9.1% QoQ Mainly Due to Lower Revenue From On-going Heavy Engineeringprojects offset with higher revenue from the Marine sub-segment. However,core PBT Increased From USD2.0mn to USD16.0mn Due to the Recognition of cost recovery claims in Q2 while Q1 on the contrary, was dampened by additional cost provisions resulting from the revised schedule for ongoing projects.

Impact

• No change to our earnings forecasts.

Outlook

• LNG spot rates remained subdued in Q2 (-6.7% QoQ), with only a modest recovery in June, driven primarily by short-term factors like heatwaves in Asia. While seasonal demand and winter restocking could lift rates, the recovery may be slower than anticipated. Although planned liquefaction projects Are Expected to Drive LNG Carrier Orders in 2024, Potential shipyard delays due to high workloads could push deliveries further into Subsequent Years, Adding Uncertainty to the Supply Timeline.
• In the tanker market, mid-sized tankers showed resilience in Q2, despite softer VLCC rates from reduced Chinese imports. Long-haul exports from the US, Brazil, and Guyana, along with limited fleet growth, are expected to support tanker fundamentals, while replacement demand should drive new Crude Tanker Orders.
• Global offshore E&P spending is increasing, but the focus on sustainability could slow the pace of new projects. While the FPSO market is expected to grow, delays in awards—especially those involving Petrobras—due to high costs and limited competition may temper the near-term outlook, particularly in key regions like South America and the Asia-Pacific.

Valuation

• After incorporating an ESG Premium of 5%, we increase our TP to RM9.24/share (previously RM8.80/share) pegged to 16.5x CY25 EPS. Maintain Hold.

Source: TA Research - 26 Aug 2024