MISC's LNG segment outlook to remain positive in 2H24, says RHB Research

KUALA LUMPUR: MISC Bhd's liquefied natural gas (LNG) outlook remains positive, and the company believes that clients are willing to offer decent rates despite the elevated asset prices. 

RHB Research noted that MISC's gas segment, which has 31 LNG carriers, two floating storage units (FSU) and six very large ethane carriers (VLEC), is its largest earnings contributor and accounted for 61 per cent of total operating profit in the nine months (9M) of 2023. 

"We believe MISC's LNG carriers should deliver stable earnings, with the possibility of being traded on the spot or re-deployed following the expiry of their charters. 

"MISC's LNG outlook remains upbeat, and it will only build new vessels backed by firm contracts with decent project returns. 

"We continue to like its steady operating cash flow and anticipate a boost from the Mero 3 project from the second half (2H) of 2024 onwards," RHB Research said in a note today.

To note, MISC currently owns and operates 31 LNG carriers, of which four are on-spot charters, and the remainder are on long-term charters. 

There will be three to five vessel charters expiring in 2024 and 2025. 

MISC will consider various options, including contract extension and re-deployment opportunities to trade the vessel on the spot before scrapping these vessels.

RHB Research said that although there is a trend of relatively shorter-term charter periods of 10-15 years versus 20–25 years previously, MISC will only build new vessels backed by firm contracts with decent project returns.

RHB Research also noted that, at present, MISC's gas segment is the company's biggest emitter of greenhouse gases. It was behind 61 per cent of the company's total emissions in 2022. 

"We were guided that most LNG carriers have been retrofitted to comply with International Maritime Organisation (IMO) regulations regarding energy efficiency existing ship (EEXI) and carbon intensity indicator (CII) ratings. 

"MISC aims to achieve a minimum 'C' rating in CII," RHB Research noted.

"We made no changes in our estimates, maintaining a Buy call, and the target price for MISC stays at RM8.12.

"This includes an unchanged 4 per cent environmental, social and governance (ESG) discount, as its ESG score of 2.8 is two notches below the country median. 

"MISC's third quarter (Q3) of 2023 dividend per share (DPS) dropped quarter-on-quarter (QoQ) to 7 sen from 10 sen DPS in the second quarter (Q2) of 2023, but we believe it is still capable of paying a full-year DPS of 36 sen in FY23–25.

"The company's balance sheet remains solid, with net gearing still at 0.29x as of Q3 of 2023," RHB Research said.



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