AmInvest Research said it remained concerned over potential further delays in FPSO Mero 3’s delivery, given constrained supply chain environment for the FPSO industry.
PETALING JAYA: MISC Bhd
could potentially register further impairments for its floating, production, storage and offloading vessel (FPSO) Mero 3 in the near term.
According to AmInvestment Bank (AmInvest) Research, this could be due to the current tight supply chain environment for the FPSO market, which will likely persist and create potential delays in the delivery for MISC, particularly in relation to the 40% local content requirement.
“Although cognisant of management’s commitment to FPSO Mero 3’s delivery by June 2024, six months later than initially set, we remain concerned over potential further delays given constrained supply chain environment for the FPSO industry,” the brokerage explained.
“We understand MISC is still negotiating to waive liquidated damages and penalties due to the six-month delay in delivery of the FPSO,” it added.
Recall, MISC group had booked in provisions and increases in total cost by 10% for FPSO Mero 3 in the financial year ended Dec 31, 2022 (FY22).
On the delivery of FPSO Mero 3, MISC’s management viewed that conversion progress was on track and had reached 90% completion (from 85% as at end-March 2023), AmInvest Research said.
Further to this, the project was likely to continue with full integration and commissioning at CIMC Raffles’ shipyard in Yantai, China, it added.
AmInvest Research maintained its “hold” call on MISC, with an unchanged fair value of RM7.79 based on a sum-of-parts valuation.
The fair value incorporated a 3% premium from an unchanged four-star environmental, social and governance rating, and implied 14.8 times estimated FY24 earnings.
The brokerage estimated that the delay of FPSO Mero 3 could result in a total impairment of RM247mil in a best-case scenario, RM527mil in a base-case scenario and up to RM1.5bil in the worst-case scenario.
“We gather that Chinese yards qualified by Petrobras (a Brazilian state-run oil firm) has faced challenges with adhering to local content requirements from reports as early as mid-2022,” the brokerage said.
It noted that Upstream, an international oil and gas publication, had suggested that companies would have to resort to fabrication of certain FPSO modules such as the top-side component or carrying out the commissioning in Brazil rather than through bulk purchase of materials.
“Notably, the FPSO Mero 3 local content requirement is comparably higher than past FPSO contracts for MISC and local operator, Yinson Holdings Bhd,” AmInvest Research said.
“For reference, Petrobras is mandating a minimum local content requirement of 25% for the most recent FPSO P-85 bid for the Buzios development that is said to be potentially awarded to Singapore’ Seatrium,” it added.
This was consistent with other recent FPSO awards in Brazil, which included strict conditions for services to be executed domestically through a partnership or subcontracting portion for local companies.
