UOBKH Research said things are looking up for MISC’s first international mega FPSO contract in Brazil.
PETALING JAYA: UOB Kay Hian Research (UOBKH Research) is retaining its optimistic outlook on MISC Bhd
, underpinned by the group’s strategy which is focused on long-term growth and a sustainable earnings base.
The research house reported that energy group had reiterated its renewed MISC2030 strategy in a recent meeting with investors.
The strategy includes delivering 50% growth from its 2022 operating cashflow (OCF), with half of that growth to come from new or clean-energy solutions.
The 2022 baseline refers to the adjusted OCF of RM5.7bil, which includes a RM2.7bil payment for costs incurred for the conversion of the US$2.1bil floating, production, offloading and storage (FPSO) vessel Marechal Duque de Caxias (Mero-3).
UOBKH Research said this implies a target to deliver RM1.4bil of additional OCF each by 2030 from MISC’s existing and new energy businesses, respectively, from 2022 levels, with the adjusted OCF for the year ended December 2023 having grown by 14% year-on-year.
Additionally, the research house said that the group’s petroleum subsidiary American Eagle Tankers (AET) could be at the forefront to drive business growth, as it emulates the same OCF targets for its existing and new energy businesses.
“MISC incubated a division for new energy and decarbonisation (NED) in 2023, which will be operational this year.
“While it will take time for the NED division to achieve substantial profits, which would be in line with MISC’s 2030 targets, the pivotal enabler of NED’s formation was the February 2023 time-charters (TC) signed with Petco Labuan for the world’s first two ammonia tankers,” said UOBKH Research in a note yesterday.
In the current bullish tanker market, the research house believes MISC can explore other avenues like unlocking the value of AET, possibly making the petroleum segment the primary support for NED’s growth.
Meanwhile, the research house reported that things are also looking up for MISC’s first international mega FPSO contract in Brazil, which remains on track for first-oil by the third quarter of this year.
It said the group is still targeting a 50% stake divestment of the FPSO, as capital expenditure exceeds the US$1bil threshold.
“MISC’s recent success in securing three more liquefied natural gas (LNG) newbuilds for Qatar’s requirements entirely on its own, compared with going through a consortium previously, also elevates its standing as a leading global LNG player,” said UOBKH Research.
It said MISC has indicated that these new contracts are able to sufficiently replenish the legacy LNG long-term contracts which carried high returns in the past.
The research house is keeping its “buy” call on the energy company, while upgrading its target price to RM9.90 from RM9.05 previously.
It believes MISC deserves to trade at the top end, on strong earnings before interest, taxes, depreciation and amortisation from an upcycle in petroleum earnings, followed by a step-up in long-term earnings from Mero-3.
“Moreover, its ambitious 2030 growth plans show MISC is still in a growth mode,” added the research house.
