PETALING JAYA: MISC Bhd
is poised for a stronger performance in the second half of 2024 (2H24), buoyed by a mix of steady operations, strategic developments, and favourable market conditions.
Analysts from various research houses have provided optimistic outlooks for the company, projecting growth and potential re-rating catalysts despite some ongoing challenges.
CIMB Research, for instance, anticipates an 8% to 10% growth in MISC’s earnings for 2H24 compared to the first half.
This expectation is largely underpinned by the liquefied natural gas (LNG) segment, which is expected to see improved contributions due to higher spot rates, particularly during the winter season.
In its report yesterday, the brokerage said: “While petroleum earnings are anticipated to remain steady, we expect the LNG segment’s contribution to pick up in 2H24, driven by higher spot rates, particularly during the winter season.”
It noted MISC’s LNG term-to-spot ratio currently stood at 80:20.
Additionally, CIMB Research said the Mero-3 floating production storage and offloading (FPSO) unit, which had faced delays, would remain a significant contributor to MISC’s long-term growth.
For perspective, after arriving offshore Brazil and receiving provisional acceptance from Petrobras on May 27, the project encountered a two-month delay due to a technical issue with the production riser managed by Petrobras’ contractor.
Despite this setback, MISC is expected to start recognising standby rates from August 2024, assuming the riser is delivered by the end of the month, CIMB Research said.
CIMB Research highlights that the first oil from Mero-3 is expected in late third quarter of this year (3Q24) or early 4Q24, marking the beginning of its 22.5-year firm charter period.
This long-term project is crucial for MISC, and the standby rates from August are expected to provide a noticeable uplift in the company’s earnings, it noted.
However, the final recognition of these rates would be subject to ongoing negotiations with Petrobras, it added.
CIMB Research maintained its “buy” call on MISC with an unchanged target price of RM10.25.
For 1H24, MISC recorded a net profit of RM1.3bil on the back of revenue of RM6.97bil as compared to a net profit of RM1.07bil and revenue of RM6.63bil in 1H23.
The results were largely in line with market expectations.
RHB Research reiterated its “buy” call on MISC and raised its target price to RM9.84 from RM9.35.
It highlighted that the steady operating cash flow of MISC and the expected earnings bump from the Mero-3 project as key factors for its positive outlook.
Furthermore, it was optimistic about the tanker market outlook, supported by increasing long-haul exports amid limited fleet growth.
“We continue to like MISC for its steady operating cash flow, on top of the anticipation of a bump-up in numbers due to Mero 3 (expected first oil by late 3Q24 or early 4Q24), from 2H24,” the brokerage said.
“The overall tanker market outlook remains positive, with increasing long-haul exports from the United States, Brazil and Guyana as well as low fleet growth,” it added.
Meanwhile, Maybank Investment Bank (Maybank IB) Research maintained its “hold” rating on MISC, with an unchanged target price of RM8.13.
The research house notes that MISC’s management has guided that a stake sale in the Mero-3 project, potentially ranging between 30% to 50%, would take precedence over new job wins. This move, it said, was seen as a “capital recycling” initiative.
“Only then would MISC think about getting into a partnership for a new mid-large sized FPSO job.
“These potential developments would be re-rating catalysts for MISC,” Maybank IB Research said.
“We continue to like MISC for its defensive nature from its long-term LNG charters, which provide recurring cash flows; this allows the group to provide stable earnings, cash flows and decent dividend yields of about 4.2%, which we believe will support share price,” it added.
Despite the positive outlook, MISC continued to face some challenges.
Hong Leong Investment Bank (HLIB) Research pointed out that tanker rates have moderated due to China’s tepid crude oil demand, with very large crude carrier day rates falling from approximately US$40,000 to US$30,000 in 3Q24.
However, HLIB Research remained optimistic about the fundamentals of the tanker market, anticipating a recovery in demand and rates as winter approaches.
Similarly, LNG charter rates and demand are expected to recover in 2H24, aligning with seasonal peaks.
