PETALING JAYA: MISC Bhd
’s proposal to get full control of FPSO Kikeh, offshore Sabah, while divesting its interest in FPSO Espirito Santo in Brazil, is expected to have minimal impact on its earnings and valuation.
The energy-related maritime solutions and services provider had signed a share sale and purchase agreements (SPAs) with SBM Holding Inc SA in relation to the acquisition of SBM’s 49% stake in FPSO Kikeh and the divestment of MISC’s 49% stake in FPSO Espirito Santo. Upon completion of the exercises in January 2025, MISC will fully own of FPSO Kikeh, while SBM will fully own FPSO Espirito Santo.
In its report, Hong Leong Investment Bank (HLIB) Research said the transactions are expected to be immaterial to MISC’s bottom line, and will result in only a marginal decline in the sum-of-parts (SOP) valuation of its shares.
“The contribution from these two assets (FPSO Kikeh and FPSO Espirito Santo) are immaterial to the group’s bottom line. Assuming the above acquisition and divestment are completed in January 2025, we make no changes to our 2024 forecast and lower our 2025-2026 earnings by 2.6% and 2.4%, respectively,” the brokerage explained.
“After raising equity stake of FPSO Kikeh to 100% and removing FPSO Espirito Santo in our financial model, our discounted cash flow-derived valuation for the group’s offshore business only declines by one sen, effectively lowering our SOP-derived target price for MISC,” it added.
HLIB Research maintained its “hold” call on MISC, with a slightly target price of RM8.24, as compared with RM8.25 previously.
CIMB Research said it is “neutral” on MISC’s signing of the SPA with SBM, stating minimal impact on earnings.
“We understand that both FPSOs are nearing the end of their respective contracts, with the FPSO Espirito Santo expiring in December 2028 and FPSO Kikeh in January 2028. In view of this, the transaction prices will likely reflect the residual earnings potential up to the contract expirations,” the research house said.
Based on its estimates, FPSO Espírito Santo and FPSO Kikeh would have each contributed 1.3% to 1.8% of MISC’s 2024-2026 core net profit.
“We estimate MISC’s acquisition of full ownership of FPSO Kikeh and the divestment of its entire stake in FPSO Espírito Santo effective January 2025, could lead to a 0.7% dilution to its 2025/26 core earnings per share,” it said.
“Overall, we are ‘neutral’ about these transactions. We view the acquisition of the remaining stake in FPSO Kikeh as a strategic move, as it will result in full entitlement to the FPSO’s cash flow and earnings rather than just 51% after accounting for minority interests,” it added.
CIMB Research estimated this could add RM23mil to MISC’s operating cash flow, contributing RM40mil to RM50mil per annum until the contract ends in 2028.
Additionally, the transactions would align with MISC’s initiative to streamline business operations allowing it to take full operational control over key strategic assets in Malaysia, it added.
CIMB Research reiterated “buy” on MISC, with a target price of RM10.25.
Meanwhile, MIDF Research viewed MISC’s transaction with SBM positively despite the age of the FPSO obtained.
“We believe that this decision is sound, as taking control of an FPSO closer to home helps to increase time and cost efficiency in maintenance and logistics, as well as to ensure regulatory compliance within the nation and region,” the research house said, in reference to FPSO Kikeh.
“Additionally, the deepwater region in Sabah still has the potential to be explored and produced, as only 45% of the area with hydrocarbon potential have been studied,” it noted.
In comparison to Campos Basin, where FPSO Espirito Santo is anchored in, the weather in deepwater offshore Sabah is less harsh and the geology is less complex, consequently making offshore Sabah a better option, MIDF Research said.
It maintained its “buy” call on MISC, with an unchanged target price of RM9.75.
