MISC Bhd: Detailed Financial Analysis and Future Outlook

Date of Report: November 15, 2024

Broker Name: Maybank Investment Bank Berhad

Introduction

In the latest financial analysis of MISC Bhd, Maybank Investment Bank Berhad provides a comprehensive overview of the company’s third-quarter performance for 2024. The report delves into the financial metrics, challenges, and future outlook of MISC Bhd, a prominent player in international energy-related maritime solutions and services.

Performance Overview

MISC Bhd faced a challenging third quarter in 2024, with results falling below expectations. The company’s core net profit for 3Q24 was recorded at MYR329 million, marking a significant reduction of 40% quarter-on-quarter and 29% year-on-year. Cumulative core earnings for the first nine months of 2024 stood at MYR1,577 million, reflecting a 4% decline year-on-year. This performance represented only 65% and 63% of Maybank’s and consensus full-year estimates, respectively.

Key Challenges

The primary reason for the underwhelming performance was attributed to MISC’s offshore segment, which slipped into losses due to increased operating expenses. These expenses were incurred to address a production riser issue for the Mero 3 Floating Production Storage and Offloading (FPSO) unit. Additionally, LNG shipping charter rates are projected to face headwinds due to a high number of vessel deliveries, which will add to global supply amidst limited additional liquefaction capacities.

Dividend Announcement

Despite the challenges, MISC declared a third interim dividend per share (DPS) of 8 sen for FY24. This decision underscores the company’s commitment to providing shareholder returns even amid financial headwinds.

Future Outlook and Recommendations

Maybank Investment Bank Berhad maintains a ‘HOLD’ recommendation for MISC Bhd, albeit with a slightly lower target price of MYR8.09, down from MYR8.13. The report suggests that a stake sale of Mero 3, potentially ranging between 30-50%, might take precedence over new job wins to facilitate “capital recycling” purposes. The company’s defensive nature, supported by its long-term LNG charters, provides recurring cash flows, making its valuation appear fair.

Financial Metrics

The financial metrics highlight several key figures:

• Revenue for FY24 is estimated at MYR13,032 million, with an EBITDA of MYR4,703 million.
• The core net profit is expected to be MYR2,061 million, with core earnings per share (EPS) projected at 46.2 sen.
• The net dividend yield is forecasted at 4.5%, supported by an annual DPS estimate of 36 sen.
• Net gearing, including perpetual securities, is anticipated to be 26.1%.

Segmental Breakdown

The report provides a detailed breakdown of MISC Bhd’s revenue and EBIT across its key segments:

• LNG Asset Solutions: Revenue declined by 22% year-on-year, with EBIT margins decreasing by 11.5 percentage points.
• Petroleum and Product Shipping: Revenue saw a slight decline of 4% year-on-year, while EBIT increased by 14%.
• Offshore: Revenue dropped by 59%, with EBIT margins experiencing a significant reduction of 22.5 percentage points.
• Marine and Heavy Engineering: This segment performed well, with revenue increasing by 42% year-on-year.

Conclusion

Overall, MISC Bhd’s financial performance in 3Q24 has been impacted by increased operational costs and challenging market conditions, particularly in the LNG shipping sector. However, the company’s strategic initiatives, such as potential stake sales and its defensive business model, provide a cushion against market volatility. Investors are advised to maintain a cautious approach, as reflected in Maybank’s ‘HOLD’ recommendation, while keeping an eye on future developments and strategic moves by the company.