Broker: UOB Kay Hian
Date of Report: 29 May 2025

MISC Berhad: Navigating 2025’s LNG Trough with Strategic Growth and Decarbonisation Initiatives

Overview: MISC Berhad Maintains BUY as LNG Weakness Reaches Trough

MISC Berhad, a leading shipping company with diversified operations in LNG carriers, petroleum tankers, and offshore floating production, is navigating 2025 with a balanced approach. Despite near-term headwinds in the LNG carrier market, the company demonstrates resilience through strategic investments in fleet rejuvenation, decarbonisation, and new leadership in its petroleum division. UOB Kay Hian maintains a BUY rating, with a target price of RM8.20, representing a 9% upside from current levels.

Company Snapshot

• Share Price: RM7.53
• Target Price: RM8.20
• Market Cap: RM33,612 million (US\$7,639 million)
• Shares Issued: 4,463.7 million
• Sector: Industrials
• Major Shareholders: Petroliam Nasional Bhd (51.1%), Employees Provident Fund (14.0%)
• 52-week High/Low: RM8.97/RM6.50
• FY25 NAV/Share: RM8.61
• FY25 Net Debt/Share: RM2.03

Business Segments

MISC Berhad employs finance lease accounting for assets with long-term charter contracts, particularly in its LNG Carrier (LNGC) fleet. Its petroleum arm operates Very Large Crude Carriers (VLCCs), mid-sized tankers, and Dynamic Positioning Shuttle Tankers (DPSTs), while the offshore division manages Floating, Production, Storage and Offloading (FPSO) vessels.

1Q25 Financial Performance: Key Highlights

• Revenue: RM2,816.1 million (down 14.8% QoQ, down 22.6% YoY)
• LNG Segment: Revenue RM636.2 million (down 25.1% QoQ, down 17.9% YoY); Charter revenue RM587 million
• Petroleum Segment: Revenue RM1,252.4 million (up 3.4% QoQ, down 7.9% YoY); Term mix remains high at 90%
• Offshore & Heavy Engineering: Revenue RM963.5 million (down 17.7% QoQ); MMHE saw progress in claims and marine repair conversion
• EBIT: RM857.2 million (down 2.8% YoY)
• LNG EBIT: RM303.8 million (up 69.1% QoQ, down 15.9% YoY); 26 owned LNGCs
• Petroleum EBIT: RM370.1 million (up 5.1% QoQ, down 5.1% YoY)
• Offshore & Heavy Engineering EBIT: RM276.9 million (up 72.0% YoY, includes a significant one-off gain)
• Net Profit: RM705.7 million (down 7.1% YoY)
• Core Profit: RM681.8 million (down 5.4% QoQ, up 5.5% YoY)

Exceptional Items for 1Q25:

• RM0.31 billion impairment
• RM62 million modification loss on Benchamas 2
• RM56 million net gain from Kikeh acquisition (purchase cost: RM267 million)
• RM6.1 million net fair value loss in hedging derivatives
• US\$17 million one-time finance lease gain for FSO Bunga Kertas

Dividend and Profitability

• Dividend: First interim DPS of RM0.08, in line with 1Q24
• Petroleum segment maintained profitability despite a minor market correction in crude tanker rates
• Offshore segment posted a PAT of US\$47 million, including a US\$17 million one-off gain on FSO Bunga Kertas
• FPSO Mero-3 now contributes 50% of offshore PAT

Key Financial Tables

Segmental Outlook: LNG Headwinds and New Opportunities

LNG Segment

• LNG earnings are expected to bottom in 2025 due to an oversupply of LNG carriers and delays in new liquefaction plant startups.
• Market rebalancing is projected from 2026 onwards.
• MISC is on track to deliver 21 newbuilds (12 under JV), targeting a fleet of 33 LNGCs by 2028 (from 27 currently).
• MISC is actively bidding for more LNGC and VLEC contracts, with a \$500 million contract opportunity from ONGC India recently reported.

Petroleum and AET Developments

• AET, MISC’s petroleum arm, welcomed Nick Potter (ex-Shell Asia-Pacific Head of Shipping) as CEO in March 2025, marking a strategic shift towards energy transition and M&A potential.
• AET is investing in maritime decarbonisation, including retrofitting workboats for hybrid electric operation and ordering ammonia dual-fuel aframaxes.
• Focus on alternative fuels: ethanol (Brazil), LNG (with future synthetic/bio-LNG potential), and ammonia.
• Currently, 11 of AET’s 65 vessels are LNG dual-fuel.

Environmental, Social, and Governance (ESG) Initiatives

• Environmental:
  • Commitment to net-zero emissions by 2050; 50% GHG reduction by 2030
  • Fleet renewal with LNG-dual and ammonia-fueled vessels
  • Green ship recycling to minimize waste and support circular economy
• Social:
  • Diversity: Over 20 nationalities represented, over 40% female onshore staff
  • Safety: Lost Time Injury Frequency (LTIF) at 0.08 (vs. 0.15 in 2021)
• Governance:
  • 5/5 FTSE4Good rating for governance and supply chain management

Profitability by Segment (1Q25)

AET EBITDA Mix (2024)

• VLCC: 19%
• Mid-sized tankers: 43%
• DPST: 33%
• Others: 5%
• Secured EBITDA: 67% (2025 target: 80%)

Financial and Segmental Forecasts

Sum-of-Parts (SOTP) Valuation Breakdown

Strategic Outlook and Recommendations

• Earnings forecasts are maintained despite the expected trough in LNG segment earnings for 2025 due to timing mismatches in new deliveries and spot market softness.
• The company’s diversified structure, strong petroleum earnings, and strategic role as a Petronas-linked entity lend resilience.
• Investors are advised to adopt a wait-and-see approach as MISC navigates near-term LNG challenges and FPSO merger uncertainties.
• Structural strengths include robust petroleum cash flows, recurring income from FPSO Mero-3, and replenishing LNGC fleet.

Conclusion: A Resilient Play with Net-Zero and Growth Ambitions

MISC Berhad stands out for its prudent capital management, commitment to decarbonisation, and a well-timed leadership refresh in its petroleum arm. While 2025 is expected to be a trough year for LNG earnings, the company’s long-term prospects are strengthened by upcoming fleet additions, innovative fuel strategies, and a strong ESG profile. The maintained BUY call and RM8.20 target price reflect confidence in MISC’s ability to weather short-term volatility and capture future growth.