Broker: UOB Kay Hian
Date of Report: Tuesday, 26 August 2025

MISC Berhad: Navigating Market Headwinds with Strategic Fleet Management and Early LNGC Deliveries

Overview: MISC’s Resilient Performance and Strategic Positioning

MISC Berhad, a major player in the shipping sector with a diversified portfolio across LNG carriers, petroleum tankers, and offshore production assets, continues to demonstrate resilience and adaptability in a challenging market environment. Despite headwinds in the LNG segment and a volatile crude tanker market, MISC’s proactive strategies, including early LNG carrier (LNGC) deliveries and a focus on energy transition, position the company for future growth. UOB Kay Hian maintains a BUY rating with a revised target price of RM8.70, highlighting a potential upside as the company navigates cyclical troughs and positions itself for a rebound.

Company Snapshot

• Sector: Industrials
• Share Price: RM7.70
• Target Price: RM8.70 (Previous: RM8.20)
• Market Cap: RM34,371m (US\$7,639m)
• Major Shareholders: Petroliam Nasional Bhd (51.1%), Employees Provident Fund (12.9%)
• Bloomberg Ticker: MISC MK
• Shares Issued: 4,463.7 million

Key Highlights: Q2 2025 and 1H 2025 Results

Segmental Performance and Strategic Insights

LNG Segment: Near-Term Weakness, Long-Term Optimism

• Revenue and EBIT from LNG fell sharply due to legacy vessels approaching contract expiries and depressed spot rates, especially for older steam turbine LNGCs.
• Impairments were recognized on eight legacy LNGCs, mirroring prior quarters, reflecting declining vessel values and spot rates hovering at or below US\$5,000 per day for obsolete units.
• Despite short-term market challenges, MISC is benefiting from early deliveries of new LNGCs under long-term charters to QatarEnergy, part of a major JV with NYK, Kawasaki, and China LNG Shipping. Four of the twelve contracted vessels have already been delivered year-to-date, accelerating revenue recognition and supporting fleet rejuvenation.
• Legacy LNGCs continue to be divested, with recent sales aligning closely with scrapping prices amid weak secondary market demand.

Petroleum Division: Stable Amid Spot Rate Volatility

• Revenue from petroleum shipping saw a mild uptick quarter-on-quarter, though EBIT was pressured by a higher spot charter mix which typically yields lower margins.
• MISC strategically increased its spot exposure to 25% for Suezmax and Aframax tankers, capitalizing on a counter-cyclical surge in mid-sized tanker rates driven by higher non-OPEC output, Russian crude trade shifts, and ongoing Middle East geopolitical tensions.
• Industry-wide, time charter rates for all tanker classes remain steady, providing a solid base for future earnings stability.

Offshore & Heavy Engineering: FPSO Mero-3 Delivers Operational Milestone

• The offshore division posted steady charter profits, particularly from FPSO Mero-3, FPSO Kikeh, and FPSO Bunga Kertas. The division is now free from merger speculation, ensuring more predictable cash flow.
• FPSO Mero-3 achieved peak output on 19 May 2025, just 201 days after first oil, outpacing comparable ramp-up periods for peer units. This operational success enhances the asset’s value and divestment prospects for MISC’s planned 25% stake sale.

Financial Highlights and Forecasts

Strategic Developments and Outlook

• LNG Market Cycle: Industry-wide, LNG earnings are expected to bottom out by end-2025. MISC is actively selling older, less efficient LNGCs and fast-tracking the deployment of modern, long-term chartered vessels, reducing exposure to weak spot markets.
• Offshore Portfolio: The offshore division’s reoptimised portfolio—now free from merger overhang—delivers stable cash flow, with FPSO Mero-3’s rapid ramp-up enhancing its divestment and valuation prospects.
• MISC2030 Targets: The company is committed to achieving 50% OCF growth from the 2022 base, with 25% to come from new energy and decarbonisation (NED). Costs for maturing these businesses are already embedded in segmental expenses, with projects such as Liquefied Carbon Dioxide carriers and the ZEUS offshore platform underway.
• Valuation: UOB Kay Hian’s revised SOTP target price of RM8.70 is based on rolling forward to 2026F earnings, reflecting a 14x PE in line with the five-year average. The LNG DCF discount is reduced from 35% to 25% amid improving visibility for long-term charters and asset refresh cycles.

Environmental, Social, and Governance (ESG) Initiatives

• Environmental: MISC is investing in new vessels with LNG-dual/ammonia fuel capabilities, targeting net-zero emissions by 2050 and a 50% greenhouse gas reduction by 2030. The company is also advancing green ship recycling to minimize waste and responsibly dispose of aging assets.
• Social: The workforce features over 20 nationalities and more than 40% female onshore staff. Safety remains a top priority, with a Lost Time Injury Frequency (LTIF) of just 0.08, improved from 0.15 in 2021.
• Governance: MISC achieved a 5/5 FTSE4Good rating for governance and supply chain management.

Segmental and Cash Flow Forecasts

Valuation Breakdown: SOTP Approach

Conclusion: Investment Case for MISC Berhad

MISC Berhad stands out for its disciplined execution, proactive fleet management, and commitment to sustainability. Despite industry headwinds—particularly in the LNG segment—the company’s early LNGC deliveries, stable petroleum and offshore earnings, and focus on new energy solutions underpin a positive long-term outlook. UOB Kay Hian’s revised target price of RM8.70 reflects confidence in MISC’s ability to weather near-term volatility and capitalize on the next upcycle. Investors are advised to accumulate on weakness, as the company’s strategic pivot toward long-term contracts, operational excellence, and decarbonization sets the stage for future value creation.