MISC (3816) - MISC Bhd - Taking over Petronas's LNG vessels
Target RM9.10 (Stock Rating: ADD)
Petronas is transferring its LNG newbuilding orders to MISC, while contracts for five Puteri class vessels have also been extended. This is good news for MISC and serves to boost investor confidence in Petronas and MISC's father-son relationship. We make no changes to our EPS forecasts but raise our SOP-based target price as the newbuilding order transfers were more than previously forecasted. Maintain Add, with this announcement and brighter petroleum tanker prospects as key rerating catalysts.
What Happened
MISC announced yesterday that Petronas has transferred the five LNG newbuilding orders it has with Hyundai Heavy to MISC, and has also agreed to time charter these vessels from MISC for at least 15 years, with the option to extend the contract for an additional five years. In addition, Petronas has also agreed to extend the charter of five LNG Puteri class ships for another 10 years. The relevant time charter rates were not disclosed.
What We Think
The good news is not entirely a surprise, as we had expected Petronas to transfer its LNG ship orders to MISC since our November 2014 report. However, we had previously only incorporated the contribution of four LNG vessels into our forecasts, so Petronas transfer of five LNG newbuilding orders will increase our EPS forecasts from FY18 onwards. The last of the five LNG vessels will likely be delivered in December 2017. The expected US$1.1bn overall capex translates into capex of about US$220m/ship, similar to our US$213m/ship forecast. MISC's balance sheet should remain very healthy even with the additional capex, with net gearing expected to be just 12% at end-2017. The extension of five Puteri class charters is also in line with expectations. We expect to see charter rates during the extension period fall by 60% vs. rates during the initial 20-year contract, because the original capital cost on these ships has already been recovered on their initial contracts, and the older ships are less fuel efficient.
What You Should Do
Petronas's decision to transfer its LNG newbuilding orders to MISC should boost investor confidence in the two parties' father-son relationship, as the strength of the bond between Petronas and MISC came into question when Petronas surprisingly decided to directly order LNG vessels in August 2013. The tide appears to be in MISC's favour this year, thanks to favourable market conditions for the petroleum tanker market and higher offshore profits.
Source: CIMB Daybreak - 24 February 2015
Target RM9.10 (Stock Rating: ADD)
Petronas is transferring its LNG newbuilding orders to MISC, while contracts for five Puteri class vessels have also been extended. This is good news for MISC and serves to boost investor confidence in Petronas and MISC's father-son relationship. We make no changes to our EPS forecasts but raise our SOP-based target price as the newbuilding order transfers were more than previously forecasted. Maintain Add, with this announcement and brighter petroleum tanker prospects as key rerating catalysts.
What Happened
MISC announced yesterday that Petronas has transferred the five LNG newbuilding orders it has with Hyundai Heavy to MISC, and has also agreed to time charter these vessels from MISC for at least 15 years, with the option to extend the contract for an additional five years. In addition, Petronas has also agreed to extend the charter of five LNG Puteri class ships for another 10 years. The relevant time charter rates were not disclosed.
What We Think
The good news is not entirely a surprise, as we had expected Petronas to transfer its LNG ship orders to MISC since our November 2014 report. However, we had previously only incorporated the contribution of four LNG vessels into our forecasts, so Petronas transfer of five LNG newbuilding orders will increase our EPS forecasts from FY18 onwards. The last of the five LNG vessels will likely be delivered in December 2017. The expected US$1.1bn overall capex translates into capex of about US$220m/ship, similar to our US$213m/ship forecast. MISC's balance sheet should remain very healthy even with the additional capex, with net gearing expected to be just 12% at end-2017. The extension of five Puteri class charters is also in line with expectations. We expect to see charter rates during the extension period fall by 60% vs. rates during the initial 20-year contract, because the original capital cost on these ships has already been recovered on their initial contracts, and the older ships are less fuel efficient.
What You Should Do
Petronas's decision to transfer its LNG newbuilding orders to MISC should boost investor confidence in the two parties' father-son relationship, as the strength of the bond between Petronas and MISC came into question when Petronas surprisingly decided to directly order LNG vessels in August 2013. The tide appears to be in MISC's favour this year, thanks to favourable market conditions for the petroleum tanker market and higher offshore profits.
Source: CIMB Daybreak - 24 February 2015
