KUALA LUMPUR (Sept 25): Hong Leong Investment Bank (HLIB) Research is positive on the news that MISC Bhd will co-own two newbuilds liquefied natural gas (LNG) vessels with Mitsubishi Corp and Nippon Yusen Kabushiki Kaisha (NYK) for an LNG shipping project worth US$201.6 million (RM843.66 million).
To recap, MISC announced on Tuesday that it has signed an agreement with the two Japanese firms for the partnership to co-own the LNG carriers, each with a capacity of 174,000 cu m.
The two LNG carriers, which are currently being built by Hyundai Samho Heavy Industries, will be delivered in 2021 and will serve Mitsubishi's wholly-owned subsidiary Diamond Gas International Pte Ltd on an 18-year charter contract.
In a note today, HLIB Research said this partnership will generate additional recurring income for MISC's LNG segment, which remains its bread and butter.
"Assuming a market charter rate of US$80,000 per day, and MISC's portion of the contract value of US$201.6 million (translating to a daily charter rate [DCR] of circa US$17,000), we estimate MISC's equity stake in this venture to be within 20%-25%," the research house said.
Noting that MISC's net gearing as at 1H19 stood at 0.21 times with a cash balance of RM6.7 billion, HLIB Research viewed that this investment barely put a dent to its balance sheet.
"Assuming debt to equity ratio of 80:20 and a stake of circa 25% in the entity holding these vessels, we estimate that MISC's equity investment for the associate stakes in these vessels to amount [to] US$18 million to US$20 million," it said.
Nonetheless, based on MISC management's guidance on capex target totalling US$1 billion for FY19, HLIB Research said this acquisition seems underwhelming or perhaps a precursor to a busy finish.
"Our FY19-20 forecast remains unchanged whilst our FY21 earnings inch up by 1.2%," it added.
HLIB Research maintained its "Hold" rating on MISC at RM7.74 with a higher target price of RM7.06 (from RM6.99) after factoring in the incremental effect of these two LNG vessels.