KUALA LUMPUR: MISC Bhd, a 62.7%-owned subsidiary of Petroliam Nasional Bhd (Petronas), will have much to gain if the national oil company abandons its strategy to directly own its fleet of liquefied natural gas (LNG) vessels.

In a report yesterday, CIMB Research is of the view that Petronas may sell four LNG new builds it ordered in 2013 as it relegates ship ownership to “low priority”.

Gan Jian Bo, an analyst with CIMB Research, said Petronas may be changing its ship ownership strategy to directly order LNG vessels, revealed in August 2013, because its hands are full with LNG projects in Malaysia and overseas which offer “a lot better” internal rate of return (IRR).

“Petronas is very busy with several projects. They have the Refinery and Petrochemical Integrated Development (Rapid) project in Malaysia, the Gladstone LNG project in Australia and one in Canada with Progress Energy,” Gan told The Edge Financial Daily.

Gan estimates that LNG projects would typically offer IRR of 12% to 15%, compared with the high single-digit returns from the shipping business.

“If Petronas does sell these vessels to MISC, Petronas will likely charter these ships from MISC to meet its shipping requirements in Bintulu and other ongoing projects like FLNG1,” said CIMB Research.

“The inclusion of four new long-term LNG charter contracts with Petronas will help mitigate MISC’s LNG earnings decline, since six of its LNG ship charters expire in 2014 to 2017,” it said.

This is timely as Petronas’ four new vessels are slated for delivery in 2016 and 2017 and will be earnings accretive from 2017. The new ships also come with the option to procure four additional LNG vessels, which could be passed on to MISC. With that view, CIMB Research made an “add” call on MISC’s stock at RM6.90 and gave it a target price of RM8.22.

MIDF Research said Petronas’ change of strategy is “logical” as it does not have the expertise to manage LNG vessels.

“Petronas ordered the four LNG new builds after its attempt to privatise MISC failed to ensure that there will be no interruption in the LNG transportation services,” an analyst from MIDF Research told The Edge Financial Daily.

“Petronas does not have the expertise to manage these assets and had to engage MISC to manage the construction of the new ships. Selling the ships to MISC would make sense,” he said.

He added that the shipping expert would also have the financial muscle to acquire the four vessels from Petronas, having strengthened its balance sheet after the sale of its 50% stake in Gumusut-Kasap Semi Floating Production System (L) Ltd to Petronas Carigali Sdn Bhd in 2013.

To recap, Petronas had in August last year announced that it had decided to buy its own LNG vessels, after it failed to privatise MISC. Two months later, the group awarded the contract to build four LNG vessels, with the option to order an additional four LNG vessels, to South Korea’s Hyundai Heavy Industries Co. At the same time, MISC was engaged to provide project management and technical consultancy services for the construction of the new LNG ships.

This article first appeared in The Edge Financial Daily, on November 6, 2014.