KUALA LUMPUR (July 23): MISC Bhd (KL:MISC) is expected to deliver a 43% year-on-year rise in core net profit for the second quarter of its financial year 2024, amid modest improvement in charter rates and a rebound at its marine and heavy engineering business.

Core net profit is expected to come in at RM695 million for the April-June period (2QFY2024), AmInvestment Bank Bhd said in a note. That would lift the projected total net income for the first half to RM1.4 billion, about 58% of consensus full-year estimates, the research house noted.

“We observe a modest improvement in spot and three-year time charter rates for both the liquefied natural gas (LNG) and petroleum shipping markets from April to May,” AmInvestment said. The house kept MISC on a “hold” call with an unchanged target price (TP) of RM8.60.

Overall, AmInvestment expects a full-year core net income of RM2.78 billion for MISC, slightly higher than the consensus’ estimate of RM2.5 billion, or 44.8 sen per share, according to Bloomberg.

Shares of MISC, which owns one of the world’s largest fleets of LNG carriers, have gained about 17% so far this year. A majority of analysts are still bullish, with nine “buy” recommendations and six “hold” calls. The consensus’ 12-month TP is RM9.00, about 5.5% upside from the current price of RM8.53. 

Natural gas demand in Asia has been stronger than expected due to low product price and heatwaves across India, China and Southeast Asia. Demand rose 11% in the first six months of 2024, significantly higher than the historical 2% growth, according to the International Energy Agency (IEA).

Asia Pacific also witnessed the end of the refinery maintenance season, amid continued disruption in shipping routes due to the Red Sea crisis. Spot rates for very large crude carriers (VLCCs) rebounded 26% by May. MISC’s term-to-spot ratio was 80:20 for its gas segment and 90:10 for its petroleum segment in 1QFY2024 (January-March).

“Though we are sanguine on MISC’s near-term outlook” on the delivery of FPSO (floating production storage and offloading unit) Mero 3 by September, and the recovery of its 66.5%-owned Malaysia Marine and Heavy Engineering Holdings Bhd (KL:MHB), valuations appear “full at current juncture,” AmInvestment said.

The stock is currently trading at 2024’s enterprise multiple of 8.5 times, a slight discount to its five-year average, the house said, noting that MISC’s TP implies a multiple of 8.8 times, broadly at par with its five-year average of nine times.

AmInvestment’s forecast also assumed a dividend of eight sen per share, bringing the year-to-date payout to 16 sen per share, or a full-year yield of 4.0%.