KUALA LUMPUR (Aug 13): MISC Bhd’s (KL:MISC) shares may get a boost when its Mero-3 floating production unit achieves first oil by the end of September, said CIMB Securities.
The contract is worth up to US$5.5 billion (RM24 billion) and the full-time charter revenues from Mero-3 would contribute to FY2025-FY2026 core earnings per share by 4%, according to CIMB’s estimates. That’s 12% on earnings before interest, tax, depreciation and amortisation (Ebitda) level, the house said.
“This could act as a rerating catalyst for MISC,” CIMB said.
Mero-3, a floating production, storage, and offloading (FPSO) project, has been delayed for months before its delivery to an offshore field in Brazil. Under the contract, the FPSO has a 22.5-year firm charter period from the date of final acceptance by client Petróleo Brasileiro SA, more commonly known as Petrobras.
Formally named as FPSO Marechal Duque de Caxias, the FPSO could produce up to 180,000 barrels of oil and process up to 12 million cubic metres of gas per day, as well as store 1.45 million barrels of oil.
CIMB is also raising its core earnings forecasts by 8% for 2025 and by 11% for 2026, after raising offshore Ebitda margin by 20 percentage-points and to account for higher petroleum freight rates of 17.5% on average, due to tight market supply.
“We see tight market supply and increasing demand for long-haul Atlantic exports, particularly from the US, Brazil and Guyana” due to higher crude oil production, the house flagged.
Shares of MISC, which owns one of the world’s largest fleets of liquefied natural gas carriers, have gained about 18% so far this year, thanks to stronger-than-expected demand. In Asia, gas demand has been driven by low product price and heatwaves across India, China and Southeast Asia.
Demand from Asia rose 11% in the first six months of 2024, significantly higher than the historical 2% growth, according to the International Energy Agency.
Further, core net profit at MISC’s heavy engineering segment is also expected to continue growing to RM48.1 million in 2026, from RM41.7 million in 2024, driven by the near-completion of its legacy, but less profitable construction contracts, as well as higher billings from ongoing projects, CIMB said.
All in all, the house lifted its 2024-2026 net profit by between 1.7% and 11.1%, after considering higher freight rates from the petroleum segment and increased offshore segment margin. The target price has also been raised to RM10.25 from RM9.61, and CIMB continues to recommend a “buy” call on the stock.
CIMB is among the majority of nine out of 15 research houses bullish on MISC. The remaining six have “hold” calls. The consensus’ 12-month target price is RM9.05, according to Bloomberg, about 5.5% upside from the current price of RM8.58.