Energy shipping firm MISC Bhd has certainly emerged stronger from the challenges it faced in chaotic 2018 that further pushed it to grow its base of predictable income to secure its business as market cycles became shorter and more volatile.
Having invested to expand its fleet during the prolonged downturn, MISC was well-
positioned to capture the market upswing in 2019. When the Covid-19 pandemic distorted the entire oil and gas supply chain in 2020 and 2021, MISC’s focus on long-term charter shielded it from the downside of very volatile freight rates.
MISC’s long-term bet on gas — mirroring that of its parent Petronas (which has a 51% stake) — also paid off this year, as the previously unexciting liquefied natural gas (LNG) shipping segment boomed following the Russia-Ukraine war.
It would seem that MISC is reaping the benefits of having “a strategic focus to grow [its] secured and long-term business to reduce [its] exposure to the cyclicality and volatility” — to borrow the words of MISC’s then president and group CEO Yee Yang Chien in its 2018 annual report, also the year MISC celebrated its 50th anniversary.
Three years on, MISC’s FY2021 net profit came in at a four-year high of RM1.83 billion, on the back of RM10.67 billion in revenue. The dividend payout from FY2019 to FY2021 was 33 sen per share, or RM1.47 billion each year, up from 30 sen per share in the four years before that.
Despite impairment losses pushing numbers into the red in the financial year ended Dec 31, 2020 (FY2020), investors seem to be giving MISC’s overall strategy a nod of approval.
In the three years between March 29, 2019, and March 31, 2022, the company’s adjusted share price rose from RM5.82 to RM7.35, representing a compound annual shareholder return of 8.1%.
As a result, for the second time in three years, MISC has bagged a The Edge Billion Ringgit Club Award for the highest returns to shareholders over the three-year period in the transportation and logistics sector.
The company’s long-term growth strategy continues. In FY2019-FY2021, MISC committed US$4.2 billion (RM19.79 billion) of capital expenditure (capex) on new projects to generate secured and recurring income for the group.
As at end-June, MISC was en route to adding on two LNG vessels, four petroleum vessels, and what will be its largest floating production storage offloading (FPSO) vessel — the 180,000 barrels-per-day Mero 3 — to be deployed in Brazilian waters by 2024 for a 22-year period.
The group’s biggest earnings contributor is its fleet of 39 vessels that store and ship gas, including its 30 LNG vessels.
This is followed by a fleet of 12 floating assets that includes six FPSO vessels and another fleet of 60 vessels that deliver petroleum-related and chemical products. MISC is also a 66.5% shareholder of Malaysia Marine & Heavy Engineering Holdings Bhd (MMHE).
On the sustainability front, MISC has continuously invested to become more efficient while meeting the tighter emissions regulations in the shipping industry. For example, in The Castor Initiative, MISC and several of its international partners are seeking to develop and commercialise ammonia-fuelled zero-carbon emission vessels by 2024.
Moving forward, some observers think the last upcycle has peaked, as commodity prices and charter rates are coming down from their multi-year highs.
In its quarterly shipping report, S&P Global Commodity Insights says, quoting market participants, dirty and clean tanker freight rates are expected to be firm in 4Q2022 amid higher seasonal demand, alternative sourcing from countries other than Russia and some of the key refineries returning from maintenance.
However, downward pressure on China demand weighs on market sentiment while the latest cut in OPEC+ production is another potential negative.
MISC’s strategy? For the petroleum segment, it intends to “focus on building long-term secured income through its niche shuttle tanker business and rejuvenation of its tanker fleet” while continuing to pursue opportunities in the thriving FPSO segment.
The group sees its gas segment earnings remaining sturdy on the back of long-term charters. The heavy engineering segment will focus on growing its order book and optimising costs, it said in its 2QFY2022 financial results.
The group faced another loss in 2QFY2022 due to cost overruns and impairment on its LNG fleet. That aside, the group’s balance sheet remains healthy. At end-June, MISC had total borrowings of RM19.36 billion against cash of RM8.58 billion. Net gearing stood at 0.3 times.
Both the oil and gas and shipping industries are cyclical in nature — but MISC’s long-term strategy should better help the group cruise through choppy waters in the coming years.