MISC Berhad (MISC) Earnings Call Transcript & Summary

A very good evening, ladies and gentlemen. Thank you for participating in our fourth quarter financial year 2020 (sic) [ 2022 ] Analyst Briefing. I am Navina from MISC Investor Relations team. We have with us today Encik Zahid Osman, Vice President, Corporate Planning; Encik Raja Azlan Shah Raja Azwa, Vice President Finance; Cik Eslin Halimi, Head of Financial Reporting, Governance & Budget Finance; Ms. [indiscernible] General Manager, Corporate Planning; and Encik Azmir Feisal, Senior Manager, Corporate Planning. Before we start with the presentation, I would like to bring your attention to the disclaimer slide. This presentation contains some forward-looking statements with reference to our plans and expectations, whereby actual results could differ due to unknown risks, uncertainties and other factors that are, in many cases, beyond MISC's control. With that, I would like to invite Encik Zahid for his introductory remarks on the quarter's key highlights and business updates.

Thanks, Navina. Next slide, please. [Foreign Language] and good afternoon or good evening, everyone. Thank you for making time to join us on our analyst briefing for quarter 2 financial results. I think in -- what we have done this time around is to make some improvement so that we can either share better information and relevant information with all of you so that you have a better insight into the performance of the company. I think you heard just now, I mean [indiscernible] just joined us in January. She is the GM Corporate Planning, responsible for IR, strategic planning and performance improvement and research. So she -- her background is in treasury as well as corporate finance from Digi. So she's also done the Digi and Celcom merger just before she joined us in January. So let me go to the quarter 4 highlights. Just one second. I think we will have a problem with the slides. Just give us one second or two second, please. Give one minute, okay. All right. Apologize for that. So let me [Technical Difficulty] quarter 2 performance. The MISC delivered a positive financial performance this quarter and the full year 2022, driven by a resilience of our business across the group. We maintain and focus on delivery excellence and discipline in pursuing strategic growth. You will see that in the highlights that I'm going to give shortly. I think in terms of financial, you can see both our revenue and NPAT has shown improvement compared to either last quarter or the last year, mean Azlan or Eslin later on will share with you in more detail why the reason for those increases. The Board has also agreed -- approved the dividend declaration of $0.12 that will be paid in March this year, okay? On sustainability, our ESG activities and practices and safety performance continue to be recognized by the industry. We won the first time, The Edge ESG Award 2022 for MISC Berhad as well as our subsidiary, MHB. We also won 6 Malaysian Society for Occupational Safety and Health Award for this year. I think this is across the group the award was given. We continue to improve in our ESG, which we think demonstrated to the reduction of rating from 18.8 points to 18 for 2022. And I think the other one that we are also very proud that we continue to be a member of the Dow Jones Sustainability Index, 1 of the 3 Malaysian companies in the list and the only one from the transportation sector. And last year, we also included in the Yearbook for 2023. It's a recognition on the effort that we have put in as a group on the ESG front. Not to mention that last quarter or in quarter 4, 2022, we secured or awarded another 5 LNG Carriers to our consortium members from QatarEnergy. So in total, we -- together with the consortium, we have 12 vessels with QatarEnergy. So next, there are a few things that I think are happening. I mean, either in last quarter or in the last few weeks. I think in one of our vessels from the petroleum side, Eagle Valence was awarded Tanker of the Year award, and is also certified as a Green Ship by the Maritime and Port Authority of Singapore. I think a few days ago, we received delivery of 2 LNG vessels, the Seri Damai and Seri Daya. And both of them are under long-term charter to SeaRiver subsidiaries of ExxonMobil. So this will strengthen the MISC secured revenue stream in the next many, many years. MHB, our subsidiary, has made another significant performance success in securing from PETRONAS, the EPCIC Alliance Services for the Kasawari Carbon Capture and Storage project. What we understand is, probably the biggest for offshore CCS project. They also secured EPC contract from Shell for the Rosmari-Marjoram Gas Project. So overall, from financial as well as ESG and we continued to push the growth agenda, I think we had a good quarter last year and for 2022. Next I know -- I mean everyone -- every time when we had this analyst briefing, there's a lot of questions related to Mero-3. So for this time around, we also decided to give you a short update on the project. I think the team has worked really well with the yard at CIMC. Currently, the -- you can see from the photo on the left, the vessel is already back in the drydock for the final work to be done. And you can also see the second part, there is a flashback -- the Flare Tower that's going to be installed to the project. So overall, Mero-3 project is progressing as planned. We have also successfully put in place and executed mitigation measures to ensure the productivity and the project and catch up the schedule that -- so that we can deliver the project as per our plan, despite the many challenges that we are facing. So I think, the team itself either here in Kuala Lumpur or in the Chinese yard, they are working very well. And we continue to focus on safe delivery and focus on the productivity at yard. So that's what I want to say on the Mero-3 project. So you can see that's how it's going to look like. Even though it's not finished yet, but this is a major and a huge undertaking by any measure. Next. So maybe Eslin will take us through on the financial side. Eslin, please?

Thank you, Encik Zahid. Good evening, everyone. Thank you for joining the call. I'll continue with the financial highlights. Moving on to Slide 8. This is the snapshot of the quarter 4 revenue, PBT from operations, PAT and cash flow from operations as compared to preceding and forthcoming quarter. Let me start with the revenue first. High revenue as compared to both preceding and corresponding quarters, mainly due to the high construction revenue from conversion of FPSO. As well as high revenue coming from the Petroleum segment due to the higher tank rates that we can see in these recent quarters. Moving on to profit before tax from operations. Higher profit before tax from operations for both quarters, again, coming from the recognition of construction profit for FPSO unit. Higher profit before tax from operations from Petroleum segment due to higher freight rates as mentioned earlier. In addition, our Engineering segment [indiscernible] mainly due to the higher dry-docking activities in Engineering segment as well as the partial COVID-19 claim recoveries that MISC received during the year. For the profit after tax, it is improving from year-on-year more or less equal in line with higher revenue and operating profits as I mentioned earlier. For CFO, you can see that strong CFO reported, which is backed by long-term contracts and higher collections received contracts. Moving on to Slide 9. This is our cash flow from operations and PBT from operations that I have shared earlier. Basically, higher cash flow mainly coming from higher collection, which is in line with the improved PBT from operation that we can see from the earlier slide. Moving on to Slide 10. On Page 10, cash and debt balances. For MISC, we closed at USD 1.6 billion and USD 4 billion, respectively, since last quarter. This is after some loan repayments that we made in quarter 4 2022. Now moving to the Business segment on Page 11 of the presentation slide. The Gas and Asset Solutions revenue and profit before tax were quite stable, as you can see from the graph, as compared to both corresponding and preceding quarters. However, lower revenue as compared to corresponding quarter, mainly due to the low earning base following the Puteri Intan Satu contract filing, which happened in quarter 3 in H2. Page 12, Petroleum & Product Shipping. You can see higher rates contributed to the better performance for Petroleum segment as compared to preceding and corresponding quarter. A lower PBT recorded as compared to preceding quarter is due to one-off compensation that we received after the contract negotiation in [indiscernible] 2022. In addition, higher PBT will further impact the corresponding quarter to the higher tank rates that I mentioned earlier. Page 13, Offshore Business segment. Higher revenue in this quarter compared to preceding and corresponding mainly due to the higher revenue recognition from the FPSO [indiscernible] following improved project progress during the quarter. Better profit from operations as compared to existing quarter, mainly in the project progress as mentioned earlier. However, we can see that lower profit from operation as compared to corresponding quarter, mainly in previous quarter, we received a onetime gain for our offshore contract as mentioned. Finally, in the last segment, Marine & Heavy Engineering segment, Slide 14. Revenue are relatively stable as compared to preceding and corresponding quarter. Profit before tax also show positive because of the recovery of COVID-19 claims and the recovery of dry-docking activities since the reopening of borders on [ April 15, 2022 ]. Whereas in quarter 4, PBT one, profit before tax nearly impacted by the additional cost provisions provided during the [indiscernible] quarter. With that, I thank you. Now, I hand over to [indiscernible] for the market environment update.

Thank you, Eslin, and thank you for brief Introduction. Before we move on to our final section of Q&A, I would like to close this section with some updates on the market environment. Okay. Now we started 2022 with the expected seasonal demand, which is slow and followed with the Russia's invasion in Ukraine, which has caused market disruptions and adjustment throughout 2022. At the start of the quarter 4, we saw a new high since year 2020, with the rate limit high at 300,000 per day, mainly due to relaxation of the COVID zero, COVID policy as well as restock of -- by Europe in general. Now the spot rate dip towards the end of December due to high inventory arising from the mild winter as well as increase of the availability. As for the top charter, we remain optimistic given China's relaxation. Next, please. Thank you. So echoing on our earlier key highlights, which includes the loss of 5 newbuilds in the quarter 4 of LNGC, making a total of 12 in the year 2022 by QatarEnergy. We continue to see positive momentum in this phase, MISC expected and hopefully to materialize our particular income stream of this vessel hopefully around the May 2025. Next please. So we closed strong on average tanker range in quarter 4, which is reflected in the higher operating profit in Petroleum segment. We expect to leverage on this continued trend given the reshuffling of trade works mostly benefit from the -- benefit by the lead time tanker. MISC is also cushioned by Petroleum segment [ Petro ] by long-term asset with a ratio of 77:23 of long term and spot. Next, please. Delivery of 2022 has outpaced 2021, in line with the higher orders locking during 2020, '21. As part of steel stabilized and reducing [indiscernible] cost. Striking activities are very low as the market rates still lucrative. Next, please. I just want to close on the offshore CapEx investment, how to pick up in activity levels as well as high [indiscernible]. Upstream CapEx investment is expected to remain high buoyant backed with pickup in activity levels as well as higher FID and renewed focus on the energy security agenda and the recovery of the world economy, despite the impact that we expected, i.e., the inflation and the continued supply chain disruption. With that, thank you very much. I think we can move on to the Q&A. Over to you, Navina.

[Operator Instructions] Firstly, we have Ben Shane.

So my first question is around the offshore segment. The earnings there look a little bit lumpy. It sounds like your progress is growing faster. Also, that's great. But I am just trying to understand, how should we think about the progress and some of the revenue recognition for this segment going forward?

Yes. Thanks, Ben, for the question. To date, we have about 74% to 75% of completion. As you are aware, during the second quarter, we had to take a hit because of some cost overruns and some delays, but we have recovered the position in the third quarter and the fourth quarter, and that's why you're seeing better numbers during these 2 quarters. Going forward, we hope that there will be no surprises and then we should continue to provide such numbers going forward.

Okay. So there was no like catch-up or any like write-backs in that number? It's just purely on progress?

No. We have not yet...

Okay. And I know it's a bit vague. You mentioned that there's mitigation action put into place. I know there was -- you were floating the idea of moving the topside completion somewhere else. Obviously, that hasn't happened. Will there be any savings or anything from that decision? And just to round it off, how much -- how many months are you behind schedule at this point in time?

Yes. As I mentioned last time, we are 6 months behind schedule. There will be some mitigation action towards the later part of this year to minimize exposure to any risks related to China. However, we can't give you the details because we are in the nego with the second counterparty.

Next will be Raymond.

Sorry, I was trying to unmute my mic. Okay. Just following on from Ben's questions.

Sorry, you're not really -- can you speak up Raymond?

Okay. Just following on from Ben's question. Your guidance previously was for delivery to Petrobras in May 2024. Can I just get a sense of whether you're on track for that schedule?

Yes, we are on track.

Okay. And you did mention previously that you might actually transfer the vessel away from CIMC Raffles by July, that the decision will be made by the end of last year. Can I presume to say that the decision is therefore to remain at CIMC Raffles until the whole integration is completed?

Well, we will be moving the structure to another yard, but I can't give you the detail at this stage because we are still negotiating the terms and conditions with...

I see I see. Okay. So you're still going to move the vessel? Okay.

We'll minimize exposure to any China...

But China has opened up already so it shouldn't have any risk, right? Or lesser risk now?

You never know because there was recently above of COVID-19 just last month. So we don't want to get the second round surprise as well.

Okay. Okay. Well, CIMC Raffles must be very disappointed, and I'm sure they're trying to keep you there.

Yes, I think -- it's towards this year end. So it is not really compromising their position.

Okay. Sure. Okay. I just want to ask about LNG, and I think, Raja Azlan, I asked you this privately, but I think I'll ask it again in the public space. In January, you saw the Puteri Intan Satu for what trade wins reported as [ $35 million ]. But given that you have a positive view on LNG spot rates and time charter rates, wouldn't it have been better if you had kept the vessel and traded in the market? Because at the current charter rate of about USD 70,000 per day, you could actually recovered the entire $35 million in less than 3 years, and you still have a long more life. Because I understand that LNG tankers have a lifespan of about 40 years. And following on from your explanation over there, you do have a series of Puteri Satu Class vessels that will be expiring in the next 2 years. You have 5 of them. May I know what you intend to do with them? Do you intend to sell them like the way you have sold the Puteri Intan Satu? Or do you intend to trade them in the market, especially if you believe that LNG rates are going to be good?

Yes. Good question, Raymond. Basically, these are -- I mean this Puteri Intan Satu is an old -- 20-year-old vessel -- steel vessel. And under the new environmental guidelines, the EEXI as well as the CII, it will be slightly challenging in terms of emissions. And we have got a few of these kind of vessels where -- so it's basically a balancing act. On the one hand, we want to leverage on the very good spot rate today, but at the same time, we've got an offering plan, which makes sense, right? So considering more factors, we made the decision to accept the offer because we have got other energy vessels that could potentially leverage on the high spot price. In fact, some of our vessels on spot have actually benefited from some of the renegotiations relating to the renewals as well as to new clients as well.

Raymond, If I can just add to what Raja Azlan mentioned, I think we did a study on all these Puteri vessels, but they are about the same class. And there are many factors, apart from the spot market, we also took at what additional investment that we need to put into these vessels so that she can continue to trade and meet all the environmental requirement that we currently see. And we also look at to repurpose the vessels. So I think, in all things being considered, I think for this vessel we decided that in the upper end is better for us. Even though the market at the moment very high, but we do not know how the market is going to behave in the next 1, 2 or 3 years. So we do take a longer term than just a current market position when we make the decision on these vessels.

But of course, you probably know better, but just from my standpoint, I would probably have kept the vessel because I understand that the formula for the calculation of the CII for LNG vessels will probably be revised in order to take into account the steam turbine vessels in order to allow them to trade longer. And given that you have probably recovered your capital on Puteri Intan Satu, I would probably have taken a bet on the rates rather than accept the offer. Because Capital Gas bought another LNG vessel at about the same time as you -- yours, and they recharted it out at 140,000 per day. So I'm just feeling that you are missing out by taking this -- it basically allowing Capital Gas to book a huge profit at your expense basically.

I mean -- Raymond, I mean, I guess this is where your first remark that you made that we know more on this particular asset. So probably that's the decision that we have taken. So we feel that it's still the right decision for MISC going forward. Difficult for us to comment how other people or other companies look at -- make their decision, but for MISC, we have taken all that factor into account. I remember, we have another like in the series of the Puteri, Satu Class as well as the Puteri vessels in the next 2 to 3 years that is coming off charter that we need to deal with.

Yes. And maybe one last question.

I think we also took some impairment during this year for these vessels.

Okay. But that's just -- I mean, what the book value is -- so okay. Anyway, Zahid and Raja Azlan, can I just ask your comments for the Puteri and the Puteri Satu class, right? As you noted just now, a lot of them are coming up for expiry. What do you actually intend to do? Then are you likely to do more sales or keep them for spot trading or a mix of both?

Let me take a shot at that. As I said earlier, I think we look at this whole series of vessels and, in turn, we did a study what are the most alternative usage for these vessels, either continue to trade, sell it off as well as kind of renegotiate with existing charters to extend the charter terms for another few years. Those are the factors that we have considered to them as well as how much money do we need to invest for the vessel. Remember, the vessel is 20 years old. According to class, she needs to undergo a major refurbishment before she can be reclassed again to continue to trade. So those factors, we have taken into account. So however, the decision will be taken on vessel by vessel. When she comes -- coming to expiry, then we will decide what are the best decision for the vessel, taking into account all the factors.

I'll pass it on to Ho Meng.

Thank you, Raymond. Please go ahead, Ho Meng.

I just want to follow up on the LNG question. Just to double check, earlier when you -- in the early briefings when you guided on the vessels that expire in each time line. So can I double confirm on that?

The summary of that, do we have the details here?

Sorry?

Just one second. Sorry, I'm asking my team.

Okay.

So this year, we have, I think in Puteri Intan Satu in September. And then the midsized vessel, Lerici, is around end of December this year. So that's what we have for this year. And then for next year...

Lerici expire in December.

Yes. And for 2024, we have 3 more vessels, another midsized vessels, the [indiscernible] in January, then [indiscernible] Satu in January as well, and then [indiscernible] Satu in September.

Okay. So just to check, even though the Intan Satu has expired in September, right, but your overall earnings for the LNG, the revenue in, at least in the fourth, quarter versus the third quarter, you still maintain, even though you have one vessel down. So what contributed to that? And I think you also mentioned in your [indiscernible] you have savings in vessel operation costs in the LNG side. So can you highlight what might you mean by the savings?

In comparing the Q4 of 2021 to Q4 2022, is that right?

Q4 versus Q3 of 2022, basically, because I mean you have one vessel that didn't contribute in the fourth quarter, right? Because it has really expired, but yet your -- based on the slides, your USD revenue for the LNG is, as they repeat, that's the same versus the third quarter revenue. I see there's no drop in vessels at all, yes.

Yes. I mean one of the vessels in the short-term [indiscernible].

All right. So it's compensated by the renewed higher spot?

Yes, yes.

Okay. Okay. And in the [ Gusaka ], you mentioned the vessel operating costs have went down. What do you mean by that? And is that like a sustainable lower OpEx on the LNG side?

You see -- I mean, there were some repairs that we had to incur in the previous quarter. So those were not repaired.

All right. Right. Okay. Okay. And -- okay. And so the incoming 2 vessels that you have delivered, right, that should be able to offset the loss of Lerici. So basically, what I'm trying to ask is that moving forward, for the trend of the LNG revenue, at least for the coming quarters in 2023, should we expect roughly sustained revenue and earnings, where you have -- yes?

That's right. That's right.

Okay. And in terms of the -- can I double check again on the Mero-3? How much was the construction gain you recognized during the quarter for [indiscernible]?

I mean about $30 million or so, $20 million to $35 million.

Okay. All right. And on the -- and also on the...

[Foreign Language] in U.S. dollars.

Correct, correct. And also on the tanker side, among the 3 tanker class you have, how -- what is the mix of long-term chapters?

I mean for the VLCC, it's more towards spot. I think 70-30, right?

Yes, yes, yes. I mean, for the portfolio of the [ terminal ] spot mix, VLCC is actually [ 30 ] term. That would be spot. Suezmax is 73 turns, 77 spot. Aframax 92% term heat swap. And the rest are [ VLCCs ], which, overall, instead of segue [indiscernible] heat swap [indiscernible]. And overall, 77 and 23 mentioned by [indiscernible].

If you mix them very high, is it because the [ natural ] demand was very strong [indiscernible] and is it going to be the kind of high term mix also for the coming first quarter, it's not because of the form in the U.S. and everything, that should push up the [indiscernible]. I like to correct, I think.

Yes. I think it's not just lightering. I mean because of the what's happening in the Russia-Ukraine war and the sanction that's put in place, a lot of this -- the vessel, the crude slate has been sharper in VLEC. And that benefited not the big vessel like the VLCC but Aframax and Suezmax on what we call it a midsized tanker in our portfolio. So a lot of demand for it. And if you look at the spot price for this vessel, it's also on the very high side. Do we see the similar gain in quarter 1? Probably, we will see the first mine also, but difficult to see beyond that on these type of vessels.

And the reason why the VLCC is a long-term mix -- was it's probably because of the China demand was down. Is it where -- or maybe -- what was the reason for the long-term mix for the VLCC?

The long term and spot, is it?

Yes, I'm sorry. I think you mentioned 30%, right, for VLCC?

Yes. Basically, the slight increase for VLCC in terms of spot is basically because we want to take advantage of the complete uplift of [indiscernible] because some of our VLCC will honor the pool while waiting for the long-term [indiscernible]. So there was some VLCC [indiscernible].

Yes, yes, yes, that's correct, because spot rates also went up a lot then. In fact, even with the correction that happened recently, were you able to switch most of them back to term before the sharp correction?

Yes. I mean we hope so. I mean we hope so. But that's very difficult because sometimes you want to [indiscernible] the market movement. Sometimes you win, sometimes you lose. But what we are -- as far as, I mean, our business model is concerned, we try to still continue to import a secure revenue stream. With that said, we do want to look for that big-term contract rather than take the market with too much.

Okay. Just last 3 questions, just very quickly. Firstly, the Puteri Intan Satu, is this still -- although the contract is expired, but is it still contributing a couple of revenue to you? Or is it waiting to be sold at this point in time? And second question is, in portfolio associate and JV in the fourth quarter, are there any nonrecurring items? And my third and last question is, what is CapEx guidance for this year? Probably, can you give a range on the CapEx? If you do want to incur, say, [indiscernible] ESI or without getting ESI [indiscernible] CapEx for this year.

Yes. So [indiscernible] in the fourth quarter, [indiscernible].

0 income.

Yes. Yes.

Okay. Okay. And you're not for [indiscernible] the one, not to be reshipped into other projects?

Sorry, what was the question?

There was [indiscernible] for disposal, right, [indiscernible] at the moment.

Yes, yes, yes.

Okay. Yes. And associated JV line, just to double check whether there's any nonrecurring items in the fourth quarter itself because I mean basically [indiscernible] [ 9 million ] loss.

Again, these are one-off repairs you know that we have to incur in some of our assets, and it should be nonrecurring.

How much is that in the fourth quarter and the full year for the -- I mean, this one-off repair cost for the JV segment?

Maybe about 7 million or so.

7 million for the fourth quarter? Okay.

Yes. 5 million to 7 million or so.

Okay, okay.

Okay. Thanks, Ho Meng. Maybe let's give [indiscernible] audience, right? Next?