MISC Berhad (MISC) Earnings Call Transcript & Summary

Good evening, ladies and gentlemen. Thank you for participating in our Fourth Quarter Financial Year 2023 Analyst Briefing. I am Feisal from MISC's Investor Relations team. We have with us today Captain Rajalingam Subramaniam, President and Group CEO, joining us via phone call; Encik Raja Azlan Shah Raja Azwa, Vice President, Finance and Corporate Planning; [indiscernible], Senior General Manager, Group Finance; [indiscernible] GM, General Manager, Corporate Planning. Before we start with the analyst briefing proceeding. We would like to invite Encik Raja Azlan [indiscernible].

Thank you very much. A warm welcome to our friends from the analyst community, both the sell-side and the buy-side. Again, it's a pleasure for us to present to you our fourth quarter financial key highlights. And also we're very happy because the Mero-3 project has just sailed away last weekend, and we will talk a bit about that. We also have with us today the Vice President designate, [indiscernible], he will be taking over the -- so far as the finance portfolio is concerned, effective first of March, and he will be my partner in together with Captain Rajalingam in terms of the engagement with the MISC. So without further ado, Feisal, let's proceed with the procedure.

Thank you, Encik Raja Azlan. Before we proceed to 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, 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 Raja Azlan again for his remarks on the quarter's key highlights and business update [indiscernible].

Thank you very much, Feisal. Okay. Let's go into the slides, please. I'm pleased to report that we recorded revenue of $915 million for the fourth quarter. This represents a 26% increase over the third quarter of this year. Profit after tax, we recorded of $134 million, and this is a 56% increase in profit after tax compared to the third quarter of this year. Cash flow from operations, $433 million, also a very strong 47% increase compared to the third quarter of this year. And also you'll be pleased that we also declared dividends of $0.12 for the fourth quarter. And that will bring the total dividends for the whole year at $0.36 per share. We're also happy to mention that on the sixth of November of 2023, MISC [indiscernible] goes back the silver award under the transport and logistics sector as well as silver award under green transition under the equities category and The EDGE Malaysia ESG Awards. And also on the 16th of November, MISC Group once again topped the list of the best organizations in Malaysia for the outstanding safety performance at the 41st MSOSH Awards 2023. Across the group, we landed a whole of 6 awards, the recognition given by MSOSH is a testament to our dedication and commitment showcased by our colleagues, both at sea as well as at shore in upholding occupational safety and health excellence. On the first of December 2023, Eaglestar, was awarded with the alternative fueled vessel design of the year and the Marine Fuels 360 awards in Singapore. This is a milestone recognition is a testament to our commitment to addressing the decarbonization challenges and achieving a 50% reduction and working towards achieving a 50% reduction in greenhouse gas emissions from our shipping operations by 2030. Okay. Next slide. Looking back at year 2023, we were indeed very busy. We delivered -- we took delivery of 2 dual-fuel, very large carriers, namely the Eagle Vellore as well as the Eagle Ventura to Shell. We also took delivery of 2 LNGCs, namely [indiscernible] we should be servicing SeaRiver Maritime under Exxon Mobil. We also entered into a new partnership agreement with Nissen Kaiun for the sale and charter of 2 existing LNG carriers. MISC entered into a heads of agreement with Pengerang LNG Two for the supply operation and maintenance of LNG FSU. Also at the beginning of 2023, MISC entered into USD 527 million syndicated loan facility agreement for the financing of 6 very large ethane carriers with Standard Chartered is the lead financial adviser. This is an 11-year sustainability-linked, nonrecourse term loan and it was our debut within the sustainability-linked loan space. And also Marine Money linked to this have recognized MISC as a winner of the sustainability-linked deal of the year award for Asia. The Singapore Registry of Ships Forum 2023 had recognized the Seri Damai and Seri Daya with the prestigious Green Ship status under the Maritime and Port Authority of Singapore's Green Ship Programme. MISC received the Silver Award and the [indiscernible] Positive Impact Awards under the large companies tier for the environmental category, sustainability ecosystem and [indiscernible] Eaglestar were recognized with the chamber of shipping of America Award at the annual safety awards. The collective efforts of the 2 entities, we've set a good safety record without any long-term injuries for 48 vessels and have recorded a total of 320 years without [indiscernible]. During the year, as well, MISC signed a term sheet with PETRONAS [indiscernible] ventures, together with [indiscernible] lines or the potential opportunity relating to the development and monetization of LC02 carriers. MISC also secured approval in principle from DNV for its innovative floating CO2 storage unit FCSU concept that was jointly developed with Samsung Heavy Industries. MISC also unveiled its future ready newbuild FPSO, known as the mega module engineering and green architecture, FPSO. MISC through it's entities ET and Maritime -- Malaysia Maritime Academy Inc. Milestone collaboration agreements with [indiscernible] and DNV, respectively, to develop future-ready maritime talent and next-generation motor engines. So it was indeed a very busy year for us. We set the ground for collaborations with like-minded partners so that we are able to then move forward pivoting into the green energy space. Next slide, please. As I mentioned just now, we are very proud that the FPSO Mero has sailed away on the 24th of February. Construction is completed and now the project is focusing on meeting the pre-commissioning and the commissioning phase. And it is a huge relief to see the asset sailing away and being toed to Brazil. So thank you very much. That is the opening, and I'll pass it back to [indiscernible]. Feisal, thank you.

Thank you, Raja Azlan. Thank you very much. We will now proceed with the presentation on financial performance by Encik [indiscernible], followed by market [indiscernible] by [indiscernible].

Thank you. Let us begin with revenue slide please. Revenue of $915 million was recorded [indiscernible] at least this was slightly -- slightly lower by 0.5% if we compared to the corresponding quarter of 2022 and this was mainly due to lower construction revenue from [indiscernible] in the offshore segment, following lower [indiscernible] the progress. This was however offset with higher revenue from new and ongoing projects in our heavy engineering segment. Comparing this to the preceding quarter, revenue of $915 million in Q4 2023 was higher by 26%, contributed to higher revenue from new and ongoing projects in heavy engineering segment, right? Moving on to the profit before tax and operation. PBT from operations side. Q4 2023, PBT from operations $155 million was lower by 22.5% compared to Q4 2022 due to lower construction progress of Mero-3 as well as higher vessel operating costs in our gas segment. Again preceding quarter, our PBT from operations of $155 million was 55% higher contributed by improved freight risk in the petroleum and product shipping segment as well as recognition of cost recovery [indiscernible] in addition to additional cost provision for ongoing heavy engineering projects recognized [indiscernible] and primarily in our heavy engineering segment. Moving on next to PAT, profit after tax. Our PAT for Q4 2023 of $134 million was lower compared to Q4 2022 by 6.9%, in line with lower PBT from operations, and this was offset below impairment provision in the current quarter. Comparing to the preceding quarter, PAT was higher by 86%, consistent with the increase in PBT from operations mentioned earlier. Cash flow from operation, CFO, higher CFO in Q4 2023 by [indiscernible] compared to Q4 2022 end 47.3% compared to Q3 2023, mainly from higher collections at the engineering segment. Let's go to balance sheet next. Our balance sheet as of 31 December 2023, [indiscernible] solid with our total assets, equity and equity and liability remain fairly unchanged as compared to those of December 2022, right? Both our gross and net gearing show an improvement from 0.47x to 0.44x and 0.28x to 0.25x, respectively, stemming from collectively lower borrowings, increased shareholders equity and higher cash balances. Moving on to the next slide, please. Our cash balances continued to remain healthy at USD 1.7 billion as of the year-end, mainly due to the lower CapEx payment [indiscernible] While debt balances reduced from December 2022 balances following net impairment mix during the year FY '23. If I can go to the next slide, please? This slide actually summarizes the overall performance by each business as well across the 3 quarters. Our gas segment revenue remained stable, backed by higher charter rates from the spot vessel as well as from existing portfolio of [indiscernible] contract. However, [indiscernible] reduction in Q4 2023 was mainly due to higher vessel operating costs. Moving on to petroleum. Petroleum segment showed an increase in post revenue activity compared to the preceding quarter from [indiscernible] in line with the seasonal shift towards the [ interline ]. Quarter-to-quarter, Q4 quarter-to-quarter [indiscernible]. Going to offshore segment, revenue activity decreased from Q4 2022, mainly from lower project progress from Mero-3 as the project is nearing its completion stage. And in addition to that, some cost provision for any [indiscernible] of an asset was net to [indiscernible], right? Last but not least, heavy engineering. Higher revenue across the 3 quarters contributed to higher progress from new and [indiscernible] and PBT for Q4 '23 was contributed by the cost recoveries recognized during the quarter. That's all from me. Thank you.

Thank you, [indiscernible]. So very good evening [indiscernible] analyst. So I shall start off with the market environment slides. As you know, we performed very well financially. And let me take you through some slides to see how the market environment is developing. So we set that off with the LNG shipping segments. What we saw in quarter 4 was that there was a slight seasonal decline as usual, in the seasonal holiday and there was also a mild winter. But as you can see from the graph, the spot rate remains elevated compared to historical levels. In the near term, however, we see that soft market conditions could -- could take place as the fee capacity growth. With regard to prospects, we do see that a strong LNG demand from Asia and also the developing LNG investment in the structure that's happening across the globe. We also see that moving forward, there are regulations coming in today and also the rerouting of the vessels via [indiscernible] of good hope. So these -- this is because of the restrictions in the Panama Canal. But all these will not hamper the rates that we see going forward, the LNG segment remains stable and is supported by [indiscernible]. Okay, moving on. The LNG shipping FID outlook, we do see a capacity there, an increase in 2024 so you see an increase in 2024 from the 69 of pre-FID to 133 that's expected moving forward here. And the global LNG liquefaction capacity is expected to increase by an average of annual growth rate of 10.7%. So it is looking good and with the rising demand globally, especially [indiscernible]. In terms of the new building, the new building orders, we do see that the order book is currently at 52% of the current fleet size, that's about [ 353 ] vessels as of December. We -- much lower than 2022, simply because there is limited shipyard capacity [indiscernible] and also the high new building prices for modern carriers are on the high side. It's about $265 million on the average. QatarEnergy is expected to dominate [indiscernible] as you see it. And as for the secondhand values, there is no change to the current rate. And we see that there are some opportunities for conversion. On the petroleum segment, it's a different story altogether. You can see the rates are way higher than what LNG based on previous years, for example. So the rates are very much firm. The average prices are on the rise. For the [indiscernible] on the side on the various segments, both spot and term on the higher side despite the new OPEC output cuts. So therefore, the near term still looks positive. We do see strong Atlantic exports and imports are mostly from Asia. On the MISC side, we see growth on the [indiscernible]. As for the order book for the tanker segment, there is very little. The order book [indiscernible] ratio currently is at 4.2%, and it is way lower compared to the historical average. And we expect [indiscernible] to be squeezed further in the next few years. Similarly, for the demolition activities, very low demolition activity is observed simply because of the weak demand for old tonnage as well for secondhand and that many of the vessels, the current fleet are built in 2002, which means that scrubbing will probably come in 2027. On the offshore segment, it remains positive. There's an uptick of about 6% in terms of global offshore ESP CapEx expenditure and the awards that we see coming forward would probably come from the Latin America and the Asia Pacific regions. And therefore, it's looking good. Next slide, my last slide, this basically tells us that even though there is rising prices in terms of development costs [indiscernible] most of these projects are still quite robust and should proceed [indiscernible]. So this is what I have for the environment, market environment slides. Thank you.

[Operator Instructions] We do have 1 question that was sent in the chat. This was by [indiscernible] from Principal Asset Management. Where was the higher OpEx for gas assets from?

Thank you for the question, [indiscernible]. During -- this in relation to the quarter, is it? I mean, there were some repairs that we had to incur during the quarter relating to 1 or 2 of the gas vessels. That is the reason for the high OpEx is one-off [indiscernible].

Thank you, Raja Azlan. Okay. Next, we have Encik Muhammad Ashman from AmInvestment Bank Berhad. Please proceed, please go ahead, Encik Ashman.

My first question is on the dividends. You announced the 26% dividend that 4.5% increase. I was wondering whether that would be -- is that the safe expectation moving forward? Or is that a one-off for this year?

I mean we like to show that we are growing in terms of [indiscernible] maintaining a stable amount of dividends. So hopefully, that we can continue to pay good dividends to our shareholders.

I'll take the hint. Secondly, is the status for [indiscernible], I understand that the investor has caused some problems and that your clients, [indiscernible] and PETRONAS might be looking to replace that. Could you perhaps give us an update for the vessel?

Teekay, there's no problem. I mean, it will still be under contract until 2028. I'm not -- I don't know what your -- is -- still is in a good condition.

All right. So we don't -- there's no expectation for the vessel to -- for the vessel to be replaced [indiscernible] because there was some -- some new support from upstream that indicated like I said, your clients might be looking to replace the aging vessel. So I was wondering whether there might be some -- some plans to maybe repair the vessel [indiscernible].

The contract goes up to 2028, it is in good working order.

Next, we have Mr. Kong Ho Meng from UOB Kay Hian.

A few questions. First, I want to just double check in terms of the earlier question on the higher OpEx for the -- for your gas side, you said that there are some one-off costs. May we know what is the -- how much is the one-off costs? And also, can you help us recap like in your gas segment, there was no income also in the third quarter and fourth quarter also like very early income. So whatever the one-off [indiscernible] do would energy side [indiscernible]?

Sorry, Kong Meng. Can you repeat the question? I'm not very clear what is actually you're asking.

Sorry, first of all, how much is the amount of the one-off OpEx that you've incurred for the gas side? Okay. You know my second question. Just answer this one first. Yes, you can.

I believe it's somewhere between fairly about USD 5 million [indiscernible].

Okay, USD 5 million. And also, can I just [indiscernible] this so called vessel [indiscernible] OpEx. Is it higher across the board, like not only for your gas, but also for your petroleum as well? And if yes, what is the -- how much is the OpEx even increase relative to say the year before?

Yes. I mean in terms of gas, really, it was because of some repairs and some, what do you call it, some higher bunker or port costs during the year. In the case of petroleum, the costs for the whole year -- give me a minute, yes. The cost for the whole year for petroleum was actually lower by around 10% or so between 8% to 10% compared to 2022.

When you say cost, you're referring to, let's say, you convert them it's per daily rate, right? Daily OpEx is actually lower. Is it -- are you referring to the absolute amount?

I'm talking about the absolute amount. Yes.

Okay. And can we know the -- sorry, the spot and the term [indiscernible] for the individual [indiscernible].

Yes. I think for the petroleum side, as a whole, it's about 88% and 12% spot, whereas for the gas site is closer to 80% term and 20% spot.

For the gas side is just -- gas -- okay. Individually, like [indiscernible] did you have the...

If you look at the VLCC and Aframax is roughly about 82%, also term. The balance of 18% is spot. And then [indiscernible] tankers are 100% on term [indiscernible].

Okay. And one more question for me. In terms of the [indiscernible] the new LNG ship demand side. I'm pretty clear that you are interested a bit for those. But within the pool of the so called second phase of the LNG vessels, are you able to bid for the ones that are [indiscernible] totally [indiscernible]. And there's no room for you to be for those. I think that's about [ 25 ] also, yes.

Yes, I mean, so far, we are not aware of any opportunity to bid for [indiscernible]. We understand that they have taken a huge sum of the order. We're not aware of -- I mean, we are not aware that [indiscernible].

Okay. But [indiscernible] is still available for you to be [indiscernible] it's on your own or whether it's a [indiscernible], right?

We have gone to market to pick [indiscernible].

Next, we have Mr. Raymond Yap from CGS-CIMB. Please go ahead, Mr. Raymond.

I think the question I have is on the LNG side again. The profit before tax in the third quarter was $73 million, but in the fourth quarter, it fell to $52 million and the $5 million repair cost doesn't seem to make up the difference. And actually, revenues were flat quarter-on-quarter. So just trying to understand what's happening -- what's happening there?

Yes. You're talking about the fourth quarter, right?

Yes, fourth quarter versus the third quarter. So third quarter was profit of $73 million and in the fourth quarter, it was a profit of $52 million. So that's a decline of $20-over million.

Yes. There was also higher bunker costs that we incurred during the fourth quarter, Raymond. The bunker costs was one of the contributors. Also the port and voyage costs also one of the contributors in addition to those repair costs.

Okay. But typically, these costs are voyage costs and they are paid by PETRONAS.

Yes. I mean because of the repairs and because of the assets going higher, we have to incur.

Right, right, right. Okay. Are these issues with the 2 LNG carriers, are these issues of concern? I mean, are they because the vessels are very old and there's some unexpected breakdown?

I mean it was not relating to the older asset. It was relating to one of the assets, which are not so older. That was not for the old asset, Raymond.

Okay. But if it's not older, why did it break down?

No, it didn't break down. It was -- there were some issues on board, which we had to deal with and it went off higher. It is a one-off situation.

Sorry, go ahead. You wanted to ask a question. Go ahead. Sorry about that.

No, I just -- I think I wanted to ask about the FPSO Mero-3 construction revenue and profit for the quarter?

Yes. I mean I don't have it with me [indiscernible], Raymond. But Overall, for the year, the construction profit that was recognized is comparable to the previous year as a whole for the year.

Next, we have a question from Ben Shane. Ben from Macquarie.

My first question is just around your tanker segment. There's definitely been a lot of disruption around shipping gains. Just wondering whether operationally, is there any opportunity for you to lock in some of the elevated rates now. I know a lot of your tankers already on time charter. But are you able to lock in and capture some of the existing rates, elevated rates, right, for the full year going forward into '24, which we expect it to fall off quite sharply at some point this financial year?

Maybe I can ask my boss to answer this question. Mr. Rajalingam, can you answer the question?