JV to have no immediate impact on MISC earnings

LCO2 shipping industry still in its nascent stage

“We believe the operations would not pose a challenge for the group. However, the LCO2 vessel industry is still in its infancy, making the economics of such ships largely uncertain.” Kenanga Research

PETALING JAYA: With the liquefied carbon dioxide (LCO2) shipping industry still in its nascent stage, analysts expect there will be no immediate earnings impact on MISC Bhd from its latest joint-venture agreement (JVA) with PETRONAS CCS Ventures Sdn Bhd (PCCSV) and Mitsui OSK Lines Ltd (MOL).

The JVA was to establish a JV company with the aim to procure and own LCO2 carriers to transport LCO2 to CO2 storage sites in Malaysia.

Kenanga Research in a report yesterday said while no carriers have been announced yet, it estimates that the capital expenditure (capex) for the LCO2 carriers will be lower compared with the liquefied natural gas (LNG) vessels.

This is as LCO2 cryogenic tanks need to maintain CO2 at minus 50°C to minus 60°C, whereas LNG vessel storage tanks must operate at temperatures below minus 160°C.

Compared with the Us$200milus$300mil estimated capex for LNG new builds, the brokerage firm believes the LCO2 vessel capex will be significantly lower at an estimated Us$60mil-us$80mil, due to its lower technological complexity.

Kenanga Research noted MISC also possessed the balance sheet strength to invest in more LCO2 carriers.

“We believe the operations would not pose a challenge for the group. However, the LCO2 vessel industry is still in its infancy, making the economics of such ships largely uncertain.

“Notable projects currently under development include the Northern Lights, Kawasaki Heavy Industry and Mitsubishi Shipbuilding,” added the brokerage firm.

Kenanga Research, which kept its forecasts unchanged for MISC, has also maintained the stock’s target price (TP) at RM7.69 per share.

“We like MISC due to its recent fleet expansion and modernisation, success in securing mega floating production, storage and offloading (FPSO) projects such as Mero 3 and new contracts from international clients and margin expansion.

“This is coupled with improved earnings visibility following diversification into less commoditised specialised vessels.”

However, Kenanga Research said the incoming FPSO Mero 3 project’s execution risks remain high, particularly when the final acceptance is expected to approach in the fourth quarter of 2024 (4Q24).

Meanwhile, MIDF Research in its quick thoughts note yesterday viewed the latest MISC JVA as an extension from the previous memorandum of understanding (MOU) signed on Feb 7, 2022 with PETRONAS.

This MOU was to study the CO2 transportation for carbon capture and storage (CCS) value chain within the Asia-pacific and Oceania region. The collaboration aspired for a standardised LCO2 vessel that can be used worldwide and a vessel that is low carbon, added MIDF Research.

Under the latest JVA, it shall have a minimum of 10 shares and with subscription to the shareholding proportion of 50% MOL, 40% MISC and 10% PCCSV.

It said there is no final investment decision on the LCO2C under the JVA and the JVA is not expected to have any material impact for financial year 2024 (FY24).

According to MIDF Research, the risk factors affecting the JVA include local and regional economic changes, shifting political and regulatory environment and operational risks.

“However, we believe that these risks can be mitigated by the JVA,” it added.

All in all, MIDF Research said it is optimistic of the new JV collaborating with each group’s capabilities to explore business opportunities regarding LCO2 transportation and storage.

“Given MISC’S expertise in shipbuilding, most notably in advanced LNG carriers, we believe the group has the capability to develop LCO2 carriers and contribute positively to the JV.”

Additionally, the CCS projects require partnerships between various energy players to be a feasible project and a potential revenue stream in the long run.

The development of these vessels is expected to contribute to MISC’S commitment to sustainability and efficient energy transportation, in line with National Energy Transition Roadmap’s Carbon Capture Utilisation and Storage solutions, said MIDF Research.

Hence, the research house reiterated its positive stance for MISC’S efforts in not only supporting better transportation solutions but also in its initiative to reduce carbon and sulphur emissions in the industry.

“At this juncture, we make no changes to our forecast projection for MISC, pending the group’s first quarter of FY24 earnings result, and maintain our ‘buy’ call, with a TP of RM8.48,” said MIDF Research.