MISC BERHAD - 2021 |
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| Report ID | 605389017 | Popularity | 886 views 60 downloads | |||||
| Report Date | Jul 2021 | Product | ||||||
| Company / Issuer | MISC Bhd | Sector | Trading/Services - Transportation | |||||
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| Rationale |
Rating action MARC has affirmed its AAAIS rating on MISC Berhad’s RM2.5 billion Islamic Medium-Term Notes (IMTN) programme with a stable outlook. Currently, there is no outstanding amount under the programme and the programme will expire in September 2022. Rationale The rating continues to benefit from a rating uplift on MARC’s expectation of strong parental support from Petroliam Nasional Berhad (PETRONAS) based on the operational and financial integration between the companies. PETRONAS carries a AAA/Stable rating from MARC based on public information. MISC serves as the main liquefied natural gas (LNG) shipping provider for PETRONAS. MISC’s rating incorporates its position as a key global player in the energy-related shipping business with a fleet of 101 vessels as well as 12 offshore floating assets, its stable revenue generation from long-term LNG and offshore contracts, its moderate debt and healthy liquidity position. However, these strengths are mainly moderated by the challenging conditions in the upstream oil and gas (O&G) industry. MISC’s credit profile benefits from earnings visibility provided by long-term contracts for LNG shipping and offshore floating asset contracts. These contracts and MISC’s ability to replenish them on a timely basis provide a steady source of revenue, which accounted for 54.4% of MISC’s total revenue of RM2.5 billion in 1Q2021. The petroleum shipping segment was impacted by lower tanker rates since 2H2020 due to low demand for tanker services after significant production cuts by oil producing countries. The segment reported a significant decline in operating profit to RM34.4 million (1Q2020: RM336.5 million). Meanwhile, the heavy engineering segment experienced a delay in revenue recognition due to technical issues during commissioning of a project and operational disruption. This segment reported an operating loss of RM101.9 million (1Q2020: operating profit of RM5.6 million). Over the medium term, MISC's performance of its two key segments will depend on the sustainability of oil demand, which has shown some improvement due to the strong economic rebound in developed countries. In the near term, the petroleum shipping segment’s earnings will be weighed down by the supply-demand dynamics in the segment. In the heavy engineering segment, which has a total order book of RM2.9 billion as at end-1Q2021, impact from the COVID-19 pandemic is expected to disrupt the project completion timeline, although the project owner is expected to provide support by extending this timeline. In 1Q2021, MISC recorded lower cash flow from operations (CFO) of RM873.8 million (1Q2020: RM2,183.9 million) in line with the weaker earnings. The group’s liquidity position remains strong, with cash balances of RM6.4 billion. The gross debt-to-equity (DE) ratio stood at 0.43x with a net DE ratio of 0.25x in 1Q2021. Borrowings are expected to increase further to finance the group’s fleet expansion consisting of four LNG vessels, 11 petroleum tankers and one floating, production, storage and offloading vessel (FPSO). The expansion is backed by long-term contracts which are earnings accretive to the group. Rating outlook The stable rating outlook reflects high expectation of continued parental support from PETRONAS and that MISC will broadly maintain its credit metrics. Rating trajectory Downward scenario Rating pressure would arise if support from PETRONAS to MISC weakens and/or there is significant deterioration in the group’s credit profile. Key strengths
Key risks
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