MISC posts 55 percent increase in Q3 net profit, looks forward to strong finish to financial year

Moving deeper into post-pandemic economic recovery, MISC is positioned well to execute long-term strategy for profitable growth as it advances towards its goals for a decarbonized future.  

By Dalila Abu Bakar, Malaysia correspondent, Maritime Fairtrade

Leading provider of international energy related maritime solutions and services, MISC posted an increase of 55.2 percent in its net profit to RM401 million (US$95 million) for its third quarter ended 30 September 2021 from RM258.3 million (US$61 million) for the previous corresponding period.

The better net profit was achieved on the back of higher revenue of RM2.69 billion (US$638.9 million), a rise of 30.6 percent from RM2.06 billion (US$489 million) recorded in the third quarter of 2020.

MISC said the increase in revenue was primarily contributed by higher revenue from the Offshore Business segment following the recognition of revenue from conversion of a Floating, Production, Storage and Offloading (FPSO). Additionally, higher earning days from the deliveries of six Very Large Ethane Carriers (VLEC) since the fourth quarter of 2020 have contributed to an increase in the LNG Asset Solutions segment’s revenue. 

The Marine & Heavy Engineering segment also reported higher revenue mainly from increased activities for an ongoing heavy engineering project partially offset by the absence of conversion works in the Marine sub-segment in the third quarter. 

“However, this increase was softened by lower revenue in the Petroleum & Product Shipping segment resulting from lower freight rates in the third quarter and lower earning days from vessel disposals and redeliveries since last year,” MISC said in a statement on November 18.

As at 30 September 2021, MISC Group’s fleet consists of approximately 100 owned and in-chartered vessels comprising of Liquefied Natural Gas (LNG), Petroleum and Product vessels, 12 Floating Production Systems (FPS) as well as 2 LNG Floating Storage Units (FSU). The fleet has a combined deadweight tonnage (dwt) capacity of more than 13 million tons. 

Meanwhile, MISC’s operating profit for the third quarter stood at RM484.3 million (US$115 million), 46.8 percent higher than the corresponding quarter’s profit of RM330 million (US$78 million) mainly from its Offshore Business and the LNG Asset Solutions segments in tandem with higher revenue.

According to MISC, the increase however was reduced as its Petroleum & Product Shipping segment swung to an operating loss in the third quarter mainly due to lower freight rates and lower earning days. 

Despite recording higher revenue, MISC’s Marine & Heavy Engineering segment also recorded an operating loss in the third quarter mainly due to lower contribution from post-sail away heavy engineering projects and lower revenue in the Marine sub-segment. 

Building a strong momentum going forward

President and group CEO of MISC, Datuk Yee Yang Chien, said MISC’s third quarter results highlighted the full value of its portfolios as revenues continue to strengthen. 

“The steps we have taken showcase our capacity in building strong business momentum, obtaining the maximum possible value and driving resilience in this dynamic market environment,” he said. 

For its nine months period, MISC reported net profit of RM1.37 billion (US$325.6 million) compared to a net loss of RM599 million (US$142 million) in the previous corresponding period. 

Revenue for the nine months period of RM7.59 billion (US$1.8 billion) was 12.3 percent higher than the RM6.76 billion (US$1.6 billion) recorded in the corresponding nine months period ended 30 September 2020, mainly contributed by the recognition of revenue from the conversion of an FPSO in the Offshore Business segment. 

In addition, the Marine & Heavy Engineering segment recorded higher revenue from an ongoing heavy engineering project as well as the prior period was impacted by yard shutdown during the Movement Control Order (MCO 1.0). 

The LNG Asset Solutions segment also recorded higher revenue following deliveries of six VLECs since the fourth quarter of 2020. However, the increase was partially negated by lower revenue recorded in the Petroleum & Product Shipping segment from lower freight rates in the current period and lower earning days from vessel disposals and redeliveries since last year. 

MISC’s operating profit for the nine months period of RM1.57 billion (US$373 million) was lower than the previous corresponding of RM1.7 billion (US$404 million) largely caused by lower revenue from the Petroleum & Product Shipping segment, partially softened by the one-off compensation for a contract renegotiation in the third quarter. 

In addition, the Marine & Heavy Engineering segment recorded a higher operating loss due to additional cost provision recognized for an ongoing project, while the LNG Asset Solutions segment reported lower operating profit mainly due to higher vessel operating costs and impairment on receivables during the period. The decrease in operating profit was mitigated by higher operating profit contributed by higher revenue from the Offshore Business segment. 

LNG shipping rates expected to strengthen

MISC said spot charter rates in the LNG shipping market remained relatively steady in the third quarter of 2021 despite a surge in European gas demand due to lower wind and solar power generation. 

“However, LNG shipping rates are expected to strengthen towards the year-end on account of high winter season demand in Europe and Asia. Despite surging gas prices, Asian LNG demand is likely to remain robust as China is facing power outages in its Northern regions with its policy of curbing coal consumption leading to gas shortages,” MISC said. 

Notwithstanding the market volatility, MISC said the operating income of its LNG Asset Solutions segment is expected to remain fairly stable, underwritten by its portfolio of long-term charters. 

“The prolonged impacts of the pandemic and OPEC+ production cuts continue to have an adverse effect on the petroleum shipping market, especially in the crude sector. In the short term, the tanker market is expected to see some modest improvement towards winter, although risks to the market outlook still remain,” MISC said. 

Tanker market to remain positive in 2022

Meanwhile, the medium-term prospects remain positive for the tanker market, with likely improvements focused towards the second half of 2022 whereby tanker demand is projected to return close to 2019 levels, driven by OPEC+ phased supply increases and continued economic recovery.

Nonetheless, MISC’s Petroleum & Product Shipping segment will continue to focus on building long-term secured income through its niche shuttle tanker business and rejuvenation of its fleet with eco-friendly LNG dual-fuel tankers. 

“The global offshore exploration and production space has shown its resilience and ability to execute projects despite Covid-19 restrictions. The medium-term outlook for the floating production systems sector seems promising with positive expectations for global growth and sturdy oil price, together with attractive returns for offshore developments and pipeline projects to be sanctioned,” MISC said. 

Yee reckoned that oil and gas demand is still on a rising trend attributed to the strengthening market conditions supported by proactive supply management by OPEC+ and seasonal demand. 

A good start to 2022

Yee said: “Global economy also appears to continuously improve bringing us closer to pre-pandemic levels. However, ongoing economic recovery will vary according to countries with vaccination rates as challenges remain in the context of COVID-19 disruptions and related headwinds. In addition, the constraints in the global supply chain hit by critical shortages will likely persist as it copes with high demand. 

“Nevertheless, we are cautiously optimistic that these fundamentals will remain in the fourth quarter and into 2022 while we look forward to a strong finish to the financial year.” 

Yee also said that MISC is positioned well to execute its long-term strategy for profitable growth as it advances towards its goals for a decarbonized future.

MIDF Research opines that with MISC’s robust financial performance and the global oil market’s bullish forecast for a rebalance, the group will continue to prioritize restocking its order book, as well as practicing cost discipline and timely delivery of ongoing projects, subsequently strengthening its operations well into its financial year 2022. 

“We continue to view MISC positively, based on its resilient balance sheet, strong performance on its LNG shipping and Offshore businesses from the oil market demand recovery, and varied business operations that allow for mitigation amidst uncertainties,” added MIDF Research. 

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