In its research note today, CGS-CIMB said it has lowered MISC’s target price by 10 sen to RM7.76, which implies a price-to-book value (PBV) ratio of 0.93 times compared to the group’s book value per share of RM8.37 as of March 31.

Historically, MISC’s PBV average since 2010 is 1.08 times, according to the research note.

CGS-CIMB said the SOP is based on the discounted cash flow (DCF) value of MISC’s liquified natural gas (LNG) and offshore businesses, with the group’s petroleum tanker business’ value estimated at around RM9.46 billion.

The research house also said that it has lowered the DCF valuation of the FPSO Mero-3 project due to higher tax rate assumptions.

However, it also predicts that MISC will secure new short-term works for its LNG tankers to prevent fleet idleness when their long-term contracts expire in the next few years.

Given this situation, CGS-CIMB has slightly increased the DCF valuation of MISC’s LNG tankers, which it said offsets the higher tax rate assumptions.

Additionally, it has estimated that MISC’s core earnings per share would rise 1% to 10% for the financial year ending Dec 31, 2023 (FY2023) until FY2024.

Maintain “hold” call

CGS-CIMB has maintained its “hold” call on MISC, believing that Saudi Arabia’s oil production cuts and Russia’s reduced exports will put a downward pressure on tanker freight rates, which had already declined sharply last month.

Additionally, the research house has cautioned that MISC’s forthcoming financial results for the second and third quarters of 2023 could exhibit weak results as tanker rates fell from their peak in late 2022.

It added that profits from the construction of FPSO Mero-3 would likely dwindle soon as the project approaches its final stage, having reached a 95% completion rate.

As at 4.10pm, MISC’s share price was down 4 sen or 0.55% at RM7.17, giving the group a market capitalisation of RM32.01 billion.