Analysts estimate US$600 mln capex from MISC’s Brunei FPU

KUCHING (Dec 10): MISC Bhd (MISC) has won a floating production unit (FPU) for natural gas development project in Brunei, early estimates from Kenanga Investment Bank Bhd (Kenanga Research) indicate that the capital expenditure (capex) of the project will likely sit at around US$600 million.

In a Bursa filing on Dec 8, MISC announced that it had received a letter of award from Petronas Carigali Brunei Ltd (Petronas Carigali Brunei) for the provision of Lease, Operate and Maintain (O&M) of a FPU for a natural gas development in Brunei.

The charter will run for 12 years from when Petronas Carigali Brunei official accepts the FPU, with an option of up to three one-year extensions.

According to Kenanga Research, the win is another major positive to MISC’s offshore division following the delivery of floating, production, storage and offloading (FPSO)Mero 3 which is technically more demanding as FPUs are typically less complex than FPSO projects of similar size.

While details of the project are still scant at the moment, the research arm believes that the capex for the FPU would sit at around US$600 million as the Brunei gas development project would likely be in deepwater.

“The Jangkrik FPU in Indonesia processes 450 mmscfd with a capex of US$2 billion, implying US$4.4 per mmscfd. Hence, if we assume a smaller production of 150 mmscfd, we arrive at circa US$600 million capex,” the research arm reasoned.

Assuming a conservative project internal rate of return (IRR) of 9 per cent, a weighted average cost of capital (WACC) of 6 per cent, and a 70 per cent debt funding structure, Kenanga Research reports that they arrive at a discounted cash flow (DCF) value of RM420 million which translates to a 10 sen share accretion to their sum-of-parts (SOP) valuation.

“The yearly profit before tax (PBT) contribution of the project could amount to circa RM114 million per annum, representing 5 per cent of FY25F PBT forecast,” they add.

Correspondingly, Kenanga Research who maintains an ‘outperform’ call on MISC raises their SOP-derived target price (TP) by 1.2 per cent to RM8.65 from RM8.55.

The research arm guides that they continue to like MISC to its recent fleet expansion and modernisation, decent dividend yield, and LNG business’ long-term growth trend due to structural increase in demand.

However, risks to their view include lower-than-expected utilisation and spot rates for its petroleum fleet, additional cost overruns and project delays for Mero-3, and further structural weakness in the LNG shipping market.