ANALYST REPORTS

Monday, 27 Apr 2020

8:44 AM MYT

KUALA LUMPUR: MISC BHD could be taking a hit to its cash balance as the latest arbitration decision on its dispute over FPS Gumusut-Kakap did not lean in its favour.

Maybank Investment Bank research downgraded MISC to a hold recommendation from buy as it factored in a payment of US$325mil and a lower lease rate for the vessel.

"To avoid paying the interest, MISC may make a lump sum payment. We have now assumed for cash payment of US$325m (or RM1.42b) in our FY20E, resulting in a higher net gearing of 25% (from 21%) in end-FY20E," it said.

Meanwhile, the research house also anticipates substantial impairments in 1Q20 that will drag on headline profit.

Slashing its FY20-22 forecasts by 2%, 4% and 6% respectively, Maybank lowered its target price on the stock to RM7.55 from RM8.10 previously.

To recap, the latest arbitration decision ruled that MISC is liable for the defects of FPS Gumusut-Kakap and will need to pay Sabah Shell Petroleum Co in excess of US$325mil, inclusive of interest and litigation costs, while the lease rate of the vessel will be reduced by 5% to 9%.

MISC and its client Sabah Shell Petroleum Co have disputed over the defects of DPHS Gumusut-Kakap since 2013.