Both RHB Investment Bank Bhd (RHB Research) and MIDF Amanah Investment Bank Bhd (MIDF Research) have maintained its BUY recommendation for MISC Bhd despite the company recording slightly lower-than-expected earnings in the first nine months of FY24 (9MFY24).

MIDF Research noted that lower earnings were likely due to contract expirations and softer liquefied natural gas (LNG) charter rates, with volatile demand in Asia and high inventory levels in Europe contributing to subdued rates.

Both research houses have set MISC's target price (TP) at a range between RM8.95 and RM9.27, anticipating a maximum total return of 17.2%, including dividends.

Even though MISC's recorded a core earnings increase of 19% year-on-year (YoY) for 9MFY24, attributed mainly to stronger contributions from its petroleum and heavy engineering segments, it missed both research houses' projections.

This missed expectation is also what prompted Maybank Investment Bank Bhd (Maybank IB) to issue a HOLD recommendation for MISC as well as reducing the research house's FY24-FY26E net profit forecasts by 15%, 6%, 8% to account for a pushback in Mero 3's first oil to end October 2024 (from August 2024), slightly lower LNG spot charter rate assumptions lower LT US dollar and Malaysian Ringgit foreign exchange assumption of 4.40 (from 4.50).

Maybank IB has also set a lower TP at RM8.09 from RM8.13 previously.

Although MISC's proposed share-based merger with Bumi Armada Bhd remains in its preliminary phase, RHB Research views it positively as the move should help MISC preserve its cash reserves and sustain dividend payouts.

RHB Research expects this strategic alignment with Bumi Armada to eventually allow MISC to monetise its Mero 3 asset, aiming to streamline future Floating Production Storage and Offloading (FPSO) projects via partnerships, potentially boosting long-term cash flow.

MIDF Research, meanwhile, highlighted some risks such as integration and asset value concerns linked to the Bumi Armada merger, though the integration may present operational synergies for MISC's FPSO fleet in the long run.

On the other hand, Maybank IB said there are several risk factors affecting the research house's earnings estimates, target price and rating for MISC.

"Abrupt changes in the momentum of petroleum tanker rates and bunker prices that may lead to lower earnings for MISC.

"Additionally, sharp appreciation of Malaysian Ringgit vis-a-vis US dollar will also affect its earnings, as the group's revenue is almost entirely derived in US dollar," Maybank IB said in a note.

Regardless, For FY25 through FY27, MISC has planned the delivery of 17 new LNG carriers, which could offer revenue stability amid high inventories and shifting market dynamics.

On this note, both RHB Research and MIDF Research highlighted growth in MISC's petroleum and heavy engineering segments, with MIDF Research specifically citing a revenue rise of 5.3% YoY to RM2.7 billion in petroleum shipping and a 27.4% revenue boost in heavy engineering.