Very good evening, ladies and gentlemen, thank you for joining our third quarter FY 2025 analyst briefing. My name is Faizan from the investor relations team, and I will be your MC for today's session. We are pleased to be joined by Encik Zahid Osman, President and Group CEO; Encik Raja Azlan Shah Raja Azwa, Chief Strategy and Sustainability Officer; Encik Effendy Ali, Chief Financial Officer; and Encik Adam Fazil, Head Strategy and Investor Relations. Before we begin, please refer to the disclaimer statement in the presentation deck. This presentation may include forward-looking statements relating to the future plans and expectations. Actual results could differ due to unknown risks, uncertainties, and other factors beyond MISC's control. With that, I now would like to invite Encik Zahid Osman, our President and Group CEO, to deliver his opening remarks and share highlights of the quarter. Encik Zahid.
Thanks, Faizan. [Non-English content ] and good afternoon, everyone. It's good to come back again this quarter to share with you in term of the progress of our Delivering Progress strategy, as well as our financial performance for quarter three, as well as year-to-date. I think these quarter results tells a clear story. MISC continue to deliver resilient profitability and strong cash flow while advancing our enterprise strategy. While part of the market remains soft, our fundamentals are firm, and the action we are taking today are helping us to build a stronger foundation for the group. If I can go to the key highlights, let's talk about the financial performance. If you look at our revenue, remains stable at $662 million, rising 5% quarter-on-quarter, supported by higher contribution from the petroleum and offshore segments.
Group profit after tax strengthened to $131 million, up 19% quarter-on-quarter and 64% year-on-year. This performance reflects strong operating results compared to the same period last year. In term of cash flow from operation, it remains healthy at $327 million, 32% higher year-on-year, driven by robust collections and disciplined cash management. Supported by our solid cash position, we declared, and the board have declared, a third interim dividend of MYR 0.08 per share, consistent with our prior dividends payout. These results demonstrate a resilient and a well-anchored portfolio in a volatile and uncertain market. Let me talk to you with regards to the progress that we have made on our Delivering Progress strategy. Delivering Progress strategy, if you recall, have three pillars. The resilient core, our profitable new energy pillar, as well as our decarbonization pillar.
Let's see what we have achieved to date on our resilient core. This quarter, we delivered three new LNG carriers to QatarEnergy under the consortium partnership, AL MAS'HABIYYAH, AL ZUWAIR, and FA'TH AL KHAIR. These timely deliveries underscore disciplined execution and reinforce our position as a trusted partner in Qatar's long-term LNG expansion. The delivery of these three vessels also help us to strengthen our cash generation capability within the group to ensure that we can deliver the revenue and the cash flow consistently. We expect there will be more vessel coming in term of delivery in the next quarter. In July this year, if you recall, we delivered the FSU Puteri Delima to PETRONAS Gas. It sail away to the permanent place in PETRONAS Pengerang Terminal. The whole project was delivered safely with over 500,000 man-hours with zero LTI.
We are very proud with our total project management team to deliver this project safely to our customer. These conversions of our existing old steam vessel into FSU reflects our strategy to repurpose older vessels into long-term value additive FSU assets for Malaysia's regasification needs. We also signed an MoU with PETRONAS Gas to explore a next generation FSU solutions, including conversion options to enhance efficiency and sustainability at Sungai Udang. If you recall, we have two FSU currently in Sungai Udang. The current MoU that we have with PETRONAS will allow us to see what more we can do in that FSU, including the rejuvenation as well as the replacement of that FSU. Collectively, we are happy that this achievement will deepen our position in the gas value chain, reinforce our industry partnership, and strengthen the resilience of our core business.
Today, our gas fleet comprises of 41 vessels, 31 LNG carriers, three FSUs, six ethane carriers, as well as one LBV, the LNG bunker vessels. We expect in our schedule to receive another 17 vessels between now to 2028. This new delivery program marks one of the most extensive fleet renewal cycles in MISC history. We hope with this rejuvenation of our fleets will help us to continue to deliver the consistent and predictable cash flow to the group. If you look at the next one, under the profitable new energy, in September, MISC and Samsung Heavy Industries received approval in principle from Bureau Veritas, the classification society, for the world's first ammonia fuel LR2 tanker, powered entirely by proton exchange membrane fuel cells, or ME PEMFC technology.
This design eliminates direct carbon emissions while meeting the growing demand of global shipping's positioning more among the selected few owners that have this low carbon or zero carbon maritime solutions. We are very happy with this milestone because it shows and it demonstrates the strength of our partnership with the relevant parties within the value chain. It also deepens our technical capabilities, as well as helping us to continue building a stronger foundation for us to deliver on this pillar of profitable new energy to support the achievement our MISC 2030. On the decarbonization, we also are making a positive progress with regards to our emissions reduction effort. I think we have achieved to date the fleet average GHG intensity improved to 4.89 per ton nautical miles, is about 3% lower quarter-on-quarter, as well as 7% lower year-on-year.
In totality, we have achieved so far 36% reduction than our 2008 baseline. I think this is very important because shipping has a very stringent emission requirement. What we are doing now will help us to ensure that we have the relevant asset, we have the relevant expertise to compete in this sector. Okay. Our effort in the sustainability as well as the ESG also received recognition from the industry at the recent Star ESG Positive Impact Awards 2024. We received a Gold award for Biodiversity and Silver award for Human Rights and Labor Standards. These are a meaningful recognition on the effort that we put in both categories or both sectors.
The crews of Seri Emperor and Seri Daya, these are our vessels, were honored with MPA, this is a Singapore authority, at their Safety at Sea Award 2025 for their extraordinary courage in rescuing operation in the rough condition. I think this also reflects our culture, our safety culture with regards to supporting the industry to ensure it's continue to maintain at the highest standard. I think in closing, while market headwinds persist, our path forward is clear. Fleet rejuvenation and disciplined execution to build a stronger portfolio with resilient profitability and cash flow.
That is our continuing effort and focus. We are building a business that is stronger, more efficient, and future ready to achieve our 2030 ambitions. And the Delivering Progress strategy is providing us the blueprint and the pathway for us to achieve that. With that, I will now hand over to the team to take you through in detail our quarter three results and the market outlook. So thank you.
Thank you, Encik Zahid, for your opening remarks as well as highlights for the quarter. Next, we will proceed with the financial performance update by Encik Effendy, followed by the market outlook by Encik Raja Azlan. Encik Effendy.
Thank you, Faizan. Assalamualaikum, and a very good evening, ladies and gentlemen. Thank you for joining us today. I will run through the MISC Group results for the third quarter of 2025. For the quarter ended 30th September 2025, the group recorded revenue of $662 million, which is marginally lower compared to the corresponding quarter last year. The softer year-on-year revenue reflects the dynamics within our diversified portfolio. Our Gas segment posted a lower revenue due to reduced earning days following contract expiries and vessel disposals, coupled with softer spot charter rates. Revenue in marine and heavy engineering also declined as several major key projects are nearing completion, which led to reduced activity while newer projects are still in the early stages of execution and have yet to contribute meaningfully to the top line.
These declines were partially offset by stronger contributions from the petroleum segment, which has benefited from the higher freight rates and improved earning pace during this quarter. The offshore segment also delivered a substantial uplift with revenue almost doubling year-on-year, supported by contributions from the acquired FPSO Kikeh, and the transition of FPSO Mero 3 from construction into operational phase. Against the preceding quarter, the group revenue increased by 5%, driven primarily by higher revenue recognition in the marine and heavy engineering segment as newly secured projects transition into more active phases of construction. Moving on, the group reported an operating profit of $157 million for the quarter, representing a solid 26% increase compared to the same period last year.
This year-on-year uplift was underpinned by the stronger performance of our offshore business, which transitioned from a loss position in the corresponding quarter to a meaningful profit contribution in the current period, aligned with the operational commencement of FPSO Mero 3. The petroleum segment also recorded steady earnings growth in line with the revenue uplift recorded for the quarter, as I mentioned earlier. While our marine and heavy engineering delivered higher operating profit year-on-year due to favorable finalization of several completed projects negating the lower revenue. These gains were moderated by lower contributions from our gas segment, driven by the revenue factors mentioned earlier, although vessel operating costs were correspondingly lower. Collectively, these factors drove a strong group operating margin and reaffirmed the stability of our portfolio despite market-specific pressures.
In contrast to the stronger year-on-year performance, the group operating profit declined by 11% quarter-on-quarter, primarily due to higher construction costs of a gas project, while the preceding quarter had benefited from early termination compensation for two energy carriers in the gas segment. While the group continued to deliver resilient operating profit, our headline profitability was impacted by impairment provisions in the gas segment. Profit after tax for the quarter stood at $131 million, an increase of 64% from $80 million in the corresponding quarter. The year-on-year improvement was driven by the stronger operating performance, particularly from offshore, together with gains from vessel disposals in the petroleum segment. These gains were partially offset by higher vessel impairments recorded during the quarter. Excluding the impairments, the group profit after tax should have further improved as the profitability increased by 69% than the profit after tax in the corresponding quarter.
Compared to the preceding quarter, profit after tax improved by 20% from $110 million to $131 million. The quarter-on-quarter increase reflects strong underlying operating performance, lower impairments, and gains on vessel disposals that were recognized during the period. These movements collectively contributed to a strong bottom line for the group. Excluding the impairments, the profitability increase mentioned earlier narrowed to 5% compared to the preceding quarter, but overall, profit after tax growth remains strong despite normalizing the impairments. Cash flow from operations remained robust at $327 million in quarter three 2025. This represents a meaningful increase from $247 million in the corresponding quarter, primarily driven by stronger collection from customers, consistent with the revenue and operational performance during the period. Against preceding quarter, the cash flow from operations moderated from $374 million recorded in quarter two 2025, yet still reflects a healthy cash generating capacity across our diversified portfolio.
Overall, our operating cash generation continues to be healthy, underscoring the strength of our earnings and the resilience of our portfolio amid varied market conditions. Next. As of September 2025, the group's balance sheet remains stable with only marginal movements in total assets, equity, and liabilities compared to December 2024. While the group's gross gearing ratio remained unchanged. The marginal decline in net gearing ratio was mainly attributed to the increase in cash balances during the quarter. The shift in debt composition mix from December 2024 mainly comprised of the additional drawdown of floating rate debt in 2025. Next. Consistent with the previous slide, debt balances as at September 2025 was comparable to December 2024. Meanwhile, the increase in cash was supported by higher cash generated from operations, partially offset by the CapEx spending and dividend payout during the quarter. Next.
For the four business segments, in the gas segment, the revenue for quarter three 2025 came in at $123 million, comparable from $122 million in the preceding quarter, but lower by 19% compared to $152 million in quarter three 2024. The year-on-year decline reflects lesser earning days arising from contract expiries and vessel disposals, as well as softer spot charter rates, as I mentioned earlier. Operating profit for the quarter recorded at $36 million, lower than $58 million in the same period last year, primarily driven by the revenue factors mentioned earlier. Despite that, the gas team has worked hard to ensure that the vessel operating costs were kept at a lower cost.
Against the preceding quarter, operating profit declined by 36% quarter-on-quarter, driven by higher construction costs for a project in the current period, alongside the early termination compensation for two LNG carriers recognized in the preceding quarter. Profit after tax stood at $12 million, down by 68% compared to $36 million in quarter three 2024, and 24% compared to $15 million in quarter two 2025, further impacted by impairment provisions. Excluding those impairments, the decline would have narrowed to 42% compared to the corresponding quarter, while the decline against the preceding quarter would have been 44%. Petroleum segment remains stable as revenue for quarter three 2025 increased to $303 million, up from $262 million in quarter three 2024 and $299 million in the preceding quarter. The growth was driven by higher freight rates and earning days during the quarter.
Operating profit subsequently rose to $83 million, 8% higher than $76 million recorded in the same quarter last year, and 18% higher than $70 million reported in quarter two 2025. In tandem with higher revenue, as mentioned above, the profit after tax increased to $91 million, up by 41% as compared to quarter three 2024, and 64% against quarter two 2025, consistent with the higher operating profit recorded and further supported by gains on vessel disposals in the quarter. The offshore segment continued to be a key profitability contributor in the current quarter. Revenue for quarter three 2025 was reported at $140 million, a significant increase from $59 million in the same period last year and higher than $106 million in quarter two 2025.
The uplift is primarily attributable to contributions from FPSO KK as well as FPSO Mero 3, which has come into the operational phase. Operating profit rose sharply to $48 million compared to an operating loss of $6 million in quarter three 2024, but lower than $53 million in profit recorded in the preceding quarter. Correspondingly, profit after tax followed a similar trajectory against the top line as it surged to $26 million compared to a loss of $34 million in this corresponding quarter, but lower than $30 million in quarter two 2025. Moving to our last segment, marine and heavy engineering. Revenue for quarter three 2025 stood at $122 million, significantly lower than $204 million in quarter three 2024, but higher than $100 million in quarter two 2025.
The year-on-year decline was mainly due to the phasing of key projects nearing completion, and the new ones are still at the early stages. The quarter-on-quarter increase was driven by newly secured projects progressing into the more active construction phases. Operating profit came in at $7 million compared to $5 million in quarter three 2024 and $10 million in the preceding quarter. The improvements were supported by favorable finalization of completed projects.
Profit after tax stood at $7 million, broadly stable, compared to $4 million in quarter three 2024 and $2 million in quarter two 2025, consistent with the improved operating performance for the segment. In summary, MISC has delivered a strong financial performance in this quarter. For our gas segment, we continue to monitor and mitigate as much as possible given the weak spot market. Finally, our stable cash generation has enabled MISC to pay consistent dividends to our shareholders. With that, I conclude my financial presentation, and I'll pass it back to Faizan. Thank you.
Thank you, Encik Effendy. Next, we have Raja Azlan. [Non-English content]Raja.
Thank you, Faizan. [Non-English content] . Very good evening to honorable shareholders, buy-side and sell-side analysts. I'll take us now through the market environment, looking at the LNG and petroleum shipping, as well as the offshore market. In terms of LNG shipping, the LNG shipping market, the vessel order book is expected to moderate in 2025 compared to the high levels we've seen in recent years. As of the third quarter, the order book to fleet ratio stands now at 41% compared to 49% in 2025. This follows the increased new building deliveries and a slowdown in new vessel orders amid the high new build prices and continued regulatory uncertainty. This slowdown is further driven by limited shipyard capacity through 2027. The order book is expected to ease further until new build activity resumes.
Despite the lower order book, vessel deliveries are expected to remain high through 2026 to 2030. The LNGC fleet is projected to grow at a compounded growth rate of about 8% between 2025 to 2030, with more than 500 new LNG carriers anticipated to enter the market by 2030. For steam carriers, they're particularly feeling the heat as vessel oversupply has dampened demand and is weighing heavily on the earnings of the older steam LNG carriers. Next slide, please. In terms of LNG supply side, the outlook for new LNG project approvals remain positive. In the first nine months of 2025, six projects with 51 MTPA have reached FIDs, and a further four are expected by the year end. In 2026, the momentum is expected to pick up substantially with close to about 100 MTPA of pre-FID projects, mainly coming from the U.S. and Qatar, among other countries.
2026 is expected to be a pivotal year for project development and planned capacities after significant delays over the past year. Global liquefaction capacity is projected to grow about 10% compound annual growth per year between 2025 to 2030, driven by these new capacity additions. While a new wave of liquefaction capacity is projected to enter the market, actual supply will depend on project startups, which may be affected by feed gas availability, regulatory changes, and evolving environmental, social, and economic considerations. Next slide, please. In terms of the market environment for the LNGC rates. In the short term, the LNGC rates are expected to remain soft through 2025, driven by the vessel oversupply from strong newbuild deliveries and more vessels coming off long-term charters.
Steam turbine LNGC rates are expected to remain under pressure due to competition from modern LNGCs. This is likely to accelerate the phase out of older steam turbine carriers. The weak market conditions make it difficult for ship owners to maintain older tonnage and limited opportunities for employment are expected to prompt many owners to consider vessel conversion or scrapping. Given the weaker market outlook for these older vessels, MISC will continue to assess the fair value of these older vessels, these older steam LNG carriers, which may lead to additional impairments. Despite the headwinds, LNG shipping remains our strategic core segment. We continue to rejuvenate our fleet with modern fuel-efficient vessels secured on long-term charters consistent with our resilient cost strategy.
By 2028, our gas segment is expected to deliver close to an additional 20 modern eco-efficient vessels, which will then lift the proportion of next generation ships in our fleet to over 30% from the current 30%-40%. Next slide, please. In terms of petroleum shipping, the crude tanker order book expanded further in the third quarter of 2025 following a surge in new orders, raising the order book to fleet ratio to about 14%. Between 2026- 2030, another around 440 new crude tankers are expected to be delivered. Deliveries are projected to peak in 2027, when most of the Suezmax and VLCC orders placed over the past two to three years are scheduled to enter the fleet. Next slide, please.
In terms of the petroleum shipping market, it is expected to remain firm for the rest of 2025, supported by strong vessel demand driven by increased OPEC+ output and sustained ton mile demand. Charter rates continue to be supported by tight vessel availability stemming from ongoing sanctions and limited fleet growth in 2025, while geopolitical uncertainties continue to shape crude trade flows. The global crude oil market is forecasted to remain oversupplied, and this will keep freight rates elevated through 2026. Our petroleum product segment continues to demonstrate resilience underpinned by a solid base of long-term charters, complemented by proactive efforts to optimize the fleet utilization across spot markets, lightering operations, as well as time charter opportunities to strengthen overall earnings and profitability. Next slide, please. Moving on to offshore.
Upstream CapEx is projected to grow steadily, reaching $211 billion by 2029, surpassing the levels that we have seen in the previous decade. The trend reflects a favorable industry outlook driven by firm global energy demand that continues to support investments in upstream exploration and production. As a result, the demand for floaters, FPSOs in particular, is expected to remain strong, with close to 70% of new projects concentrated in Latin America and Asia-Pac.
This indicates a healthy pipeline of potential awards for floaters, reinforcing a resilient long-term outlook for the offshore market. MISC is positioned to capitalize on this upcycle in targeted regions such as Asia-Pac, South America, as well as Africa, while managing affordability and risk through strategic partnerships, as well as a balanced contract structure across L&O, BOT, and EPC and O&M contract structures. With that, I end my presentation. Thank you very much. Back to you, Faizan.
Thank you, Raja Azlan. We will begin the Q&A session shortly. For those who wish to ask a question, please use the Raise Hand function. Once called upon, kindly state your name and organization before proceedings. To ensure participation from as many attendees as possible, each speaker may ask up to two questions in the first round. If you have more questions, you have additional questions, please raise your hand again and we will return to you. Ladies and gentlemen, we will now begin the Q&A. First, we have a question from Hazmi Hazim from CLSA. Go ahead, Hazmi.
Thanks. Thanks, Faizan. Hi, everyone. Hazmi here from CLSA. I think just follow up with the question. Just want to check on the rates for LNG that's relevant to MISC for this quarter compared to the second quarter, how did that look like? Is it gradually improving or flattish or worse?
Yeah. For the LNG, basically we have divided into two type of rates, which is our term contracts. Our term contract has been quite stable, right? It's the spot contract that has come down quite significantly. That's partly because what I've mentioned, and I think all the three of us in front here has mentioned consistently for the last 30 minutes, which is the spot rate has come down quite a lot because of the oversupply of the LNG vessels.
Yeah.
Our spot or term to spot rate for LNG is about 80. For the current quarter, it's about 95/5, that's also partly because for the spot vessels that we are not able to secure any clients or customers, we have put them on lay up. Yep.
Right. Sorry. I mean, comparing the spot on quarter-on-quarter basis, what's the percentage like? Increasing or flattish?
The spot rate has come down by about Well, we had in quarter three last year, about in the range of about $50,000-$60,000. For the current quarter 2025 is about $30,000-$35,000.
Compared to last quarter?
Compared to last quarter, well, we had one vessel at a very high rate of about $80,000, that's an exception actually.
Okay.
Yeah.
Hazmi, if I just can add, I mean, you are seeing a lot more in terms of percentage of our LNG vessel is on term charter compared to spot charter in this quarter, because many of our spot charter vessel that we cannot find employment, we put them on layup. I think that's what we are doing.
Right.
Optimize costs as well as just to ensure that we also reduce the emissions from this vessel.
Right. Thank you.
Thank you. Thank you, Hazmi.
Yeah, going forward.
Next we have.
Just in terms of, you mentioned contracts expiring, Aimie, like how many contracts are expiring, going into 2026? Does that mean the sort of if rates stay the same, in terms of earning this, will that sort of impact the earnings going to be lower in the coming quarters?
I mean, over the next three years, you're going to see, I think another eight gas vessels are going to be expiring. As I mentioned earlier, over the next three years, we're going to be receiving the delivery of close to 20 new LNG vessel.
Hazmi, can you hear us? Why don't you continue what you mentioned?
Okay. Like what I mentioned was that, over the next three years, we'll have around eight or so vessels expiring. At the same time, we are going to be taking delivery of close to 20 new LNG vessels. That will help to supplement or to make up the revenues and cash flows of the gas unit going forward.
Okay. Thank you, Raja Azlan. Next we have a question from Raymond. Go ahead, Raymond.
Hi, evening, gentlemen. Yeah, this is Raymond here from CGS International. Effendy talked just now about two LNG premature terminations. I didn't hear it very clearly. Is that correct?
Yes, that's correct, Raymond. Those vessels were due for expiry later part of this year and early next year. Given these are old steam vessels, we have agreed with our charterer to have an early termination, and we have been compensated to the early termination in last quarter, not the current quarter.
Oh, I see. Okay. You're talking about a past event actually.
Correct. Yeah.
Okay.
We only got the compensation in quarter two for those two steam vessels.
Right. I don't recall this being mentioned in the quarter two briefing.
No, I think the question is that, sorry. Raymond, can you repeat again your question, Raymond, please?
I did not recall this being mentioned in the briefing three months ago.
Presumably those numbers were comparable to quarter one, Raymond. Yeah. It is the variance for this quarter for gas, given the expiry of the contracts as well as we had a lot of vessels being laid up as part of our cost optimization effort .
Okay. May I know the identity of the vessels and also the quantum of the compensation received last quarter?
I'm not sure we can be specific on the details at this point, Raymond. We are bound by our confidentiality with our clients.
Okay. That makes things a bit difficult.
Yeah. Whatever it is, Raymond, the economics were kept whole. Whenever we do a contract termination, whatever, it is done in a way that we are no worse off.
Okay. Basically, the profits last quarter were bumped up by one-off events, which actually I would have preferred that you had disclosed it last quarter. It would have made more sense actually. Anyway, yep, that's all the questions I have. Thank you.
Thank you, Raymond. Any more? Please feel free to ask any questions. Do raise your hands if you have any. Okay. We have a question from Ho Meng. Go ahead, Ho Meng.
Hi, guys. Thanks for the call. Just to follow up on your gas earnings. Just to double-check the impairment this time, is it related to the two early terminations that was done in second quarter? Also, you also mentioned that you have three new energy vessels have started their charter, right? Just to gauge, if we net out the impairments and everything, how much is the energy earnings, the drop-off coming from contracts that have expired and also how much of the earnings have boosted because of new vessels?
Yeah. For the two contracts that were terminated in the quarter two, there has not been any impairment impact to those two vessels. Generally, the impairment that we have seen in quarter three is slightly lower compared to quarter two, but I think quarter two because we saw about 20% drop in market value for the vessels. Whereas in quarter three, the drop in market value is only about 10%. Cumulatively for the year, for the three quarters, we have seen a 30% drop in the market value for those older vessels.
Okay. How about, whether the contribution from new vessels was significant relative to those that have expired?
Yeah. The new vessels that have come, they are all our JV vessels. You will not be able to see their significant contribution because at the first couple of months, there will be some setup costs that will be negating the income for the first quarter. You won't be able to see that. The share profit is almost breakeven for the first quarter. These are all our joint venture.
Oh, I see. Yeah. I recall that. The Mero 3, you said it was ramped up in terms of the earnings. On a quarter-on-quarter basis, did it ramp up? Also, what is your term to spot ratio for the petroleum side?
The Mero 3, obviously, when you say quarter-on-quarter. Quarter two, we have a reported availability fees that we have managed to get from Petrobras. That's why I mentioned earlier, if you look at the offshore operating profit is slightly higher in quarter two compared to quarter three, right?
Obviously, last year there's no operation on inaudible. For petroleum segment, the term to spot ratio is about 75:25 for current year versus about 90%, 90:10 in last year.
Current year 75%, this is primarily Aframax side or same for the three vessel classes?
Those inaudible and Aframax. Those are the ones that have got a higher proportion of spot.
It says tankers.
Okay. One more question. The LNG side. Sorry, how many vessels that are idle right now that you haven't been able to dispose or seek new opportunities for them yet?
Currently, we have what? Seven vessels that's on lay up.
Seven on lay up, then you said earlier, potentially another eight more contracts that are expiring. Right. In the worst case, if those eight cannot find any job or dispose, then it could be 15, the maximum idle.
Yeah. If you look at the industry as a whole, about 1/3 of all the LNG vessels are steam. Of which this year you're going to see the industry going to scrap about 50% of the steam vessels. Unfortunately, that is the nature of the industry now. Everybody is moving on to the more modern vessel. Yeah, chances are, there will be some scrapping that we need to do.
Yeah. I think you shouldn't associate the number of vessels that are going to be lay up as just a simple addition, Ho Meng. I think what we have now is what Effendy mentioned around seven. We are hoping to make a decision on these vessels within next year, either to scrap or to turn it into something else. Over the next three years, there will be another, as I mentioned, about eight vessels that is coming out of long-term charter. We still haven't decided yet what we're going to do with those vessels. We will make that decision as and when it coming off charter, Hong Meng.
I got it. Ideally speaking, you would prioritize rechartering those eight expiring vessels, right? Rather than the ones that is already on idle.
Yeah. Maybe could be. We are hoping for the current vessel that we are on lay up. We want to make decision sooner, rather than keep the vessel for the next few years on lay up.
Okay. Sorry, just one last question. I know you don't really disclose this, in terms of the cost that you incur for the decarbonization or your decarbonization initiatives. Is there any spike in terms of the cost or it's relatively the same in the past few quarters and even in this quarter?
Yeah. The cost will be incurred more in the future as the IMO starts to enforce the net zero framework rules. Today the costs are kept to the minimum. Most of the emission reduction has come in the form of rejuvenating the fleet as well as running the fleet more efficiently on a just-in-time basis with some minor onboard operational CapEx addition. The amount of decarb expense that we incur today is not very big. We will only see this increasing over the next few years once the net zero penalties or carbon tax were to be made effective
Oh, yeah. The IMO delayed their net zero framework. That in that sense also give a bit more time in terms of the expected spike in your decarbonization equity will be also delayed.
That's right.
Correct.
Yep. Okay.
Thank you, Hong Meng. Thank you. Okay, next we have Aimie Natsuwa. Go ahead, Aimie.
Hi. Hello. Congrats on the results. Just two questions from me. I'm trying to understand, You mentioned about the potential of further impairment of steam vessels. Is this relating to the-
Aimie, sorry to stop you there, but your voice is a bit muffled. Can you repeat your question and a bit slower, please?
Okay. Just two questions from me. Can you hear me well now? Better?
Yes, I can hear you well. Please continue in that manner.
Remember just now you mentioned about the potential of further impairment of the steam vessels. Can you explain a bit more on that? Is it coming from the expiry of your LNG vessels?
Second question.
The second question would be, given the robust offshore outlook for your Latin America and also Asia Pacific, are you going to be tendering more?
State the first one.
Yeah. Talking about the offshore
Okay.
Can hear, right?
Yeah. Let me address the first question, Aimie. Yeah. I think why we are highlighting there is potential for the impairment, I highlighted earlier, year to date, we have seen a 30% drop in market value, right? You couple that with what Raja Azlan shared earlier, which is 1/3 of the LNG vessels globally are steam vessels. Today we are seeing a lot of the charterers favoring more efficient vessels. It is not a surprise to anticipate that a lot of the steam vessels, which are less efficient, will not be resecured by the charterers, even on a spot market.
Obviously, like what Zahid mentioned, we are keeping our options open at this point in time. If currently, given they are not secured, we have put them on lay-up to reduce costs. Obviously, we are working to see are there options for conversion for those vessels. Are there interested parties? Failing which, the end game is to probably scrap them. Yep. We will not wait for three years to add another 15, in total 15 idle vessels. As and when we see we are not able to convert them, then most probably our decision will be to scrap them. Yep.
Yeah. On the second question, in terms of the offshore market. Yes, we are working towards Asia-Pac, as well as Latin America. Asia-Pac will be more for the lease and operate kind of projects, where we will be bidding and also focusing for in terms of L&O. Insofar as the Latin America market, we see that the bulk of these contracts will be either on a EPC, plus O&M or a BOT basis. These ones are also projects that we will be interested to participate in these kind of new contract structures. These will be the two areas that we will focus on, and as a third one, we may also look at the African market, which there will also be some L&O opportunities and some EPC opportunities.
We'll talk of this tender award. Do you see prospectively to be awarded in 2026?
Yes.
Still-
Over the past one year, we have participated in certain bidding and certain tender, and we believe that some of them will come to fruition soon, or if not, in 2026.
All right. Okay. Is it possible for the current LNGC vessels up for conversion for this floaters, I mean, for offshore segment?
No, the vessel candidate for offshore will come from the petroleum side. If it's in Latin America, then Chancellor is the big one, the VLCC. If it's Asia-Pac, sometimes we can use the mid-size tanker for the FPSOs in the Asia-Pac, the smaller one.
Okay. All right. Thank you.
Thank you.
Thank you, Aimie.
Okay, we have another question from Raymond. Go ahead, Raymond.
Thanks, Faizan. Okay. I wanted to ask about the notes to the accounts, the note A10, which is the breakdown of the revenue. You actually break down the revenue from contracts with customers and revenue from charter. I just want to double-check, what is the difference between the two. My understanding was that when you were constructing FPSO Mero-03, the construction revenue was parked under revenue from contracts with customers. Is that still the case in this financial year? Because I see quite a large amount for offshore. There is a cumulative nine months. There's $403.8 million revenue from contracts with customers. I also see that same line in the gas asset and petroleum. Gas asset, I presume, is the construction revenue from the conversion of Puteri Delima Satu to FSU. What is the offshore side, and what is the petroleum side referring to?
I mean, we have got--
Yeah. I think this lease accounting, and I think you are correct. I think you are right, that for the lease accounting, the completed projects falls under MFRS 16, and for the construction falls under MFRS 15. Both we classified as similar, which is contract under construction. Yeah. Similar. Yep. Both essentially for Mero 3 offshore, in fact, not just Mero 3, for offshore, everything will be under same category, whether during construction or post-operation.
Okay, sorry. The FPSO Mero 3 revenues are being booked under this line called Revenue from Contracts with Customers, even though it's already in operation?
That one is lease.
Bunga Kertas. Reimbursable revenue. Bunga Kertas.
Let me check. Let me check and double confirm on that, Raymond.
We come back to you, Raymond, on that question.
Effendy, unless. What Raja Azlan was saying is that it's the conversion of the FPSO Bunga Kertas, is it? Okay. For the offshore one, that $403.8 million for the nine months is relating to the conversion of the FPSO Bunga Kertas. The FPSO charter hire actually is now parked under revenue from charter line. I presume that would be correct. For the gas asset, the construction revenue relates to the conversion of the Delima Satu to FSU. Again, I think that would be correct, but just to double-check with that. For petroleum and products, there is this similar description, revenue from contracts with customers and then revenue from charter. Clearly your time charters will be described as revenue from charter. But what goes under revenue from contracts with customers, is that the-
For petroleum, those are the spot charters, right? Because spot charters, we will take the obligation on the cost, right? Unlike-
I see.
On the term charter, right? For gas, you are correct. Puteri Delima which is the conversion to FSU, that is under construction revenue, right?
Okay.
For the completed construction project like Mero 3, post-operation, the revenue is considered as a lease or charter hire revenue.
Okay. It goes under this line called revenue from charter now.
Yeah. Correct.
Yep. Okay. Sure. Okay. Thank you.
Thank you, Raymond. I think we have one more question from Ho Meng. Go ahead, Ho Meng.
Sorry. I recall earlier just now you said there's higher contribution from KK. Is that higher on a year-on-year or quarter-on-quarter basis? Also, yeah, that's my first question. Yeah.
Yeah. KK, because we acquired from SBM early part of this year, right? Previously, the financial performance of KK is not consolidated in our books. Since we have now acquired 100% of KK from the start of the year, so we have been consolidating their KK financials for this year, effectively since February, because the completion was end of January.
Oh, I see. On a quarter-on-quarter basis, there's no change.
On quarter-on-quarter, no. Yeah. Compared to quarter two.
Okay.
Yeah.
Just to ask, assuming, maybe if we call it worst-case scenario, if you have up to 15 idle vessels and you can't find any other opportunity or disposal, would that affect your dividend outlook? Yeah, sorry, one more question. Have you included any CapEx related to the liquid carbon, what do you call that, the LCO2 vessels?
The answer is no, Ho Meng, because our planning, we have already redeployed capital to new projects to offset the upcoming expiry of these gas vessels.
Okay.
In term of the deployment of capital to the LCO2, we have not done that yet. We are still working on projects in the pipeline.
Okay. Got it. In that sense, that means you have already assumed that these vessels are idle, but you already redeployed the capital and those, so you will not affect your dividend payment.
Yes.
Okay.
We have time for one more question. Yeah, go ahead, Raymond.
Yeah, sorry, just to double-clarify, because the conversion of the Bunga Kertas FPSO was actually completed in the first quarter, so why are you still booking construction revenue in the third quarter for the offshore side?
I think that's some of the mobilization costs for Bunga Kertas, I think some of the mobilization costs that we have managed to build in second quarter, Raymond.
In third quarter, you mean, is it?
Second quarter.
No, because there was a lot of construction revenue in the offshore side in the third quarter.
Second quarter, it tailed off. First quarter, there was quite a lot. Second quarter, it was almost nothing. Third quarter, it jumps up again.
Yeah. We need to come back on that one, sorry.
If we don't have the detail now, Raymond, I think the team will come back to you and share with you-
Sure.
...the details, and also we'll publish it. I think that's what we will do. Okay.
The Delima Satu construction, since it's already over, I presume there wouldn't be any more construction profit and revenue next quarter, right, for the gas side?
Yes, this commercial in this quarter. Correct. There should not be any more construction profit in quarter four.
Okay. Sure. All right. Thanks.
Thank you, Raymond. Before we conclude this call, Zahid, would you like to say?
No, I think thank you so much everyone, for your continuous interest in our performance, and we appreciate all the questions that you have. We will certainly put back the answers or follow up on the question that we have not fully answered. Thank you.
Thank you, Zahid. This concludes today's conference call. On behalf of MISC, we thank you for your participation. A copy of today's presentation has been circulated to attendees, and will also be available on our corporate website. To all sales analysts, we appreciate receiving a copy of your published research reports, sent to the MISC investor relations team for our reference. Thank you once again, and we wish everyone a pleasant evening ahead.
Thank you.