Very good evening, ladies and gentlemen. Thank you for joining our Second Quarter FY 2025 Analyst Briefing. I am Nick from MISC's Investor Relations team. We are honored to have with us today Encik Zahid Osman, President and Group CEO of MISC, Encik Afendy Ali, Chief Financial Officer, and also Faizan from Group Investor Relations. Before we proceed to the presentation, I would like to bring your attention to the disclaimers slide. This presentation contains some forward-looking statements with reference to our plans and expectations, whereby actual results could differ due to unknown risks, uncertainties and other factors that are in many cases beyond MISC's control. I would like to invite Encik Zahid Osman for his introductory remarks on the quarter's key highlights and business updates. Encik Zahid.
Assalamualaikum. Salam Sejahtera and good evening, everyone. Welcome and thank you for joining us this afternoon. I certainly value your continued interest in MISC, in our performance and what we do with regards to our activities. There are two things that I would like to share with you this afternoon. One is our highlights of our second quarter performance, including the key achievements. The second one is on how we navigated the evolving market condition to deliver a sustained value to the shareholders. In terms of performance highlights, on the broader market context, it has remained soft and challenging. Later on, the team, Faizan, will share more on the outlook of the market with you. However, despite the soft and challenging market environment, this quarter results underscore how our Delivering Progress strategy positions MISC to adapt, optimize, and capture value and opportunities in this dynamic market landscape.
Through disciplined execution, we continue to generate healthy operating cash flow and maintain resilience across our business segments. Cash flow from operation has strengthened to $374 million, more than double compared to last quarter, and about 30% higher year-on-year. The high cash flow from operation mainly driven by stronger contribution from the petroleum segment and the offshore business. I think the big item in the offshore business is related to the full operation of our Mero 3, as well as the consolidation of an FSO that we acquired in Q1 2025. On the profit and loss, we recorded a comparable revenue of $631 million due to stronger petroleum segment performance. Profit after tax came in lower at $110 million, mainly due to vessel impairments from several LNG carriers. Afendy, later on, will share with you in more details about our financial performance.
With our healthy operating cash flow, we are pleased to inform you that the board of MISC have agreed and declared a second interim dividend of MYR 0.08 per share, equivalent to MYR 85 million. This is consistent with our first interim dividend, it reflects our continued commitment to delivering consistent value to our shareholders. Focusing on our strategic focus area, I think we continue to execute our strategic priorities and deliver tangible progress across the three pillars under our Delivering Progress strategy. Under the first pillar, the Resilient Core, we advanced our fleet rejuvenation program with the timely delivery of Al Tuwar, the first of the 12 LNG carriers for QatarEnergy under a consortium charter. We are expecting another six LNG carrier under this consortium to be delivered for the rest of 2025.
These timely deliveries accelerate our fleet renewal and strengthen the capacity and visibility of our long-term earnings as a group. Under the Profitable New Energy pillar, we have made strides in achieving two additional key strategic milestones that establish the foundation for our Profitable New Energy pillar in the CCS space. On 17 June, we established Jules Nautica Sdn. Bhd., a strategic joint venture with PETRONAS and MOL to develop and own liquefied CO2 carrier, a critical link in the carbon capture and storage value chain. This partnership positioned us to connect CO2 emitting industries with storage providers across Asia Pacific. It support our carbon reduction goals and strengthening our role in the energy transition.
On 19 June, we commenced the FEED phase for the Zero Emission Power Station, or what we call it a ZEUS project, with PETRONAS Research, Aker Solutions, and Clean Energy Systems, marking a first major step in advancing low carbon power solutions and paving the way towards a final investment decision in 2026. Under the decarbonization pillar, we continue to make measurable progress toward lowering our emissions footprint and aligning with our long-term sustainability goals. Our GHG intensity across gas and petroleum shipping improved to 5.02 grams for CO2 equivalent per ton-mile, a 6% reduction from quarter one and 4% reduction year-on-year. This reflects the positive effort that we make on operational efficiency despite the market challenges. Separately, on safety and operational excellence, our petroleum segment of the business, AET, was recognized with the Jones F. Devlin Safety Award for 48 vessels.
A testament to our long safety culture, disciplined operations, and commitment to protecting our people at sea. This recognition reaffirms MISC industry leadership in maintaining world-class safety standards. Looking ahead, the operating environment remains challenging with LNG charter rates expected to remain soft through 2025. Crude tanker markets will be stable, we hope, but vulnerable to geopolitical development. On the FPSO segment, demand is projected to remain strong through 2028, supported by the rising offshore CapEx potential investment. We will continue to be guided by our Delivering Progress strategy. We certainly keen to pursue disciplined growth, strengthen operational resilience, and to future-proof our portfolio through innovation and strategic partnership. I think in closing, I certainly would like to pass over to the team to take you through in more details on our Q2 performance as well as insight on the market environment in more details. Thank you.
Thank you, Zahid. Next, we will have a presentation on financial performance by Encik Afendy. Over to you, Encik Afendy.
Thank you, Nick. Assalamualaikum, and very good evening, ladies and gentlemen. Thank you for joining us today. Let me now run through the MISC Group financial results for the second quarter of 2025. Our group revenue for the quarter stood at $631 million, representing a 10% decline against corresponding quarter, largely due to lower contributions from the Marine and Heavy Engineering segment. As several key projects nearing completion, which led to reduced activity and therefore a decrease in revenue for the quarter. Meanwhile, newer projects are still in the early stages of execution and have yet to contribute meaningfully to the top line. This was partially mitigated by stronger contributions from the Offshore segment following the transition of an FPSO from the construction phase to operations, which is Mero 3, alongside steady growth in the Petroleum Business.
Compared to the preceding quarter, revenue was comparable with higher Petroleum contributions offset by a softer performance in Gas, largely due to softer freight rates and lower earning days from contract expiries and vessels disposals. Group operating profit came in at $176 million, a 5% increase compared to the corresponding quarter underpinned by Offshore stronger contribution. This uplift helped to offset softer contributions from the Petroleum and Heavy Engineering segments. Operating profit was 9% lower compared to quarter one 2025, reflecting the reduced contributions from Gas, Petroleum, and Offshore Business. While the group continued to deliver resilient operating profit supported by the Offshore Business, our headline profitability was impacted by impairment provisions in the Gas Segment. The group posted a profit after tax of $110 million, down 9% against corresponding quarter, primarily due to the higher impairment provisions in the Gas Segment, negating the marginally higher operating performance.
Excluding the impairments, the group profit after tax is 6% higher than profit after tax in corresponding quarter, in line with the operating profit increase mentioned earlier. On a quarter-on-quarter basis, profit after tax declined by 31%, reflecting the same impairment provisions, further exacerbating the lower group operating profit. Excluding the impairments, the decline would have narrowed to 18% compared to the preceding quarter. Cash flow from operations in the second quarter of 2025 was strong, as mentioned earlier by Encik Zahid, amounting to $374 million. This represents an improvement of more than 100% compared to the preceding quarter and a 31% increase against quarter two 2024. The uplift reflects a disciplined working capital management and underscores the group's ability to generate liquidity even in a quarter where earnings were impacted by impairments and softer market conditions.
This provide us with enhanced financial flexibility to support ongoing operations, fund our investment priorities, our CapEx, and maintain balance sheet resilience. Next. As of June 2025, the group's balance sheet remains stable with only marginal movement in the total assets, equity, and liabilities compared to December 2024, while the group's gearing ratio remained unchanged. 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, both cash and debt balances as of June 2025 were comparable to December 2024. Now I would like to share with you the financial performance by business segments. We will start with Gas. Revenue for Gas Segment stood at $122 million in quarter two 2025, lower than both the corresponding quarter and the preceding quarter.
The year-on-year decline of 16% was primarily due to lower earning base arising from contract expiries and vessel disposals, as well as softer charter rates. On a quarter-to-quarter basis, revenue was also down or lower by 15%, reflecting similar reasons mentioned. Despite the softer top line, operating profit reported at $56 million, 6% higher than the corresponding quarter, but 18% lower than quarter one 2025. Profit after tax declined to $15 million, down by 46% against quarter two 2024 and 68% against quarter one 2025 respectively, primarily due to higher impairment provisions in the current quarter. Excluding impairments, gas profit after tax would have rose 17% higher than profit after tax in corresponding quarter, in line with the operating profit increase, while the decline against preceding quarter would have narrowed to 23%.
For our Petroleum and Product segment, this segment remains stable as revenue improved to $299 million, an 8% increase year-on-year, while revenue rose by 6% against quarter one 2025, driven by higher freight rates and stronger earning days. Operating profit, however, came in at $70 million, down from $85 million a year ago and $83 million in the preceding quarter, reflecting lower margins on charter contracts. The decline in profit after tax was also consistent with the lower operating profit recorded against both comparative quarters. For our Offshore segment, this segment has continued to be a key profitability contributor in the quarter. Revenue rose to $106 million, an increase of 16% year-on-year, while operating profit increased sharply to $53 million, underpinned by the significant uplift following the transition of an FPSO into its operational phase.
Compared to the preceding quarter, however, both revenue and operating profit was lower by 8% and 10% respectively. Correspondingly, profit after tax followed a similar trajectory against the top line as it surged to $30 million, a rebound from the loss after tax of $19 million in quarter two 2024, while the profit after tax declined by 36% against preceding quarter. Marine and Heavy Engineering segment, the revenue was $100 million, which is a sharp 47% decline year-on-year from $119 million in quarter two 2024, mainly due to the phasing of key projects nearing completion and newer ones still at early stages. Operating profit stood at $3 million compared to $17 million last year, following the higher project cost and lower recognition of cost recovery claims in the current quarter. Correspondingly, profit after tax also consistently declined in line with the lower operating profit.
On a quarter-on-quarter basis, revenue of operating profit and profit after tax was respectively comparable against the preceding quarter. That concludes my sharing on the group's financial performance for the quarter. I will now hand back the floor to Nick for the next agenda. Thank you.
Thank you, Encik Afendy. Moving on, we will have a presentation on the market outlook by Encik Faizan.
Thank you, Nick. I will now take us through the market environment, looking at LNG, petroleum shipping, and offshore. The LNG shipping market continues to expand, driven by new vessel orders and steady deliveries. This trend is largely driven by QatarEnergy's fleet procurement plan, which has resulted in a high volume of orders over the past few years. As of the second quarter, the order book to fleet ratio stands at 44%, a strong sign of market activity, though at a slower pace than last year. On vessel deliveries, the LNG carrier fleet is set to grow at an annual rate of 8% between 2025 and 2030. By then, more than 500 new LNG carriers are expected to enter the market. Next slide, please. On LNG supply side, despite trade and policy uncertainties, the outlook of new LNG project approvals remain positive.
From 2026 onwards, momentum will pick up substantially with more than 100 million tonnes of pre-FID projects potentially moving forward, supported by easing regulations and faster infrastructure development. Global liquefaction capacity is projected to grow about 11% annually between 2025 and 2030. This growth will help to absorb the influx of new energy carriers entering the market and gradually restore supply-demand balance in the shipping market. In terms of demand, LNG is projected to grow steadily towards 2050, driven by its role as a transitional energy source. Gas is expected to peak around 2041, with LNG demand peaking slightly earlier in 2037. This expected growth in LNG supply points to a more optimistic market outlook beyond the near-term softness. This will drive long-term demand for LNG shipping, particularly for modern fuel-efficient vessels, well aligned with our fleet strategy. Next slide, please.
In the near term, LNG carrier charter rates are expected to remain soft through 2025 as fleet growth continues to outpace demand, founded by subdued ton-mile demand and delays in new liquefaction projects. From 2026 onwards, we expect a gradual recovery in charter rates, particularly from non-steam vessels. This recovery will be driven by the new liquefaction capacity coming online and stronger ton-mile demand, especially from long-haul U.S. to Asia cargos, and is expected to gradually absorb the excess shipping capacity. Despite current headwinds, LNG shipping remain our strategic core segment. We continue to rejuvenate our fleet with modern fuel-efficient vessels secured on long-term charters, consistent with our Resilient Core strategy. By the end of this year, we are expecting to take delivery of a total of seven new LNG carriers through our consortium partnership.
By 2028, our gas segment will have, directly and indirectly, a fleet of 33 modern, eco-efficient vessels. At the same time, we are exploring redeployment opportunities for our existing vessels, managing costs through selective vessel layups and considering selective asset monetization to unlock value. In petroleum shipping, the crude tanker order book expanded further in the second quarter of 2025 following a surge in new orders, lifting the order book to fleet ratio up to 12%. This growth reflects not only fleet replacement, but also strategic expansion as operators prepare for long-term gains from new trade routes shaped by shifting geopolitics. Between 2026 and 2030, more than 400 new crude tankers are expected to be delivered. While this is significant, only about 19% of these vessels are designed for alternative fuels. The majority remain conventional fuel. For MISC, our commitment is clear.
All our future petroleum new builds will be at least with dual-fuel capability. This positions us in a niche market while reinforcing our fleet rejuvenation strategy. For the remainder of 2025, the outlook for the petroleum shipping segment remains healthy. The continued unwinding of OPEC+ export cuts is likely to support demand heading into the winter period, while moderate fleet growth should provide market stability. Looking further ahead, crude tanker rates are expected to soften towards 2030 from the highs seen in 2023 and early 2024 amid stronger order book. Nevertheless, rates are still projected to remain at multi-year highs, driven by robust ton-mile demand and oil trade shifts and OPEC+ unwinding production cuts. Regulatory changes and geopolitical uncertainties will continue to create volatility. Despite this, our petroleum and products segment remain resilient.
We are supported by a portfolio of long-term charters and at the same time seeking opportunities to optimize fleet utilization across the spot market, lightering services, and time charters to enhance earnings and profitability. On to the offshore slide. Upstream capital spending is projected to grow steadily, reaching $211 billion by 2029, surpassing the levels seen in the mid-2010s. Next. This growth reflects strong demand for floating production systems, particularly FPSOs, with more than half of the new projects concentrated in Latin America and the Asia Pacific. This points to a healthy pipeline of potential awards for floating production systems, supporting a resilient long-term outlook for the offshore segment. MISC is pursuing a disciplined growth strategy, actively participating in the upcycle in targeted regions while managing affordability and risks through partnerships, co-investments, and balanced contract structures. I end my presentation. Thank you. Back to you, Nick.
Thank you, Faizan. That concludes the presentation. We will begin the questions and answers session shortly. For participants with questions, please use the raise hand function. We will read out your name and kindly introduce yourself before asking your question. Each participant may ask two questions in the first round. For further questions, please use the raise hand function again. We will start with our Q&A session. We have a first question from Mr. Raymond. Go ahead, Raymond.
Hi, good evening, everyone. This is Raymond here from CJS. I just have one question at the moment about the offshore side. The offshore profits actually fell in the second quarter compared to the immediately preceding first quarter. And I think the first quarter, there were a couple of one-off gains, like the one-off gain from the Bumiputera charter commencement, the net gain from the acquisition of FPSO Kikeh, and I believe there was some losses that you incurred on the FPSO Bunga Kertas too as well, with the FPSO Bumiputera. I'm just wondering the decline, despite Mero 3 coming online, there was a decline quarter-on-quarter in the offshore profits. Just wanted to understand where that came from and whether it had anything to do with the certain one-offs that were incurred in the first quarter. Thanks.
Yeah. Raymond, Afendy here. You are correct. In quarter one, we had a one-off gain from the acquisition of FPSO Kikeh. That was a one-off gain that we recorded in quarter one. Obviously, that is a non-recurring item in the subsequent quarters.
May I ask, are all your FPSOs and FSOs currently profitable?
Yes. They are profitable because when we enter into a contract with the charter party, it is on a longer term, and we have incorporated all the costs in order to arrive at the charter rates that we have agreed with our charterer on a long-term basis.
Maybe one last question about the LNG fleet. Currently, how many vessels do you have out of the total that are operating as LNG vessels, excluding the FSUs. How many of those LNG vessels are actually working at the moment, or how many have been laid up?
Give me a second. We have in total LNG, 27, 28 vessels. Vessels that has been laid up is seven vessels currently, Raymond, out of 28 vessels.
Okay. Do you expect the layup list to lengthen later this year? Are there any long-term contract expiries that you expect for this year and next year?
Total contract that'll be expiring in the next two to three years is about another eight contracts or eight vessels. That will put some pressure on the performance of the gas vessel, especially for the older steam vessels. We are fully aware of the situation that we are in, as mentioned by both Encik Zahid and Faizan earlier. You have seen in the slides that Faizan shared, especially for the steam vessels, the rates will continue to be very soft, despite that the new volumes of LNG are coming into the market because of the more competitive on the newer efficient vessels. Hence, the position that we are taking at this point in time is we are laying up those vessels.
Potentially we are looking at repurposing those vessels. Otherwise, likelihood they will be disposed to potential counterparties who may have opportunities for them or eventually we will scrap them. The position that we're taking at this point in time is to lay up those vessels that do not have any contract.
I think if I can just add on top of what Afendy mentioned, this is also in our effort to also minimize the cost associated with these underutilized vessels. By laying up the vessel, we certainly avoid unnecessary operating costs for the vessels. The current market, we expect, going to so-called remain soft, at least until early part of next year. We'll see. Hopefully, market will pick up later part of next year where then we have more options to redeploy the current vessel that is unemployed. That is our anticipation in the next 6- 12 months.
Okay. Thanks. I'll go back into the queue. Thanks.
Thank you, Raymond. Next, we have a question from Ahmad. Go ahead, Ahmad.
Hi. Good evening, gentlemen. Thank you for having me. Just wanted to ask on the contribution from associates. Has there been any contribution from the QatarEnergy venture?
Yeah. As mentioned by Zahid. Afendy here, Ahmad.
Yeah.
We had one vessel delivered in May. There is a very small contribution from a share profit because we have a 25% share in that venture. From a financial accounting standpoint, that is stated as an associate or joint venture. The share of profit of 35% of the profit, we record them as a share of profit in our books. It's a very small amount, given it's only in operating for about one or two months at most.
Okay. What's the other loss-making entities then?
You are referring to the why LNG business performance is poor. Is that what you're saying?
No, because if I look at the Bursa announcement, it says share of profit of associate is negative MYR 2.4 million. You have said earlier that it's a positive contribution. I'm just wondering what is the negative that's dragging it.
Give me a second.
Sure. Zahid, well, Afendy-
Maybe we will come back to that, Ahmad. Okay. Any other question, Raymond? We will come back to that, Ahmad.
Okay. All right. That's all I wanted to check. Thank you so much.
Okay. Thank you.
I'll come back to the queue.
Okay. Yes, Raymond.
Yes, Zahid. Just now you mentioned that there was one vessel delivered. May I know what's the name of the vessel and what's the legal name of the ship owning company?
I think the one vessel that has been delivered under the Qatar Consortium is Al Tuwar. It was delivered in May this year.
How do you spell that?
A-L T-U-W-A-R. Al Tuwar. This is the Qatari's name.
Is it two words or one word?
Two words.
Okay.
A-L is one, and then the other second word is Tuwar. T-U-W-A-R.
I see. Okay.
I don't know what's the name of the legal entity, but that's the name of vessels, Raymond.
Okay. Sure. Right.
Thank you.
Zahid, could you talk a little bit about the deal with Bumi Armada?
Okay. I come back to that. I mean, Afendy, you have a Let me go back to Ahmad first, Raymond.
Yeah, Ahmad, I think you're correct. I think in the Bursa, we talk about MYR 2.4 million loss from the share of profit is actually in relation to this vessel, Al Tuwar, right? My suspicion is as the vessel has only been delivered, the initial cost will have to be expensed off instead of capitalized, which is a lot higher than the revenue that we generated in the one month or one and a half months since the delivery of that vessel. I would imagine that in the next few months you will start to see a more respectable or representative financial performance of this asset.
Okay. Understood. From what I understand, by year-end, it will reach what? Four vessels, right?
For- I think six. Another six vessels.
Okay. All right.
Another six vessels. Yep.
By end of this year.
Yes, sir.
Okay?
Thank you.
Okay. Coming back to the questions, Raymond, on Bumi Armada. Is there any particular question that you have, Raymond? We made the announcement earlier this month on the decision not to proceed with the proposed merger after we completed the evaluation of the deal.
I believe that one of the major benefits of doing the deal is to be able to, well, partially to reduce your stake in the FPSO venture to de-risk and also to raise capital from external loans in order to repay your shareholder loans to the FPSO entities. I think those are some of the things that I think could be beneficial to you guys. Given that option is no longer available, how do you actually plan to release the money that is stuck in the FPSO division? Because a lot of those were actually funded by MISC's own holding company cash.
I think when we went into this Evaluation. I mean, our objective was very clear with regards to in terms of how we can create value to the portfolio that we have for offshore, certainly to capture the super cycle in the market that we anticipate in the next five years. Both parties have agreed to spend the next nine months, since November last year, to evaluate every aspect of the deal to see whether it meets each other's strategic objective, including what you just mentioned. After that period, that followed the detailed due diligence, the deal certainly did not meet our own requirement and didn't meet our strategic objective that we have set at the beginning. It also did not meet the risk and reward framework that we have also set ourself. Hence, the board decided this is not the opportunity that we want to pursue.
We as a group certainly keen to grow our FPSO business or our offshore business. We are looking at this as one of the options that we are considering in terms of how we can grow the business. There are other options that we are looking at. That include potential joint venture partners with other parties at the asset level, and so on and so on. There are other ways for us to be able to grow the business, Raymond.
Okay. Waiting for that. Thanks.
Thanks, Raymond. We actually have a question from Foming. Foming, go ahead. Foming, are you on the line? Next. Any questions in the chat? We have a question from Manso. Go ahead. Hi, Manso.
Hi. Good evening. Can you guys hear me?
Yes, I can. Yes, we can.
Thank you.
Go ahead please.
Right. I am from Macquarie Capital. I've got three questions here, if you don't mind. First one, I want to check on the impairment. There's about MYR 146 million worth of impairment in the first half of the year. Just wanna check if this is for the tanker or the LNG segment.
This is for all. All the impairment is in relation to the LNG tanker, Manso.
Only for.
LNG vessels.
Okay.
Correct.
Right. Next question is on the utilization rate. Would you be able to share the util rate for both tanker and LNG segments?
Do you have the data? If I may, give us a second.
Yeah, no worry.
7.6%, 10%, 20%. About 90% utilization for gas and 95% utilization for petroleum tankers vessels.
One last question. Would you be able to share the percentage of vessels on spot for both tanker and the LNG segments?
The term to spot rate for gas is about 80%-20%. 80% term and 20% spot. For petroleum it's about 75%-25% for the quarter that we are talking about.
That's just for the second Q?
Quarter two, yeah.
Got it. Okay. Right. Thank you so much. That's very clear. I'll just jump back in the queue.
Okay. Thank you, Manso. Do we have Foming back online?
Hi. Just to double check the impairment, is for how many vessels this time around? What is the difference between this impairment versus the one that you did in 2024? I think that one you did over a portfolio of LNG tankers, right? If I'm not mistaken. Yeah, just want to know whether Are there any more of your idle or potentially idle LNG vessels that have yet to be impaired?
Yeah. The answer, the number of vessels that is being impaired in the current quarter two 2025, Foming, is about eight vessels, right? Conceptually, they are the same as what we have done in quarter four last year. Right. We previously look at the higher of value in use or market value. Right. Given the significant drop in the spot rates, the value in use has also gone down. We are now benchmarking our asset against the market value. In quarter one of this year, the market value dropped between 5%-6%, but in second quarter this year, we have seen the market value drop by 20%. Hence, the additional impairment that we have to incur in quarter two this year.
You are saying, first quarter was a drop of what, 20%-plus, and then second quarter, another round of a 20%-plus drop? That is intended with the spot rate. Is it that the assumption changes? Sorry.
No. In quarter one, the market value dropped by what? 5%-6% only.
Of 5%-6%, okay.
That's why you see only about MYR 7 million of impairment that we recorded in quarter one. Whereas about MYR 26 million of impairment that we have recorded in quarter two, representing a 20% drop in market value of those vessels.
Okay. My next question is, you have formed a new joint company with MMHE, it's called Floating Production Solutions Sdn Bhd. May I know a bit more details on what is the strategy there?
Yes, we have set up a joint venture, this Floating Production Solutions. It's a 50/50 joint venture. This enable us to pursue EPC contract in the FPSO segment, especially in this region, jointly. We do find the opportunity and to be more competitive when we do this joint bidding of opportunity in this space.
Okay. This is purely EPC nature, right? I saw from MMHE's website that it's going to be wholesale either on fee or contract basis. What does that mean?
Okay. I do not know what is so-called disclosed in the MMHE. I think from our side, the idea is that for the FPSO or FSO contract in this region, they are relatively in the small and medium size, and we are certainly want to capitalize the capability within the group. This is where MMHE can come in to provide the construction site for some of these facilities. We feel that by providing integrated approach to the bidding stage, by having this joint venture create, we can be more competitive and certainly put us in better position compared to the other players when it comes to tendering.
I see. I thought your current structure is already relatively integrated. To have a direct joint company would be even better, is it?
Yeah. Instead of MISC is the one that is being the participation in the tender, now we have the joint company to participate, where we know which both part of the organization can provide what services. For example, MISC on the project management, the engineering, while MMHE on the construction side. We feel that combination will allow us to be even more competitive in the market.
Got it. Just quickly, the 35% spot exposure in tankers, which tanker class is that predominantly?
Generally, this is in our MST segment. This is the medium-sized tankers, the Aframax and the Suezmax in the Gulf of Mexico area. These are the vessels that also involved in the lightering services.
Oh, got it. One more question. The VLAC, any potential disruption to those contracts because of trade uncertainties?
At the moment all the six VLAC that we have, we satellite the customer on long-term charter, and we don't anticipate any issues for the time being. Unless the two government between China and the U.S. decide otherwise, we will take it at that time. For now, the vessel has been trading as per plan.
Okay, got it. Thank you so much.
We'll take another question. If you have a question, please raise your hand or you can put it in the chat. Okay. We have a question from Ahmad. Go ahead, Ahmad.
Hi. Another question on the FPSO side. You mentioned in terms of profitability, it grew by so and so. Is that the same amount that we can also quantify on the cash flow side as well, in terms of operating cash flow? What was the operating cash flow contribution purely from the FPSO business for the June quarter?
The question is that what is the operating profit contribution from offshore segment? Is that, Ahmad?
Operating cash flow.
Operating cash flow.
Yeah.
The cash flow contribution for the quarter, if you look at the slide that I shared earlier, is actually about close to MYR 90 million. Has again the operating profit of about MYR 53 million. Obviously, we are seeing a significantly higher cash inflow for the offshore business in the current quarter compared to the operating profit. This is primarily because of timing of payment and receipts from the customers and payment to the vendors.
Then, can you talk about on the prospects going forward in terms of new opportunities in the FPSO segment?
I think we are in live tender at the moment on a number of opportunity for FPSO. I think this is a bit premature to speculate what is the chances for the time being.
Okay. All right. You're still actively pretty much seeking for.
Yes. We are very much active in submitting tenders to grow our FPSO business. Especially in this part of this region.
Okay. Got it. Thank you, Hisham.
There's one question on the chat that said, for the incoming LNG vessel, one was delivered in May, and there's another six to be delivered by the end of the year. Would you be able to provide what is the delivery schedule for 2026 and 2027? For LNG carrier, I think in 2026, we are expecting eight vessels. 2027, we are expecting four more vessels.
Okay. Thank you, Vince. Perhaps we'll take one last question. We will take one last question. Anyone has a question? Please feel free to raise your hand or put it in the chat. Right. Thank you very much. All right.
Homai.
Homai. Yes, go ahead, Homai.
Sorry. Just to check the petroleum division, on a quarter-on-quarter movement, you have higher revenues, but the profit is trending lower. Why is that again? Yeah.
The reason for that, the swing on the term to spot ratio, there's more spot contract for the petroleum segment in the current quarter. How it works is on a spot contract, the cost or the operating cost is being borne by the ship owner, by ourselves. Obviously the rates did not increase in tandem with the cost. Hence, despite the increase in revenue, it put some stress on the profitability of those contracts.
Okay. Got it. All right.
Okay. Richard, go ahead. You have a question from Richard.
Hi. Richard here from Manulife. Previously, you mentioned that once Mero 3 become operational, you would consider the opportunity to monetize the asset, maybe bringing in an equity partner. Is that still part of the consideration?
I think either by bringing partners into the joint venture or even to refinance the investment that we have made in the asset. I think at the moment, we are quite careful in term of selecting and pursuing which monetization route to do. The objective, yes, still try to monetize the investment in this venture. For two angles. Not just to try to get back our capital, but as well as try to mitigate or as part of our risk management objective when we bring in partners into the joint venture.
How is the interest in the market, considering that oil price has fallen from $80+ to about $60 a barrel?
Okay. For FPSO segment of the market, generally this is a very niche and very selective players that is invested in these asset classes. This is very different than more liquid asset like petroleum or even LNG vessel. Because of that, the numbers of party are limited, we are in discussion with some of them with regards to their interest in Mero 3.
Do you think you will hold the upper hand or they will hold the upper hand in this whole negotiation?
I wish to believe that we always hold the upper hand, the thing is, when you enter into negotiation, there are many factors that we need to consider, apart from maximizing the value from it, we also need to take into account the ability for us to recycle capital during the window that we're looking at as well as try to minimize risk. We hope any deal that we are doing on balance, it will be good for MISC as a group.
Okay. Thank you very much.
Okay. Thank you, Richard. There's a question there on the chat that say that we can guide the spot to term ratio for petroleum segment in second half. Yeah, I think Afendy has mentioned that we are looking at probably around 75%, 25%, I think, to term and spot. Okay. There's one more there.
Yeah. Go ahead, Oliver.
Hi. Thank you for taking my questions. Okay. Can you help us understand, because just now you said that you have 28 LNG vessels, and you have seven laid-up vessels, just now you guided that your utilization rate for LNG is at 90%. May I know where is the 90% coming from?
Yeah. When we calculate the utilization, we have excluded vessels that have been laid up. They cannot be called for operation on call basis. We have removed the seven vessels from the computation of the utilization. Otherwise, it will skew the information for management purposes.
Okay, got it. Can I follow up on your 20% spot ratio on the LNG segment? Can I assume that 20% of it is mostly for your steam turbine vessels, can we have a sense of how much is the utilization rate for those 20% of the spot?
Yeah. I think currently there's only one steam vessel that's on spot charter. Utilization by end of this year, I think the spot charter will finish probably in later part of quarter four this year.
Okay, got it. Thank you so much.
Thank you.
Ahmad.
Yeah. Sorry, just one last-
Ahmad, yeah.
Yeah. Sorry, just one last question. Just want to make sure I get my numbers right. Okay. Basically, the offshore, it makes $47 million in the first quarter, and then $13 million in the second quarter. These are clean profits, right? There's no exceptional items or anything?
The PAT for offshore between quarter one and quarter two. Afendy?
Yeah. As I mentioned earlier, Ahmad, in quarter one, we had recorded the gain on the acquisition of Kikeh. That is a once off that has happened in quarter one. That obviously is not a recurring item for quarter two and subsequent quarter.
Okay. Sorry. Remind me again, how much is the gain?
The gain is about $13 million.
Okay. All right. Removing that, so net pretty much stable. Okay. All right. Got it. Thank you.
Okay. Probably that's a nice way to conclude the afternoon. Oh, there's one more.
Okay. All right. We'll take one very last question from Ho Meng. Ho Meng, go ahead.
Hi. Sorry, just one more question. I'm just wondering, in your discussions with the rating agencies lately, are they flexible to relook at the net debt to EBITDA ratios? Are they still keeping to the same limit? What is the condition that is required for them to revise it?
Yeah. Ho Meng?
Yeah.
Ho Meng. I think they have a methodology on how they will rate companies with a certain credit rating. In our case, we are rated as BBB+, for S&P. That methodology that they've applied will require us to have the net debt over EBITDA of about 3x . It should not exceed at 3x . If at any point in time we exceeded that threshold, typically they will want us to demonstrate that is a once off, and we will be able to very quickly bring our net debt over EBITDA down to below 3x. There's a high probability that they will maintain the rating that they've given us.
Failing which, there's a potential of downgrade of the rating that they have allowed us to enjoy at this point in time. It's a fixed methodology, and I think we have always been very financially disciplined in terms of managing our financial performance. At this point in time, as much as possible, we'll try to stick to that threshold.
I understand that, I'm just wondering whether it's time to actually relook at this methodology. Your peers in the offshore space, like SBM and Yinson, they are borrowing a lot more. Their debt to EBITDA is definitely above 3x for them to grow. It's a bit unfair, right? It's a disadvantage for you in terms of your CapEx plans.
Thanks for your comments, Ho Meng. Difficult for us to give feedback with regard to how the rating agency do their job, in this case. We certainly, on regular basis, will update them with regards to our plan and our activities going forward so that they understand there will be some period where we need to go above that, but that is only because we are growing the business. In the longer term, the intent is always to bring it down and to manage that with discipline below the threshold that we are comfortable to set, which is the three times as well as the four times by Moody's. Okay?
Okay. Thank you.
Thank you, Ho Meng. This concludes today's conference call. On behalf of MISC Berhad, we thank you for your participation. The PDF version of our presentation slides have been sent to attendees of today's call, and will be made available on our corporate website. To sell-side analysts, please forward a copy of your published research reports to the IR team for our reference. Appreciate we can get it early tomorrow morning. Thank you once again, everyone.
Thank you, everyone. Have a good weekend. Thank you. Bye-bye.
Thank you.