Very good evening, ladies and gentlemen. Thank you for joining the third quarter financial year 2024 analyst briefing. I am Faizan from MISC's Investor Relations team. We're honored to have with us today [Non-English content] Zahid Osman, President and Group CEO, [Non-English content] Raja Azlan, Vice President Corporate Planning, Afendy Ali, Vice President Group Finance, and Miss Gurkiran Kaur, General Manager Corporate Planning. Before we begin the proceedings, I would like to invite [Non-English content] Zahid, our President and Group CEO, to deliver a short opening. [Non-English content] Zahid.
Thanks, Faizan. [Non-English content] , and very good afternoon, everyone. Thank you for making time to join us for our quarter three results briefing. I think this quarter presented a significant headwinds for two of our business segments, gas and offshore. We however remain focused on navigating the challenges while pursuing long-term growth. I am pleased to inform that our financial performance for the quarter has enabled us to declare a consistent dividend, a third interim dividend of $0.08 per share, amounting to $86 million, set to be distributed in December 2024. I'm also delighted to share that one of our biggest projects in the group, Mero 3, has successfully delivered its first oil on 30th of October. I know many of you in many analyst briefings have been asking us about this project, and I think now we can safely say that the project is progressing well.
Now we can safely enter into the next phase of the project, which is just to operate safely and maintain the asset reliably. The first oil we achieved on the 30th of October, and a few days later, we received the final acceptance confirmation from our client, Petrobras. As you know, I think in the last quarter, we also mentioned that the asset has been ready for quite a while. However, the issue or challenges on the production riser on the Petrobras has delayed the achievement of first oil. Now, I think both parties can focus on resolving many outstanding issues on the project, and we're certainly looking forward to close those discussions and negotiations successfully with our client. I think additionally, for this quarter, we signed a letter of intent with PETRONAS LNG for two newbuild LNG vessels on long-term charter.
This is very important development if you see that after a long while, I think this is the new LNG vessel that we have with PETRONAS LNG. It's also consistent with our effort and our strategic move to rejuvenate our current asset portfolio with a more efficient, larger vessels that can help us to continue to deliver financial performance sustainably in the future. I think the other thing that I want to highlight here, I'm sure you have seen the announcement that we have made with regards to the MoU that MISC has entered with Bumi Armada on a non-binding MoU to look into the viability of a potential merger with our offshore business segment. Discussion on the proposed merger are still at a preliminary stage and subject to due diligence and agreement on definitive terms.
We believe the proposed merger presents a strong strategic rationale, and we will available to address questions on this merger at the end of this presentation during the Q&A session. As a group, I think in summary, despite the significant headwind affecting two of our core business, gas and OBU, we were able to maintain consistent cash flow from operation and significantly reduce our emission level compared to last year. As a group, we are on track to deliver our 2030 emission target, in parallel, we are also able to continually taking investment decisions on new asset that will help us as a group to continue delivering our financial performance going forward. That's what I want to say. Thank you, and we will certainly take more questions at the end of the session. Okay, thanks, Faizan.
Thank you, [Non-English content] Zahid. Before we proceed to the presentation, I would like to bring your attention to the disclaimer slide. The presentation contains some forward-looking statements with reference to our plans and expectations. The 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 [Non-English content] Raja Azlan for his remarks on the quarter's key highlights and business updates. Mr. Azlan.
Thank you, Faizan. [Non-English content] a very good evening to our guests from the investment community, analysts, the investment professionals, et cetera. Thank you for joining our third quarter for 2024 analyst briefing. As mentioned just now, this quarter has indeed presented its share of challenges and achievements, which I will outline. Despite a decline in revenue and profit for the quarter, we have maintained stable cash flow, and we remain committed to delivering shareholder returns. Our significant ESG progress and strategic business milestones, including the first oil of FPSO Marechal Duque de Caxias, further demonstrates our resilience and forward momentum. During this third quarter, revenue has declined by 5% quarter-on-quarter and year-on-year due to lower revenue from the gas and offshore segments, as was highlighted.
We also recorded lower profit after tax in the third quarter, a decline of 34% quarter-on-quarter and 7% year-on-year. The year-to-date results are still stronger by 25% in terms of profit after tax. In terms of adjusted cash flow for the third quarter, it's comparable against both the preceding and the corresponding quarter of last year. My colleague, [Non-English content] Af endy, will provide more details on the financials in the financial performance section. We are also happy that we have been able to announce an interim dividend equivalent to $0.08 per share during this quarter. In this quarter, we have recorded 5.23 g of CO2 equivalent per ton nautical mile in our GHG intensity across the gas and petroleum units, and this represents a 12% reduction year-on-year, and there's no change quarter-on-quarter.
In terms of the business highlights, for the Mero 3 project, there was a delay in the first oil production initially scheduled for early August due to a technical incident involving the production riser, which was managed by the Petrobras subcontractor. This resulted in additional operational and closing out costs this quarter. However, we're very happy that as at today, FPSO Marechal Duque de Caxias has successfully delivered its first oil on 30th October and was finally received the final acceptance from Petrobras on the 2nd of November recently. We are diligently working to secure stand-by rates as per our contractual entitlement due to this delay. This indeed marks a key milestone following the FPSO's successful journey from China in February this year to its offshore destination in Brazil in May 2024. This certainly reflects our team's dedication and precision in executing such a complex operation.
The commencement of operations for FPSO Marechal Duque de Caxias will ensure a steady long-term cash flow to the group. For the gas unit, during the third quarter, the gas segment's performance was impacted by lower average rates for spot vessels and lower utilization of spot vessels. We anticipate continued challenges for the gas segment in the coming quarters as the spot charter rates show signs of sustained softness. This poses potential risks affecting some of the vessels that are approaching their contract expiry, where softer rates may affect the long-term value of our assets. Furthermore, the heightened geopolitical tensions that we see in the Middle East could also disrupt certain contractual arrangements, which may have an adverse financial impact on our gas segment.
Despite these challenges, we remain focused on mitigating risks and actively pursuing strategic opportunities to mitigate the potential impacts on our operating income and align with our commitment to rejuvenate our fleet with modern and efficient vessels to achieve our 2030 emissions and intensity targets. We are very happy that we were able to sign the letter of intent with PETRONAS LNG for the long-term provision of two new build LNG carriers, which shall be built in the Samsung Heavy Industries yard in Korea. The charter will be for a firm period of 15 years from 2027 onwards. This achievement also aligns with the PETRONAS Gas & Maritime initiative, which will bring about better collaboration between the two entities and also providing opportunities to MISC for growth and value creation.
There will be enhanced synergy, which will help to drive the revenue growth going forward, particularly in the gas heavy engineering segments, as well as in relation to new energy initiatives by leveraging on our combined strengths. Furthermore, it goes without saying that the stronger synergies between the two entities will also bolster our credit rating and improve our stability and positioning well as well. Additionally, the anticipated deliveries of new build LNG vessels in 2025 and 2026 for long-term charters will be expected to strengthen the gas segment's revenue and cash flow.
By 2027, the gas segment will have in operation, directly or indirectly, a fleet of 29 new modern, efficient, and non-steam engine vessels. In so far as the MHB business, it has secured a subcontract award from UTMA for the conversion works of a mobile offshore drilling unit into a mobile water injection facility, and this marks MHB's first project involving such conversion works. MHB also signed an MoU with HD Hyundai Marine Solution to accelerate maritime decarbonization efforts, reflecting our commitment to energy transition.
Through this collaboration, MHB will be a HD HMS strategic partner for green retrofit solutions installation within the regional trajectory in Southeast Asia. We are also pleased to highlight that MHB continued to record a profitable quarter this quarter, and year to date, it has recorded a profit of about $25 million. With that, I end the third quarter highlights. My colleague, [Non-English content] Afendy, will take you through the financial performance for the quarter. Thank you.
Thank you, [Non-English content] Azlan. [Non-English content] Afendy.
Thank you, President. Colleagues, I will walk through you the financial highlights for quarter three MISC. As mentioned, as we have heard from [Non-English content] Zahid, as well as [Non-English content] A zlan, we are facing headwinds. As you can see, all the financial parameters that's in front of you is showing a lower number compared to quarter three, 2023. Lower revenue in quarter three, 2024 against quarter three, 2023, due to lower construction revenue from Mero 3 from the offshore business segment, coupled with the lower rates and earning days in our gas assets and solution segment. This, however, is being offset by higher revenue from our heavy engineering project. From a profitability standpoint, our operating profit in quarter three, 2024 against quarter three, tied with lower revenue, particularly from the gas segment, which I mentioned earlier, right?
Due to the challenges from rates especially, coupled with the operating loss of offshore business from Mero 3. These are partially offset by additional payment for the heavy engineering, as well as helped by our strong performance in our operating factor. The lower tax explanation on operating profit. Our CFO is comparable against the previous and corresponding quarter. Next. Our balance sheet has not changed significantly, remains at about MYR 14 billion. I would like to highlight you or bring your attention to the liabilities. In September 2024, the current liabilities has increased since December 2023, but because of reclassification of a MYR 400 million bond that is due in April 5. Our gearing ratio has remained similar compared to those two periods. Next.
There has not been major movement on our cash and debt balances, and we remain to have a healthy cash balance as at quarter three of about MYR 1.7 billion. From a business segment perspective, as mentioned by my colleagues, especially in the gas, we do see a very strong headwind. If you look from the industry perspective, there has been the high inventory of gas and LNG in those importing countries, as well as the warm winter, which has contributed to the softening of the rates for the spot vessels.
For the petroleum segment, has certainly helped our financial performance. If you compare quarter three 2024 is much stronger than our quarter three performance of last year. On the offshore side, the reduction in the revenue Mero 3 project, partly due to the project tail end as we are nearing completion and as mentioned as well, we have in fact achieved first oil and final acceptance in quarter three . On heavy engineering, there's not much changes. Very much contribution was from quarter two was a one-off claim from our clients. Right. So that's all that I have for the financial performance. Thank you.
Thank you, [Non-English content] Afendy. Next, we will have a presentation on market outlook by Miss Gurkiran
Thank you, Faizan. A very good evening to the analysts. Let me take you through the market environment for this quarter. Looking at the LNG segment, the LNG shipping side, we see that it will face soft conditions in the coming future, and this could be influenced by the high vessel deliveries that we see. A significant number of new LNG vessels are expected to enter the market, which may increase the supply and of course, keep the rates under pressure. This is also amplified by the high levels of LNG inventory in Europe, which has led to lower spot rates, reducing demand for additional shipping capacity in the short term. In terms of spot rate trends, what we see is that the steam turbine carriers are expected to see a decline in demand and rates due to less efficiency compared to newer models.
As you can see, the spot rates for the newer models are a bit on the higher side, and this is because they're more efficient and they expected trend upwards, highlighting a shift towards a fuel-efficient, environmentally friendly LNG carriers. On the long-term outlook, in terms of long-term charter rates, while the spot rates structure within the market demand and inventory levels, the long-term charter rates are supposed to be low, and newer carriers, like I said just now, would favor due to their lower emissions and efficiency, which indicates a transition in the LNG shipping industry towards sustainability. As the LNG shipping market is adjusting to an oversupplied environment, efficiency and sustainability are becoming key differentiators and vessel types. Older vessels will face reduced utilization. Moving on to the next slide.
What we see is that after a slow year, we expect FID activities to actually regain momentum in 2025. We expect a new wave of new FID projects flooding the market next year. Some of these potential markets are actually from U.S., Qatar, and Africa, and they have actually secured investment and contracted supply. A lot of this also hinges on the developments in the United States Section 15. Next, we move on to the LNG shipping new build orders. The left chart shows a significant increase in new LNG carrier orders. As you can see, the order book has risen sharply, indicating growing interest and investment in LNG shipping. The total order book, the volume actually grew from 2023, 2019- 2024, actually showcasing a fourfold increase over five years.
There is a steady number of deliveries, as you can see, for both the firm and speculative. In 2029, the full count of deliveries are heavily speculative, and this actually reflects optimism and market potential. Charter deliveries are consistent, particularly from this year to 2028, indicating some stable demand from clients with dedicated needs for LNG shipping. What we see is that the rapid increase in orders are also very much aligned with the global demand for LNG and infrastructure investments. Moving on to the next slide. As for the petroleum segments, the global set shipping rates for VLCC stabilized in the third quarter, changing in fall. This is due to the Asian oil demand. However, the mid-size tanker rates softened slightly due to weak seasonal demand, and this is a slowdown in refinery runs in the U.S. and Europe.
However, the mid-size tanker rates will continue to remain above its 10-year average, and the overall tanker market outlook remains supported for the rest of the year, driven by strong growth in the long-haul Atlantic-Asia trade as well as winter. Moving on to the next slide. The charter rates for petroleum shipping, what we can see is that the order book. The chart shows the volume of the crude tanker order. It declined from around 11% in 2019 to below 5% last year. We see that moving forward, this percentage is projected to rise again to just above 8%, suggesting a rebound in the order book relative to fleet size. This 2024 uptick indicates a shift towards expansion, which could impact tanker rates and fleet utilization. In terms of demolition, we do not expect demolition rates to rise.
It will remain low over the next couple of years as charter rates remain high. Moving on to the next slide. There is a significant upward trend in the global offshore E&P CapEx, with total expenditures expected to rise from MYR 180 billion-MYR 260 billion by 2028. This growth underscores a resurgence in offshore investments after years of relative decline. The complexity and high costs associated with offshore projects are leading more towards collaborations and partnerships between companies who share risks and benefits, thus facilitating larger and more ambitious projects.
What we see is that we see a lot more joint ventures and strategic alliances that are becoming more common in the market as companies seek to leverage each other's strengths and resources. The next slide suggests that the new build awards will remain high and strong over the next five years, where operators are eyeing large FPSOs in South America and Asia-Pacific. With that, I end my presentation. Thank you. Over to you, Faizan.
Thank you. Thank you, Gurkiran. We will begin the Q&A session shortly. For participants with questions, please use the Raise Hand function, where 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 now begin the Q&A session. We have a question from Mr. Nuur Ashman from Go ahead, Ashman.
Hi, I'm Ashman from AmBank. Firstly, I would say thank you to the management for committing to transparency and being very open towards.
Sorry, Ashman.
What is seen as potentially true. My first question is on the announcement. Reading through the announcement.
Ashman, before you continue.
Yeah.
Ashman, before you continue, sorry to stop you there. Could you speak a bit louder, please?
Hello. Hello. Faizan, can you hear me now? Hello?
Uh-
Hello?
Yeah. Can you speak louder, please?
Hello.
Okay.
Can you hear me?
Yes.
All right.
Yes, we can. [audio distortion]
No worries. Sorry for the mishap. First question is on the announcement. Appreciate if you can actually explain what the company is looking at, because the announcement is, I think, a bit confusing. You say that the unit will remain as listed. It seems to imply like as if you're utilizing an existing [inaudible] here. Appreciate if you can explain if you're looking at setting up a different venture and the idea is to inject assets into the unit, or are you looking to inject asset into perhaps Bumi Armada and make it as a pure-play FPSO unit for MISC?
Okay. That's the first question and your second question?
Okay. The second question, since you mentioned that it's actually a share-based merger, is that a commitment that it will remain as a non-cash transaction? Will a share-based transaction means that you would be raising additional cash? I think investors might be concerned that there might be some share dilution post the exercise.
I mean, Ashman, thanks for the question. Let me try to answer some of it. I think later my colleagues and Azlan and Afendy can also chip in. I think to clarify on this structure is, the proposed transaction envisages a merger rather than an acquisition between our offshore business and Bumi Armada. The asset that we have will be put into the company. It is a share rather than a cash transaction. I think that's what we are currently anticipate.
If I could just ask one additional question. I think there are concerns that if you have to undertake Bumi Armada's liabilities onto your balance sheet, how do you rationalize that in this exercise?
I mean, there's a lot more details need to come, but at the moment we think those will be the final outcome if we decide to proceed with the transaction.
Okay. Thank you. I'll finish my first round for now.
Okay. Thank you, Ashman. Next, we have a question from Mr. Raymond Yap. Go ahead, Raymond.
Thank you, Faizan. Thank you, gentlemen. Okay, my question is regarding the loss at OBU, and my understanding is that it's probably because you are expensing the interest on the interco loan, and because you have less and less construction profit. That's why the loss at the bottom line becomes very obvious. It was basically dragged down by the exposure to the interest expense.
I think that would be correct. Correct me if I'm wrong. Also just now, I think I heard it was mentioned that there are some additional costs related to the delay. I'm not sure whether that contributed to the loss in this quarter as well. Also just to follow on from the same topic, I think it was Raja Azlan, that you mentioned that there are some standby rates that you're entitled to that. May I know from which date that you are supposed to be entitled to the standby rate? Yeah. Thank you.
Thank you, Raymond. Maybe I'll just try to answer both question. Yeah. OBU's losses is a mix of the lower construction progress during the period, plus some of the operational costs being picked up because we are currently will be in dispute on the standby rates with our client. Both parties have got differing interpretations of the entitlement date. We will need to go through a process to argue it out. Both parties have got different dates, in terms of their interpretation on the standby rate.
I see. The delivery was delayed by six months because of COVID. Are there any issues or any implications for you, or is that settled already and fully provided?
Yeah, we have provided all of that in 2022. The bulk of the LAD's provision as well as the cost overruns were provide it in 2022. Yeah. As we close up the project, there could be certain plus and minus, which we will see over the next one quarter or so.
Okay. Last one, just to follow on from Ashman's question, what will be MISC's ultimate stake in Bumi Armada after the merger? Will you be obligated to make a mandatory general offer for Bumi Armada?
I think at the moment, because we are still at the early stage, we are not able to determine what are the final equity percentage that we will have. Raymond. I think that's number one. Because of that, it's difficult to answer the second question for the time being. The intention is that the valuation will be confirmed and finalized in the next stage when we do a detailed due diligence on both sides.
Well, just to feedback that I think that if you end up doing a mandatory general offer for Bumi Armada, I think investors will perceive it negatively. That's just a feedback from my side. Thank you.
Understand that, Raymond. I think one of our strategic rationale for doing this is trying to create a pure play, a stronger FPSO focused business. I think that is where we see the main strategic benefit by doing this so-called merger proposal with Bumi Armada. At the end of the day, we will look at it in details in the next few months on how the final transaction is going to be, and whether there is a confirmed synergy benefits on both sides before we enter into any kind of binding agreement.
All right. Thank you.
Maybe just to add on, Raymond, this is a merger. It is not an acquisition. It will be structured as a merger. The pooling of benefits, the pooling of interest to create a merged entity.
Okay. Thanks, Raja Azlan.
Thank you, Raymond. I think just to circle your first question on interest on loan, you are correct. That is intercompany that we have given to OBU. Therefore, it is interest inter-loan that has partly contributed to the losses for the quarter. Similar explanation that I gave in the last quarter as well, Raymond. Thanks.
Okay. Thank you, Afendy.
Thank you, Raymond. We have our next question from Mr. Kong Ho Meng. Ho Meng, go ahead.
Hi, can you guys hear me?
Yes, we can.
Yeah. Okay. Thanks for the allowance for the question. First question from me is, just to get a sense, what's the likely structure going to be like? Because you do have your major shareholders to consider, especially PETRONAS. Is it quite likely that, because in the announcements, it states that a merged entity will remain listed. Is it possible that maybe a pure play FPSO player, perhaps-
Ho Meng
Bumi Armada side will be the one remaining-
Ho Meng, sorry.
Yeah. Hello?
Ho Meng.
Yeah. Yes.
We lost you in the first few bits. Can you repeat your question, please, for clarity?
Yeah. I just want to double-check because to also consider your shareholders' interest, right? Is it possible that you did mention that it's not an acquisition, but whatever the deal is going to be, it's going to be structured in a sense that perhaps Bumi Armada would be the one taking on the pure play FPSO combined, and MISC will remain as the more pure gas listed player in line with what PETRONAS wants as well.
I think as I mentioned earlier, the proposed merger is driven by the intention to create value by a stronger combined entity that can capitalize on the anticipated growth cycle in the offshore segment. The intention is that our FPSO asset will be injected into Bumi Armada in return for shares. What is the amount or the quantity is to be determined in the next few months. I think what is important here is that it's a merger, and it is certainly MISC will still have a strong say in the merged entity. I think we want to ensure that the FPSO business are able to continue to capture the super cycle that we anticipate coming along. The combined entity, based on our assessment, will be much stronger, able to capitalize on the synergy that we get, and in better position to compete in this segment.
Okay. Got it. My follow-up question is regarding your so-called your renewed relationship with PETRONAS. PETRONAS has reclassified their segment as PETRONAS Gas & Maritime segment. I also hear whispers that it is likely that you also have an executive position in PETRONAS by way of being a CEO of MISC, right? I just want to know, aside from the two new LNG ships that you have secured, what else that may be new, direction-wise, that PETRONAS may want to work together with you? Yeah.
I think if you recall in the Many sessions before, we always talk about, we do want to monetize our investment in our offshore business, especially on Mero 3. What we are doing now is consistent with that. To divest significant stake in Mero 3, in this case, it's the whole of FPSO business. We want to pursue our business with strategic partners so that MISC as a group will not continue to take on the huge investment that we have similar to Mero 3. We know there will be some limitation in terms of what we can undertake in the FPSO business if we are doing it as the way we are doing it now.
The question is that, is it what PETRONAS want? I think the answer is no.
Yeah. I think.
The answer is no.
Something like, yeah, correct.
Okay. Let me answer that, Ho Meng. The answer is no.
Yeah.
This is many opportunity for MISC. We always evaluate opportunity in terms of how we can continue to enhance the value and monetize our investment in our asset, so that we can continue to create value for our shareholders or our stakeholders.
If you may, if I can also add on. If you recall, all the while we have been saying that we want to divest 50% of Mero 3. We will only go into the big FPSO space with strategic partners. This merger will be a very quick way that we can achieve many objectives in one go.
Yeah, I understand all that part, but my second question was relating to what may be new between your renewed relationship with PETRONAS. I do know that they want to strengthen the gas value chain. Just want to understand from that angle, what could be a new growth path for you that investors have not considered? Yeah.
I think as far as our strategic focus going to be, we just launched our whole strategy recently that we want to focus on three main areas. This is all about delivering more energy with less emission. I think the first focus is on the first pillar is on our resilient core business. We want to ensure that our core business is stronger, able to deliver what the customer want with less emissions. This will entail of asset rejuvenation, cost, and focus on asset uptime. The second area is on profitable new energy. This is the area where we are purposely getting into on three main areas. One is on the carbon value chain, talking about the LCO2, carbon capture, and so on. Second is on the offshore wind value chain. The third one on the future fuel like ammonia, hydrogen, or methanol.
The third pillar strategically is about decarbonization. As a group, we have committed under our MISC 2030 that we want to achieve 50% reduction on our emission by 2030 and net zero by 2050. To me, what our strategy and the focus area are consistent what we are doing now. It's all about monetizing and making sure that we will continue to enhance value across our asset classes, across our businesses, so that we can continue to grow and purposely enter into this new energy segment. That means as a group, we are successful and we can continue to go under this energy transition challenges that everyone is facing now, Ho Meng.
Got it. If you leave the offshore site, your existing three segments, gas, MHB, and especially petroleum, will remain in the group, right? Or is there a possibility that AET may need to be divested off?
Let me coming back to what we are trying to do a merge on the FPSO business. Even though we decide to proceed with the proposed merger, MISC as a group, we still have a substantial interest in that new entity or into the new merge entity.
Understood.
Because we have a significant interest in that, we will not leave it alone. As what Azlan mentioned, that is a different way on how we're going to capitalize and push and grow in this segment. We know it's very difficult for MISC as a group to take on Mero 2 or Mero 3 equivalent project on our own. We already said that if we go ahead, it has to be with partners and it has to be with our balance sheet in mind.
Okay. Just one quick question. The extra cost that incurred for the riser problem with those for Mero 3, how much was that in the third quarter?
In general, it's about between MYR 5 million-MYR 7 million a month, Ho Meng.
MYR 5 million-MYR 7 million a month. Oh, okay.
That's been covered by what Azlan mentioned earlier, that we are negotiating to ensure that we are able to recover that through the standby fee from Petrobras.
Okay. MYR 5 million-MYR 7 million a month since July or what?
Since around August.
Around. Okay. All right. Okay. Thank you.
Thank you, Ho Meng. Okay. Next, we have Ashman. Ashman, go ahead for the second round.
Hi again. Thank you. My question is on the LNG division, the gas division. I noticed your revenue drop is less than the drop in the operating profit, that implies a reduction in margins. Could you perhaps explain a bit more on what happened for the division's operating cost during the quarter? Was there a significant sharp increase in any of the components, bunkering costs or crew costs and whatnot? Just to contextualize a bit more on the LNG division, if you could share with us what's the spot to term ratio for the gas division, and what was the utilization rate during the quarter?
Ashman. Basically, it is really coming from the spot business. The spot business did very well last year. Last year, we managed to get very high rates, very high utilization. Because of the reasons as mentioned just now by my colleagues, the spot market has not been very good at all during these first three quarters. In terms of the split between term to spot, is about 85% to 15%. 85% term.
Raja, would it be safe to say that things have normalized or you expect to see some sort of a recovery in the coming quarters or?
It's going to continue to be challenging, Ashman, to be honest.
Okay. On that, Raja Azlan, with the Petros issue coming into play, Petros wanting to reroute the sale of gas towards their domestic clients in the medium term and the current soft LNG rate environment, soft spot rate environment, is there anything for us to look forward to for that particular division?
Ashman, I think as far as we are aware, we are not impacted by the Petros issue. That's a discussion between PETRONAS and the state Petros, state government and federal government. Yep. Our contract is very clear. Where it involves PETRONAS, they are our counterparty, and for vessels that we have locked in, they have an obligation to utilize those vessels according to the plan that we have with them.
Just to get some sense, these contract obligations for these segments, for contracts related to that particular area, how long is the term contract here?
Sorry, can you clarify what area you're referring to?
The business that you're making to charter gas to clients that is related to the Sarawak area. How long is the term contract? Is it a three-year horizon or is it more or?
Ashman, I think you're referring to the LNG charter that we have with PETRONAS that's serving the PETRONAS LNG contract in Bintulu. I think we have a number of vessels. Each of them have a different charter period. Because it's only started, some have the remaining five years, some have the remaining 10 years, and so on, depending on each of the vessels. The one that we just signed with them recently, that is for the 15 years charter period starting from 2027.
All right. Thank you.
Thank you, Ashman. Next, we have a question from Steven Chan. Go ahead, Steven.
Hello. Hi. Steven here from Citi. Thank you for having me. Yeah. I just want to ask regarding the announcement with Bumi Armada, just asking more clarity on this and maybe trying to think out loud a bit. Will this merger impact your ability to pay or to raise dividends in the next, let's say, one or two years? I'm just thinking out loud here, because you see, Bumi Armada, the last time they paid dividends was back in 2016, right? Now, according to the announcement, most likely you'll be injecting your offshore business into the merged entity.
Given that your Mero 3 has just achieved first oil, you have already weathered through the entire construction phase. Why not use the cash flows now that you're getting from Mero 3 to reward shareholders instead? Why are you injecting your brand-new asset into another entity and most likely paying off their debts? Yeah, I just want to have clarity on this, whether or not will it impact the potential raise in dividends?
Steven, we will definitely structure this merger in a way that there is no negative impact to our dividends. Our dividends to our shareholders are the reason why we exist. We are a dividend stock, and the market values us based on our dividend yield. Whatever we do, that will be the ultimate test of how we conclude the due diligence as well as the valuation, et cetera. Whatever it is, if we are going to do a deal, our core dividends must be sustained.
Okay. All right. That's a bit comforting. Just trying to get your input as well. You mentioned that you have always been wanting to divest 50% stake of Mero 3, try to improve your balance sheet so that you can bid for subsequently an equally big project like Mero 3, right? In terms of the balance sheet angle, how does Bumi Armada value add to this? Because you're doing a share swap, right? There is no cash involved. How does it value add to your balance sheet?
Again, we are going through a process of due diligence, of valuation, of structuring, right? We will only be able to answer that question if we can structure a transaction that makes sense. Yeah. If you look at Bumi Armada, it looks like it is in a better financial position as compared to the last couple of years. Right? Those are the questions that will need to be answered in the due diligence stage.
Okay. Just a couple more questions from me. In your third quarter results, your offshore business came down, the profit came down, and you've mentioned it's because of the lack of construction for the Mero 3, right? Given that it has already achieved first oil, in terms of earnings, why should we see a rebound in the fourth quarter?
Yeah, there will be. As we consolidate the Mero 3 asset, the earnings and the cash flow will increase. The higher numbers that we see from last year was because there was a one-off insurance recovery in 2023. That also explains the variance that you see in our segmental reporting.
Okay. All right. One last question from me. On your LNG segment, can you just roughly guide how many contracts will be expired within the next, say, two or three years?
Just one second, Steven.
Yeah.
The next two, three years.
Yeah. Let's say from now to 2027.
It's probably about 10 or so.
Okay. According to your schedule, there's four in 2025, 11, 2026, and two in 2027. Just comparing the charter rates between the outgoing vessels versus the ingoing vessels, how do they compare?
I think the charter rate is certainly consistent with the market rate when we signed the deal. The current charter that's coming to an end, I think when we signed the deal 15 or 10 years ago, the rate was higher compared to what is the market rate at the moment. What is important is that the new rates that we are getting in the new contract is basically equivalent to what the market are willing to pay for that kind of vessels. The rate is a framework that we have agreed to do a deal with.
Okay. All right. Just one quick question. What's the term to spot ratio for your petroleum shipping for this quarter?
Yeah,
90/10.
90/10. All right. Okay. Thank you very much.
Thanks, Steven. We have another question from Raymond Yap. Go ahead, Raymond.
Thank you, Faizan. Question on the Bumi Armada merger. Do you envision that there will be a requirement for EGM?
Yes, there will be.
We anticipate that's the case.
Okay, thanks. Then for the spot LNG vessels, in the past you had four. Is it still four?
How many spot? We will be having about six vessels next year.
Because of the expiry of the long-term charter for two additional LNGs. Four plus two is six.
Yes.
In terms of the four that you have now, is it occupied? Is it working for the whole year, or are there some months where it's not working?
Utilization I think the utilization is relatively low because the market is not supportive of the current charter. I think we are looking at around 50%-60% utilization.
Is it because charters don't prefer this compared to the two-stroke engines?
I think a combination of a few factors. I think what you mentioned is one of them. Charters prefer the much bigger and more efficient vessel. Second, I think the whole market during the period is relatively soft.
There's just not enough demand for LNG vessels.
Okay. When you do actually have a charter, typically is it six months or one year or two years?
This is difficult to say, Raymond, because we are entering into either spot or short-term charters. Difficult to say what the charter wants. For us, certainly we want the longest possible. Realistically, if we can get between what, 6- 18 months, I think that's good enough for this kind of vessels.
Okay. They are time charters, they are not voyage charters, right?
No
At least minimum six months.
Yeah.
Okay. All right. Thank you very much, Zahid.
Thank you, Raymond. I think we have time for one or two more questions. Next will be Ho Meng. Go ahead, Ho Meng.
Hi. Just want to refer to slide nine of your pack. Before this, you used to disclose non-recurring items for your segments. This time around, are there any non-recurring items? I think you have an impairment. This impairment is for which segment? Yeah.
Yeah, we have about MYR 4 billion impairment, which is a non-recurring item in quarter three this year. Ho Meng.
Yeah. For which segment is this? Is it gas?
Sorry. For gas segment.
Yeah.
Correct. Yeah.
Okay. Other than that, are there any other major non-recurring items?
Not in any other segments, Ho Meng.
Okay, got it. One more. You said that the SERI AYU, SERI ANGKASA ,and SERI BEGAWAN w ill have early termination, right? When would they expire again?
It's at the end of their 20th anniversary. If I'm not mistaken, it's around 2027- 2028. Ho Meng.
Okay. This is the original expiry, is it? 2027, 2028.
No, this is the negotiated outcome, where we have agreed with our charter to bring forward the time charter with company.
Oh, I see. SERI AYU, SERI ANGKASA ,and SERI BEGAWAN , they are brought forward.
Yes
SERI ALAM and SERI AMANAH are extended.
Extended.
Okay.
Yes. On top of that, we do get the financial compensation for the early termination.
Okay. Is it correct that SERI ALAM and SERI AMANAH , their extension, is it until early 2028 or yeah?
Yes, that is correct.
Okay. All right. Thank you. Sir, just one more question. How to explain the fact that the petroleum segment had a drop on a quarter-on-quarter basis in terms of profit?
Sorry, can you repeat that, Ho Meng?
Your petroleum segment.
It was the rates. It was the lower rates moving. Lower rates.
Of the spot side.
Quarter two. Generally, quarter three is softer for the petroleum side. That's why it reflects in the lower rates for an average for the quarter compared to quarter two. Yeah.
Okay. I didn't expect that the drop will be this much because your spot ratio is really very small, right, for petroleum side.
If you look at you referring to, is it what, revenue or the profit?
The profit level. Yeah.
It's about what? MYR 6 million drop.
Okay. Just wondering whether the FPSO is also affected in terms of the rates. Yeah. The trend-wise.
Can you repeat that last sentence, Ho Meng?
Just wondering whether your lightering business, does it follow the trend as well?
I think the lightering business is what we do every quarter. There's no major impact. Generally, I think the market is just softer during this period. Ho Meng.
Okay. Got it. Thank you.
Thank you, Ho Meng. Okay, we have just enough time for one last question. It is from Wee Teck Goh. Please go ahead.
Hi, I'm Wee Teck from Manulife. I've got a question regarding the proposed merger. [Non-English content] Zahid, you mentioned that you want to create a pure-play FPSO entity through the merger. Bumi Armada has other businesses in there as well. If you inject your FPSO business, how do you create a pure-play FPSO entity? Does it mean that Bumi Armada will dispose of those non-FPSO businesses?
I think those are the kind of questions that we will need to find answers as we go through the next few months when we have a detailed discussion. I think the intention is certainly, if we proceed with the transaction, the new company, the merged company, will have much stronger or a bigger FPSO asset. Based on what we know now, it's probably been between number three in the world in terms of size. I think that's what we anticipate. It's still premature, certainly on our side, to say anything what Bumi Armada going to do with other assets that they have.
Would you consider running a process of going out to the market and see who would be interested to take up maybe 30%-50% stake in Mero 3? Maybe that would lead to cash inflow to your business rather than having shares in Bumi Armada.
We're certainly not in the process of doing this, undertake an open process. All this while, we have been talking to many parties that are interested to work with us and to take equity in our Mero 3. I think we have been mentioning it to you in many processes, that our intention is always to divest down our equity, so that we can recycle the capital into other businesses. That process has gone through for a number of months or years.
The feedback that we always get is that the potential investor is always asking, they want to see Mero 3 in operation. They do want to ensure that anything that is at the risk of during this construction period is minimized or mitigated before they want to come in. I think those are the things that where we can say now we are safely past that stage, and we're open to any conversation with partners that want to take equity in Mero 3.
Right. Given a choice, would you still prefer the merger? If a fund would offer you some money to take a stake, would you go along with that?
At the end of the day, what we're looking at is how we can enhance the value and monetize our investment in Mero 3. Whichever give us the best value, not just in terms of potential, but other opportunity to grow in this segment, that's what we will certainly consider. There's no easy yes or no kind of answer here with that.
If let's say you were to take a stake in Bumi Armada, then you are not really recycling your capital because you are not really using the cash inflow to go into some other businesses.
Yeah. I think this is where what Azlan mentioned earlier. For the next few months, this is the period where we're going to confirm and finalize the transaction structure. At the end of the day, we want to ensure that we can optimize our balance sheet and ensure that we are able to benefit from this growth.
Okay. Thanks very much.
Thank you. [audio-distortion]
I think just to close out. Thank you very much, everyone, for taking time to be with us on this. As I said earlier, we have delivered a consistent financial performance, even though there's challenges in our core businesses. We are continuing to ensure that we grow the company. The two LNG vessels that we signed, I think is certainly a strong indication that this company wants to grow. It's a potential transaction that we want to look at with Bumi Armada.
It's another way for us to create value and monetize the asset that we have so that we can continue to reinvest and grow purposefully in the segment that we have decided. These are the things that I want to assure all of you, that we don't do this on a piecemeal basis. This is consistent with the strategy that we have highlighted in terms of how we're going to grow and how we're going to focus our effort and deliver value to the shareholders. Thank you very much, everyone.
Thank you. This concludes today's conference call. On behalf of MISC Berhad, we thank you for your participation. The PDF version of our presentation slides has been sent to the 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 report with the MISC IR team for our reference. Thank you once again, everyone, and have a good evening.
Thank you