Good evening, everyone, and welcome to MISC Berhad's second quarter financial year 2026 analyst briefing. I am Faizan from Investor Relations, and I will be facilitating this evening's session. Joining us today from MISC are YBhg Dato' Zahid Osman, President and Group Chief Executive Officer, Raja Azlan Shah Raja Azwa, Chief Strategy and Sustainability Officer, Encik Afendy Mohamed Ali, Chief Financial Officer, and Encik Adam Faizal, Head Strategy and Investor Relations. Before we get underway, please take note of the disclaimer included in the presentation deck, particularly in relation to forward-looking statements and the risks and uncertainties that may cause actual outcomes to differ. For the agenda this evening, we will begin with opening remarks from Dato' Zahid, followed by the group's financial performance and market outlook before opening the floor to questions. Dato' Zahid, over to you.
Thanks, Faizan. [Non-English content] and good evening, everyone. Thank you for making the time to join us this evening for our quarter two results. In this session, we will take you through an overview of our second quarter performance, some of the key development across our businesses, and thereafter, we are certainly open to questions that you have on our performance. We have an exceptional quarter as a group in quarter two this year. Despite the challenging and uncertain market environment, I think as a group, we delivered a very strong operational and financial performance. Revenue increased by 90% year-on-year. Profit after tax, more than double compared with the corresponding quarter last year. In terms of cash flow, our performance in this space has strengthened further, and it is about a 60% year-on-year increase.
The earning uplift, majority are mainly driven by the petroleum segment, which benefited from the elevated tanker rates during the quarter. This certainly has enabled us to capture the high rates with the in-charter to support the lifting activities. At the same time, offshore and our heavy engineering businesses recorded higher revenue, supported by good project progress, while Gas secured new long-term charter and also took delivery of new vessels during the quarter. Our strong operating performance also translated into a very robust cash generation during the quarter. I am sure Afendy later will take you through, in detail, our financial performance. Overall, our quarter two results demonstrate the strength and agility of our diversified portfolio that enable MISC to capture market upside when conditions are favorable while providing the required resilience across the different market cycles.
In support of the good continued cash generation for the quarter, the board has declared a second interim dividend of MYR 0.08 per share. Even though we are showing a very strong first half performance this year, I do want to highlight that it is important for us to be cognizant that our business environment is influenced by changing supply-demand dynamics and geopolitical development. As such, we remain measured in our outlook for the second half of the year, recognizing that the strong contribution from petroleum in the second quarter may moderate from the current level. Next slides, please. Beyond our financial performance, I think it is worthwhile to share with you, we continue to make tangible progress across the three strategic pillars of our delivering progress strategy, strengthening the group long-term earning visibilities and resilience. Under the resilience core pillar.
Under our resilience core, Gas secured a long-term charter contract with PETRONAS Gas Berhad for a new-build floating storage and regasification unit or the FSRU. This adds to our contracted growth pipeline to further strengthen MISC participation across the LNG value chain. We also received two new LNG carriers for long-term charter to SeaRiver Maritime during the quarter. In heavy engineering, we signed a memorandum of understanding with Hanwha Power Systems to jointly pursue and develop new building projects. The partnership brings together our MHB yard and construction capabilities with Hanwha Engineering and Technologies expertise to pursue future opportunities in this area. Under our second strategic pillar, profitable new energy business, we secured the second liquefied carbon dioxide carrier with Northern Lights JV DA together with our partner K Line.
We will continue to build future ready capabilities with our partner while maintaining the capital discipline and long-term earning visibility when we pursue opportunity under the new energy space. Under decarbonization, we continue progressing fleet renewal and operational efficiency initiative across our shipping portfolio. For the first half of 2026, I am pleased to share that our GHG emission intensity was 2% lower year-on-year. The improvement is the result of the changes in our fleet composition following the disposal and layup of our older steam turbine LNG carriers. Going forward, we will continue to focus on fleet rejuvenation and improving operational efficiency in line with our sustainable strategy to ensure that we can meet our decarbonization target that we have stated earlier. On safety and operational excellence, I am pleased to share that our petroleum business, AET, received the Jones F. Devlin Safety Awards for 46 of our tanker.
This recognition reflects the continued commitment of our people to maintain safe and reliable operation across our fleet. In closing, we are having exceptional quarter as a group. It is a very strong first half of the year. It demonstrate the agility and resilience of the group and our ability to perform and to deliver our promise through market uncertainties and increasingly unpredictable geopolitical environment. Looking ahead, in second half of the year, we will continue to pursue selective new energy opportunities, strengthening our resilient core business, and deploy capital selectively into strategic opportunities that will enhance the group portfolio and capabilities, driving long-term growth and shareholder value creation. I do want to stop here and allow Raja Azlan Shah Raja Azwa and Afendy Mohamed Ali to take you through in detail our financial performance and market environment in greater detail. Over to you, Afendy.
Thank you Dato Zahid. [Non-English content] and a very good evening, ladies and gentlemen. Let me begin with a walkthrough of MISC's group financial performance for the second quarter of 2026. Overall, the group delivered an exceptional performance during the quarter, as mentioned by Dato Zahid, with substantial growth in revenue, operating profit and profit after tax and cash generation. The earnings uplift was anchored by the petroleum segment, which has benefited from the elevated petroleum tanker rates and strong operating performance. At the same time, our cash flows were further complemented by advanced customers receipts and higher project cash collection in the offshore segment. While the quarter demonstrates the earnings capability of our diversified portfolio, it is important to distinguish that the strong performance was driven by exceptionally favorable tanker market conditions, resulting in earnings that were significantly above our normal operating levels.
Although these results demonstrate the group's ability to capture upside opportunities while benefiting from the stability of our contracted businesses, the elevated tanker market environment is not expected to persist indefinitely and may moderate as we move into the second half of 2026. Accordingly, the quarter two 2026 set of results should be viewed in the context of group's underlying business fundamentals and sustainable earnings profile, rather than as a new baseline for future performance. The group revenue for quarter two 2026 increased to $ 1.2 billion, representing growth of 90% year-on-year and 65% quarter-on-quarter. The significant increase was primarily driven by stronger petroleum freight rates and higher earning days. Revenue was also supported by higher construction revenue recognition from offshore and heavy engineering projects.
The petroleum segment was the largest contributor to the increase, reflecting stronger rates across the tanker portfolio, together with higher vessel utilization. The increase in offshore revenue was mainly attributable to construction progress on FPU Kelidang, as well as FSO Kutubu pipeline system, which is to be located in Papua New Guinea. The heavy engineering benefited from the ongoing projects advancing into higher phases of construction. The group operating profit increased to $ 295 million compared with $ 176 million in quarter two 2026, and $ 193 million in quarter one 2026. The improvement was principally attributable to stronger petroleum margins, in line with the exceptional tanker market and higher earning days achieved during the quarter. This was partially moderated by lower contribution from the gas and offshore segment.
In gas, operating profit was impacted by softer revenue and higher depreciation following the reassessment of the useful life of selected steam turbine vessels, resulting in an acceleration of depreciation expense during the quarter. In offshore, operating profit continued to be affected by the operational shutdown of FPSO Kikeh, while ongoing construction projects had yet to attain the minimum required progress threshold for meaningful profit recognition. Profit after tax closed at $ 293 million, delivering more than twofold increase from $ 110 million in quarter two 2025, and grew by 55% from $ 189 million in quarter one 2026. The improvement was primarily attributable to the higher operating profit generated by petroleum, further supported by lower impairment losses and gains from vessel disposals during the quarter. Moving to cash flow, the group generated cash flow from operation of $ 599 million in quarter two 2026.
This represents an increase of 60% against quarter two 2025 and 93% against quarter one 2026. The strong cash generation reflected higher collections from petroleum segment, in line with its robust operating performance during the quarter, complemented by advanced charter hire for FPU Kelidang and milestone-based project collections from offshore projects. Overall, the quartertwo cash flow from operation reflected both solid underlying operational cash generation and timing of certain project-related receipts, including advanced charter hire received during the quarter. While this receipt strengthened the group's cash flow performance, some of these items are one-off and timing related in nature, hence should not be regarded as recurring in the future. Next slide. The group maintained a stable and resilient balance sheet as at June 2026, supported by a stronger equity position and healthy liquidity. Total assets stood at approximately $ 13.4 billion, broadly stable compared with December 2025.
Gross gearing improved to 0.36 x from 0.37 x in December 2025, supported by the increase in shareholders' equity, primarily driven by higher retained earnings arising from the group's improved financial performance. Net gearing strengthened further to 0.16 x compared to 0.2 x at the end of December 2025, primarily reflecting the group's stronger cash position. The group's net debt composition remained predominantly fixed rate, with approximately 90% fixed debt and 10% floating debt as at June 2026. The shift in composition reflects the higher proportion of floating rate facilities, while the overall debt profile remains prudently managed. Overall, our gearing remains prudent, providing sufficient financial capacity to fund the group's secure growth pipeline while maintaining a disciplined capital allocation. On the cash and debt balances, the group ended in the first half of 2026 with a healthy cash position and broadly stable debt.
Cash balances stood at approximately $1.8 billion as at June 2026, compared with $1.5 billion as at December 2025. The increase was anchored by higher net cash generated from operation during the first half of the year, partially offset by capital expenditure payments. Total debt remained broadly stable at approximately $3.2 billion compared with the position at the end of December 2025. The group's robust liquidity position provides the financial flexibility to support ongoing capital commitment, including fleet rejuvenation and the execution of secured growth projects. At the same time, we remain disciplined in managing our cash and debt profile, optimizing funding sources to enhance capital efficiency. This positions the group well to pursue its growth agenda while preserving a strong balance sheet, prudent gearing and adequately liquidity headroom. Next.
Let me now walk you through the performance of each of our core business segments, starting with gas. Gas recorded revenue of $104 million in quarter two 2026, representing a modest improvement against the preceding quarter, although remaining lower against quarter two 2025. The quarter-on-quarter improvement was mainly supported by the delivery of Seri Dian and Seri Dayang, where revenue was lower against corresponding quarter due to the absence of construction revenue from an FSU conversion project following its project completion in quarter three 2025. Lower earning days following vessel disposals and layups and lower charter rates. The year-on-year decline reflects the segment's ongoing fleet rejuvenation transition as we progressively phase out aging steam turbine vessels in favor of modern and more efficient fleet anchored by long-term charters, while resulting in lower earning days arising from contract expiries, vessel disposals and layup.
Notwithstanding this segment maintained 100% term to spot ratio, underscoring sustained earnings stability and the resilience of its long-term contracted income base. While the ongoing fleet rejuvenation program continues to progressively reposition the portfolio towards newer and more efficient vessels, which is expected to strengthen the efficiency and the long-term earnings resilience of the portfolio in the future. Operating profit stood at $35 million, lower against both the corresponding and preceding quarters. The decline was primarily attributable to high depreciation following the reassessment of the useful life of selected steam turbine vessels, resulting in an acceleration of depreciation expense during the quarter, as I mentioned earlier. Profit after tax of $17 million was lower quarter- on- quarter, in line with the lower operating profit and absence of vessels disposal gains in the current quarter.
Against the corresponding quarter, PAT was marginally higher, mainly due to lower impairment losses, negating the softer operating performance in quarter two 2026. For the petroleum segment, petroleum segment delivered an exceptional quarter two 2026 performance and remained the group's largest earnings contributor. Revenue increased to $ 562 million from $ 299 million in quarter two 2025 and $ 382 million in quarter one 2026, driven by higher tanker rates and earning days. The growth was further supported by the accelerated recognition of deferred income arising from a contractual arrangement, which provided a one-off uplift during the quarter. Operating profit increased to $ 215 million, representing a more than twofold improvement year-on-year, and an almost twofold increase from the preceding quarter. The increase was broadly in line with the strong growth in revenue and reflects improved earnings margins.
However, the benefit from the one-off revenue uplift was partially offset by the corresponding acceleration of depreciation expense arising from the same contractual arrangement. PAT increased to $ 232 million compared with $ 55 million in quarter two 2025, and $ 129 million in the preceding quarter. The improvement was primarily driven by stronger operating performance, while the year-on-year increase also benefited from a gain on the disposal of vessel during the quarter. Approximately 70% of petroleum fleet remained on term charter during quarter two 2026, providing a stable contracted earnings base, while the remaining market exposure enabled the segment to capture favorable spot market opportunities. As highlighted earlier, the strong quarter two 2026 performance could be viewed in the context of the exceptionally favorable tanker market environment and certain non-recurring items that contributed during the quarter.
Accordingly, the results are not indicative of a sustainable quarterly earnings run rate. Our offshore revenue increased significantly to $ 262 million, compared with $ 106 million in quarter two 2025 and $ 107 million in quarter one 2026, driven by the advancement of FPU Kelidang and FSO projects. The operating profit stood at $ 45 million, compared with $ 53 million in quarter two 2025 and $ 49 million in quarter one 2026. The year-on-year decline primarily reflected the lower contribution from FPSO Kikeh following its continuous operational shutdown, while the quarter-on-quarter movement was impacted by higher project-related pre-development costs incurred to support future growth opportunities. Consequently, profit after tax was lower by $ 17 million compared to $ 30 million in quarter two 2025 and $ 19 million in quarter one 2026.
Overall, the offshore segment continues to be anchored by a portfolio of long-term contracted offshore assets, complemented by the ongoing execution of its secured projects, providing a balanced mix of operating profit, operating and project-related activities across the business. Finally, for our marine and heavy engineering recorded revenue of $ 247 million, more than twofold against both the corresponding and preceding quarters. The increase was supported by higher project activities and incremental construction progress across several ongoing projects. Operating profit improved to $ 17 million, compared with $ 3 million in quarter two 2025 and $ 5 million in quarter one 2026. The improvement was driven by higher contributions from key ongoing projects and finalization of post sailaway projects. PAT correspondingly increased to $ 15 million, compared to $ 2 million in quarter two 2025 and $ 4 million in quarter one 2026.
Overall, the stronger performance reflects steady execution and progression of projects across the segment's order book, translating into higher construction activities and improved earnings contribution during the quarter. To conclude, quarter two 2026 was an exceptional quarter for MISC, underscoring the strength of our diversified portfolio and our ability to capture opportunities across different market cycles. While we remain mindful that certain favorable conditions may not persist at the same level going forward, our focus remains unchanged on disciplined execution, prudent capital management, and sustainable long-term value creation. At the same time, we continue to benefit from the stability provided by our portfolio of long-term contracted assets and projects, which forms the foundation of the group's resilience across varying market conditions and market environment.
Together with our healthy financial position and disciplined approach to growth, this provides us with the flexibility to navigate evolving market conditions while continuing to deliver value to our stakeholders. With that, I conclude my briefing of the group's financial performance for the quarter. Thank you for your attention. I will now hand the floor to Raja Azlan.
Thank you, Afendy, for walking us through the financial performance. Let me now turn to the operating environment and the key market developments across our segments. While the near-term market conditions remain uneven and continue to be influenced by geopolitical developments, underlying long-term fundamentals across our core businesses remain supportive. Let me begin with the global energy market. Despite disruptions to cargo movements through the Straits of Hormuz during the quarter, global LNG trade remained resilient. The market demonstrated its ability to adapt, supported by supply diversification and improving production across key producing regions. New liquefaction volumes from North America, together with higher plant utilization rates and the gradual ramp-up of projects in the U.S., Canada, and Africa helped partly offset supply shortfalls from the Middle East. While near-term supply growth may remain constrained by ongoing geopolitical uncertainties and project execution risks, the long-term outlook remains attractive.
Global liquefaction capacity is projected to expand at an estimated 10% CAGR through to 2031, driven by substantial capacity additions across major LNG-producing regions. On the demand side Europe and Asia continue to be the primary growth engines for LNG consumption. Demand remains supported by energy security considerations and the role of LNG in supporting energy transition objectives across many markets. Looking ahead as supply and demand conditions expected to improve from 2027 onwards, LNG trade volumes are expected to regain stronger momentum. The increase in available supply should help rebalance the market with LNG prices likely to moderate during the 2028-2029 period, supporting broader market growth and trade activity. With those positive supply and demand fundamentals in mind, let me turn to developments in the LNG carrier market and the fleet that will support this growth.
Fleet rejuvenation and expansion continue to drive growth in LNG sea market. The industry has moved beyond simply replacing older steam turbine vessels and is now increasingly focused on replacing less efficient tonnage with modern fuel-efficient LNG carriers. This trend is being driven by tightening environmental regulations, evolving customer requirements, and the need for greater operational efficiency. Against this backdrop, the LNG carrier market order book remains elevated. As of the second quarter 2026, the order book to fleet ratio stood at 39%. The composition of the order book reflects the industry shift towards more efficient tonnage with around 80% of the vessels currently on order, which are equipped with modern propulsion technologies, demonstrating the industry's clear preference for more efficient and environmentally compliant vessels. In addition, speculative ordering activity remains limited, with most new-build vessels tied to specific energy projects and supported by underlying commercial demand.
Vessel deliveries are expected to remain elevated through to 2031, with the global LNG sea fleet projected to grow at a CAGR of some 7%. However, growth in fleet capacity is being partly offset by accelerated retirement of older steam turbine vessels, which are becoming increasingly less competitive from both commercial and environmental perspectives. Turning to the recent geopolitical developments, while disruptions in the Straits of Hormuz may create some delivery scheduling challenges, we do not expect any material impact on the long-term development of the LNG carrier fleet. More specifically, for MISC, we have not seen any material impact on project execution or vessel delivery schedules across our portfolio. All LNG carrier new buildings scheduled for delivery in 2026 remain on track, and we continue to engage closely with the shipyards, the charterers, and other key stakeholders to monitor developments proactively and mitigate any emerging risks.
Moving on to LNG sea charter rates, the long-term LNG sea supply growth outlook continues to support a healthy outlook for long-term chartering, particularly for modern vessels. As for spot charterers, continued high vessel deliveries coupled with uncertainties in the Straits of Hormuz are expected to keep spot charter rates volatile in the near term. Geopolitical tensions continue to affect the supply-demand fundamentals of LNG sea shipping rates. If the strait fully reopens, LNG exports could gradually recover. Looking ahead, modern LNG sea charter rates to remain supported throughout 2026, driven by strong demand for fuel-efficient and environmental-friendly vessels. Against this backdrop, we remain focused on rejuvenating our fleet with modern fuel-efficient vessels secured with long-term charters, reinforcing the quality, resilience, and visibility of our earnings.
By 2030, our guest segment is expected to deliver an additional 19 new vessels, which will lift the proportion of modern and efficient vessels in our fleet to approximately 75%, from currently at 50%. This fleet transformation positions us well to meet evolving customer requirements, enhance operating efficiency, and strengthen our competitiveness in an increasingly modernized LNG shipping market. Next slide, please. Moving on to petroleum shipping. In the second quarter of 2026, the crude tanker order book expanded further, driven by robust new orders and ship owners looking to replace aging tonnage and modernize fleets ahead of tighter environmental regulations. This lifted the order book to fleet ratio to 29.5%, up from 18% in 2025. Fleet additions have started accelerating, with 49 vessels delivered in the first half of 2026. Another 43 vessels are scheduled for delivery in the second half of 2026.
Deliveries are expected to accelerate and peak in 2028-2029 as the bulk of the stress banks and the VLCC orders placed over the past two to three years enter the fleet. Demolition activity remained low in the first half, with just three vessels scrap. Scrapping is expected to accelerate in 2028-2030 as stricter regulations and efficiency standards weaken incentives to retain older vessels. The crude tanker market remains highly sensitive to geopolitical developments, and volatility is likely to persist given the ongoing uncertainty in the Middle East. Average rates across all crude tanker segments eased in the second quarter of this year from the peak seen in the first quarter, but remain at elevated levels.
Looking ahead, the crude tanker market is expected to remain broadly positive for the remainder of the year, although rates are expected to remain volatile and may moderate from the exceptional levels seen earlier in the year. The market should continue to benefit from sustained thermal demand, driven by shifting global oil trade flows and the rebuilding of inventories following drawdowns earlier in the year. In particular, longer-haul exports from the Americas should continue to offset lower Middle Eastern volume supporting ton-mile demand and tanker rates. At MISC, we continue to strengthen the competitiveness of our fleet through ongoing rejuvenation. We currently have 10 dual-fuel new builds in the pipeline with deliveries scheduled between 2027 to 2030. These investments will improve efficiency and resilience while positioning us to capture opportunities arising from changing trade flows and the industry's transition towards lower carbon operations.
Moving into the offshore sector, the outlook for the offshore industry continues to be positive, supported by increasing investments in offshore energy developments to meet long-term global energy demand. Reflecting this positive outlook, offshore CapEx is projected to increase steadily over the coming years, reaching approximately MYR 200 billion by 2030. As operators commit to new developments, the market is also evolving with a growing preference for mid-size projects that offer greater capital efficiency. This is driving increased interest in FPSO conversions and redeployment opportunities. Against this backdrop, the floating production system market, particularly the FPSO segment, is expected to remain robust. The estimated total capital expenditure for FPSO units between 2026 to 2030 is around MYR 77 billion. Industry forecasts indicate that 11 FPSO projects are expected to be awarded in 2026.
As of the first half, there were six FPSO contracts which were awarded, matching the total number of awards recorded across both 2024 and 2025. This provides a strong indication that the investment cycle is gaining traction. Over the 2026 to 2030 period, FPSO awards are projected to average nine projects annually. This provides strong visibility to future project opportunities. MISC will continue to pursue opportunities to meet our risk-return requirements, while leveraging strategic partnerships and flexible commercial structures to manage affordability, execution risk, and capital deployment. With that, I end my presentation. Thank you very much, and back to you, Faizan.
Thank you, Raja Azlan. Thank you, Chief Afendy. We will now move into the question and answer session. If you would like to ask a question, please use the raise hand function. When I call on you, please briefly introduce yourself by stating your name and organization before proceeding with your question. To give as many participants as possible an opportunity to come in, we will start with up to two questions per participant. If you have any further questions, simply raise your hand again, and we will circle back where time permits. Okay, now let us get started. Our first question is from Hazmy of CLSA. Please go ahead, Hazmy.
Hi, everyone. Thanks. Congrats on the results. Hazmy from CLSA. Two questions to start. I think first one, just on the earnings, especially on the petroleum side. I understand that you mentioned, for the second half of the year, in the coming quarters it will not be as high elevated as the peak of the second quarter, but probably can you help us to think how should we— I think for this second half of the year, even with the easing going into the third quarter, will it go back to the first quarter kind of level, or will it be higher or lower? Driving from that, probably you can share some colors, the breakdown in terms of the tanker rates, on average during second quarter and what you are seeing right now.
If you can share in terms of that deferred income that you mentioned, the one-off uplift, what was the quantum for that? So that is my first question on the petroleum segment. Probably the second question, I think, I wanted to ask about the results more, but I think since we had two question first, I think the second one probably on the recent news with regards to MISC and Yinson, if you can provide some more colors there. Thank you.
Thanks, Hazmy. I will take the first questions on the petroleum earnings. In my sharing earlier, I provided some context in terms of the performance for quarter two. As we have seen, the tanker rates in quarter two were exceptional. As you can appreciate, we are already in the end of August. I have the benefit of looking at actual July numbers, which obviously will fall into the quarter three results later. Specifically on the tanker rates, what we are seeing is there is a significant drop in the rates in July compared to what we have actually crystallized in April and May, generally. What we are seeing is the July tanker rates are approximately the same or perhaps slightly above the rates that we are seeing at the pre-war level, which is in January and February this year.
I think that is where the context that I wanted to caution all of you that if you have an expectation to see a similar result in quarter three, benchmarking against what we have achieved in quarter two. That is my response to your earnings. The other one is on the one-off earnings, so that is in relation to our contract on the Marine Well Containment Company, that we have two vessels contracted there. One vessel has been agreed to be terminated, and we have been compensated for that. As a result of that termination, we have essentially a deferred income of about MYR 80 million, which has now been flushed into the quarter two results. Similarly, we have accelerated depreciation in respect of that, and approximately the positive P&L impact for this one-off transaction is about MYR 23 million positive to our petroleum segment.
Okay.
Yeah, Hazmy, that is on the question with regards to the petroleum expected performance for second half. I think when you also asked about the recent news about MISC and Yinson, is there any comment? We generally do not comment on any market speculation. If there is anything material, MISC, we will make the announcement in a timely manner. I think it is premature for us to say anything at this stage.
Thank you, [audio distortion].
Thanks.
Next, we have a question from Raymond, CGS. Go ahead, Raymond, with your question.
Yes. Hi, evening, everyone. I'm just going to ask a couple of boring questions, and it's in relation to your fleet. I think that the vessel disposal proceeds and the gain on vessel disposal in the second quarter, if I could just guess, it would relate to the Eagle Vancouver and the newspapers reported that you have sold your Seri Balqis and Seri Balhaf, but can I just double-check that the disposal proceeds will be booked actually in the third quarter for the two LNG vessels? That's on the sales side. On the acquisition side, I think there was a report that you had ordered two VLCCs from Hengli Heavy Industry, and I can see that in your order book data. I think TradeWinds reported that you may order up to six VLCCs.
Could I just check that these two VLCCs, that's it, or is it going to go up further to six VLCCs later on? There was also a report that you ordered one shuttle tanker from Dalian Shipbuilding Industry Company for 2028 delivery. Just to check, who is this going to be chartered to? These are my four Well, this is my first question relating to your fleet. Thanks. Maybe I'll just stop here first and ask the second one later.
Yes, thanks, Raymond. My answer to your first question on the fleet disposal. Yes, I can confirm Eagle Vancouver was disposed in quarter two. Similarly, the two LNG vessels, Seri Balhaf, Seri Balqis, were also disposed in quarter two, so the proceeds were captured in quarter two.
Okay, sure. Was there any gain on Seri Balqis and Seri Balhaf, or was the gain only on the Vancouver?
The gain was only on Vancouver.
Okay. Can I just double-check about the shuttle tanker? Who is it going to be chartered to? Also the VLCC orders from Hengli.
I think for the VLCCs, currently, we committed two vessels with Hengli, and currently the final charter is under discussion at this stage.
Okay. You're going to find a long-term charterer for these two VLCCs, yeah?
Yes, that is correct.
There is a mismatch with regards to when we can close the deal on the customer side and the team for us to sign the shipbuilding contract with the yard. You know, at the moment, the yard is very hot with regards to demand and slot.
Mm. Yeah.
That's the mismatch. But the intention is to secure a long-term charter for these two new vessels.
Okay. TradeWinds reported that you may order up to six VLCCs from Hengli Heavy Industry. Is that coming through later on, or are you just stopping at two?
It is only two.
Okay. Okay, sure. How about the shuttle tanker? Who are you going to be chartering it out to?
Yeah. I think we certainly have committed to the shuttle tankers, but currently we are not able to share who the customer is going to be, but it is backed by the long-term charter, where the customer does not want to announce anything on their side.
Okay. Okay, sure. Just want to ask a bit about the offshore side. I think the FPSO Cendor was reported by Upstream, that MedcoEnergi is going to buy it over. Are we expecting a sale of the Cendor in the third quarter? There is another FSRU project in Yanbu, so wanted to check whether you are going to be part of this.
I think, for Cendor, currently is under a long-term charter to Petrofac. I think that it is coming to the end of that charter. I think we will announce it when the time comes, Raymond.
The second question is with regards to the FSRU project announced in Kedah. Is it Yan, Kedah, is it?
Yeah, that is right.
Okay. I think that as far as we also see in the news on that one, that is currently being promoted by Gas Malaysia. We are not involved.
Okay, sure. How about the FPSO Excalibur? There was news that you might buy something, and redeploy it to Limbayong.
I think the customer, the owner, has announced it. I think we signed the deal, and I think it is coming to Malaysia, and with the intention is to deploy that into offshore Sabah.
Okay.
Under long-term deal.
Okay. So you will announce the details later on when it is finalized, right?
Absolutely.
Okay. Sure. That is it from me. Just boring questions. Thanks.
Boring question is fine, Raymond. No worries.
Thank you, Raymond. Okay, we have a question from Ho Meng. Go ahead, Ho Meng.
Hi, guys. Yeah, hi. Can you hear me? Yeah. Just want to check, for your gas side, I think previously when you do your impairments in the previous years, that was mainly to match the steam turbine vessels with the market values at that time, right? This time around, you are doing an accelerated or early depreciation. Is that a different impairment method you are using now versus previously? Yeah.
Okay. Thanks, Ho Meng. I will take that. I think what we have been doing in the last, I would say, couple of years, right? We have definitely seen the significant drop in market value for our steam vessels, which has impacted the profitability of the company. Obviously, I think in numerous sessions, we have highlighted that these steam vessels, once they are coming out of charter, chances are trying to get new contracts for them will be quite challenging given, number one, they are on older technology, plus number two, they are on a smaller vessel size. I think over the last 12 months, we have also shared with you that some of these vessels, we have actually laid them up in order to manage the cost.
I think what we have done in this quarter is for the six vessels that currently still have a contract, but they do not have a contract up until 35 years of the life of those vessels. It ranges between up to 19 to 33 years of life when the current contract expires. When we look at the trending of the steam vessels, chances are they will not be able to sustain the value of those vessels at the end of those contract years expired. Chances are we will probably have to impair them at some point. What we have done is we have taken a more conservative approach, which is to depreciate these six vessels over the life of the economic life based on the contract that they have, which is between 19 to 23 years.
19. But these six are the ones that are going to expire in probably one or two years time, right? Because I remember you have a batch of steam turbine vessels that. You have one batch that is already expired previously, and another batch is incoming maybe next year or so.
Yeah.
Are those the batch that you had decided to do the accelerated depreciation? Yeah.
Yes. You are right.
Okay. But does it imply that operationally, the expiries are going to be earlier than, say, next year, and that's why you need to do the accelerated depreciation?
No, it doesn't mean that. The contract will stay as it is. It's just that when we revisit what we have seen in the past for all our steam vessels, they struggle to redeploy in the spot market. So we have revisit and decided to accelerate the depreciation, until the end of the contract period rather than at the end of the 25 years.
Okay. Just jump quickly to offshore. When you have the construction revenue, is that related to the MYR 700 million revenue from contract with customers as per your 8.10 in the Bursa pack?
Give me one second.
Yes.
Yes. That's it, yes, Ho Meng.
Okay. So all the 700 is the conversion projects related. Okay. For petroleum side, you have amortization of deferred income net off by. Then you say that after netting off the accelerated costs or depreciation, the net earnings to you is MYR 33 million.
MYR 23 million. MYR 23. Two-three.
Oh, 33. Three-three. It is all incurred in the second quarter. Two-three, sorry. Okay, yeah. 23. All incurred in the second quarter, or is there more to come? Yeah.
All happened in quarter two.
Okay. What is this regarding again? Sorry, I only heard two vessels, but I cannot catch the details.
Yeah. We have a contract for the Marine Well Containment Company. This is in the Gulf of Mexico. This contract, we had this, I think, about 10 years ago. It is as a result of the, if you remember, there was a Macondo event. What happened is these two, I think, [audio distortion] is over-designed, so they are paying for that over-design in the event of oil spill. They are on standby to basically contain those oil spill. What the company has done is they have basically paid for some CapEx upfront. But obviously, we need to defer the income of that over a period of 20-year contract. Obviously, I think we still have about slightly less than 10 years. They have decided to terminate that contract, hence we are flushing all the deferred income and the corresponding unamortized cost into the P&L in this quarter.
Okay. Is it easy for you to re-charter those vessels out?
Yeah, of course. The vessel, we are using it for a normal operation as of today, but we are not allowed to go far because that vessel is supposed to be on standby in case there is an oil spill.
Okay. Just one more quick question from me. You mentioned in your offshore site that you have higher pre-operating costs for future projects. Does it mean that to bid for EPCI projects nowadays, the bidding costs are higher now compared to last time?
Yeah. Those are the costs that we know we need to bid, so we have to incur those costs. Obviously, those are costs that we need to expense off in our P&L.
Is it material? I mean, the difference of this cost versus, say, last year.
Compared to last year. Let me come back to you on that one.
Okay.
Yeah.
Sorry. Yeah. Okay. Thank you.
We will come back to you on that, Ho Meng. In the meantime, let us go to Raymond. Raymond, go ahead. Raymond?
Yes. Hi. Yeah. It's me again. I wanted to ask a question about the tax exemption for Malaysian shipping, which will be valid until the end of this year only. In your analysis, if the exemption is no longer extended, what will be the impact on MISC's bottom line?
I don't have the analysis to share with you, but conceptually, Raymond, these ships that will be impacted will be the Malaysian flagships. At the moment, we don't have that many Malaysian flagships in our portfolio. Most of them are traditionally the LNG vessels that were contracted with PETRONAS.
Yeah.
Obviously, you've seen a lot of the PETRONAS contracts have expired. What's left, I think, is only that six that we mentioned earlier, in aspect of the accelerated depreciation. Of course, the new ones will come in, but that will come much, much later. Yeah.
Okay. If you reflag them-
Sorry, but if I can add, Raymond, we have been working with Ministry of Transport as well as Ministry of Finance on this. We are fairly confident that at the very minimum, we will get an extension. We have been getting that extension since 2012. Obviously, we are working with MOT to make sure that we will get a perpetual tax exemption for our international shipping businesses. Because that is where a lot of these jurisdiction are offering to the shipping companies. I think this is a position that we are advocating together with MASA, the Malaysia Shipowners' Association, on this tax exemption. I think the current proposal is with the ministry. So we hope that they work on the approval for full exemption and in replace with some tonnage tax. I think that is what they are working on.
In term of mitigation, I think we certainly can reflag the vessel if the fiscal environment in Malaysia is no longer conducive for our shipping business. Certainly, that option is available for us to undertake.
Will you need approval from your charterers to reflag?
Certainly, we do need to get their approval.
Okay. Will PETRONAS LNG agree?
I think now we are talking about on speculative basis, Raymond. Let us just focus on that. The approval to get further exemption or extension on this tax has been put together by the industry players and currently sitting with the ministry for approval.
Okay. If the tonnage tax comes in, do you have an indication of what the negative impact will be?
I think if you look at other countries, example is Singapore. If you look at their tonnage tax, about $10,000 per vessel per year. I think that is the kind of level that we are advocating.
So it is minimum.
Maybe if I can add, Raymond.
Yeah.
The country is trying to make Malaysia flourish as a maritime nation. It will try to boost the tonnage.
It has already been discussed for some time now to resolve this tax issue in order to encourage new tonnage to come in. Because of this issue, we can see that a lot of tonnage has gone to our neighbor. Our tonnage is less than 10% of our neighbor's tonnage. The government, under the leadership of the Minister of Transport, is trying to do something about it. We have worked very close with the ministry to educate them as to what these Hong Kong, Singapore, and other jurisdiction do with the tonnage tax, and they are open to it. They are considering it.
Okay. Thanks so much for the color. One final question from me is about Kelidang. I understand MMHE will do the integration of the hull and the topsides, and they will also convert the old tanker into the FPSO Kelidang's hull. MMHE has, I suppose, a pretty uneven track record. How confident are you that they will be able to execute this project well?
I think we are confident that MMHE will be able to deliver this conversion project. I think that is the confidence that we have with the subsidiaries. But what we have done this time around, we also have a strong project management team from our side in the yard to support the work.
Mm-hmm. Okay. Thank you.
I think we have time for just one more question.
Sorry, let me address on question just now. What we incurred is about MYR 3 million until half year of this year for the bidding cost for the offshore segment.
Okay. Thank you. Is it okay if I ask more?
Yeah, go ahead.
I mean, there's a question.
Sorry.
Oh.
Sorry.
Go ahead.
There is a question from Aimi. Is accelerated depreciation of the steam turbine vessels all been accounted for in Q2? I think that has been answered. Maybe a yes or no answer.
Yeah. It has been accounted for in quarter two results. Correct. The second question is with regard to FPSO Kikeh rectification work. Has it already been done in the second half? I think the work is currently being undertaken on a number of fronts. We do expect to complete the work by end of this year. I think that is the current target, Aimi.
[crosstalk] Ho Meng, you had a question, Ho Meng?
Yeah. Just to ask, potentially one-off cost related to the Hormuz that is not explained yet.
What was the question again?
Are there any additional exceptional costs that is related to the Hormuz incident that maybe you have not explained yet, but it is already incurred?
No, we do not expect any because, first of all, we no longer have any vessels going to the Strait of Hormuz at the moment. However, because of these geopolitical issues, the price of bunkers is higher certainly before the conflict. Indirectly, that is the one that impacting us in our normal operation.
Like additional insurance costs and fuel costs also, right?
No, since we are not taking the vessel inside the Strait of Hormuz .
Okay
There is no need for us to purchase this additional insurance, the war insurance and so on.
Okay, got it. Then maybe related to Raymond's question earlier for Kelidang and the other FPSO. You have a joint venture with MMHE, so how does that work? You recognize the construction revenue or will this eventually fall as a JV income? How does that work?
Yeah. For Kelidang and FPSO, that is our offshore business contract. All the revenue and the cost is captured under our offshore business segment.
Yeah. Okay. Eventually, when would the JV recognize?
The JV is more of like a project management. They do not take the risk of the project itself.
Oh, project management only. Oh, I see. Okay.
[crosstalk] The asset belongs to our offshore business segment.
Okay. And maybe just one last housekeeping question. In your total fleet page, your fleet information, you still have the same number of 39 vessels in the guest side, but you mentioned that Seri Balqis and Seri Balhaf is already sold. Just wondering whether it is supposed to reflect two lesser LNGC there under your fleet details.
Yeah. We have also added another two conmen. We've got Seri Dian and Seri Dayang, so that's minus two, plus two.
Oh.
Yeah.
Okay.
We got Seri Dian and Seri Dayang delivered in May and June, if I'm not mistaken. Certainly in quarter two.
Okay, got it. All right. The joint venture side, the JV income that increased, is it mainly the ramp-up of the Qatar vessels?
I believe so, yes.
Vessels to Qatar, no? Yeah. Okay, got it. That is all from me. Thank you.
That brings us to the end of this evening's briefing. Thank you everyone who joined, and for the questions and the discussion today. The presentation deck has been circulated to attendees and will also be made available on the MISC corporate website. As always, we would appreciate it if our sell-side analysts could share your published research with the investor relations teams once available. On behalf of MISC, thank you again for your time and continued interest in the group. Have a good evening.
Thank you, everyone. Have a good evening. Bye.