Is MISC an investment opportunity?

Value Investing Case Study 93-1: A Transformed Business, But No Margin of Safety. 

MISC Berhad (MISC or the Group) has long been recognized as a major player in energy-related maritime services. Over the past decade, it has undergone a significant transformation. It moved beyond its traditional oil and gas shipping roots to become an integrated energy solutions provider.

This evolution positions MISC to capture opportunities from the global energy transition, including the growing demand for LNG, offshore floating production, and renewable infrastructure.

However, investing is ultimately about weighing fundamentals against valuation. In this article, I review MISC’s operating performance, financial strength, and valuation to assess whether it is an investment opportunity.

Based on my analysis, I would conclude that while reasonably sound from a business perspective, there is currently no margin of safety. 

Should you go and still buy it? Well, read my Disclaimer. 

Contents

• Company background

• Operating performance

• Peer comparison

• Financial position

• Valuation

• Conclusion

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Company background

Over the past decade, MISC transformed from a traditional O&G shipowner to an integrated, sustainability-driven energy solutions provider with serious aspirations in the energy transition and maritime decarbonisation space.

• 2015–2018: Solidified traditional energy transport, growing offshore.

• 2019–2021: Began pivoting toward ESG and diversification.

• 2022–2024: Deep energy transition drive - cleaner fuels, offshore wind, carbon capture, future-ready talent, digitalisation.

MISC is today a global provider of energy-related maritime solutions and services, playing a critical role across the entire maritime energy value chain. In 2024, it reported its business under the following segments:

• Gas Assets & Solutions (GAS). MISC operates one of the world’s largest LNG carrier fleets, transporting LNG and ethane while investing in fuel-efficient and dual-fuel vessels to support the energy transition.

• Petroleum & Products Shipping. It runs a modern and diversified fleet of crude and product tankers, focusing on operational safety, efficiency, and decarbonisation through next-generation shipping technologies. As can be seen from the left part of Chart 1, this is the biggest revenue contributor.

• Offshore Business. MISC is a leading floating, production, storage, offloading (FPSO) operator. It has a global offshore presence, delivering deepwater and ultra-deepwater solutions and advancing sustainability through greener floating production technologies. Although a big revenue contributor in 2022, this segment accounted for 12 % of the 2024 revenue.

• Marine & Heavy Engineering (via MHB). MISC provides offshore construction, marine repairs, and conversions. At the same time, it is also expanding into offshore wind, carbon capture, and hydrogen infrastructure projects.

• Marine Services (Others). It offers integrated ship management, port operations, and marine consultancy.

Historically, Malaysia accounted for about half of the revenue. Refer to the right part of Chart 1.

Chart 1: Revenue Profile

MISC is no longer just in shipping. MISC is best viewed as a hybrid maritime energy company operating across energy shipping, offshore floating production, and marine services. 

Based on these markets, various market research reports show that MISC’s long-term prospects are positive. This is especially because of rising FPSO and offshore engineering demand linked to the energy transition.

“The LNG Carrier Market grew from USD 11.51 billion in 2023 to USD 12.22 billion in 2024. It is expected to continue growing at a CAGR of 6.19%, reaching USD 17.53 billion by 2030.” Research and Markets 

“The FPSO Market size is estimated at USD 13.06 billion in 2025 and is expected to reach…at a CAGR of 8.51 % during the forecast period (2025 to 2030).” Mordor Intelligence

“Marine Offshore Engineering Market size was valued at USD 495 Billion in 2023 and is…growing at a CAGR of 18% from 2024 to 2031.” Verified Market Research 

Operating performance

Over the past decade, revenue has only grown at 2.2 % CAGR.  You can see from the left part of Chart 2 that revenue growth was flat in the first part of the decade. The bigger portion of the growth came in the second half of the decade. 

• Revenue was flat earlier due to oil market weakness and limited expansion. 

• Revenue grew later as MISC delivered new offshore projects, expanded into new energy sectors, and benefited from the global energy transition.

Despite revenue growth in the latter half of the decade, profitability was adversely affected by increased operating costs, lower charter rates, project delays, and higher impairment provisions. As such, both PAT and profits before unusual items in 2024 were lower than those in 2015. Refer to the left part of Chart 2.

Note that MISC incurred a loss in 2020 due to a RM 1.9 billion one-off hit from arbitration-related provisions and asset write-offs. Excluding these exceptional items, MISC's core business would have reported a profit before tax of RM 1.8 billion, which would have been 20 % higher than 2019’s profit before tax.

Given the declining profits, you should not be surprised to find declining returns as shown in the right part of Chart 2. Over the past decade, ROE averaged 4.5 %, with ROIC averaging 4.2 %. These were lower than the respective current cost of funds (9.7 % and 9.0 %, respectively), suggesting that MISC did not create shareholder value. 

Chart 2: Performance Index and Returns

Chart 3 showed that the main reason for the profit picture was the declining gross profit margin. This is reflected in the declining contribution margin.

At the same time, the Selling, General and Administration (SGA) margin increased in the first half of the past decade. Although it came down in the second half of the past decade, the SGA margin in 2024 was about the same as that in 2015.

• MISC’s gross margin and contribution margin declined because costs rose faster than revenue, and because market prices (charter rates) softened in key businesses.

• SGA margin rose because running a bigger, more diversified, more regulated company costs more. Even after some cost cuts, the new base level of spending stayed high.

Chart 3: Margins and Operating Profit

Note to Op Profit. I broke down the operating profits into fixed costs and variable costs.

• Fixed cost = SGA, Depreciation & Amortization and Others.
• Variable cost = Cost of Sales that excluded Depreciation & Amortization.
• Contribution = Revenue – Variable Cost.
• Contribution margin = Contribution/Revenue.

But I would like to think that the future looks brighter.  Based on the 2024 Annual Report, MISC’s gross profit and contribution margins appear to have stabilized. This is due to its more resilient offshore operations, long-term LNG shipping contracts, improving marine engineering profitability, and tighter cost management.

Secondly, the SGA margin has appeared stable over the past few years. Furthermore, MISC’s cost structure shows that fixed costs account for approximately 36% of total costs. With this set-up, any increase in revenue, combined with stable SGA expenses, would have a proportionally larger positive impact on profits.

Tax rate

One of the unusual features of MISC is the low effective tax rate, which averaged about 3% over the past decade. This is primarily due to the 100% shipping income tax exemption, supplemented by earnings in lower-tax jurisdictions, non-taxable income from associates/joint ventures, and deductible expenses.

There is no indication yet that the shipping tax exemption will end before year of assessment 2026. This mean that the low effective tax rate is likely to persist at least for the next two years, provided MISC continues to comply with Malaysian substance requirements.

MISC has benefited from Malaysia's shipping tax exemption since its inception (1984). This provision grants a 100% income tax exemption on statutory income derived from the business of transporting passengers or cargo by sea on a Malaysian ship, or from letting out such a ship on a voyage or time charter basis. 

The exemption has been extended multiple times, most recently through the Income Tax (Exemption for Malaysian Ship) Order 2024, which prolongs the exemption for year of assessment 2024 to 2026 under the same conditions.

Peer comparison

To compare MISC’s performance, I tried to look for companies that matched its business mix - LNG shipping, petroleum/product shipping, FPSO/offshore production, and marine & heavy engineering.

Unfortunately, no single company matches MISC exactly. As such, I considered peers from three overlapping groups - energy shipping (LNG, petroleum), FPSO, and marine & offshore engineering. I thus selected the following: 

• Mitsui OSK Lines (9104). One of Japan’s largest and most diversified shipping companies, with major operations in LNG shipping, bulk carriers, tankers, and car carriers.

• Nippon Yusen Kabushiki Kaisha (9101). A leading global shipping group from Japan, operating across LNG transport, container shipping, logistics, and automotive transport.

• Seatrium Limited (5E2). A Singapore-based global provider of engineering solutions for offshore, marine, and energy sectors, formed from the merger of Keppel Offshore & Marine and Sembcorp Marine.

• Yinson Holdings (Yinson). A Malaysian-based energy infrastructure company and one of the world’s largest independent FPSO operators, focusing on offshore oil and gas production assets.

You can see from Table 1 that the energy shipping companies have relatively very large 2024 revenue, but with declining revenue over the past decade. The engineering and FPSO companies had smaller 2024 revenue compared to MISC, but delivered better revenue growth. I think MISC's performance reflected its mixed business segments.

Table 1: Peer revenue

I compared MISC performance based on 4 metrics as shown in Charts 4 and 5. Overall, MISC’s performance was mixed relative to its global peers.

• I would rate MISC’s return on capital and levered free cash flow margin as average.

• It ranked No. 2 in terms of the EBIT margin.

• Its EPS trend line did not follow those of the 2 shipping companies. As such, MISC missed the post-2021 increases. 

While MISC performance did not stand out, it did not deliver the worst performance. 

Chart 4: Peer Return on Capital and EBIT Margin

Chart 5: Peer Levered Free Cash Flow Margin and EPS

Case Notes Peer comparison can be challenging when peers only overlap with part of a company’s business. In MISC’s case, no single peer fully mirrors its diverse portfolio across LNG shipping, petroleum shipping, offshore floating production (FPSOs), and marine engineering. Shipping companies such as Mitsui O.S.K. Lines and NYK Line offer good benchmarks for the shipping segments but lack comparable offshore production businesses. Conversely, FPSO operators like SBM Offshore and Yinson align with MISC’s offshore operations but have no exposure to shipping. As a result, differences in business mix, capital intensity, and earnings cyclicality must be considered when interpreting relative performance, as direct comparisons may not fully reflect the risk-return dynamics or strategic positioning of MISC. As you can see, there are many issues to consider when carrying out a fundamental analysis of companies in this sector. This requires expertise and time.  Visualizing a company’s business performance and investment risk (by comparing market price with intrinsic value) is one way to shortcut the process. The Fundamental Mapper helps investors make informed decisions as it provides such insights in an easy-to-see format. You can see the position of MISC as of 28 May 2025 in the Fundamental Mapper chart below. Download the Fundamental Mapper app now on Xifu to get investment insights into Bursa Malaysia companies PS: Generally, you should avoid investing in companies that fall into the Quicksand quadrant, unless you have conducted a detailed fundamental analysis. The Fundamental Mapper reflects business performance based on the past six years of results. Your analysis should assess whether the company's future performance is likely to improve compared to its historical track record. If you can establish a credible case for better future performance, then you have a valid basis for considering an investment.

Case Notes

Peer comparison can be challenging when peers only overlap with part of a company’s business.

In MISC’s case, no single peer fully mirrors its diverse portfolio across LNG shipping, petroleum shipping, offshore floating production (FPSOs), and marine engineering.

• Shipping companies such as Mitsui O.S.K. Lines and NYK Line offer good benchmarks for the shipping segments but lack comparable offshore production businesses.

• Conversely, FPSO operators like SBM Offshore and Yinson align with MISC’s offshore operations but have no exposure to shipping.

As a result, differences in business mix, capital intensity, and earnings cyclicality must be considered when interpreting relative performance, as direct comparisons may not fully reflect the risk-return dynamics or strategic positioning of MISC.

As you can see, there are many issues to consider when carrying out a fundamental analysis of companies in this sector. This requires expertise and time. 

Visualizing a company’s business performance and investment risk (by comparing market price with intrinsic value) is one way to shortcut the process. The Fundamental Mapper helps investors make informed decisions as it provides such insights in an easy-to-see format.

You can see the position of MISC as of 28 May 2025 in the Fundamental Mapper chart below.

Download the Fundamental Mapper app now on Xifu to get investment insights into Bursa Malaysia companies

PS: Generally, you should avoid investing in companies that fall into the Quicksand quadrant, unless you have conducted a detailed fundamental analysis. The Fundamental Mapper reflects business performance based on the past six years of results.

Your analysis should assess whether the company's future performance is likely to improve compared to its historical track record. If you can establish a credible case for better future performance, then you have a valid basis for considering an investment.

Case Notes

Peer comparison can be challenging when peers only overlap with part of a company’s business.

In MISC’s case, no single peer fully mirrors its diverse portfolio across LNG shipping, petroleum shipping, offshore floating production (FPSOs), and marine engineering.

• Shipping companies such as Mitsui O.S.K. Lines and NYK Line offer good benchmarks for the shipping segments but lack comparable offshore production businesses.

• Conversely, FPSO operators like SBM Offshore and Yinson align with MISC’s offshore operations but have no exposure to shipping.

As a result, differences in business mix, capital intensity, and earnings cyclicality must be considered when interpreting relative performance, as direct comparisons may not fully reflect the risk-return dynamics or strategic positioning of MISC.

As you can see, there are many issues to consider when carrying out a fundamental analysis of companies in this sector. This requires expertise and time. 

Visualizing a company’s business performance and investment risk (by comparing market price with intrinsic value) is one way to shortcut the process. The Fundamental Mapper helps investors make informed decisions as it provides such insights in an easy-to-see format.

You can see the position of MISC as of 28 May 2025 in the Fundamental Mapper chart below.

Download the Fundamental Mapper app now on Xifu to get investment insights into Bursa Malaysia companies

PS: Generally, you should avoid investing in companies that fall into the Quicksand quadrant, unless you have conducted a detailed fundamental analysis. The Fundamental Mapper reflects business performance based on the past six years of results.

Your analysis should assess whether the company's future performance is likely to improve compared to its historical track record. If you can establish a credible case for better future performance, then you have a valid basis for considering an investment.

Case Notes

Peer comparison can be challenging when peers only overlap with part of a company’s business.

In MISC’s case, no single peer fully mirrors its diverse portfolio across LNG shipping, petroleum shipping, offshore floating production (FPSOs), and marine engineering.

• Shipping companies such as Mitsui O.S.K. Lines and NYK Line offer good benchmarks for the shipping segments but lack comparable offshore production businesses.

• Conversely, FPSO operators like SBM Offshore and Yinson align with MISC’s offshore operations but have no exposure to shipping.

As a result, differences in business mix, capital intensity, and earnings cyclicality must be considered when interpreting relative performance, as direct comparisons may not fully reflect the risk-return dynamics or strategic positioning of MISC.

As you can see, there are many issues to consider when carrying out a fundamental analysis of companies in this sector. This requires expertise and time. 

Visualizing a company’s business performance and investment risk (by comparing market price with intrinsic value) is one way to shortcut the process. The Fundamental Mapper helps investors make informed decisions as it provides such insights in an easy-to-see format.

You can see the position of MISC as of 28 May 2025 in the Fundamental Mapper chart below.

Download the Fundamental Mapper app now on Xifu to get investment insights into Bursa Malaysia companies

PS: Generally, you should avoid investing in companies that fall into the Quicksand quadrant, unless you have conducted a detailed fundamental analysis. The Fundamental Mapper reflects business performance based on the past six years of results.

Your analysis should assess whether the company's future performance is likely to improve compared to its historical track record. If you can establish a credible case for better future performance, then you have a valid basis for considering an investment.

Financial position

I would consider the Group as financially strong.

• As of Dec 2024, it had RM 5.5 billion in cash. This is equal to 9 % of its total assets. 

• As of Dec 2024, it had a debt-equity ratio of 40 %. This has come down slightly from its 2019 high of 49 %.

• Over the past decade, it had an average 35 % Reinvestment rate (Reinvestment/NOPAT). This meant that a big part of the NOPAT could be returned to shareholders. Reinvestment = CAPEX & Acquisition – Depreciation & Amortization + increase in Net Working Capital.

• Over the past decade, it generated positive cash flow from operations every year. During this period, it generated RM 44.6 billion in cash flow from operations compared to the total PAT of RM 16.6 billion. This is a good cash flow conversion ratio.

• It had a good capital allocation plan. Refer to Table 2. The cash flow from operations was sufficient to fund its CAPEX.

Table 2: Sources and Uses of Funds 2015 to 2024

Valuation

My analysis showed that MISC is a mature company with a low revenue growth rate. The margins and costs seemed to have stabilized. I thus based my valuation on the single-stage Free Cash Flow to the Firm model with the following assumptions. 

• The base revenue would be the 2024 revenue with a 4% perpetual growth rate.

• The based contribution margin and capital turnover would be the 2021 to 2024 average values. 

• The Reinvestment rate would be based on the past decade's values.

• The fixed cost would be based on the 2022 to 2024 average values. This would increase at 4% annually in perpetuity. 

• The tax rate would be the decade’s average. This assumed that MISC would continue to enjoy the shipping tax exemption in perpetuity. 

On such a basis, I obtained an intrinsic value of RM 5.95 per share compared to its market price of RM 7.25 per share (25 Apr 2025). There is no margin of safety based on this Earnings Value.

However, MISC has a Book Value of RM 8.42 per share and an NTA of RM 8.21 per share as of Dec 2024. But even this Book Value only provided a 16% margin of safety.  

Valuation model

I valued MISC based on a single-stage valuation model, as shown in Table 3. The basic equations used in the model are:

Free Cash Flow to the Firm or FCFF = EBIT(1 – t) – Reinvestment.

EBIT = Revenue X Contribution margin – Fixed cost. The earning was based on the business model shown in the left part of Chart 1.

Reinvestment was derived from the Reinvestment margin.

Table 3: Sample calculation

The cost of funds was based on the first page results of a Google search for “MISC WACC”. Refer to Table 4.

Table 4: Estimating the cost of funds

Risks and limitations

Except for my tax assumption, I would like to think that my assumptions have not been aggressive. Chart 6 reflects this picture.

• The projected Free Cash Flow to the Firm is similar to that from a log-normal trendline. 

• The contribution margin was lower than the historical peak. 

Chart 6: History vs Projection

In the MISC case, we have the Earnings Value less than the Asset Value. According to Professor Bruce Greenwald, this implies an inefficient use of the assets.

Given this picture and my less-than-aggressive assumptions, you may think that there is potential upside. There are two efficiency possibilities:

• If the contribution margin and capital turnover were based on the past decade's average, all else being the same, the intrinsic value increases to RM 7.97 per share. 

• Over the past decade, fixed costs increased at 3.5 % CAGR compared to my assumption of 4.0 %. If I assumed the 3.5 % growth rate, all else being the same, the intrinsic value increases to RM 6.32 per share. 

A combination of the past decade's contribution margin and capital turnover, with 3.5 % fixed cost growth, would result in an intrinsic value of RM 8.34 per share. 

But if you are going to consider the upside, you have to remember the very low tax rate that I have assumed. 

Conclusion

MISC has evolved over the past decade into a diversified maritime energy solutions provider. It has strengthened its position in LNG shipping, offshore production, and marine engineering while aligning with global energy transition trends.

While revenue growth has improved in the latter half of the decade, profitability remains challenged by rising costs, competitive pressures, and a historically low return on capital. 

Nevertheless, the company’s gross profit and contribution margins appear to have stabilized.  Its cost structure is also relatively efficient, and its strong balance sheet provides financial resilience.

However, valuation-wise, there is no margin of safety based on its Earnings Value. This valuation was based on a mature, stable earnings profile and a continuation of its favourable tax rate. 

In short, while MISC represents a reasonably sound company with a strong asset base and predictable cash flows, I do not see it as an investment opportunity due to the lack of a margin of safety. 

Investment thesis

MISC’s evolution into an integrated energy solutions provider positions it well for long-term opportunities. This is driven by the energy transition, including rising demand for LNG, offshore production, and renewable infrastructure.

Although revenue growth was modest in the first half of the past decade, recent improvements and diversification have stabilized the Group’s gross profit and contribution margins.

Its strong balance sheet, consistently positive cash flows, and manageable reinvestment needs further enhance its resilience. However, the current valuation does not offer a sufficient margin of safety, warranting caution for new investments.

Case Notes An investment thesis is a vital tool for any investor because it provides clarity, focus, and direction in decision-making. Learning how to draft an investment thesis is crucial for investors, especially those who want to make well-informed, rational, and successful investment decisions.  It defines your reasoning. A clear thesis encourages disciplined decision-making. It helps assess risks. It provides a benchmark to evaluate whether the investment is performing as expected. An investment thesis is not set in stone - it is a living document. If the facts change, you can update your thesis or adjust your investment accordingly. This approach keeps you grounded and aligned with your investment principles.

Case Notes

An investment thesis is a vital tool for any investor because it provides clarity, focus, and direction in decision-making. Learning how to draft an investment thesis is crucial for investors, especially those who want to make well-informed, rational, and successful investment decisions. 

• It defines your reasoning.

• A clear thesis encourages disciplined decision-making.

• It helps assess risks.

• It provides a benchmark to evaluate whether the investment is performing as expected.

An investment thesis is not set in stone - it is a living document. If the facts change, you can update your thesis or adjust your investment accordingly. This approach keeps you grounded and aligned with your investment principles.

Case Notes

An investment thesis is a vital tool for any investor because it provides clarity, focus, and direction in decision-making. Learning how to draft an investment thesis is crucial for investors, especially those who want to make well-informed, rational, and successful investment decisions. 

• It defines your reasoning.

• A clear thesis encourages disciplined decision-making.

• It helps assess risks.

• It provides a benchmark to evaluate whether the investment is performing as expected.

An investment thesis is not set in stone - it is a living document. If the facts change, you can update your thesis or adjust your investment accordingly. This approach keeps you grounded and aligned with your investment principles.

Case Notes

An investment thesis is a vital tool for any investor because it provides clarity, focus, and direction in decision-making. Learning how to draft an investment thesis is crucial for investors, especially those who want to make well-informed, rational, and successful investment decisions. 

• It defines your reasoning.

• A clear thesis encourages disciplined decision-making.

• It helps assess risks.

• It provides a benchmark to evaluate whether the investment is performing as expected.

An investment thesis is not set in stone - it is a living document. If the facts change, you can update your thesis or adjust your investment accordingly. This approach keeps you grounded and aligned with your investment principles.

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If the above article was useful, you can find more insights on how to make money in my e-book. The e-book is now available from Amazon, Kobo and Google Play.

PS: If you are in Malaysia or Singapore, the e-book can only be download from Kobo and Google Play. 

Disclaimer & Disclosure

I am not an investment adviser, security analyst, or stockbroker.  The contents are meant for educational purposes and should not be taken as any recommendation to purchase or dispose of shares in the featured companies.   Investments or strategies mentioned on this website may not be suitable for you and you should have your own independent decision regarding them. 

The opinions expressed here are based on information I consider reliable but I do not warrant its completeness or accuracy and should not be relied on as such. 

I may have equity interests in some of the companies featured.

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