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Edited Transcript of MISC.KL earnings conference call or presentation 18-Feb-20 10:59am GMT

Q4 2019 MISC Bhd Earnings Call

Kuala Lumpur Mar 5, 2020 (Thomson StreetEvents) -- Edited Transcript of MISC Bhd earnings conference call or presentation Tuesday, February 18, 2020 at 10:59:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Eslin Halimi

MISC Berhad - Head of Financial Reporting, Governance & Budget, Finance

* Rozainah Binti Awang

MISC Berhad - General Manager of CPD

* Vincent Ng

MISC Berhad - General Manager of CPD

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Conference Call Participants

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* Adam Rahim Mohamed

MIDF Amanah Investment Bank Berhad, Research Division - Research Analyst

* Ajay Mirchandani

JP Morgan Chase & Co, Research Division - Senior Analyst

* Ben Shane Lim

Macquarie Research - Research Analyst

* Ho Meng Kong

UOB Kay Hian Research Pte Ltd - Senior Analyst

* Jianyuan Tan

Affin Hwang Investment Bank Berhad, Research Division - Analyst

* Khir Peng Goh

AmBank Group Research - Research Analyst

* Kok Hoe Yap

CIMB Research - Regional Head of Transportation

* Stephanie Cheah

CLSA Limited, Research Division - Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, welcome to MISC's Fourth Quarter Financial Year 2019 Analyst Briefing Conference call.

Rozainah from MISC Investor Relations team will run through the agenda for today's briefing. Rozainah, over to you.

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Rozainah Binti Awang, MISC Berhad - General Manager of CPD [2]

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Thank you, Akarin. A very good evening, ladies and gentlemen. Thank you for participating in our fourth quarter financial year 2019 analyst briefing. We have with us today Mr. Raja Azlan Bin Raja Azwa, VP Finance; [Ms.] Eslin Halimi, Chief Financial Reporting, Governance and Budget, Finance; Mr. Emran Othman, VP, Corporate Planning; Mr. Vincent Ng, General Manager, Corporate Planning.

Before we start the session with the presentation on the quarter's performance, we would like to take this opportunity to provide you some information on the impact of COVID-19 or coronavirus outbreak to MISC's business. This info will be presented by Mr. Vincent Ng. Vincent, over to you.

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Vincent Ng, MISC Berhad - General Manager of CPD [3]

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Thanks, Rozainah. We thought that we should start this briefing with the so-called hot topic of the day. This is on the COVID-19. So I guess, some of you will have questions anyway. So I would give a quick briefing, and then you can keep your questions to us at the end of session.

Okay. I think to start this, let's start with the overall exposure of MISC to China. I think that's the right place to look at things in perspective. To give you some information, the number of vessels that we have trading with China is quite minimal. And generally, that is the main backdrop. Also that -- just to report that we do not have any of our staff who have tested positive for the coronavirus. So at the moment, the impact to us is quite limited.

But just to give you a bit more detail on that. I start with the operational impacts. So the operational impacts will impact those ships that are going to or coming from China. And a number of safety measures have been put in place, including we have no crew changes in -- or shore leaves in China at the moment. We have suspended that. And shore leaves and crew changes can only happen 14 days after departure from the last port in China. We are not procuring any provisions in China at the moment. We are not signing on any Chinese seafarers for the time being. That's been put on hold. We are disinfecting all the accommodation spaces after departure from the last port in China. There are regular temperature checks on the crew to make sure that they're not infected. And we have also suspended any repairs, maintenance and drydockings in China since the outbreak started. So that's on the operational side.

In terms of the commercial, as I mentioned, we do not have that many vessels involved in China trade. Mainly this -- we have a few chemical vessels doing spot trading. The other vessels that are engaged in China trade are all on time charter to non-Chinese charterers, right? So under the time charter, as you know, there are limited commercial risks because our revenues are on a daily rate basis from the charterers. And typically, those laterals are not restricted to trading in China. They are what we consider to be capable for worldwide trading. They can trade anywhere in the world.

So generally, we feel that the commercial risk to us is quite limited, right? However, of course, we know that if the outbreak is prolonged or there are -- it gets worse, there are impacts to demand for oil and gas, which indirectly will affect the shipping market. So that, obviously, we have to wait and see to see how severe that turns out to be.

In the short term, there could be some other offsetting effects that you may want to consider because there could be some stockpiling of crude oil by some of the parties. Some of the tankers that are currently [available] could be used for storage of oil, and this may reduce some of the supply of vessels in the market. There could be some vessels that are delayed from the shipyards in China. As a result, that could have also some impact to manage capacity. So those are slightly offsetting effects to the main impact of reduced demand for oil and gas.

So I think I'll summarize that as the main impact for us. If you have any questions, I think we will take them at the end of the session. For the time being, I'll pass you back to Rozainah.

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Rozainah Binti Awang, MISC Berhad - General Manager of CPD [4]

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Thank you, Vincent. We will now proceed with the presentation on financial highlights for the quarter's performance, which will be presented by [Ms. Eslin], followed by market outlook and business update by Mr. Vincent. At the end of the presentation, we will open the line for a Q&A session. Our event manager will later provide instructions on the Q&A process.

Before we start with the presentation, I would like to bring your attention to the disclaimer slide. During the presentation, we may make some forward-looking statements in reference to our plans and expectations, and actual results will differ due to unknown risks, uncertainties and other factors that are, in many cases, beyond MISC's control.

With that, I pass the session to [Ms.] Eslin for our next agenda to update on MISC's fourth quarter financial year 2019 financial performance. Ms. Eslin, over to you.

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Eslin Halimi, MISC Berhad - Head of Financial Reporting, Governance & Budget, Finance [5]

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Good evening. Thank you, Rozainah. Thank you to the participants for joining MISC Berhad's Quarter 4 FY 2019 Analyst Briefing. I'll bring your attention to Page 3 of our AB pack. Higher revenue for the quarter, mainly due to higher revenue from Petroleum segment as a result of higher TCE for VLCC and [Suezmax tankers]. Higher revenue also contributed by the Offshore segment due to onetime reimbursement cost on upgrading works as well as higher revenue from Heavy Engineering segment, mainly contributed by increase in revenue from Marine segment.

Higher PBT from operations during the quarter was due to higher revenue, as mentioned above. For the nonrecurring items during the current quarter, there was an impairment of Petroleum, LNG and Offshore vessels. Whereas in previous quarter, there was an impairment/loss on disposal of 7 A Class vessels, which you may refer to our Bursa announcement.

Refer to Page 4 of our AB pack. Lower revenue coming from Petroleum segment mainly due to lower earning days as a result of vessels' redelivery as well as disposal of petroleum vessels since quarter 4 2018. Lower profit from operations recorded during the quarter, mainly due to in previous corresponding quarter, there was a one-off gain due to FSO Ruby II contract extension.

Page 5 of our AB pack. Cash flow from operations continuously recorded an equal level comparing between preceding and corresponding quarter, mainly due to the commencement of FSO Mekar Bergading since quarter 3 2018; higher margins from AET; as well as acquisitions of 2 LNG carriers, one each in December 2018 and January 2019.

On Page 6, our debt balance is hovering around USD 3 billion throughout the quarter. This is mainly due to the quarterly repayment and drawdown for the project, which is in the pipeline.

Now we're moving on to financial performance by business segments. Before I proceed further, I would like to highlight that profit before tax is actually inclusive of the nonrecurring items.

On Page 7, for LNG Shipping segment, revenue and profit before tax was quite stable between comparative quarters. Higher revenue and profit before tax since quarter 4 2018 were mainly due to higher number of operating vessels, following acquisition of 2 LNG carriers, one each in December '18 and Jan 2019. At the same time, there was a redeployment of vessels, which was previously on charter suspension.

On Page 8 for Petroleum Shipping segment. Lower revenue recorded as compared to corresponding quarter, mainly due to lower earning base as the result of lower number of operating vessels. However, the lower PBT for Petroleum Segment as compared to preceding and corresponding quarters, mainly due to higher blended TCE rates and lower ship operating costs as a result of lower number of vessels, as mentioned above.

We move on to Page 9 for Offshore business. Higher revenue reported as compared to preceding and corresponding quarter, mainly due to the onetime reimbursement costs on upgrading work. In addition, profit before tax was lower as compared to preceding quarter, mainly due to impairment of assets and demobilization costs incurred in current quarter, whereas lower profit before tax recorded as compared to corresponding quarter, mainly due to impairment of assets and demobilization costs, as mentioned above. However, this was offset by a one-off gain due to FSO Ruby II contract extension in previous corresponding quarter.

And finally, in the last segment on Page 10, formally -- for Heavy Engineering segment. Higher revenue recorded for both preceding and corresponding quarters, mainly due to increased revenue from Marine segment. In addition, Heavy Engineering segment recorded a profit before tax mainly due to improved performance in the Marine segment, as mentioned above.

I will now pass to Vincent for market environment and business update.

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Vincent Ng, MISC Berhad - General Manager of CPD [6]

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Thank you, Eslin. As usual, we will start with the LNG Shipping segment. Not surprisingly, the LNG spot rates in the fourth quarter continued to rise after the third quarter rises, and they achieved above $100,000 per day rate. This is mainly due to seasonal factors. At the same time, there were also the question -- or rather the effect of the U.S. sanction on the COSCO-linked vessels and Typhoon Hagibis, which also tightened the availability of vessels.

On Page 13. You can see that the picture between the quarters, so quarter 3, quarter 4 hasn't really changed very much. The number of new deliveries in 2019 for the whole year was 38, which was lower than 2018 of 52 units. In 2020, the number of deliveries will about -- will be about the same, 37 vessels, but it will rise in 2021. So I think this reflects the continued growth of liquefaction capacity that's coming on stream over the next few years.

Turning to the Petroleum segment. Looking at the charter rates. As you can see also, charter rates are very healthy across all segments, reaching the highest level since 2016, mainly driven primarily by VLCC and also cutting across the Suezmax and Aframax. Some of the main reasons are same as for LNG. It was the winter season, sanctions by the U.S. on the COSCO tankers. And there were also some effects from the IMO 2020 regulation, where refineries sought more crude oil to ramp up their production of compliant fuel. And also, there were some tankers that were taken off the market for scrubber retrofitting.

In terms of -- the next slide, I'll be showing the deliveries and also scrapping. You can see that in 2019, there was a high level of deliveries and hardly any scrapping, as a result of which there was expansion in the fleet during 2019. However, looking forward, you can see that in 2020, the order book is much smaller. The number of deliveries expected in 2020 will drop quite a little bit. It's not known yet about the scrapping for 2020. However, there could be some price offset following the implementation of IMO 2020. Overall, this trend, I hope, goes well for charter rigs in the Petroleum segment.

On Page 16 for the Offshore segment. Although there has been a softening of [crude] oil prices in 2019, the expectation going forward is still that it will remain relatively conducive for investment. And as a result, we should expect that there will be continued investment in offshore projects, including -- in floating production systems. So you can see here that for 2020, we expect a larger number of floater awards compared to 2019. 28 of the different vessels compared to 22 in 2019.

If you look into the next slide, Page 17, this shows the distribution of the expected awards for 2020. As you -- as was the same picture last quarter, the largest number will come from Brazil. The expected number of awards in Brazil for 2020 is 8, which is an increased effect to the previous projection that we had, which was for 2019, it was 4. So we expect more to come out of Brazil for 2020.

So I think that concludes the market environment. I will now move on to business update. For the fourth quarter, our LNG team continues to explore new opportunities, both in conventional as well as nonconventional segments. At the moment, our LNG fleet comprises 31 assets, of which 27 are on long-term charters, while 4 are on short-term charters. In addition, we will have 4 more LNGCs joining the operating fleet between 2021 and 2023, bringing the total LNG fleet to 35 assets.

As for the Petroleum segment, during the quarter, the portfolio mix was at 72% to 28% term to spot. This is partly due to the reduced number of vessels in operation after the disposal of the chemical vessels, chemical tankers, which was previously deployed in spot. Also, all our VLCCs and 3 of our MRs were fixed on time charters in the fourth quarter to minimize earnings volatility.

During the quarter, AET won a long-term charter for 3 DPSTs for Shell Brazil. The charter is expected to commence in 2022. As you will recall, in quarter 3, AET entered into an agreement with Maersk Tankers to sell 7 A Class chemical vessels. One vessel was delivered in the third quarter, 4 in fourth quarter. And the remaining 2 will be delivered in the first quarter of 2020. We also redelivered 2 of our L Class in chartered chemical tankers during the fourth quarter.

As an update, I think you will know that we also announced early in February, this month, we -- the award of 3 more DPST contracts by Petrobras with charters also commencing in 2022.

Just to summarize our picture for Petroleum. We had 13 DPSTs on order that include the 3 that was announced in February, all of which were backed by some charters from Equinor, Petrobras and Shell, and this is to be delivered between 2020 and 2022. This will bring our total DPST fleet to 17 assets by the time ordered DPSTs are delivered. As you know, our main strategy for the Petroleum segment is to grow our secured income, and DPSTs will go a long way towards being -- making the Petroleum segment more resilient against the cyclicality of the spot market.

Moving on to Offshore. We continue to pursue new business for FPSOs, FSOs and MOPUs in Asia Pacific as well as the Atlantic Basin. And in the meantime, our Offshore segment's income will be underpinned by its existing portfolio of long-term contracts.

During the quarter, FSO Angsi contract expired on 31st December 2019, expected to be demobilized. FSO Cendor was scrapped in December 2019 as well.

In terms of the legal cases for the Gumusut Kakap arbitration, there is no further update in the quarter. We are waiting for a decision sometime this year.

For the PCPP - MOMPL case, for the arbitration, the latest update is that MOMPL has withdrawn its arbitration Notice #2 in order to commence good faith negotiations with PCPP.

As for the adjudication, in view of the recent Federal Court decision ruling that CIPAA, Construction Industry Payment and Adjudication, which only applies to contracts entered after 15th April 2014. As a result, the MOMPL lease agreement would fall outside as it is dated in 2008. As a result, MOMPL will stay its hand on moving forward for enforcement of the adjudication decision and will focus on the arbitration proceedings to recover the monies owed by PCPP.

On the next slide, Page 21, for the proceedings in court. The first point on the undisputed portion of early termination fees and demobilization costs, but there is no new development during the quarter. As for the writ action against the shareholders of PCPP, the latest update is that MOMPL's appeal against PCPP stay application will be heard on 19 June 2020.

Moving on to the Heavy Engineering segment, which is on Page 22. During the quarter, Heavy Engineering Offshore segment secured the EPCC of Bergading Mercury Removal Unit module and also an EPCIC contract for Bekok Oil Project, both Bekok A and B.

The order book backlog as at December is MYR 3 billion, and approximately MYR 12.9 billion worth of Heavy Engineering tenders were submitted as of December 2019. So for the Heavy Engineering section, we will continue pursuing business of -- the existing business of Marine & Heavy Engineering and also expand its marine capacity through the additional new dry dock base coming on stream in 2020. At the same time, it's also exploring new business opportunities, namely modular fabrication and offshore wind farms.

I think that concludes the session from me. I'll pass you back to Rozainah.

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Rozainah Binti Awang, MISC Berhad - General Manager of CPD [7]

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Thank you, Eslin and Vincent, for the presentation on financial performance and business update. With the completion of the presentation, I would now like to hand over the call to the event manager, who will guide and manage the Q&A session. Akarin, over to you.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question, Ajay from JPMorgan.

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Ajay Mirchandani, JP Morgan Chase & Co, Research Division - Senior Analyst [2]

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Three questions from me. The first one was specifically on the petroleum tanker division. Could you walk us through, of the 28% vessels which are on spot, what type of vessels these are? You did mention all the VLCCs were contracted in Q4. If you could give us a sense of the vessel type as well as how many vessels would be coming off their incumbent contracts in terms of number of vessels in Q1 2020 and Q2 2020, that would be helpful.

The second question, I just wanted to clarify specifically on the vessel impairments you've done in the quarter. Can you remind us which vessels these were and how many in terms of numbers and which segment?

And thirdly and lastly, just in terms of the FPSO market, could you maybe walk us through how we should be thinking about Limbayong and Mero-3 in terms of your confidence in terms of winning? And any other jobs we should be keeping an eye on?

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Vincent Ng, MISC Berhad - General Manager of CPD [3]

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Okay. Taking the first question regarding the term to spot ratio. For the VLCCs for fourth quarter, it was 100% on term. For Aframax, it was 74% on term. Suezmax, it was 44% on term. And chemical was 52% on term. I'm not able to share with you exactly which are coming off spot or term during first quarter.

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Ajay Mirchandani, JP Morgan Chase & Co, Research Division - Senior Analyst [4]

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But if you could give us a rough sense of number of vessels, at least, that we should expect coming off-line in Q1 and Q2.

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Vincent Ng, MISC Berhad - General Manager of CPD [5]

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We don't have that information with us to share.

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Ajay Mirchandani, JP Morgan Chase & Co, Research Division - Senior Analyst [6]

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Understand.

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Vincent Ng, MISC Berhad - General Manager of CPD [7]

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Okay. I will pass you over to Eslin for the second question on impairment.

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Eslin Halimi, MISC Berhad - Head of Financial Reporting, Governance & Budget, Finance [8]

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Can you repeat the question for the vessel impairment? What do you want to know? Number of vessels?

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Ajay Mirchandani, JP Morgan Chase & Co, Research Division - Senior Analyst [9]

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So I wanted to get a sense of the divisions that the impairments have been seeing. Is it petroleum versus offshore versus LNG? And the second was specifically in terms of number of vessels and type of vessels that have been impaired here.

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Eslin Halimi, MISC Berhad - Head of Financial Reporting, Governance & Budget, Finance [10]

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The impairment is actually -- belongs to LNG segment, not Petroleum segment as well as Offshore segment. I think (inaudible).

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Ajay Mirchandani, JP Morgan Chase & Co, Research Division - Senior Analyst [11]

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So all 3?

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Eslin Halimi, MISC Berhad - Head of Financial Reporting, Governance & Budget, Finance [12]

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Yes. All 3, yes. All 3 segments.

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Ajay Mirchandani, JP Morgan Chase & Co, Research Division - Senior Analyst [13]

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But would you give me roughly a sense? Is it equal or is it largely related to Offshore, largely related to Petroleum?

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Eslin Halimi, MISC Berhad - Head of Financial Reporting, Governance & Budget, Finance [14]

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For which quarter? Is it for quarter 4?

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Ajay Mirchandani, JP Morgan Chase & Co, Research Division - Senior Analyst [15]

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For Q4. Q4.

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Eslin Halimi, MISC Berhad - Head of Financial Reporting, Governance & Budget, Finance [16]

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Largely contributed by Petroleum segment.

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Ajay Mirchandani, JP Morgan Chase & Co, Research Division - Senior Analyst [17]

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What vessels are we talking about here?

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Rozainah Binti Awang, MISC Berhad - General Manager of CPD [18]

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Chemical vessels.

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Eslin Halimi, MISC Berhad - Head of Financial Reporting, Governance & Budget, Finance [19]

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Yes. The one that I...

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Rozainah Binti Awang, MISC Berhad - General Manager of CPD [20]

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The ones that were delivered to Maersk.

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Ajay Mirchandani, JP Morgan Chase & Co, Research Division - Senior Analyst [21]

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So just to clarify because you did have something in Q3 as well. So just to be clear, the Q3 one was all largely chemical tankers, and you've continued to have some of them in Q4 as well?

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Vincent Ng, MISC Berhad - General Manager of CPD [22]

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Yes. Okay. Just to clarify a little bit on Rozainah's statement. The chemical vessels here refer to the, in-charter vessels, the L class that will be delivered during the quarter. We had 2 vessels in my presentation that we delivered during the quarter. These are in-charter vessel. So as a result of those redeliveries, there was some impairment.

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Ajay Mirchandani, JP Morgan Chase & Co, Research Division - Senior Analyst [23]

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Okay. Understood. And just lastly, on the FPSO question?

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Vincent Ng, MISC Berhad - General Manager of CPD [24]

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I think you asked about 2 FPSO that currently is -- that MISC is [bidding. Of course, Limbayong, currently], we have some (inaudible). And today, we are still waiting for feedback from the client. As for Mero-3, the team is gearing up for the bid submissions. And I think we have been mentioning this in some of our briefing that the EPCs for Mero-3, we are looking very closely with Sembcorp and Siemens.

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Ajay Mirchandani, JP Morgan Chase & Co, Research Division - Senior Analyst [25]

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Understand. And just lastly if I may. Given the big drop in tanker rates, how should we be thinking about that impact for your business in the first half of 2020? You have largely contract rates for your portfolio, but any quick commentary on how we should think about that kind of financial impact for the first half of 2020?

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Vincent Ng, MISC Berhad - General Manager of CPD [26]

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I think we can't see that far here into the first half. But for immediate -- looking at the immediate effect, as I mentioned, a lot of our vessels are on time charter. So we don't see any major impact immediately, unless huge drops in -- or time charter rates across the board for a prolonged period. So for LNG (inaudible) time charter as well. So those are for long-term contracts.

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Operator [27]

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Our next question, Alex Goh from Am Research.

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Khir Peng Goh, AmBank Group Research - Research Analyst [28]

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I have 3 questions. The first one is regarding the Petroleum segment. You've indicated that the petroleum days have -- are reduced. Could you tell us how many days has it fallen short off? And which vessels were redesignated because of this that caused the lower number of days? That's my first question.

My second question is on your associate contribution. It has dropped quite significantly from the third quarter to the fourth quarter. Could you just run through it with us what was the cause of that drop in associate contributions?

And my third question is regarding the COVID-19. Now we've seen that tanker rates have dropped quite significantly from December until now. And I'm just wondering, how much of that is due to seasonality? And how much of that is due to the impact of the COVID-19? Could you just give us a feel of how is that affecting charter rates, not just in China but perhaps globally? Is there any impact of the -- of a less [rate] or less -- or oversupply of vessels now that the China vessels are affected?

The other piece, does this also affect offshore projects in terms of the projects that you are expecting to reach final investment decisions? Do you get a feel that the clients are deferring on the go-ahead for these projects?

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Vincent Ng, MISC Berhad - General Manager of CPD [29]

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Okay. I think the -- it's quite a long -- we might ask you to recap the questions again. But let me go back to the first question, lower number of days, right, operating days. I think broadly speaking, what we mean is that the number of vessels, because of the disposals, we actually reduced our fleet by -- petroleum fleet by 6 vessels during the quarter. Four were delivered to Maersk and 2 were redelivered -- being in-charter vessels. So those were the vessels that contributed to the overall reduction in trading days during the quarter. So basically the -- our fleet has reduced in size. So the [effect is that]. Does that address your question?

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Khir Peng Goh, AmBank Group Research - Research Analyst [30]

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Yes, sure. Now I'm just wondering, why did these 2 vessels that were in-charter, what did you need to make a provision for that -- or impairment on that? I mean these are presumably new vessels.

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Vincent Ng, MISC Berhad - General Manager of CPD [31]

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They are not new vessels. I think the decision was made because our chemical fleet has not been performing well for some time, and we were -- actually, some of these vessels were also underperforming. As a result, we took a decision to take the cut. We take a cut loss in this year rather than impair our performance going forward towards the end of their normal -- the charter period. Associated. You asked about...

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Unidentified Company Representative, [32]

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The JV.

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Khir Peng Goh, AmBank Group Research - Research Analyst [33]

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Yes. Associate performance.

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Eslin Halimi, MISC Berhad - Head of Financial Reporting, Governance & Budget, Finance [34]

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Okay. The share of profit dropped between quarter 4 2019 versus quarter 4 2018, mainly due to the onetime gain from the FSO Ruby contract extension as well as there are some repair and maintenance cost which was recorded in the previous quarter for one of our JV companies.

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Khir Peng Goh, AmBank Group Research - Research Analyst [35]

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So would you say that the fourth quarter is the actual run rate for your group?

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Unidentified Company Representative, [36]

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What do you mean by that? Can you repeat your question, please?

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Khir Peng Goh, AmBank Group Research - Research Analyst [37]

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The fourth quarter, would that be the recurring income that you normally see from your -- for your associates?

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Unidentified Company Representative, [38]

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No. I think there would have been some one-off items there as well. We just compared the previous year to the current year. Previous year was about MYR 280 million versus current year of MYR 250 million. And in both this year, they were one-off items.

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Khir Peng Goh, AmBank Group Research - Research Analyst [39]

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How much were the one-off items in both?

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Unidentified Company Representative, [40]

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This was the Ruby, right? There was about USD 13 million for Ruby extension in 2018, USD 10 million this year. And also, we had a contract, this is USD, contract extension for (inaudible) of about USD 9 million in the prior year. So that means last year was probably about USD 22 million. This year, it was about USD 10 million. And on top of that, there was the reimbursement of costs, right, for the Brazilian asset.

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Khir Peng Goh, AmBank Group Research - Research Analyst [41]

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Okay. So you would say that the one-off item is about, what, USD 30 million for the fourth quarter, is it?

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Unidentified Company Representative, [42]

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No, no, no. For the whole year last year, there was probably about USD 30 million one-off items in certain the JV numbers. Whereas this year, there's probably about USD 11 million, right?

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Khir Peng Goh, AmBank Group Research - Research Analyst [43]

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Okay. When you say this year, you are referring to 2019, is it?

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Unidentified Company Representative, [44]

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Correct.

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Vincent Ng, MISC Berhad - General Manager of CPD [45]

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Okay. I -- to address your last question, let me recap, you wanted to know the [recurring sales] (inaudible), how much was it due to seasonality versus COVID-19. It's a very difficult question to answer, I can only point you to the rates for January that probably because the COVID thing probably, caught a lot of attention to us end of January onwards. So for the whole month of January, we can see that the VLCC rates fell by 25%, Aframax by 23% compared to December. So maybe that gives a view of the seasonal -- more of the seasonal impact in that number. Any further falls may also have been contributed by the COVID-19 impacts. So -- but otherwise, I think it's very difficult to separate the 2.

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Khir Peng Goh, AmBank Group Research - Research Analyst [46]

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Okay. And for your offshore projects?

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Vincent Ng, MISC Berhad - General Manager of CPD [47]

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Offshore projects are mainly driven by oil prices. I think the question is whether if the coronavirus outbreak can be contained within a few months, I don't think that will be significantly affecting the long-term view of oil prices. Secondly, I think the -- from the South American Basin, I mean, they are less affected by -- directly by China event.

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Operator [48]

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Our next question, Ben from Macquarie.

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Ben Shane Lim, Macquarie Research - Research Analyst [49]

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I just -- I have a question on the demobilization costs. I can see if I add up all the one-offs in your presentation slides, it kind of adds up to the impairment losses for the fourth quarter, about 113 million, 114 million. So does this one-off in your slides exclude then the demobilization costs? How should we think about that?

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Eslin Halimi, MISC Berhad - Head of Financial Reporting, Governance & Budget, Finance [50]

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Yes. Demobilization cost is put under the profit before tax, which is our normal operation. And it's not a one-off item. That is how we classify this demobilization.

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Ben Shane Lim, Macquarie Research - Research Analyst [51]

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I see. How much was the demobilization costs?

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Eslin Halimi, MISC Berhad - Head of Financial Reporting, Governance & Budget, Finance [52]

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Teens. Mid-teens.

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Ben Shane Lim, Macquarie Research - Research Analyst [53]

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Mid-teens dollars?

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Eslin Halimi, MISC Berhad - Head of Financial Reporting, Governance & Budget, Finance [54]

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Yes.

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Ben Shane Lim, Macquarie Research - Research Analyst [55]

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Okay. Then you are going to have more demobilization costs in first quarter, am I right? Could you give us a sense of how much that is?

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Eslin Halimi, MISC Berhad - Head of Financial Reporting, Governance & Budget, Finance [56]

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Not that I'm aware of.

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Ben Shane Lim, Macquarie Research - Research Analyst [57]

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For FSO Angsi? I think it was mentioned that some demobilization costs in one -- in first quarter.

--------------------------------------------------------------------------------

Unidentified Company Representative, [58]

--------------------------------------------------------------------------------

That was not mentioned.

--------------------------------------------------------------------------------

Eslin Halimi, MISC Berhad - Head of Financial Reporting, Governance & Budget, Finance [59]

--------------------------------------------------------------------------------

This is the one that we are talking about, relating to Angsi.

--------------------------------------------------------------------------------

Ben Shane Lim, Macquarie Research - Research Analyst [60]

--------------------------------------------------------------------------------

The fourth quarter demobilization cost is for Angsi?

--------------------------------------------------------------------------------

Eslin Halimi, MISC Berhad - Head of Financial Reporting, Governance & Budget, Finance [61]

--------------------------------------------------------------------------------

Yes.

--------------------------------------------------------------------------------

Ben Shane Lim, Macquarie Research - Research Analyst [62]

--------------------------------------------------------------------------------

But the contracts, by it, in 31st December, so -- but the cost was recognized in the fourth quarter?

--------------------------------------------------------------------------------

Unidentified Company Representative, [63]

--------------------------------------------------------------------------------

It's a provision.

--------------------------------------------------------------------------------

Eslin Halimi, MISC Berhad - Head of Financial Reporting, Governance & Budget, Finance [64]

--------------------------------------------------------------------------------

It's just a provision.

--------------------------------------------------------------------------------

Ben Shane Lim, Macquarie Research - Research Analyst [65]

--------------------------------------------------------------------------------

I see. Okay. So no more demobilization costs in the first quarter, is that right?

--------------------------------------------------------------------------------

Unidentified Company Representative, [66]

--------------------------------------------------------------------------------

No.

--------------------------------------------------------------------------------

Eslin Halimi, MISC Berhad - Head of Financial Reporting, Governance & Budget, Finance [67]

--------------------------------------------------------------------------------

There will be no. Yes.

--------------------------------------------------------------------------------

Ben Shane Lim, Macquarie Research - Research Analyst [68]

--------------------------------------------------------------------------------

Okay. Just moving on to the chemical tankers. Could you give us a sense of how much losses the chemical tankers were costing you? And by extension, how much savings you'll see, so to speak, next year, following the disposals?

--------------------------------------------------------------------------------

Vincent Ng, MISC Berhad - General Manager of CPD [69]

--------------------------------------------------------------------------------

I think we can use the figure of USD 5 million per quarter.

--------------------------------------------------------------------------------

Ben Shane Lim, Macquarie Research - Research Analyst [70]

--------------------------------------------------------------------------------

Okay. And you mentioned that the bulk of the impairments was for the chemical tankers. But could you give us a sense of how much of the impairments was for that? I mean, could you give a number for each segment? How much the impairments were?

--------------------------------------------------------------------------------

Eslin Halimi, MISC Berhad - Head of Financial Reporting, Governance & Budget, Finance [71]

--------------------------------------------------------------------------------

Can you repeat the question?

--------------------------------------------------------------------------------

Ben Shane Lim, Macquarie Research - Research Analyst [72]

--------------------------------------------------------------------------------

Could you give us a breakdown of the asset impairments by segment?

--------------------------------------------------------------------------------

Vincent Ng, MISC Berhad - General Manager of CPD [73]

--------------------------------------------------------------------------------

Yes. Basically, 60% would have come from the Petroleum, then roughly about 30% coming from Offshore, then the balance coming from LNG.

--------------------------------------------------------------------------------

Ben Shane Lim, Macquarie Research - Research Analyst [74]

--------------------------------------------------------------------------------

Okay. May I ask why you're impairing the Offshore and LNG segments?

--------------------------------------------------------------------------------

Vincent Ng, MISC Berhad - General Manager of CPD [75]

--------------------------------------------------------------------------------

These are normal review of assets approaching expiry, where we need to assess the value and use. And if the fair value is impaired, then we have to [make an adjustment].

--------------------------------------------------------------------------------

Ben Shane Lim, Macquarie Research - Research Analyst [76]

--------------------------------------------------------------------------------

Okay. All right. Very quickly on the LNG segment, you mentioned lower dry docking days. Any number you can put to it so we -- just so we know what the normalized rate should be?

--------------------------------------------------------------------------------

Vincent Ng, MISC Berhad - General Manager of CPD [77]

--------------------------------------------------------------------------------

It's -- let me see that. Yes, it's less than 120 days.

--------------------------------------------------------------------------------

Ben Shane Lim, Macquarie Research - Research Analyst [78]

--------------------------------------------------------------------------------

For the -- sorry, for the fourth quarter?

--------------------------------------------------------------------------------

Vincent Ng, MISC Berhad - General Manager of CPD [79]

--------------------------------------------------------------------------------

That's right.

--------------------------------------------------------------------------------

Ben Shane Lim, Macquarie Research - Research Analyst [80]

--------------------------------------------------------------------------------

Sorry, the drydocking was less than 120 days in the fourth quarter?

--------------------------------------------------------------------------------

Vincent Ng, MISC Berhad - General Manager of CPD [81]

--------------------------------------------------------------------------------

Yes.

--------------------------------------------------------------------------------

Ben Shane Lim, Macquarie Research - Research Analyst [82]

--------------------------------------------------------------------------------

What was it averaging for the first 9 months, for example?

--------------------------------------------------------------------------------

Vincent Ng, MISC Berhad - General Manager of CPD [83]

--------------------------------------------------------------------------------

[Thereabouts.]

--------------------------------------------------------------------------------

Ben Shane Lim, Macquarie Research - Research Analyst [84]

--------------------------------------------------------------------------------

So the fourth quarter was not exception in terms of the dry docking?

--------------------------------------------------------------------------------

Vincent Ng, MISC Berhad - General Manager of CPD [85]

--------------------------------------------------------------------------------

Yes. It was slightly lower than the third quarter, but it was comparable to the first and second quarter.

--------------------------------------------------------------------------------

Ben Shane Lim, Macquarie Research - Research Analyst [86]

--------------------------------------------------------------------------------

Okay. And I just want to check. Do you have any LNG charters due for rollover in the next 6 months?

--------------------------------------------------------------------------------

Vincent Ng, MISC Berhad - General Manager of CPD [87]

--------------------------------------------------------------------------------

No.

--------------------------------------------------------------------------------

Ben Shane Lim, Macquarie Research - Research Analyst [88]

--------------------------------------------------------------------------------

Okay. And last off, could you give a bit more color on the JV -- your joint ventures and associates, the drop in the earnings, are there any one-offs in there in the fourth quarter? I know you sort of talked about it on a full year basis. I just want to narrow down to the fourth quarter. Are there any one-offs in there?

--------------------------------------------------------------------------------

Vincent Ng, MISC Berhad - General Manager of CPD [89]

--------------------------------------------------------------------------------

In the fourth quarter, it was -- the one-off items was in the fourth quarter of 2018.

--------------------------------------------------------------------------------

Ben Shane Lim, Macquarie Research - Research Analyst [90]

--------------------------------------------------------------------------------

Okay. So no one-off items in 2019?

--------------------------------------------------------------------------------

Vincent Ng, MISC Berhad - General Manager of CPD [91]

--------------------------------------------------------------------------------

Not in the fourth quarter.

--------------------------------------------------------------------------------

Operator [92]

--------------------------------------------------------------------------------

UOB Kay Hian.

--------------------------------------------------------------------------------

Ho Meng Kong, UOB Kay Hian Research Pte Ltd - Senior Analyst [93]

--------------------------------------------------------------------------------

I have a few questions. I want to ask first on the -- your LNG spending in your slides. I know you said you have lower vessel drydocking, but I think to compare your fourth quarter 2019 versus your third quarter 2019, why did your PBT weaken on a quarter-on-quarter basis versus the third quarter?

--------------------------------------------------------------------------------

Vincent Ng, MISC Berhad - General Manager of CPD [94]

--------------------------------------------------------------------------------

Sorry, can you repeat it up because -- can you speak closer to the phone, please?

--------------------------------------------------------------------------------

Ho Meng Kong, UOB Kay Hian Research Pte Ltd - Senior Analyst [95]

--------------------------------------------------------------------------------

Sure, sure. Can you hear me? Is it clear?

--------------------------------------------------------------------------------

Vincent Ng, MISC Berhad - General Manager of CPD [96]

--------------------------------------------------------------------------------

Yes. Yes. Yes.

--------------------------------------------------------------------------------

Ho Meng Kong, UOB Kay Hian Research Pte Ltd - Senior Analyst [97]

--------------------------------------------------------------------------------

Okay. Referring to your Slide 7, I'm looking at your LNG segment, your third quarter PBT was USD 57.5 million. Your fourth quarter, if I add back the one-off items, it is around USD 54 million. So there is some weakness on the quarter-on-quarter drop even though you say there's lower drydocking in the fourth quarter. So what caused the PBT to drop?

--------------------------------------------------------------------------------

Vincent Ng, MISC Berhad - General Manager of CPD [98]

--------------------------------------------------------------------------------

Yes, it was basically some drydocking-related costs, which were only finalized in the current quarter.

--------------------------------------------------------------------------------

Ho Meng Kong, UOB Kay Hian Research Pte Ltd - Senior Analyst [99]

--------------------------------------------------------------------------------

Meaning carryforward from third quarter, is that what you mean? These are -- [what's the cause?]

--------------------------------------------------------------------------------

Vincent Ng, MISC Berhad - General Manager of CPD [100]

--------------------------------------------------------------------------------

Correct.

--------------------------------------------------------------------------------

Ho Meng Kong, UOB Kay Hian Research Pte Ltd - Senior Analyst [101]

--------------------------------------------------------------------------------

Okay. Okay. My next question is on the -- on your Offshore. So I think the Offshore slide is quite confusing, but I just want to know, on your Offshore business, your PBT, right, if I add back the nonrecurring items, it is roughly -- it is below USD 20 million on the PBT level. Would that be your expected recurring quarterly PBT level moving forward? Because you used to do a much higher number in the previous quarters on a recurring basis.

--------------------------------------------------------------------------------

Vincent Ng, MISC Berhad - General Manager of CPD [102]

--------------------------------------------------------------------------------

Yes. The current quarter is slightly lower because of lower shares of profit from our joint ventures. And also, there was the high impairment.

--------------------------------------------------------------------------------

Ho Meng Kong, UOB Kay Hian Research Pte Ltd - Senior Analyst [103]

--------------------------------------------------------------------------------

Yes. Correct, but your impairment will be under the nonrecurring item, right? So if I add back the nonrecurring item, your recurring...

--------------------------------------------------------------------------------

Vincent Ng, MISC Berhad - General Manager of CPD [104]

--------------------------------------------------------------------------------

Yes. So the recurring income -- the recurring profit from the offshore sector, based on the current assets, is probably between USD 20 million to USD 30 million.

--------------------------------------------------------------------------------

Ho Meng Kong, UOB Kay Hian Research Pte Ltd - Senior Analyst [105]

--------------------------------------------------------------------------------

I see. Okay. That also assumes the JV income level to be the same level as the fourth quarter 2019 going forward, is it?

--------------------------------------------------------------------------------

Vincent Ng, MISC Berhad - General Manager of CPD [106]

--------------------------------------------------------------------------------

Yes. Yes, in pursuit of JV income.

--------------------------------------------------------------------------------

Ho Meng Kong, UOB Kay Hian Research Pte Ltd - Senior Analyst [107]

--------------------------------------------------------------------------------

In pursuit of JV income. Okay, noted. All right. I just want to check on your new deliveries, yes, I know you say the shuttle tankers would be by first half, but any of them who are expected to contribute in the first quarter of 2020 or more like all 4 of those would be in the second quarter?

--------------------------------------------------------------------------------

Unidentified Company Representative, [108]

--------------------------------------------------------------------------------

You're talking about DPST, right?

--------------------------------------------------------------------------------

Ho Meng Kong, UOB Kay Hian Research Pte Ltd - Senior Analyst [109]

--------------------------------------------------------------------------------

Yes, the DPST, correct.

--------------------------------------------------------------------------------

Unidentified Company Representative, [110]

--------------------------------------------------------------------------------

Yes. I think 2 new DPST to contribute to our financial performance in quarter 1 2020.

--------------------------------------------------------------------------------

Ho Meng Kong, UOB Kay Hian Research Pte Ltd - Senior Analyst [111]

--------------------------------------------------------------------------------

Okay. So 2 [instance], 2 in first quarter, 2 in second quarter? Just to double confirm.

--------------------------------------------------------------------------------

Unidentified Company Representative, [112]

--------------------------------------------------------------------------------

Sorry. What was your clarification this time?

--------------------------------------------------------------------------------

Ho Meng Kong, UOB Kay Hian Research Pte Ltd - Senior Analyst [113]

--------------------------------------------------------------------------------

So 2 in first quarter, 2 in second quarter, right, in terms of new [start-up operating]?

--------------------------------------------------------------------------------

Unidentified Company Representative, [114]

--------------------------------------------------------------------------------

Yes. That's correct.

--------------------------------------------------------------------------------

Ho Meng Kong, UOB Kay Hian Research Pte Ltd - Senior Analyst [115]

--------------------------------------------------------------------------------

Okay. My next question is, this upgrade cost that you mentioned for Offshore, right, in your revenue line, just want to double check, you state the investment costs are upgrading. But is that impacting your PBT? Or you have -- or you -- it offset in terms of PBT level? Or is there a net [cost] that have happened?

--------------------------------------------------------------------------------

Unidentified Company Representative, [116]

--------------------------------------------------------------------------------

Sorry, your voice is breaking so we cannot really hear you. Can you repeat it?

--------------------------------------------------------------------------------

Ho Meng Kong, UOB Kay Hian Research Pte Ltd - Senior Analyst [117]

--------------------------------------------------------------------------------

Okay. Just to repeat again. In -- you mentioned that you have higher revenue in your Offshore because you had some onetime reimbursement upgrade costs, so that gives you a higher revenue. But I just want to know on your bottom line for the Offshore side, does that particular upgrade was indeed net off in your PBT? Or is there a net off of this revenue on your PBT level?

--------------------------------------------------------------------------------

Unidentified Company Representative, [118]

--------------------------------------------------------------------------------

The revenue on this cost on upgrading work is based on reimbursement basis. The impact to the profit is minimum, but the huge chunk of the revenue is quite significant for the quarter.

--------------------------------------------------------------------------------

Ho Meng Kong, UOB Kay Hian Research Pte Ltd - Senior Analyst [119]

--------------------------------------------------------------------------------

Okay. So there is some impact on the profit level? Is this some small cost that you are waiting to reimburse back? Or it's some small profit? Or how do we see it? Or [isn't in that view]?

--------------------------------------------------------------------------------

Unidentified Company Representative, [120]

--------------------------------------------------------------------------------

It's a small profit that we make on this.

--------------------------------------------------------------------------------

Ho Meng Kong, UOB Kay Hian Research Pte Ltd - Senior Analyst [121]

--------------------------------------------------------------------------------

Oh, I see. Okay. All right. My last question, I just want to know, like, you note -- I know, since I mentioned about the coronavirus outbreak so far, I just want to pass a bit on the LNG side. You know China had -- was importantly imposing some cost measures on LNG cargoes and so forth. Has that impacted your LNG vessels, especially any of your vessels that was servicing -- that were carrying cargoes to China on the LNG side?

--------------------------------------------------------------------------------

Vincent Ng, MISC Berhad - General Manager of CPD [122]

--------------------------------------------------------------------------------

We were not affected by any force majeure. And anyway, the reports of the force majeure were between the buyer and seller of LNG, not on the shipping side. Yes, it's little because we are not party to those contracts. We have a separate -- first of all, we are not involved in those transactions that were reported to be force majeure. Secondly, if we were to look at a broader case, then we will still not be involved because we are not party to that contract. We are actually having a separate time charter party with the charterer, which has different terms.

--------------------------------------------------------------------------------

Ho Meng Kong, UOB Kay Hian Research Pte Ltd - Senior Analyst [123]

--------------------------------------------------------------------------------

So just to double check. I mean, from -- just according to my understanding, for example, if one of the -- your ship were [tending] cargo to China, any time charter tanker concern, and let's say China imposed a force majeure with, say, whoever that charters the vessel, your charterer is willing to honor your time charter contract, right? The force majeure does not flow to your time charter contract, right?

--------------------------------------------------------------------------------

Vincent Ng, MISC Berhad - General Manager of CPD [124]

--------------------------------------------------------------------------------

Right. There's no direct. And then secondly, because as I also explained earlier that our time charter parties are for worldwide trading, so they don't have to go to China. Our charterer can employ the vessel elsewhere. So that...

--------------------------------------------------------------------------------

Ho Meng Kong, UOB Kay Hian Research Pte Ltd - Senior Analyst [125]

--------------------------------------------------------------------------------

Is there are (inaudible) LNG, right?

--------------------------------------------------------------------------------

Vincent Ng, MISC Berhad - General Manager of CPD [126]

--------------------------------------------------------------------------------

It should not be a reason to -- not to honor the contract.

--------------------------------------------------------------------------------

Operator [127]

--------------------------------------------------------------------------------

Our next question, Stephanie Cheah from CLSA.

--------------------------------------------------------------------------------

Stephanie Cheah, CLSA Limited, Research Division - Analyst [128]

--------------------------------------------------------------------------------

Just a few quick ones for me. Sorry. Okay. Well, Eslin, you mentioned that 100% is now on long-term charter for -- in the fourth quarter. Could you just provide some color as to whether you were able to take advantage of any of the high VLCC rates back in October, November period for the VLCC?

And secondly, just a clarification again on the JV income, could -- I think it was -- that was going on or where there was some talking about the one-off for FY '18 -- for the fourth quarter. Could you just repeat it? If I got it incorrectly here, FPSO Ruby was USD 13 million, and I have okay at USD 9 million last year. Just wondering how to tie that up to the USD 22 million that you mentioned? Those are the only questions from me.

--------------------------------------------------------------------------------

Eslin Halimi, MISC Berhad - Head of Financial Reporting, Governance & Budget, Finance [129]

--------------------------------------------------------------------------------

Give us a second?

--------------------------------------------------------------------------------

Stephanie Cheah, CLSA Limited, Research Division - Analyst [130]

--------------------------------------------------------------------------------

Yes, okay.

--------------------------------------------------------------------------------

Vincent Ng, MISC Berhad - General Manager of CPD [131]

--------------------------------------------------------------------------------

Okay. In terms of the VLCC for third quarter, we only had a couple of vessels, which enjoy part of the rise in the rates. So most of the vessels were locked in even...

--------------------------------------------------------------------------------

Stephanie Cheah, CLSA Limited, Research Division - Analyst [132]

--------------------------------------------------------------------------------

Okay. So I was just wondering, for fourth quarter, when you locked in the rates, were you able to lock them in at those kind of rates for the VLCCs?

--------------------------------------------------------------------------------

Vincent Ng, MISC Berhad - General Manager of CPD [133]

--------------------------------------------------------------------------------

I think they would be -- I mean, prevailing rates, I wouldn't say that they were particularly high plus the rates that you saw going up are the spot rates, not the charter rates.

--------------------------------------------------------------------------------

Stephanie Cheah, CLSA Limited, Research Division - Analyst [134]

--------------------------------------------------------------------------------

Yes. Okay. So none there. Okay.

--------------------------------------------------------------------------------

Vincent Ng, MISC Berhad - General Manager of CPD [135]

--------------------------------------------------------------------------------

(inaudible) rather be stable, I would say.

--------------------------------------------------------------------------------

Stephanie Cheah, CLSA Limited, Research Division - Analyst [136]

--------------------------------------------------------------------------------

Okay. Yes. No. As well as the share of associates. So the breakdown for this quarter, again, sorry, if you don't mind? Breakdown on the one-offs.

--------------------------------------------------------------------------------

Eslin Halimi, MISC Berhad - Head of Financial Reporting, Governance & Budget, Finance [137]

--------------------------------------------------------------------------------

You're looking at Q4 '19 or Q4 '18?

--------------------------------------------------------------------------------

Stephanie Cheah, CLSA Limited, Research Division - Analyst [138]

--------------------------------------------------------------------------------

Q4 '19 and Q4 '18, just want a year-on-year. Why should I be stripping out to get a core.

--------------------------------------------------------------------------------

Eslin Halimi, MISC Berhad - Head of Financial Reporting, Governance & Budget, Finance [139]

--------------------------------------------------------------------------------

Okay. The balance for Q4 '19 versus Q4 '18, mainly due to onetime gain for Ruby contract of about 13 million just now. And then repair and maintenance cost in quarter 4 2018...

--------------------------------------------------------------------------------

Stephanie Cheah, CLSA Limited, Research Division - Analyst [140]

--------------------------------------------------------------------------------

Which is how much, sorry?

--------------------------------------------------------------------------------

Eslin Halimi, MISC Berhad - Head of Financial Reporting, Governance & Budget, Finance [141]

--------------------------------------------------------------------------------

About 13 million.

--------------------------------------------------------------------------------

Stephanie Cheah, CLSA Limited, Research Division - Analyst [142]

--------------------------------------------------------------------------------

3-0?

--------------------------------------------------------------------------------

Eslin Halimi, MISC Berhad - Head of Financial Reporting, Governance & Budget, Finance [143]

--------------------------------------------------------------------------------

1-3.

--------------------------------------------------------------------------------

Stephanie Cheah, CLSA Limited, Research Division - Analyst [144]

--------------------------------------------------------------------------------

1-3. Okay.

--------------------------------------------------------------------------------

Eslin Halimi, MISC Berhad - Head of Financial Reporting, Governance & Budget, Finance [145]

--------------------------------------------------------------------------------

(inaudible)

--------------------------------------------------------------------------------

Stephanie Cheah, CLSA Limited, Research Division - Analyst [146]

--------------------------------------------------------------------------------

So both are about net-net off from 13 million, is that right?

--------------------------------------------------------------------------------

Unidentified Company Representative, [147]

--------------------------------------------------------------------------------

We see that there's a 13 million onetime gain for the Ruby, right?

--------------------------------------------------------------------------------

Eslin Halimi, MISC Berhad - Head of Financial Reporting, Governance & Budget, Finance [148]

--------------------------------------------------------------------------------

Yes.

--------------------------------------------------------------------------------

Unidentified Company Representative, [149]

--------------------------------------------------------------------------------

And then after that. So some higher share profit from the JV, which was how much? 13 million as well.

--------------------------------------------------------------------------------

Eslin Halimi, MISC Berhad - Head of Financial Reporting, Governance & Budget, Finance [150]

--------------------------------------------------------------------------------

Net-net.

--------------------------------------------------------------------------------

Unidentified Company Representative, [151]

--------------------------------------------------------------------------------

The higher amount in 2018.

--------------------------------------------------------------------------------

Vincent Ng, MISC Berhad - General Manager of CPD [152]

--------------------------------------------------------------------------------

Can we come back, just give us a second?

--------------------------------------------------------------------------------

Eslin Halimi, MISC Berhad - Head of Financial Reporting, Governance & Budget, Finance [153]

--------------------------------------------------------------------------------

Yes.

--------------------------------------------------------------------------------

Stephanie Cheah, CLSA Limited, Research Division - Analyst [154]

--------------------------------------------------------------------------------

Okay. Okay.

--------------------------------------------------------------------------------

Vincent Ng, MISC Berhad - General Manager of CPD [155]

--------------------------------------------------------------------------------

Just hang on a second.

--------------------------------------------------------------------------------

Stephanie Cheah, CLSA Limited, Research Division - Analyst [156]

--------------------------------------------------------------------------------

Sure. Sure.

--------------------------------------------------------------------------------

Eslin Halimi, MISC Berhad - Head of Financial Reporting, Governance & Budget, Finance [157]

--------------------------------------------------------------------------------

Okay. Sorry, the amount (inaudible) is not offset that, it should be add up, it should be USD 26 million.

--------------------------------------------------------------------------------

Stephanie Cheah, CLSA Limited, Research Division - Analyst [158]

--------------------------------------------------------------------------------

Sorry, 4Q '19. So that's the FPSO Ruby of USD 13 million. Higher share profit from your JV is also 13 USD million, so a total of USD 26 million?

--------------------------------------------------------------------------------

Eslin Halimi, MISC Berhad - Head of Financial Reporting, Governance & Budget, Finance [159]

--------------------------------------------------------------------------------

Yes.

--------------------------------------------------------------------------------

Stephanie Cheah, CLSA Limited, Research Division - Analyst [160]

--------------------------------------------------------------------------------

4Q '19. And 4Q '18, that's the repair and maintenance costs of USD 13 million. So USD 26 million -- USD 13 million, is that correct?

--------------------------------------------------------------------------------

Eslin Halimi, MISC Berhad - Head of Financial Reporting, Governance & Budget, Finance [161]

--------------------------------------------------------------------------------

It's the other way around. In 2018 Q4, there's a onetime gain of about USD 13 million. In 2019, there's a repair and maintenance cost of USD 13 million.

--------------------------------------------------------------------------------

Operator [162]

--------------------------------------------------------------------------------

Our next question, Raymond Yap from CIMB.

--------------------------------------------------------------------------------

Kok Hoe Yap, CIMB Research - Regional Head of Transportation [163]

--------------------------------------------------------------------------------

I've got 2 questions on the petrol and tanker side?

--------------------------------------------------------------------------------

Eslin Halimi, MISC Berhad - Head of Financial Reporting, Governance & Budget, Finance [164]

--------------------------------------------------------------------------------

Okay, proceed.

--------------------------------------------------------------------------------

Kok Hoe Yap, CIMB Research - Regional Head of Transportation [165]

--------------------------------------------------------------------------------

Okay. So the first question is on the provision for the in-charter returns. So you returned 2 vessels in the fourth quarter. And there are another 4 left on your in-charter total. So I just wanted to ask why, if the chemical tanker segment is doing so poorly, why don't you just return all 6? Is there a reason why you just returned 2?

--------------------------------------------------------------------------------

Unidentified Company Representative, [166]

--------------------------------------------------------------------------------

Yes. Raymond, basically, we would like to, but we have yet to be able to close a deal with the counterparty. Of course, we are still in the discussion.

--------------------------------------------------------------------------------

Kok Hoe Yap, CIMB Research - Regional Head of Transportation [167]

--------------------------------------------------------------------------------

Okay. So essentially, you are negotiating the lessor to terminate the lease early, and that's the reason why you had to make an impairment because this is the compensation that you have to pay the vessel for the early termination? Is that correct?

--------------------------------------------------------------------------------

Unidentified Company Representative, [168]

--------------------------------------------------------------------------------

The anticipated, yes, the anticipated compensation.

--------------------------------------------------------------------------------

Kok Hoe Yap, CIMB Research - Regional Head of Transportation [169]

--------------------------------------------------------------------------------

Okay. So another operational question relating to the coronavirus. I believe that there are a couple of Aframaxes, which are based in Southeast Asia, shipping between Singapore and China. Due to the slowdown or the reduction in the demand of oil from China. Are these Aframaxes now facing employment issues? Or have they been redeployed to other regions?

--------------------------------------------------------------------------------

Vincent Ng, MISC Berhad - General Manager of CPD [170]

--------------------------------------------------------------------------------

Our Aframaxes are predominantly employed in Southeast Asia outside China, not so much in China. The vessels that we have on the petroleum may go to China either the chemical vessels or some of the VLCCs, which are under time charter. So not so much the Aframaxes.

--------------------------------------------------------------------------------

Kok Hoe Yap, CIMB Research - Regional Head of Transportation [171]

--------------------------------------------------------------------------------

Okay. Understood. Okay. And going to your Bursa pack, in the review of group performance, there's a comment on the LNG side, this is on the full year versus last year, full year. It says here that the high revenue is partly due to the additional charter hire for FSU. I must have missed that in the past, but could you explain to me what is the higher charter rate for FSU? Were the rates increased? And for what reason?

--------------------------------------------------------------------------------

Unidentified Company Representative, [172]

--------------------------------------------------------------------------------

Yes. This is because we retrofitted total equipment on the FSU. And as a result, we went back to charge a higher charter rate.

--------------------------------------------------------------------------------

Operator [173]

--------------------------------------------------------------------------------

Our next question, Tan Jianyuan from Affin Hwang.

--------------------------------------------------------------------------------

Jianyuan Tan, Affin Hwang Investment Bank Berhad, Research Division - Analyst [174]

--------------------------------------------------------------------------------

Can I -- I have 4 questions on my side. Can I just check on the LNG side? Why is there a need to perform an impairment on the LNG vessels when more than 90% of your vessel is not expiring anytime soon? And from what I understand, it's only expiring in the coming 2 to 3 years' time. Do you mind to clarify on that? Is it because the spot rate has come down by about 20%?

--------------------------------------------------------------------------------

Unidentified Company Representative, [175]

--------------------------------------------------------------------------------

So I mean, as part of the policy, we take a look at those vessels, which are coming to expire in 24 months, 2 to 3 years now. And we do the calculation based on the value in use.

--------------------------------------------------------------------------------

Jianyuan Tan, Affin Hwang Investment Bank Berhad, Research Division - Analyst [176]

--------------------------------------------------------------------------------

Okay, sorry. Hello?

--------------------------------------------------------------------------------

Unidentified Company Representative, [177]

--------------------------------------------------------------------------------

Yes. Does that answer your question?

--------------------------------------------------------------------------------

Jianyuan Tan, Affin Hwang Investment Bank Berhad, Research Division - Analyst [178]

--------------------------------------------------------------------------------

Okay. So basically, the only variables that has changed in the impairment calculation is basically you guys assume a lower charter rate as well, right? Or maybe the utilization declined as well?

--------------------------------------------------------------------------------

Unidentified Company Representative, [179]

--------------------------------------------------------------------------------

Both rate and utilization have been slightly reduced.

--------------------------------------------------------------------------------

Jianyuan Tan, Affin Hwang Investment Bank Berhad, Research Division - Analyst [180]

--------------------------------------------------------------------------------

Okay. On the utilization question, can I check if management is in any way worried that any potential economy slowdown might see early termination of your long-term LNG vessels? I understand that, of course, it's ultimately our trading base, but the economy slowdown might affect your trading as well, right? So assuming if, let's say, that early termination, what will be the arrangement be? I will assume that you will likely be early reimbursement of the remaining charters to be pay upfront? Do you mind to share more color on that?

--------------------------------------------------------------------------------

Unidentified Company Representative, [181]

--------------------------------------------------------------------------------

We have not (inaudible) and it was the client, they are all reliable clients. And a pretermination is never in the picture, never in the discussion. So it's quite difficult for us to have a hypothetical answer to your hypothetical questions. But I like to believe that the client will honor the contracts. And if the economy were to be really, really, really bad, I think both parties will sit down and look for the best solution for both parties.

--------------------------------------------------------------------------------

Jianyuan Tan, Affin Hwang Investment Bank Berhad, Research Division - Analyst [182]

--------------------------------------------------------------------------------

Okay. Do you guys mind sharing out of your 29 LNG vessels, where -- predominantly, where is that the vessels are at?

--------------------------------------------------------------------------------

Unidentified Company Representative, [183]

--------------------------------------------------------------------------------

Most of the vessels that we are aware is -- the client is in PETRONAS. And PETRONAS means customers are (inaudible).

--------------------------------------------------------------------------------

Jianyuan Tan, Affin Hwang Investment Bank Berhad, Research Division - Analyst [184]

--------------------------------------------------------------------------------

I'm sorry, do you mind repeating your last sentence?

--------------------------------------------------------------------------------

Unidentified Company Representative, [185]

--------------------------------------------------------------------------------

Most clients of PETRONAS, in the Asia Pacific. So that's where the customers are.

--------------------------------------------------------------------------------

Jianyuan Tan, Affin Hwang Investment Bank Berhad, Research Division - Analyst [186]

--------------------------------------------------------------------------------

Okay. And just a last one from me. I recall that in the third quarter at the JV level, there was a 40 million -- 40-odd million write-back. Can I just double confirm that, that's for Ruby as well?

--------------------------------------------------------------------------------

Eslin Halimi, MISC Berhad - Head of Financial Reporting, Governance & Budget, Finance [187]

--------------------------------------------------------------------------------

That one is for our (inaudible) JV.

--------------------------------------------------------------------------------

Operator [188]

--------------------------------------------------------------------------------

Our next question, Ajay from JPMorgan.

--------------------------------------------------------------------------------

Ajay Mirchandani, JP Morgan Chase & Co, Research Division - Senior Analyst [189]

--------------------------------------------------------------------------------

Just a quick clarification. I just wanted to check with you guys. You did mention that VLCC is 100% fully chartered in 4Q 2019. Would you be able to give us a sense for 1Q 2020? Would that 100% still be holding on the VLCC fleet?

--------------------------------------------------------------------------------

Vincent Ng, MISC Berhad - General Manager of CPD [190]

--------------------------------------------------------------------------------

We believe so.

--------------------------------------------------------------------------------

Ajay Mirchandani, JP Morgan Chase & Co, Research Division - Senior Analyst [191]

--------------------------------------------------------------------------------

And how long do we see this being held on to? Are these multiyear charters? Or are they shorter term in terms of tenure?

--------------------------------------------------------------------------------

Vincent Ng, MISC Berhad - General Manager of CPD [192]

--------------------------------------------------------------------------------

We're not able to share that information.

--------------------------------------------------------------------------------

Ajay Mirchandani, JP Morgan Chase & Co, Research Division - Senior Analyst [193]

--------------------------------------------------------------------------------

Can you give any sense of how we should think about that number, 12 months down the line?

--------------------------------------------------------------------------------

Vincent Ng, MISC Berhad - General Manager of CPD [194]

--------------------------------------------------------------------------------

I think typically, the period -- charter periods in petroleum are not so long as the LNG, it could be a year, 2 years, 3 years is more typical.

--------------------------------------------------------------------------------

Ajay Mirchandani, JP Morgan Chase & Co, Research Division - Senior Analyst [195]

--------------------------------------------------------------------------------

So given that you're fully chartered it in Q4 2019, can we expect that to be the case for at least most of the first half of 2020?

--------------------------------------------------------------------------------

Vincent Ng, MISC Berhad - General Manager of CPD [196]

--------------------------------------------------------------------------------

I don't have that information right in front of me.

--------------------------------------------------------------------------------

Operator [197]

--------------------------------------------------------------------------------

Our last question, Kong Ho Meng from UOB Kay Hian.

--------------------------------------------------------------------------------

Ho Meng Kong, UOB Kay Hian Research Pte Ltd - Senior Analyst [198]

--------------------------------------------------------------------------------

Sorry, just to follow up with you. I just understand with you on the finance cost side, do we expect any savings on your finance costs moving forward because depending on where the LIBOR and all of us, trying to think about what you have (inaudible) if you don't increase the borrowing before?

--------------------------------------------------------------------------------

Vincent Ng, MISC Berhad - General Manager of CPD [199]

--------------------------------------------------------------------------------

Can you repeat the question, please?

--------------------------------------------------------------------------------

Ho Meng Kong, UOB Kay Hian Research Pte Ltd - Senior Analyst [200]

--------------------------------------------------------------------------------

Your financial cost for 2019, there is an increase, but for 2020 outlook, can we expect any savings? Do you -- probably, do you manage to maybe negotiate a better rate for your U.S. dollar loan, something like that?

--------------------------------------------------------------------------------

Unidentified Company Representative, [201]

--------------------------------------------------------------------------------

Yes. I think, given the way that the markets are moving. We hope that the rates will improve. But you will also note that today, we have locked up about 62% of our loans with interest rate swaps now.

--------------------------------------------------------------------------------

Ho Meng Kong, UOB Kay Hian Research Pte Ltd - Senior Analyst [202]

--------------------------------------------------------------------------------

All right. Locked up, as in when would date -- when will the next negotiation if not in the -- not in 2020, is it?

--------------------------------------------------------------------------------

Unidentified Company Representative, [203]

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I mean we have got some long-term loans at some of our project loans, they extend for 10 years. So we have entered into long-term IRS agreements to fix the rates.

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Ho Meng Kong, UOB Kay Hian Research Pte Ltd - Senior Analyst [204]

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Oh, I see. Okay. Are the rates favorable with current markets or -- for long-term loan?

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Unidentified Company Representative, [205]

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Again, markets continuously are going up and down. So the rates that we locked up are basically, more favorable compared to what we used in our project economics. So that's the way that we do this is that if we are able to get secure interest rate, which is below what we have assumed in our project economics, at the right time, we will lock it on so that we can get what we're targeting for.

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Ho Meng Kong, UOB Kay Hian Research Pte Ltd - Senior Analyst [206]

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Okay. My second question is on your [impression.] I know you guys do not guide your breakeven rates for your vessels, but given that the upcoming first quarter would reflect the IMO 2020 situation where you are -- most of your fleet will be using the compliance [mantle] cost. Just to get a sense, how much should we assume your breakeven costs for the vessels to go up solely because of the -- on the [management] side? I mean, based on your budget, of course, (inaudible) off and on, but just to know from your sense, how much do you guys see on a year-on-year (inaudible)?

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Vincent Ng, MISC Berhad - General Manager of CPD [207]

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Could you give us a second on that.

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Ho Meng Kong, UOB Kay Hian Research Pte Ltd - Senior Analyst [208]

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Okay.

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Vincent Ng, MISC Berhad - General Manager of CPD [209]

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I think, as you know, as we mentioned before, a large portion of our vessels are on time charter. In which case, the charterer [bests] the bunker costs. So we -- our exposure is primarily for those long time charter. So because of that, the impact would not be that significant.

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Ho Meng Kong, UOB Kay Hian Research Pte Ltd - Senior Analyst [210]

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Okay. So we just look up your (inaudible) how does (inaudible) how much of that would be -- how much of the bunker cost business could affect the market? And all-in is not a big -- not a major impact last time?

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Vincent Ng, MISC Berhad - General Manager of CPD [211]

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In any case, the bunker prices are driven by crude oil prices, right? So crude oil prices have not gone up a lot. In fact, it is falling. So unless grid rises a lot. I think bunker prices tend to follow suit.

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Ho Meng Kong, UOB Kay Hian Research Pte Ltd - Senior Analyst [212]

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Okay. My last question here, just quickly. So assuming if the sector continues to be affected by the virus and so forth, and your -- probably operating cash flow for your middle of the year may -- you may see challenges. And at the same time, you are still winning contracts, so your CapEx outflow in the future would be high. Am I seeing you maintain your dividend, let's say your [$0.50] dividend? Or you can afford to pay special dividend for 2020 in [difficult times]?

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Unidentified Company Representative, [213]

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So basically, our business model is to increase our cash flow from operations. That's why we are embarking on growth and all that. And we hope to at least maintain, if not better, what we have been paying in the past. So this year, we -- in line with the growth in our cash flow from operations by about 25%, we have decided to increase our dividend payout. And likewise, going forward, we hope that we can at least maintain this higher level of dividend payout. And there might come a time where we can, in fact, increase it.

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Ho Meng Kong, UOB Kay Hian Research Pte Ltd - Senior Analyst [214]

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Okay. Is there a level where, say, how much of the operating cash flow -- how much of it, if it goes below a certain threshold, then you will consider reducing your dividend or something like that? Or is...

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Unidentified Company Representative, [215]

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I mean just as a rule of thumb, we're looking at the way -- what we have done over the past few years. I think we have been averaging around somewhere between 25% to 30% payout relative to our cash flow from operations. So I think we would use that kind of guideline.

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Operator [216]

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Due to time constraint, we will be taking the last question. Our last question, Adam from MIDF Research.

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Adam Rahim Mohamed, MIDF Amanah Investment Bank Berhad, Research Division - Research Analyst [217]

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Just a few short questions. First, in terms of drydocking days for the whole year FY '19 compared to FY '18, how much do you differ? I understand it was around 120 days for FY '19. So for FY '18, is there like, 200 days? That's my first question. Second, in terms of demob costs, just now you guys are saying it's around mid-teens. So is that referring to fourth quarter or the full year FY '19? And last, regarding the nonrecurring item of USD 16.2 million for the Petroleum segment, is there -- where does that refer to again? That's all.

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Unidentified Company Representative, [218]

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Okay. We'll answer the last question because the last question everybody was asking about it. The USD 16.2 million relates to the impairment of the chemical vessels in the Petroleum division.

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Adam Rahim Mohamed, MIDF Amanah Investment Bank Berhad, Research Division - Research Analyst [219]

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Okay.

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Unidentified Company Representative, [220]

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Then can you repeat the first 2 questions?

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Adam Rahim Mohamed, MIDF Amanah Investment Bank Berhad, Research Division - Research Analyst [221]

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Sorry. For -- in terms of drydocking days, what was it like, I mean, for the whole of FY '19 compared to FY '18? And second, just now, you guys mentioned that the demobilization cost was around like mid-teens. So it was that for fourth quarter FY '19 or for the full year FY '19?

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Unidentified Company Representative, [222]

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That's for the fourth quarter.

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Adam Rahim Mohamed, MIDF Amanah Investment Bank Berhad, Research Division - Research Analyst [223]

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So can you guys give any flavor for the full year FY '19 in terms of demobilization costs?

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Eslin Halimi, MISC Berhad - Head of Financial Reporting, Governance & Budget, Finance [224]

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Okay. We have only one demobilization effect for this year, and the mid-teens cost is now for the whole year.

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Adam Rahim Mohamed, MIDF Amanah Investment Bank Berhad, Research Division - Research Analyst [225]

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Okay, noted. And what about the drydocking days?

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Unidentified Company Representative, [226]

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Yes. For the whole year, it's roughly about -- it's roughly maybe around 400 to 450 for 2019.

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Adam Rahim Mohamed, MIDF Amanah Investment Bank Berhad, Research Division - Research Analyst [227]

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Okay. But if any, if it's compared to FY '18 is higher or slightly higher?

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Unidentified Company Representative, [228]

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I don't have the information in front of us at the moment. Maybe we can get back to you on that.

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Operator [229]

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Thank you. As we have come to the end of the Q&A session, I will now hand the session back to Rozainah for closing comments. Over to you.

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Rozainah Binti Awang, MISC Berhad - General Manager of CPD [230]

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Ladies and gentlemen, this concludes today's conference call. On behalf of MISC Berhad, we would like to thank you for your participation. For those who have not received our presentation slides, please do contact us, and we will gladly provide a PDF version.

For the sell-side analysts, we would appreciate that you forward a copy of your published research report to the MISC Investor Relations team for our reference.

Thank you, once again, and have a good evening.