PETALING JAYA: The short-term outlook for petroleum tanker spot rates remains challenging and this could continue to put pressure on MISC Bhd’s earnings.
This is expected to be a key external risk to MISC’s quarter-to-quarter earnings fluctuations as 28% of its petroleum shipping fleet is exposed to the spot market, according to Kenanga Research.
That said, the research firm maintained its “outperform” call, backed by the stock’s stable and attractive dividend yields of around 5%.
This rating is also premised on its inclusion in the F4GBM Index, which measures the performance of public listed companies demonstrating strong environmental, social and governance (ESG) practices, plus it receiving a four-star ESG rating by FTSE Russell.
It said that MISC is still in tenders for the Limbayong floating production storage and offloading (FPSO), offshore Sabah, competing against several other local names.
The maritime logistics company posted a core net profit of RM1.03bil for the first half of financial year 2021 (FY21) – within expectations of analysts. It announced an interim dividend of 7 sen per share, which brought year-to-date dividends to 14.0 sen.
On a quarter-on-quarter basis, net profit for the second quarter ended June 30, 2021 rose more than a quarter to RM577mil.
This was largely due to a compensation for contract renegotiation, (estimated at RM180mil), which boosted its petroleum shipping segment and masked the weaker spot charter rates, noted Kenanga.
Meanwhile, CGS-CIMB Research believes that tanker freight rates may move higher in the fourth quarter or by the first half of 2022, with Opec+ committed to increasing production.
The research firm anticipates a weaker second half of FY21, to be followed by a stronger first half of FY22.
“From May 2022, the baseline crude oil production for Saudi Arabia, Russia, the UAE, Iraq and Kuwait will be increased by a cumulative 1.6 million barrels per day (bpd) from April 2022, suggesting a rise in production over the next nine months of 3.6 million bpd, which is equivalent to about 3.6% of the pre-Covid-19 global consumption of 100 mbpd.
“This is likely to belatedly lift tanker freight rates and re-rate MISC’s share price, in our view,” said CGS-CIMB in a report yesterday.
However, downside risks include the potential for tanker rates to remain depressed for the rest of 2021, as global oil demand may recover more slowly than expected due to the ongoing surge in global Covid-19 cases due to the Delta variant.
The research firm has also raised its sum-of parts (SOP)-based target price from RM7.95 to RM8.09 because of a stronger US dollar assumption of RM4.15, from RM4 previously.
“Our SOP-based target price of RM7.95 is largely based on the discounted cashflow value of MISC’s liquefied natural gas and offshore businesses, but we have incorporated the value of MISC’s petroleum tanker business based on the current liquidation value of its petroleum tanker fleet,” it said.
The target price of RM8.09 implies a historical price-to-book value multiple of 1.07 times.