KUALA LUMPUR: AmInvestment Bank Research has maintained its “buy” call on MISC Bhd with an unchanged sum-of-parts-based fair value of RM7.75 per share.
The research house said the target price reflected a premium of 3% from its 4-star ESG rating. It also implies an FY22F EV/EBITDA of 8x, 1 standard deviation below its 3-year average of 9x.
AmInvestment said its forecasts were unchanged following an engagement session with MISC president/group CEO Datuk Yee Yang Chien yesterday.
“Management is cautiously optimistic on petroleum tanker rates, which have doubled YoY to US$11,000 per day for Suezmax and risen 76% year-on-year (YoY) to US$8,800 per day for Aframax. However, very large crude carriers’ (VLCC) rates remained depressed, halving YoY at only US$6,700 per day,” it said.
The research house said as 2021 would represent the worst-case scenario in which negative VLCC rates emerged in June–July this year, MISC expects some recovery in FY22F as OPEC+ is likely to raise production quotas in tandem with rising global consumption.
“Together with the addition of shuttle tankers (1 in 4QFY21 and 5 in FY22F), we expect breakeven in 4QFY21 from a 3QFY21 loss of RM8mil,” it added.
AmInvestment said MISC was relatively subdued in bidding for new contracts this year as the group focused on the execution of its existing projects amid the Covid-19 pandemic’s uncertain impact.
However, the company is now eyeing fresh contracts which include floating production storage and offloading (FPSO) projects that could cost US$1–2bil and liquefied natural gas carriers as rates have risen 62% YoY to US$128,000 per day.
“In line with Petronas’ ESG objectives, MISC aims to achieve net zero carbon neutrality by 2050. Hence, the group is eyeing prospective contracts requiring LNG vessels with dual-fuel capabilities, including a target to replace 50% of its fleet of 30 carriers by 2030,” it said.
While these dual-fuel vessels could cost an additional US$10–US$15mil each, MISC’s management views that European charterers are willing to accept the higher charter rates given rising emissions restrictions.
“Additionally, management is jointly developing an ammonia-fuelled tanker together with Samsung Heavy Industries, Lloyd’s Register and Germany-based MAN Energy. In our view, these initiatives reaffirm our 4-star ESG rating for MISC,” it said.
“Management expects a similar capex trend over the next 4–5 years as the 2017–2020 period which could mean US$1bil–US$1.5bil annually, depending on the type of vessels and their construction cycles.
“Hence, pending the announcement of new contracts, we maintain our FY22F–FY23F capex assumptions of US$1bil annually,” AmInvestment said.
Going forward, it expects modest improvement to petroleum tanker rates as OPEC+ plans to raise production levels by two million barrels from August to December 2021 amid the winter season, which is usually the peak tanker cycle.
“Together with the delivery of six dynamic positioning shuttle tankers and 2 VLCCs next year, this is expected to support FY22F earnings growth prospects,” it said.