MISC’s FY22 earnings to be supported by improved petroleum tanker rates

by NURUL SUHAIDI / pic credit: misc.com.my

MISC Bhd’s financial year 2022 (FY22) earnings is expected to register a 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 two very large crude carriers (VLCCs) next year, this is expected to support FY22F earnings growth prospects, said AmInvestment Bank Research in a note recently.

The research outfit maintains ‘Buy’ on MISC with an unchanged sum-of-parts-based fair value of RM7.75 per share.

Analyst Alex Goh said the target price constituted a 3% premium due to its 4-star environmental, social and governance (ESG) rating. It also suggests an enterprise value/Ebitda ratio of eight times in FY22, which is one standard deviation lower than the 3-year average of nine times.

According to the analyst, the forecasts are unchanged following an engagement session with MISC CEO Datuk Yee Yang Chien yesterday.

The management is cautiously optimistic on petroleum tanker rates, which have doubled year-on-year (YoY) to US$11,000 (RM46,337) per day for Suezmax and risen 76% YoY to US$8,800 per day for Aframax.

“However, VLCCs’ rates remained depressed, halving YoY at only US$6,700 per day.” MISC forecasts some recovery in FY22F, as OPEC+ is anticipated to enhance production quotas in concert with rising global consumption, since this year represents the worst-case scenario in which negative VLCC’s pricing surfaced in last June–July.

“With the addition of shuttle tankers (one in the fourth quarter of FY21 [4QFY21] and five in FY22F), we expect breakeven in 4QFY21 from a 3QFY21 loss of RM8 million,” the report said.

Goh added that the research outfit foresee subdued 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.

Nonetheless, the company is now eyeing fresh contracts which include floating production storage and offloading projects that could cost between US$1 billion and US$2 billion, and liquefied natural gas (LNG) carriers as rates have risen 62% YoY to US$128,000 per day.

“MISC intends to achieve netzero carbon neutrality by 2050, in accordance with Petroliam Nasional Bhd’s ESG goals. As a result, the company is exploring potential contracts needing LNG vessels with dual-fuel capability, with a goal of replacing half of its 30-carrier fleet by 2030,” it said.

Despite the fact that these dual-fuel vessels could cost an extra US$10–US$15 million apiece, MISC’s management believes that European charterers are willing to accept higher charter rates given the rising emissions restriction.

“To date, the management is jointly developing an ammonia-fuelled tanker together with Samsung Heavy Industries Co Ltd, Lloyd’s Register Group Ltd and Germany-based MAN Energy Solutions SE. In our view, these initiatives reaffirm our 4-star ESG rating for MISC,” Goh said.

Depending on the type of vessels and building cycles, management expects a similar capital expenditure (capex) trend in the next four to five years as in the 2017–2020 period, which might represent US$1 billion to US$1.5 billion yearly.

“Due to that, pending the announcement of new contracts, we maintain our FY22F–FY23F capex assumptions of US$1 billion annually,” Goh added.