AMINVESTMENT Bank has upgraded its call for MISC Bhd to hold with a higher sum-of-parts fair value of RM7.80 from an earlier RM5.60, citing rising petroleum tanker rates.
Spot petroleum tanker rates are reported to have risen by 700% over the past week, to about US$243,000 per day, with analyst Alex Goh citing Bloomberg, due to Saudi Arabia securing additional storage capacity for the expiry of the Organisation of Petroleum Exporting Countries (Opec) production quota at the end of March 2020.
This has led to Saudi Arabia hiring up to 30 additional Very Large Crude Carriers (VLCC) to be deployed in late March or early April, following the failed negotiations with Russia.
Saudi Arabia had also announced unprecedented discounts of almost 20% in key markets, apparently targeting Russia and the US shale oil industry, along with other higher-cost producers, according to Goh.
“Saudi Arabia’s crude into northwest Europe, a key market for Russian barrels, will be sold at discounts to its reference price of over US$8 per barrel compared to March 2020. In the US, the country is also set to discount its crude by US$7 per barrel in April compared with March,” said AmInvestment analyst Alex Goh.
He said Saudi Arabia also made price cuts of between US$4 and US$6 per barrel to Asia. He added that over the past week, Saudi Arabia, Russia, Iraq, Nigeria and the United Arab Emirates have all indicated plans to lift supply in the coming months.
This has led to crude oil currently trading at a “deep contango price pattern,” where traders store lowly-priced spot barrels at sea for sale at higher future prices.
“In our view, this rebound in tanker rates impacts mostly the VLCC segment for now, given the lower storage capacity of the Aramax and Suezmax categories. However, MISC has already secured long-term agreements with clients for its VLCC vessels,” said Goh.
As such, he is maintaining MISC’s earnings forecasts, noting that while the spot VLCC prices will not have a significant impact on the group’s earnings, this tanker rate rebound is also viewed as having partially alleviated the negative impact on tanker demand due to Covid-19.
At the noon close, MISC’s shares were last done at a static RM7.40, with 1.8 million shares traded. – March 16, 2020
