HIGHER-than-expected petroleum freight rates and LNG fleet utilisation saw MISC Bhd’s 1Q20 core net profits exceeding analyst expectations, accounting for over 40% of full-year estimates.
This excludes legal provisions for the Gumusut-Kakap Semi-Floating Production System (L) Ltd’s (GKL) litigation case, which were also lower than expected, coming in at US$475 mil (RM2.059 bil) instead of US$580 mil. Including the provisions, MISC would record a net loss of RM1.2 bil for the quarter.
Still, analysts remain upbeat on the stock, citing strong demand for the group’s tankers for offshore storage.
“The fallout between the two major oil-producing countries in March led to the oil market being flooded with supplies. The after-effects saw global oil prices plunge but resulted in a spike in petroleum tanker rates due to the sudden high demand,” said Affin Hwang Capital analyst Tan Jianyuan.
Tan added that the average petroleum tanker rates have further increased in the first week of May, continuing to be supported by high offshore storage needs amid weak global demand.
TA Securities analyst Kylie Chan Sze Zan noted that the group’s petroleum segment earnings were further uplifted by cost savings from the disposal of seven A-Class chemical tankers, following which management expects a net profit accretion of US$5 mil per annum following the full disposal of the vessels, with the last two delivered to Maersk Tankers in 1Q20.
“Also, to a lesser extent, year-on-year (yoy) results were boosted by lower LNG fleet dry docking days, reversal of cost provisions and higher recognition of project works in the heavy engineering segment, increased associate contribution, reduced finance and depreciation costs, lower taxes, and a stronger US$ versus RM,” said Chan.
Meanwhile, RHB Research analyst Sean Lim noted that Brazilian state oil firm Petrobras is in exclusive negotiations with MISC on the potential charter of its Mero 3 floating production storage and offloading unit, though the timing of the contract remains uncertain.
“This project has an estimated capex size of US$2 bil, with a firm contract tenure of 22 years. MISC has identified Siemens and Sembcorp Marine as its engineering, procurement, and construction technical partners, and a local Brazilian firm as its operations and maintenance joint venture partner,” said Lim.
MIDF Research analyst Adam Mohamed Rahim noted that MISC’s long term prospects remain encouraging, due to the group’s exposure to time charter contracts which will shield MISC from huge fluctuations seen in the spot market.
However, AmInvestment Bank analyst Alex Goh warned that “Opec+ cuts in global production could lead to lower tanker demand in 2H20,” leading to Goh maintaining earnings forecasts for the group.
Affin Hwang Capital maintained a sell call on MISC, upping its target price to RM6.80 from RM6.20. TA Securities upgraded its call to buy, increasing its target price to RM8.90 from RM7.80.
RHB Research and MIDF Research maintain their buy and trading buy calls respectively, with both research houses upping their target prices to RM9.28 from RM8.48, and to RM8.41 from RM8.11 respectively.
AmInvestment Bank upgraded its call to hold, and increased its fair value to RM7.70 from a previous RM6.80.
At the noon closing bell, MISC’s shares were last done at RM8.01, up 11 sen, with 1.25 million shares traded. – May 12, 2020
