By OSK Research
4 Apr 2012
4 Apr 2012
Buy (maintained)
Target price: RM7.45
THE daily returns for very large crude carriers (VLCCs) in the benchmark Saudi Arabia-to-Asia route soared to a 13-month high of US$41,093 which was spurred by strong demands from China.
Apart from higher demand, some of the positive drivers were the return of the Libyan barrels. This has a positive impact on the Aframax and Suexmax markets. However. it built up tensions in Iran as oil was sourced elsewhere, thus lengthening voyages and adding cost savings to the tonne-mile balance.
We opine that the tanker market bottomed in the third quarter as forward freight agreement (FFA) rates have been inching up since the end of September last year. This increases the possibility of the tanker segment recovering faster than expected by early 2014.
Due to the high level of scrapping and slower newbuilding orders, there has been a decline in the order book to fleet ratio. The oil tanker segment’s ratio is now at its lowest at 13%-16% of the total fleet compared to other segments.
Although we think the recovery in freight rates could be short-lived, we opine that overall rates in the near future are highly likely to be better compared to 2011. We foresee that losses in the tanker division could be lower than projected.
However, if the current rate of US$41,093 per day were to stay at this level throughout the year, MISC’s petroleum tanker segment should report a net profit.
We feel that losses from its petroleum tanker segment could be higher as we anticipate that higher bunker prices will eat into earning. Projects that will be of advantage to MISC are Petroliam Nasional Bhd’s (Petronas) agreement with Canadian-based Progress Energy Resources Corporation to acquire 50% of the latter’s interest in shale gas assets worth RM3.32bil.
MISC’s Aframax tanker Eagle Seville. Better results are expected from the petroleum tanker segment.
From our latest liaison with the shipping conglomerate’s management, it was suggested that there will not be any major fleet development on the liquefied natural gas (LNG) side other than the floating storage units under conversion for regasification plant in Malacca, in the near future. We understand that MISC’s expansion of its LNG fleet depends on the timing and size of the potential exports.
We continue to have concerns over the petroleum segment and how much more losses it will incur in its liner division. Meanwhile, other listed shipping players are experiencing a myriad of changes in the overall industry landscape. Despite these concerns, we maintain our view on the company.
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