MISC 4Q earnings expected to rise on higher petroleum tanker rates

KUALA LUMPUR: MISC BHD’s earnings in the final quarter of 2019 are expected to be lifted by spikes in petroleum tanker rates, says Maybank Investment Bank research.

“Given that 35% of MISC’s oil charters are in the spot market, we expect the strong tanker rates to lift its 4Q19 earnings.

“We raised our FY19-21F EPS by 12%/9%/9% as we tweaked assumptions for our petroleum earnings,” it said in a note.

The research house raised its blended charter growth rate to 20% in FY19 from 10% previously and increased pretax profit margin to 4% per annum for FY19-21F from 0%/2%/2%.

It also expects the seven new shuttle tankers and the disposal of lossmaking chemical tankers to support its margins in FY20-21F.

Maybank maintained its buy call on MISC and raised its target price to RM8.50.

On the rise in oil tanker rates, Maybank said it believes the sharp run-up in oil tanker rates is largely due to uncertainties rather than fundemental factors.

In early October, the spot charter rates for VLCC, Suezmax and Aframax shot up three or four times versus the average in 3Q19.

According to the research house, this was owing to the drone attack on Saudi Arabia’s oil facilities, US sanction on COSCO oil tanker units and Exxon Mobil’s banning of venezuelan-linked vessels.

It estimates the affected vessels from COSCO and the Venezuela-linked vessels account for about % of the world’s total fleet.

While Maybank expects the rates to come off, it may take two to four months to reach equilibrium.

“That said, IMO 2020 may lead to a tighter supply and higher YoY tanker rates in 2020,” it said.

Source: TheStar