Saturday, February 8, 2014

MISC -The only way is up (CIMB)

Current RM5.60
Target RM7.25
The only way is up

Crude tanker rates did spectacularly well this month as rates spiked 130-510% from their recent lows. Although rates are bound to correct once the temporary supply tightness subsides, the crude and chemical tanker markets now appear to be on a fundamental uptrend.

We increase our target price after removing the 30% discount we had earlier pegged on MISC's SOP due to brighter prospects for its petroleum and chemical segments. We think that all the bad news is already in the price, and structural as well as cyclical improvements will slowly materialise. Hence, we upgrade our call from Reduce to Add, with stronger offshore profits and diminishing liquid bulk losses serving as the key catalysts.

Crude tanker rates on fire
Petroleum tanker owners are smiling after a dismal 10M13 as rates spiked by 130-510% since October 2013. Weather disruptions, unrest in North Africa and robust chartering activity were the fuel behind the fire, but once these subside, rates may fall as quickly as the way they rose. Tanker earnings will nonetheless improve this year, thanks to the fiery rates in the early part of 2014. We believe tanker rates have found a bottom in 2013, with rates likely to inch even higher in 2015 as supply growth closely matches that of demand. On a longer term view, despite concerns of dwindling US crude imports amid rising energy independence, a sharp rise in tonne-miles is in store for the sector, as oil producers direct their exports away from the US and towards the demand centres in Asia's growing economies.

Chemical market to improve
Global chemical tanker fleet growth will likely moderate to 1.5% annually in 2014-16, much slower than the 7.1% annual fleet growth seen in 1996-2013. Chemical tanker owners are mostly optimistic about industry prospects, while customers are beginning to favour long-term contracts, suggesting that they too expect freight rates to rise. Coupled with an expected recovery for mature Western economies, rates will likely trend higher, albeit at a gradual pace.

Stronger offshore assets
We expect 31% earnings growth for MISC this year, led by stronger contributions from its offshore assets and diminishing losses from its petroleum and chemical tanker segments. Despite being in a structural decline, the LNG division may pose surprises if MISC manages to secure third-party contracts.

Source/Extract/Excerpts/来源/转贴/摘录: CIMB-Research,
Publish date: 27/01/14

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