With three vessels costing approximately RM875.4 million, it is estimated that MISC’s net gearing of 0.19 times as of September 30, 2019 will only increase to 0.21 times.
KUCHING: Analysts are optimistic following MISC Bhd (MISC) in collaboration with Avenir LNG Ltd (Avenir) being awarded with three long-term time charter party by Brazil Shipping I Ltd (BSIL) — a Shell Group entity — to own and operate newbuild Suezmax Class Dynamic Positioning Shuttle Tankers (DPST) in international and Brazilian waters.
In fact, this is the first contract award for the petroleum tanker segment in FY19. Prior to this, MISC was only awarded with contracts for its liquefied natural gas (LNG) segment totalling RM3.92 billion in FY19.
“The estimated contract value awarded by BSIL is US$245 million (approximately RM1.02 billion) and is expected to commence in FY22. The usual tenure for a long term time chart contract for Suezmax class vessels would be around five to seven years,” said MIDF Amanah Investment Bank Bhd (MIDF Research) yesterday.
“Assuming a period of seven years, we estimate that the revenue attributable to MISC from the said contract is circa RM145.9 million per year.
“Assuming a conservative PBT margin of 10 per cent based on historical trends when the petroleum tanker segment was profitable, this translates to an additional annual PBT of approximately RM14.6 million per annum.
“The expected contribution from this contract is below one per cent of the PBT estimated for FY22 assuming an annual growth in earnings of five per cent.”
Based on MIDF Research’s channel checks and independent research, the cost for a newbuild Suezmax DPST is likely to be around 25 to 30 per cent higher than a normal vessel which currently costs around US$70 million — translating to approximately RM291.8 million.
“With three vessels costing approximately RM875.4 million, we estimated that MISC’s net gearing of 0.19 times as of September 30, 2019 will only increase to 0.21 times.
“Although this latest contract award has a rather small value and is the only award for the petroleum tanker segment so far in 2019, we expect more contracts especially for the offshore segment to be dished out from FY20 onwards as guided by the management.”
MIDF Research made no changes made to its earnings estimates for FY19, FY20 and FY21 as the commencement of the contract is beyond the research firm’s forecast horizon.
“We are maintaining our target price at RM8.35 per share,” it added.
“We reiterate that growth in will be driven by the LNG segment that is supported by new liquefaction projects and reduced reliance on coal in China and Korea.
“This, in turn, would provide growth for the remaining months and later on spill over to FY20. As for the petroleum tanker business, the decision to remain with delaying retrofitting of scrubbers and demolishing activities to capitalise on the temporary surge in spot rates will eventually exert downward pressure on tanker rates until the year end.
“Even if demolition levels were to increase following the IMO2020 in January 2020, positive impacts of lower number of tankers to freight rates would be partially offset the extension of OPEC cuts and lower expected oil demand growth.
“US Energy Information Administration revised lower projected oil demand in FY20 to 1.3 million barrels per day.”
As for heavy engineering, even if the segment becomes profitable due to marine repair activities amidst impending compliance of the IMO 2020 sulphur cap and contribution from Kasawari Gas Development project, MIDF Research believed its impact to MISC’s bottom line will still be below five per cent.
“With much of the positive factors being moderated by potential headwinds, we are maintaining our neutral stance on MISC,” it said.
“The only major catalyst for MISC is the potential job wins for the offshore segment in FY20 worth around US$4 billion which includes FPSO Mero 3 and FPSO Limbayong.”