Bleak earnings outlook for MISC amid charter rate swings


  • Business
  • Thursday, 11 Feb 2016

Restoring exercise: MISC has disposed of two its LNG fleet as two newbuilds are entering the fleet in the second half of 2016 from its deal with Petronas.

PETALING JAYA: The weak ringgit is a boon for global energy shipping company MISC Bhd, but unpredictable swings in tanker charter rates is clouding its earnings outlook.

“As consensus builds towards peak tanker rates this year, we expect MISC’s share price to be more volatile in 2016 than in the last two years,” CIMB Research said in a note.

Shares in MISC climbed 15 sen, or 1.8% yesterday to close at RM8.63. The stock hit a nine-year high of RM9.39 in December last year.

CIMB Research yesterday maintained its “add” rating on MISC, but lowered its target price to RM9.75, tweaking earnings per share (EPS) forecasts slightly.

The research firm said despite its petroleum and chemical tanker arms’ improved earnings, a major tanker freight rate correction was inevitably in the horizon. the firm also warned about newbuilding deliveries which it expects to pick up considerably and potential oil output cutbacks in 2016.

“The window to invest profitably in MISC is slowly, but surely, narrowing,” it said.

Other analysts have also signalled caution on the stock.

AllianceDBS Research reiterated a “buy” call, with 27% upside on its target price of RM10.80, but said its earnings forecasts and rating would be under review post the coverage handover.

AllianceDBS said key drivers to MISC’s improved earnings were the stronger US dollar and turnaround in petroleum arm (US$136mil profit from loss of US$24mil).

The other notable positives include firmed up balance sheet and renewed fleet.

“MISC is almost in a net cash position with net debt-to-equity of just 0.02 times from 0.14 times at end FY14, after paring its borrowings with proceeds from VTTI stake sale.

“It also disposed of two its LNG fleet, the Tenaga Dua and Tenaga Tiga, as part of its restoring exercise as two newbuilds are entering the fleet in the second half of 2016 from its deal with Petronas,” said the research firm, adding that MISC also declared distribution per unit of 12.5 sen.

Nonetheless, the firm is less optimistic on MISC’s growth prospects in 2016, as global fleet growth had caught up with crude shipping demand, while LNG tanker arm remained challenging, with recovery expected in 2018.

Maybank IB Research downgraded MISC Bhd to ‘hold’ with a fair value of RM8.60, after accounting for the sharp volatility in oil tanker spot rates recently.

The firm said that oil tanker spot rates fell 30% in January on a month-on-month basis, adding that the steep decline may be due to the overstocking of crude oil before the winter months.

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