MISC to see lower earnings in second half

RHB Research maintained its “buy” call on MISC. However, the brokerage lowered the target price for the counter to RM9 from RM9.28 previously.

PETALING JAYA: With moderating tanker rates, MISC Bhd is expected to register weaker earnings for the second half ending Dec 31,2020.

Nevertheless, analysts remain optimistic about the long-term prospects of the energy-related maritime solutions and services provider.

The consensus view is that the potential win of the Mero-3 floating-production storage and offloading (FPSO) job in Brazil by year-end would be the biggest catalyst for MISC. Energy publication Upstream recently reported that Petrobras was close to awarding MISC the US$2.1bil Mero-3 FPSO project.

RHB Research maintained its “buy” call on MISC. However, the brokerage lowered the target price for the counter to RM9 from RM9.28 previously.

“We expect the average spot charter rate for petroleum tankers to soften in the third quarter due to seasonal factors, coupled with rising tonnage supply as more vessels come out of floating storage, ” the brokerage said.

“However, average rates in 2020 are expected to be still higher year-on-year. In view of that, MISC has increased its term-to-spot ratio to 76:24 in the second quarter from 71:29 in the first quarter in order to minimise the exposure of declining spot charter rates, ” it adds.

In addition, RHB Research said MISC’s second-half earnings would likely to be supported by the maiden contribution of three Dynamic Positioning Shuttle Tankers (DPST). It noted the company’s management that three of the recently secured six very large ethane carrier (VLEC) charter contracts would start contributing by end-2020.

“The potential win of the Mero-3 project by year-end remains the biggest catalyst, marking its maiden penetration into the large-sized FPSO market, ” it said.

TA Research also maintained its buy call on MISC, with a lower target price of RM9, compared with RM9.10 previously.

“We tweak 2020 petroleum fright rates higher for MISC’s fleet by 20%-25% to correspond with actual second quarter results and trends. Additionally, we incorporate our new forecasts for Malaysia Marine and Heavy Engineering Holdings Bhd (MMHE). As a result, our 2020/2021/2022 estimates are revised by 16%, -1% and -2%, respectively, ” the brokerage explained.

Meanwhile, CSG-CIMB Research recommended hold on MISC. The brokerage also cut its target price for the counter to RM7.97 from RM8.21 previously on lower earnings forecasts and a lower valuation for the group’s unit MMHE.

MISC’s shares closed two sen higher last Friday at RM7.89.

The company’s second-quarter net profit slipped 25.1% to RM299.5mil from RM399.8mil in the previous corresponding quarter due mainly to business disruption from Covid-19 lockdown measures and impairments.

Group revenue rose 1.1% to RM2.19bil from RM2.16bil due to higher contributions from the petroleum and liquefied natural gas segments.