Analysts forecast higher earnings for MISC’s current and next financial years driven by increasing demand for transportation of crude oil and natural gas to refineries.By Dalila Abu Bakar, Malaysia correspondent, Maritime Fairtrade
MISC Berhad, a leading provider of international energy related maritime solutions and services, sees healthy earnings prospects for its current and next financial years. Analysts’ forecast of higher earnings for MISC is driven by several factors.
TA Securities estimates net profit at RM1.37 billion (US$329 million) and RM1.8 billion (US$433 million) for MISC’s financial years 2021 and 2022, respectively. It forecasts revenue at RM8.51 billion (US$2 billion) and RM9.02 billion (US$2.1 billion) for financial years 2021 and 2022, respectively.
According to TA Securities, “Imminent herd immunity from vaccine rollouts loom on the horizon. As such, this alludes to increasing demand for transportation fuels due to resumption of aviation and ground travel as well as petrochemicals and industrial fuels following restoration of manufacturing activities.
“This in turn will propel demand for transportation of crude oil and natural gas to refineries and translates to higher requirements for Liquefied Natural Gas (LNG) and petroleum tanker fleets.”
As at June 30, MISC Group’s fleet consists of more than 95 owned and in-chartered vessels comprising LNG, petroleum and product vessels, 12 Floating Production Systems (FPS) as well as two LNG Floating Storage Units (FSU). The fleet has a combined deadweight tonnage (dwt) capacity of more than 14 million tons.
Listed on the Main Market of Bursa Malaysia Securities Berhad, MISC’s businesses comprise energy shipping and its related activities, owning and operating offshore floating solutions, marine repair and conversion, engineering and construction works, integrated marine services, port and terminal services as well as maritime education and training.
Earnings within expectation
MIDF Research said: “As the latest earnings came in within our expectation, we maintain forecasts for financial years 2021 and 2022 at RM1.87 billion (US$450 million) and RM2.07 billion (US$498 million), respectively.
“For its first half of its current financial year, MISC reported earnings of RM968.6 million (US$233 million) which came in within expectations at 51.9 percent and 52.4 percent of our consensus full-year estimates respectively.”
MIDF Research firm projects MISC’s revenue at RM9.73 billion (US$2.3 billion) and RM10.21 billion (US$2.4 billion) for financial years 2021 and 2022, respectively.
For its financial year ended December 31 2020, MISC posted a net loss of RM43 million (US$10.3 million) on the back of revenue of RM9.4 billion (US$2.2 billion). MISC attributed the loss to a provision for litigation claims and write-off of trade receivables and loss on re-measurement of finance lease receivables.
Earning prospect remains healthy
An analyst at AmInvestment Bank, Alex Goh, forecasts net profit at RM1.86 billion (US$447 million) for MISC’s financial year 2021 and RM2.18 billion (US$524 million) for financial year 2022. He projects revenue at RM10.87 billion (US$2.6) and RM11.93 billion (US$2.8) for financial year 2021 and 2022, respectively.
According to TA Securities, MISC’s near-term earnings prospects remain healthy, on the back of record US$3 billion of new investment capital expenditure secured in the group’s financial year 2020 which includes Mero-3 Floating Production Storage Offloading (FPSO) vessel with estimated capital expenditure up to US$2 billion, six newbuild very large ethane carriers (VLECs) (4Q20 – 1H21) 11 DP2 Shuttles (delivery 1H20-2H22), four LNG carriers (1H21-1H23) and five VLCCs (1H22-2H23).
TA Securities also expects a recovery in tanker rates in the second half of this year which will boost MISC’s earnings.
“In anticipation of accelerating oil demand, the Organization of the Petroleum Exporting Countries Plus (OPEC+) will follow through with its plans to ease production cuts. The organization announced plans to increase production by 400,000 barrel per day each month from August to December 2021. As such, we expect a recovery in the second half of 2021 tanker rates,” TA Securities said.
LNG shipping rates to remain firm
Meanwhile, MISC said in the LNG shipping market, spot charter rates rebounded in April and May, earlier than the usual seasonal pick-up ahead of winter as seen in previous years.
“The pick-up in charter rates was mainly contributed by the strong restocking demand in Europe due to the extended winter and charterers securing vessels early to provide coverage for the expected restocking of gas for the coming winter,” MISC said in an announcement of its second quarter financial results ended June 30, 2021. The announcement was released to Bursa Malaysia on August 13.
According to MISC, LNG shipping rates are expected to remain firm in the short term, sustained by robust vessel demand for LNG imports into Asia, Europe, and South America.
“As most of the group’s LNG carriers are on long-term charters including the six VLECs, the LNG Asset Solutions segment revenue is expected to remain steady. In the meantime, the segment will pursue growth opportunities selectively in the market,” MISC said.
Petroleum shipping market to pick up in medium term
The firm also said that the petroleum shipping market remains depressed with freight rates still under pressure from vessel oversupply amid the continuing Covid-19 pandemic.
MISC said: “In the short term, the tanker market outlook continues to face challenges due to the new outbreaks of Covid-19 infections and re-imposition of restrictions on mobility and business activities in Asia, Latin America, the Middle East and Africa.
“Nonetheless, there is a ray of positivity for the tanker industry with the OPEC+ alliance reaching a belated consensus to increase oil production by 400,000 barrels per day each month from August 2021 continuing into 2022, which will help ease a looming oil supply squeeze.”
According to MISC, the medium-term prospects remain positive, with oil demand picking up in tandem with a more broad-based economic recovery as normalcy gradually returns to the globe.
“As the oil price reached its highest level in more than two years on the back of optimism over oil demand recovery, this bodes well for the prospects of a gradual improvement in the oil and gas sector, including the global offshore exploration and production space.
“For the time being, the Offshore Business segment aims to focus on the execution of the new FPSO project in hand. Nevertheless, the segment will continue to monitor the market for the next major project as and when the right opportunity arises. In the meantime, the existing portfolio of long-term contracts will continue to underpin the financial performance of the Offshore Business segment.”
Marine engineering impacts by pandemic
MISC’s Marine & Heavy Engineering segment continues to be cautiously optimistic on future business prospects despite the oil and gas industry showing signs of recovery.
MISC added: “The Marine business prospects are expected to continue to be impacted by the nation’s prevailing stringent border restrictions as foreign clients continue to opt for shipyards in countries with lower Covid-19 cases and more relaxed border restrictions.
Meanwhile, the segment remains committed to replenishing its order book and optimizing its operating costs along with ensuring safe execution and delivery of ongoing projects on time and on budget.”