KUALA LUMPUR: MISC Bhd could reap from the gradual improvement in the petroleum tanker market in anticipation of the economic recovery and higher oil production among the Organisation of the Petroleum Exporting Countries+ (Opec).
RHB Research analyst Sean Lim said the overall petroleum tanker market trended higher in the fourth quarter (Q4) last year but is still below pre-pandemic levels.
"Demolition activities reached the highest level since 2019, while new-build orderbook continued to stay low due to limited shipyard slots amidst prevailing tonnage oversupply," he said in a research note today.
Lim said MISC's margins for the petroleum segment could also improve with higher lightering activities.
He said MISC's term-to-spot ratio within the petroleum division increased slightly to 71:29 from 68:32 in the third quarter of 2021.
One dynamic positioning shuttle tanker was delivered in January 2022, with another four dynamic positioning shuttle tankers to be delivered in the first half (1H) of 2022.
Most of these vessels have long-term contracts, which should gradually strengthen MISC's recurring cash flow.
He said MISC's current tender book stood at about US$2 billion to US$3 billion, of which the company sees better opportunity in securing new liquified natural gas (LNG) and offshore contracts.
"Mero 3 is at over 30 per cent completion and is on track for final acceptance by 1H of 2024," he added.
RHB Research has retained a Buy call with a net target price of RM7.79, followed by an 11 per cent upside and about 5.0 per cent of yield.
MISC's balance sheet remained solid, with net gearing well kept at 0.26 time as at Q4 of 2021.
Downside risks to its call include weaker-than-expected petroleum tanker rates and unexpected contract cancellations of long-term contracts.
Hong Leong Investment Bank Bhd (HLIB Research) expected a better year ahead in 2022 for MISC as the company has guided for a decent outlook for the LNG shipping division on the back of elevated new building orders to meet new tonnage requirements for upcoming LNG projects.
Projects include the massive Qatar North Field Expansion project and signs of robust offshore spending in 2022.
"MISC may be a key beneficiary for new global floating production storage and offloading (FPSO) projects over the next 12-24 months, which are expected to be centred around Latin America, Asia Pacific and Africa.
"We expect 2022 to be a better year for its petroleum tanker division as oil demand and trade recovers."
HLIB Research made no changes to MISC's FY22-FY23 earnings estimates and maintained a Buy call with a target price of RM7.67.
The research firm said MISC has defensive nature of the name due to its portfolio of long-term charters, which will provide consistent, recurring cash flows.
MISC has its fixed dividend payout policy of 33sen per year, reflecting a decent dividend yield of 4.5 per cent annually based on the current share price.