MISC Bhd, one of the world's largest single owner-operators of liquefied natural gas (LNG) carriers, is expected to benefit from the increasing demand for LNG ships from parent Petroliam Nasional Bhd (Petronas) and other third-party LNG exporters as well as the higher LNG ship charter rates.
HLIB Research said following Japan's nuclear accident, there has been a surge in demand for LNG around the world and as a result, Petronas has stepped up efforts to invest and secure new gas resources locally and abroad.
"Being a subsidiary and partner to Petronas, we expect MISC to be awarded long terms contract to supply new LNG ships to support Petronas' LNG projects," its analyst Daniel Wong said in a report yesterday.
MISC, he said, has called tenders for 4+4 LNG shipbuildings, which are expected to start deliveries by the end of 2015, coinciding with the commencement of Petronas new LNG projects such as Gladstone, MLNG 4, Kanowit FPSO and Rotan LNG.
"The eight ships will increase MISC capacity by about 35% to 4.6 million cbm.
"We also expect Petronas to require at least another five LNG ships to support its LNG shipments from 50% stake in Northwest Pacific, Canada (assuming export permit granted by Canada government), which will increase MISC capacity by another 16% to 5.35 million cbm," Wong added.
MISC currently has a fleet of 27 LNG ships.
In 2003, MISC had entered into five contracts with Petronas' unit Malaysia LNG Sdn Bhd for long term supply of LNG ships. Further, MISC also chartered two LNG ships to Yemen LNG in 2009 on a 20 years plus 11 years contract terms.
This showed that MISC has the potential of securing LNG ships to third party LNG suppliers other than Petronas.
Wong noted that the LNG division contributed 85% of MISC's pre-tax profit in 2012, or US$400 million, and expects this to continue.
He also said MISC is expected to benefit from the high LNG charter rate which over the years, more and more shipping companies faced difficulties due to the low charter rates as well as high bunker cost.
"However, we only expect charter rates to recover by 2015, when the expected ships delivery will only increase tanker supply by about 1.51% year-on-year, while demand growth is expected to remain at about 2 % year-on-year. We expect the average charter rates to remain stable at this level until 2015," he said.
On the flip side, he noted that the petroleum and chemical tankers continued to be plagued by the oversupply of ships and high operating cost.
"However, we do not expect further downside from current charter rates given fewer ship deliveries (orderbooks) and current loss-making situation. We only expect charter rate to improve starting 2015, when deliveries slowed down further."
He also observed that MISC is also actively managing its fleet to contain losses, through restructuring fleet size, cost control programmes and lock-in long term charters.
He is maintaining a "buy" rating on MISC at RM5.61, but has raised its target price by 25% to RM6.50 from RM5.20 on improved sector outlook after factoring in stronger cash flow from the LNG division and increased valuation for the petroleum and chemicals divisions on earnings forecast having bottomed out.