MISC (3816) - MISC Bhd - An Iranian deal may be positive
Target RM9.10 (Stock Rating: ADD)
On 2 April, the US and other world powers succeeded in arriving at a draft framework agreement with Iran for the containment of the latter’s nuclear ambitions, in exchange for the easing of economic sanctions. If a deal is finalised, we expect it to be positive for the tanker shipping market in 2016, as Iran will probably start exporting more crude oil. The positive newsflow may drive up MISC’s share price to our SOP-based end-2015 target price, hence we maintain our Add call.
What Happened
The P5+1 grouping (comprising the five permanent members of the UN Security Council, plus Germany) successfully entered into a historic framework deal last Thursday with Iran that promises to limit Iran’s ability to develop nuclear arms in exchange for a loosening of crippling economic sanctions. This has positive consequences for the crude oil shipping markets, although the exact timing of the positive impacts is difficult to pin-point at this moment.
What We Think
As Poten & Partners highlighted in this recent report, Iran’s oil exports have declined from a peak of 1.6-1.8m barrels per day (bpd) in 2010-11, to just 1m bpd in the past two years, as a result of sanctions imposed by the US and EU which have dissuaded oil importers from buying Iranian crude oil exports. This has had the effect of severely devaluing the Iranian rial, causing hyperinflation and hardship to the Iranian economy. This was one of the factors causing tanker freight rates to remain in the doldrums during 2012-13; other factors included tanker fleet growth in excess of demand, and the rise in shale oil production in the US. If Iranian sanctions unwind, Iranian oil production will eventually come back into the market (estimated by year end), generating more demand for tanker shipping. The oil supplies will add to an already oversupplied market, potentially pushing down crude oil prices, and possibly triggering an oil storage play if the contango steepens. Our base case was for tanker rates to soften in 2016 as newbuilding ship deliveries pick up pace (see our 22 January report), but if the Iranian factor comes into play, we may have to reassess our position. These positive volume effect from more Iranian exports are most likely going to outweigh the reduced tonne-mile effect as the Far East buyers may import less oil from Latin America or West Africa.
What You Should Do
We reiterate our Add call on MISC, because crude tanker shipping has the best fundamentals in the entire shipping space in 2015.
Source: CIMB Daybreak - 07 April 2015
Target RM9.10 (Stock Rating: ADD)
On 2 April, the US and other world powers succeeded in arriving at a draft framework agreement with Iran for the containment of the latter’s nuclear ambitions, in exchange for the easing of economic sanctions. If a deal is finalised, we expect it to be positive for the tanker shipping market in 2016, as Iran will probably start exporting more crude oil. The positive newsflow may drive up MISC’s share price to our SOP-based end-2015 target price, hence we maintain our Add call.
What Happened
The P5+1 grouping (comprising the five permanent members of the UN Security Council, plus Germany) successfully entered into a historic framework deal last Thursday with Iran that promises to limit Iran’s ability to develop nuclear arms in exchange for a loosening of crippling economic sanctions. This has positive consequences for the crude oil shipping markets, although the exact timing of the positive impacts is difficult to pin-point at this moment.
What We Think
As Poten & Partners highlighted in this recent report, Iran’s oil exports have declined from a peak of 1.6-1.8m barrels per day (bpd) in 2010-11, to just 1m bpd in the past two years, as a result of sanctions imposed by the US and EU which have dissuaded oil importers from buying Iranian crude oil exports. This has had the effect of severely devaluing the Iranian rial, causing hyperinflation and hardship to the Iranian economy. This was one of the factors causing tanker freight rates to remain in the doldrums during 2012-13; other factors included tanker fleet growth in excess of demand, and the rise in shale oil production in the US. If Iranian sanctions unwind, Iranian oil production will eventually come back into the market (estimated by year end), generating more demand for tanker shipping. The oil supplies will add to an already oversupplied market, potentially pushing down crude oil prices, and possibly triggering an oil storage play if the contango steepens. Our base case was for tanker rates to soften in 2016 as newbuilding ship deliveries pick up pace (see our 22 January report), but if the Iranian factor comes into play, we may have to reassess our position. These positive volume effect from more Iranian exports are most likely going to outweigh the reduced tonne-mile effect as the Far East buyers may import less oil from Latin America or West Africa.
What You Should Do
We reiterate our Add call on MISC, because crude tanker shipping has the best fundamentals in the entire shipping space in 2015.
Source: CIMB Daybreak - 07 April 2015
