MISC Bhd - Restoring the relationship
Target RM8.22 (Stock Rating: ADD)
As Petronas focuses its full attention on executing its existing O&G projects, we suspect that it may rethink the need to directly own LNG vessels. As such, MISC may be able to own and operate new LNG ships for Petronas, restoring the traditional father-son relationship. We keep our Add call and raise our SOP-based target price after factoring in DCF contribution from four LNG vessels now in Petronas’s orderbook, and other adjustments. Our forecasts have been tweaked for housekeeping items. The family reconciliation could excite investors and move the price.
We keep our Add call and raise our SOP-based target price after factoring in DCF contribution from four LNG vessels now in Petronas’s orderbook, and other adjustments. Our forecasts have been tweaked for housekeeping items. The family reconciliation could excite investors and move the price.
A strengthening bond with Petronas?
Considering Petronas's ongoing commitments in various O&G projects and the more lucrative IRRs promised in O&G upstream businesses, ship ownership is relatively low priority. Hence, we think Petronas may sell its four LNG vessel newbuildings to MISC. Should this happen, it will mark a dramatic change in fortune for the latter, as the strength of the bonds between Petronas and MISC came into question when Petronas decided to directly order LNG vessels in August 2013.
4+4 new LNG ships?
If Petronas does sell these vessels to MISC, Petronas will likely charter these ships from MISC to meet its shipping requirements at Bintulu and other ongoing projects, like FLNG1. The inclusion of four new long-term LNG charter contracts with Petronas will help mitigate MISC's LNG earnings decline, since six of its LNG ship charters expire in 2014-17. The four new vessels are slated for delivery in 2016-17 and should be earnings accretive from 2017 onwards. Petronas has the option to procure four additional LNG vessels, and this option may be passed on to MISC too.
Tanker outlook brightens
Petroleum tanker rates have improved 21% yoy YTD from 2013's dire rates and should improve further in 2015. Tanker demand growth may exceed supply growth for the second consecutive year in 2015, boosted by stronger imports by Asia, a milder decline in US imports, plus expansion in the long-haul trades from West Africa and the Caribbean to China and India. Furthermore, crude oil prices have fallen 33% since the start of 2014, which should encourage significant restocking activity in Asia. India, in particular, has been a more price-sensitive oil importer, so current prices is an opportune window for the South Asian nation to replenish inventory.
Source: CIMB Daybreak - 05 November 2014
Target RM8.22 (Stock Rating: ADD)
As Petronas focuses its full attention on executing its existing O&G projects, we suspect that it may rethink the need to directly own LNG vessels. As such, MISC may be able to own and operate new LNG ships for Petronas, restoring the traditional father-son relationship. We keep our Add call and raise our SOP-based target price after factoring in DCF contribution from four LNG vessels now in Petronas’s orderbook, and other adjustments. Our forecasts have been tweaked for housekeeping items. The family reconciliation could excite investors and move the price.
We keep our Add call and raise our SOP-based target price after factoring in DCF contribution from four LNG vessels now in Petronas’s orderbook, and other adjustments. Our forecasts have been tweaked for housekeeping items. The family reconciliation could excite investors and move the price.
A strengthening bond with Petronas?
Considering Petronas's ongoing commitments in various O&G projects and the more lucrative IRRs promised in O&G upstream businesses, ship ownership is relatively low priority. Hence, we think Petronas may sell its four LNG vessel newbuildings to MISC. Should this happen, it will mark a dramatic change in fortune for the latter, as the strength of the bonds between Petronas and MISC came into question when Petronas decided to directly order LNG vessels in August 2013.
4+4 new LNG ships?
If Petronas does sell these vessels to MISC, Petronas will likely charter these ships from MISC to meet its shipping requirements at Bintulu and other ongoing projects, like FLNG1. The inclusion of four new long-term LNG charter contracts with Petronas will help mitigate MISC's LNG earnings decline, since six of its LNG ship charters expire in 2014-17. The four new vessels are slated for delivery in 2016-17 and should be earnings accretive from 2017 onwards. Petronas has the option to procure four additional LNG vessels, and this option may be passed on to MISC too.
Tanker outlook brightens
Petroleum tanker rates have improved 21% yoy YTD from 2013's dire rates and should improve further in 2015. Tanker demand growth may exceed supply growth for the second consecutive year in 2015, boosted by stronger imports by Asia, a milder decline in US imports, plus expansion in the long-haul trades from West Africa and the Caribbean to China and India. Furthermore, crude oil prices have fallen 33% since the start of 2014, which should encourage significant restocking activity in Asia. India, in particular, has been a more price-sensitive oil importer, so current prices is an opportune window for the South Asian nation to replenish inventory.
Source: CIMB Daybreak - 05 November 2014
