MISC (3816) - Tanker Shipping - The stars are aligned in 2015
Recommendation: Over Weight
All signs are pointing towards a stronger freight rate performance for the tanker market in 2015, driven by a favourable demand-supply balance, rising incidences of VLCCs utilised as offshore oil storage and potentially higher condensate exports from the US. The crude tanker shipping space is the most interesting shipping subsector this year. Maintain Overweight on the tanker shipping space, with a higher RM9.06 SOP-based target price for MISC.
Maintain Overweight on the tanker shipping space, with a higher RM9.06 SOP-based target price for MISC.
Demand to outstrip supply
Based on expected newbuilding deliveries and scrapping rates this year, we believe tanker supply growth will be very mild at just 1.1% yoy. Demand, meanwhile, is estimated to grow 2.1% amid stronger imports from Asia to take advantage of low oil prices for restocking, a milder decline in US imports as shale oil production growth slows, and a potential increase in US condensate exports. Demand growth is set to outpace supply growth for the second consecutive year.
VLCCs used as oil storage?
Long-dated crude oil futures are increasingly priced higher than spot crude oil since oil prices tanked in September 2014, resulting in a price contango. As the contango increases, traders and oil producers will be further incentivised to store current oil production for future sale, hence hiring more VLCCs as offshore oil storage. The employment of VLCCs for storage effectively could tighten tanker supply for transportation purposes, leading to stronger freight rates. The contango is currently hovering around the breakeven point to cover storage and funding cost, so a continuation of the rise in contango in the coming months may lead to even more offshore oil storage.
US condensate exports?
The US has a 40-year-old ban in place on crude oil exports since the days of the 1973 oil crisis, resulting in a domestic oil glut following a boom in American crude oil production in recent years. The US government has officially classified condensate, a minimally processed oil, as a petroleum product in end-2014, thus opening the gates for unrestricted condensate exports. The aframax segment stands to benefit the most from a US condensate export boom.
Upgrade MISC TP to RM9.06
We upgrade our TP on MISC from RM8.22 to RM9.06 (SOP), in view of the buoyant tanker environment and potentially higher tanker vessel prices. MISC is our top shipping sector pick.
Source: CIMB Daybreak - 23 January 2015
Recommendation: Over Weight
All signs are pointing towards a stronger freight rate performance for the tanker market in 2015, driven by a favourable demand-supply balance, rising incidences of VLCCs utilised as offshore oil storage and potentially higher condensate exports from the US. The crude tanker shipping space is the most interesting shipping subsector this year. Maintain Overweight on the tanker shipping space, with a higher RM9.06 SOP-based target price for MISC.
Maintain Overweight on the tanker shipping space, with a higher RM9.06 SOP-based target price for MISC.
Demand to outstrip supply
Based on expected newbuilding deliveries and scrapping rates this year, we believe tanker supply growth will be very mild at just 1.1% yoy. Demand, meanwhile, is estimated to grow 2.1% amid stronger imports from Asia to take advantage of low oil prices for restocking, a milder decline in US imports as shale oil production growth slows, and a potential increase in US condensate exports. Demand growth is set to outpace supply growth for the second consecutive year.
VLCCs used as oil storage?
Long-dated crude oil futures are increasingly priced higher than spot crude oil since oil prices tanked in September 2014, resulting in a price contango. As the contango increases, traders and oil producers will be further incentivised to store current oil production for future sale, hence hiring more VLCCs as offshore oil storage. The employment of VLCCs for storage effectively could tighten tanker supply for transportation purposes, leading to stronger freight rates. The contango is currently hovering around the breakeven point to cover storage and funding cost, so a continuation of the rise in contango in the coming months may lead to even more offshore oil storage.
US condensate exports?
The US has a 40-year-old ban in place on crude oil exports since the days of the 1973 oil crisis, resulting in a domestic oil glut following a boom in American crude oil production in recent years. The US government has officially classified condensate, a minimally processed oil, as a petroleum product in end-2014, thus opening the gates for unrestricted condensate exports. The aframax segment stands to benefit the most from a US condensate export boom.
Upgrade MISC TP to RM9.06
We upgrade our TP on MISC from RM8.22 to RM9.06 (SOP), in view of the buoyant tanker environment and potentially higher tanker vessel prices. MISC is our top shipping sector pick.
Source: CIMB Daybreak - 23 January 2015
