Dirty tanker market in the doldrums
Unusual spot rate weaknesses, but BUY maintained
Petroleum tanker spot rates failed to exhibit its usual seasonal strength in 4Q21, but the downside could potentially be limited by the favourable term-to-spot ratio in MISC’s fleet. Our earnings forecasts and SOP-based TP of MYR7.75 are maintained at this juncture. MISC currently trades at an attractive 1Y forward PER of 13x (LT mean: 18x; -1SD: 15x), has a robust balance sheet, and offers a solid dividend yield of c.5%. Maintain BUY.
Absence of seasonal strength in petroleum segment
The long-expected winter season pick-up in the dirty tanker market failed to materialise towards the end 4Q21 (see Figs. 1-3) as global Omicron-induced lockdown fears and softer Chinese imports limited tonnage demand. FY21 average spot freight rates for VLCC and Suezmax saw its worst performance in a decade, while Aframax rates also hit an 8y low during the period. Despite an encouraging current orderbook-to-fleet ratio at a manageable c.8-14% for FY22-24, approx. a third of FY22 scheduled tanker deliveries are in the >60K DWT range and thus, likely to offset any significant NT rate increases as the market recovers from multi-year lows.
Downside likely to be mitigated by fleet split
Positively for MISC, its petroleum fleet has a favourable term-to-spot ratio that could provide some support for its 4Q21 performance (we expect the segment to break-even in FY21). MISC’s spot charter exposure between its VLCC, Suezmax, Aframax vessels at end-3Q21 stood at 13%, 27%, 46% respectively. As such, notwithstanding a 32.6% MoM decrease in December spot rates for VLCCs (MISC’s spot exposure is low), marginal MoM increases in Suezmax (+9.7%) and Aframax (+4.9%) rates could provide the necessary support as MISC’s spot exposure in these segments are more substantial.
OPEC+ decision to provide a floor for tanker rates
Noting that MISC performed admirably in 3Q21 despite tepid spot rates in both the LNG/petroleum segments, we expect them to pull through an equally difficult 4Q21 (assuming no negative surprises). With the Mero 3 FPSO continuing to accrete positively to MISC’s bottom-line, coupled with OPEC+’s recent decision to stick by its planned output bumps in light of soaring global oil prices and record-low global crude inventories, we make no changes to our forecasts, pending better visibility post-4Q21 results.