Marginal fleets, sluggish LNG spot rates drag on MISC’s
KUCHING: Marginal net fleet growth and sluggish spot rates for liquefied natural gas ( LNG) are among a few reasons dragging on MISC Bhd’s ( MISC) outlook going forward.
Analysts at MIDF Amanah Investment Bank Bhd ( MIDF Research) saw that MISC received the delivery of Seri Camar in February 2018, the fourth of the five Seri C Class LNG vessels.
This leaves one more vessel for delivery by 1HFY18 which will result in a net fleet growth of only one due to the disposal of Aman Bintulu in 1QFY17.
Thus, MIDF Research saw that marginal growth in LNG fleet size may be dampened by the normalisation of Yemen LNG’s deferred income for Seri Balhaf and Seri Balqis.
“We also observe that on average, the LNG spot rates in the first quarter of 2018 (1Q18) declined by about 5.6 per cent amidst the onset of warmer weather and oversupply of tonnage,” it said in a note yesterday.
“This depressed spot rates trend is expected to persist due to the huge pile-up of new deliveries in 2018. Therefore, earnings of the LNG segment are expected to remain flat as we do not see much upside for earnings in the LNG segment.”
Meanwhile, MIDF Research believed its petroleum segment would stage a turnaround in the second half of its financial year 2018 (2HFY18) with sustainable oil demand from 2Q18 as reported by the International Energy Agency, coupled with more scrapping activities and fewer newbuilds.
“Scrapping activities in petroleum shipping space is expected to increase amidst the current weak tanker market, strong prices for scrap steel and environmental regulations. As a result, petroleum tanker rates could be lifted by such environment,” it added.
“Moreover, higher term-to-spot ratio for its petroleum vessels acts as a sustainability factor for this segment.”
Other notable mentions was a shift in MISc’s management pattern for chemical fleets, whereby four out of thirteen of its chemical tankers -- namely Bunga Lucerne; Bunga Lily; Bunga Lavender and Bunga Lilac -- have been placed into a pool management system.
“The pool management systems works in a way whereby a pool manager acts on behalf of ships to obtain charterers. Moving forward, MISC Berhad may inject more chemical vessels into the tanker pool to leverage on scale and sustainability.”
MIDF Research also forewarned of renewal risk of floating, storage and offloading (FSO) contracts.
“Under this segment, the FSO Benchamas 2 will commence operations from 2QFY18, marking the company’s venture into Thailand’s offshore oil and gas sector.
“Meanwhile, the FSO Puteri Dulang was awarded with a three year extension until 2021 and FPSO Cendor’s change in contract period from 10 firm years with four one-year extensions option to 12 firm years with 2 one-year extension option effective from January 1, 2017.
“Notwithstanding this, other existing offshore contracts that are expiring in FY18 and FY19 such as FSO Angsi, FSO Orkid, FPSO Ruby 2 and FPSO Bunga Kertas are in the midst of renegotiations.
“Hence, this represents a contract renewal risk which may outweigh the impact from the new FSO and extension as overall earnings in the segment may decline amid the recognition of the finance lease.”
On the back of a challenging outlook for heavy engineering, the research form revised downwards its earnings forecasts for MISC for FY18 and FY19 by 10 per cent and six per cent espectively after taking into account the firmer ringgit against the greenback compared to FY17; the normalisation of deferred income from Yemen LNG and; the impairment risk of receivables for Seri Balhaf and Seri Balqis.