KUALA LUMPUR (May 7): Kenanga Research has maintained its "outperform" call on MISC Bhd, with an unchanged target price (TP) of RM8.10, as the shipping company’s financial results for the first quarter ended March 31, 2021 (1QFY21) were within expectations.

In a research note published today, the local research house highlighted that the weaker 1QFY21 is dragged by substantially lower spot tanker rates freight rates coupled with steep losses in its heavy engineering segment. 

“We maintain outperform with an unchanged target price of RM8.10, pegged to 1.1 times of Price-to-Book Value ratio (PBV).

“Our outperform call is premised on its stable and attractive dividend yield of approximately 5%, coupled with its Environmental, Social, Governance (ESG)-compliant angle, inclusion in the F4GBM Index as well as it receiving a 4-star ESG rating by FTSE Russell,” according to Kenanga research analyst, Steven Chan.

Chan added that while the recent blockage in the Suez Canal did nudge up spot rates slightly, overall spot tanker rates continue to remain sluggish.

“Vessel demolition activities continue to remain slow, on top of sizable remaining order-book deliveries.

“Nonetheless, we are hopeful of a possibly better  second half (2HFY21), in anticipation of increased oil productions globally, led by OPEC+, which would help boost demand for petroleum tankers,” he said. 

Echoing the same sentiment, AmInvestment Bank has also maintained its “Buy” call on MISC with a target price of RM7.75, which reflects a premium of 3% from its ESG rating of 4 stars. 

The research house pointed out that MISC has recognised a cost provision between RM50 million to RM 60 million in the quarter for a heavy engineering project due to Covid-19 delay. 

The group, however, hopes to recover the costs from other scope of works of the project at a later stage. 

“In line with management’s plan to reduce MISC’s exposure to volatile tanker spot rates, the proportion of spot-to-term charter for the petroleum and chemical division slid further to 33:67 from 35:65 in 4QFY20.

“However, the proportion of spot-to-fixed charters has fallen to 46% from 49% for Aframax and to 26% from 32% Suezmax, while VLCC rose to 11% from 6%.

“Looking forward, the gradual easing of Opec+ quotas in May–July 2021 and rollouts of Covid-19 vaccinations towards the second half of the year offer brighter prospects for the petroleum segment,” its research analyst, Alex Goh said in a note today. 

Goh highlighted while spot Liquified Natural Gas (LNG) rates have dropped by 18% year-on-year (YoY) to US$32,625 per day, the division’s earnings are expected to be accretive as the vessels are secured on long-term charters notwithstanding a contract expiry annually over the next two years.

“The upward trajectory of this segment, which accounted for 52% of 1QFY21 group operating profit, will be supported by the addition of two very large ethane carriers in 2021 with another two in 2H2023 to the group’s current fleet of 33 vessels,” he said.

At 10.50am, shares of MISC Bhd traded three sen or 0.44% higher to RM6.80, valuing the shipping company at RM 30.35 billion.

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