KUALA LUMPUR (July 16): RHB Investment Bank expects MISC Bhd to emerge as the third very large ethane carrier (VLEC) owner globally after Mitsui OSK Lines and Evergas following the signing of a memorandum of agreement to purchase six VLECs from China’s Zhejiang Satellite Petrochemical Co Ltd worth US$726 million.

Concurrently, MISC has been awarded a 15-year time charter contract for these six VLECs by Zhejiang Satellite Petrochemical to operate in international waters with the charters expected to commence in 2022

The investment bank said currently there are less than 10 VLEC vessels operating globally in the very niche market.

“We are positive on the contract win, as it helps to provide long-term quality secured income to MISC,” it said in a research note today.

RHB Research said it is also optimistic on MISC bid for Petrobras’ Mero 3 floating, processing, storage and offloading (FPSO) contract, which is scheduled to go into operation in 2023 in the Santos Basin offshore Brazil.

“Should MISC win the Mero 3 project, this will mark its maiden entry into the large-sized FPSO market,” it added.

In a separate note, Maybank Investment Bank estimated the new six VLECs could lift MISC financial year 2021 (FY21) earnings forecast by 5%.

It said VLEC is a relatively new carrier in the shipping market as the cheap shale gas from the US has led to the demand for ethane transportation between the US and Asia/Europe.

“It is also expected that the demand for ethane transportation will increase in the coming years as the new petrochemical plants in China are required to import ethane,” it said.

However, the investment bank said it remained lukewarm on the stock, awaiting the recovery in petroleum tanker rates, which might only take place from the fourth quarter of 2020 onwards as the demand-supply of petroleum tankers rebalanced.

“We maintained our earnings forecasts for now. The latest contract wins are within our expectation as we have already imputed for total capital expenditure (capex) wins of US$2.8 billion in our sum-of-parts versus US$1.21 billion Capex wins year-to-date,” it said.

Kenanga Investment Bank in a separate note said MISC foray into VLEC would strengthen the shipping operator’s liquefied natural gas (LNG) segment, currently the largest earnings contributor, as well as minimising its exposure to spot charter rates.

“Overall, we still like MISC as a defensive dividend play, especially among bluechip counters.

“However, investors should be wary of possible upcoming earnings weakness, especially in the second half of 2020 as a result of weaker spot charter rates post-April 2020,” it added.

RHB Investment Bank has maintained a “buy” call and target price of RM9.21 on MISC.

Maybank Investment Bank has also retained “buy” call and target price of RM7.80 on the shipping operator.

Meanwhile, Kenanga Investment Bank has maintained “outperform” view on MISC but revised upwards the target price to RM8.90 from RM8.85 previously.

At 12pm, MISC rose three sen to RM7.93 with 715,100 shares transacted.