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Strong 1Q; upgrading EPS, target
PLNG’s 1QFY12 net profit rose 24%QoQ to Rs3.4/sh – higher than expected on the
back of higher short term and spot volumes, lower internal losses and trading
gains. We are upgrading FY12-14 EPS by 12-23% to factor in trading gains as also
lower internal losses. Maintain O-PF with an upgraded target price of Rs165/sh. A
favourable near term LNG macro due to lacklustre domestic gas production,
continued strong EPS momentum and additional clarity on the proposed 5mtpa
capacity addition at Dahej and on long term contracts for Kochi are catalysts.
Strong 1QFY12. PLNG’s 1QFY12 net rose 24%QoQ to Rs2.57bn (Rs3.4/sh) and came
24% ahead estimates. Volumes (2.6mt, +6%QoQ) were 4% higher than expected;
long term volumes were 8% below but was offset by higher service cargoes (Gail,
GSPC) and short term imports from PLNG’s 1.5mtpa portfolio and spot cargoes.
Trading gains on the short term and spot cargoes (18% of volumes) boosted pre-tax
profits by ~Rs1.1bn in our estimate (30% of EPS). In addition, management also
indicates that internal losses are now at ~0.5-0.6% cf. 1.2% earlier helping EPS.
Higher other income (cash up Rs8bn QoQ to Rs20bn) and lower tax rates also helped.
Raising FY12-14 EPS by 12-23%; target by 10%. While 1Q volumes annualised
10.4mt, management indicated in the post results conference call that it has been able
to run at 11.5mtpa in June. We hold our FY12 volume estimate of 10.4mt for now but
our discussions indicate that PLNG is striving to achieve 11mt by scheduling ships
more efficiently; night berthing and larger shiploads may also help. Every 1mt adds
Re1/sh (8%) to EPS. We now model a lower 1% internal loss, though, and also build in
trading margins of US$0.2-0.5/mmbtu (cf. our estimate of US$1 in 1Q). These changes
lead to 12-23% upgrade to FY12-14 EPS and 10% to our target to Rs165/sh.
Strong medium term outlook. With gas output at Reliance KG-D6 struggling and
production from other sources several years away, domestic gas production has
plateaued near term. Nevertheless, we expect gas demand in India to rise at a 9%
Cagr over FY11-13CL. This bodes well for LNG; PLNG should be able to capitalise on
this trend as was evident from the strong traction in short term and spot cargoes.
Building long term growth options. Indeed, management is looking to capitalise on
the buoyant outlook by raising Dahej capacity by 5mtpa (US$0.5bn capex) taking
capacity to 18mtpa and is evaluating a 5mtpa terminal on the East Coast (US$1bn).
Our models now assume 13mtpa at Dahej (after the second jetty is complete in 2H-
2013) and 5mtpa at Kochi; we will review this after clarity on capex, timeline (3-4
years), sourcing, offtake, re-gas charges (PLNG indicates premium to current margins)
and funding. PLNG is evaluating partnerships with Gail, GSPC for the Dahej expansion.
Maintain O-PF (+8%). PLNG has outperformed the market by 35% since our
upgrade in March but we continue to find valuations (13x Mar12 PE) reasonable given
the buoyant medium term outlook and strong earnings traction. An earlier than
expected cut in Dahej tariffs (we model 10% cut in 2014, 5ppt = 10% on EPS) and
decisions that impair Kochi economics (we model ~16% equity IRR) are key risks.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Strong 1Q; upgrading EPS, target
PLNG’s 1QFY12 net profit rose 24%QoQ to Rs3.4/sh – higher than expected on the
back of higher short term and spot volumes, lower internal losses and trading
gains. We are upgrading FY12-14 EPS by 12-23% to factor in trading gains as also
lower internal losses. Maintain O-PF with an upgraded target price of Rs165/sh. A
favourable near term LNG macro due to lacklustre domestic gas production,
continued strong EPS momentum and additional clarity on the proposed 5mtpa
capacity addition at Dahej and on long term contracts for Kochi are catalysts.
Strong 1QFY12. PLNG’s 1QFY12 net rose 24%QoQ to Rs2.57bn (Rs3.4/sh) and came
24% ahead estimates. Volumes (2.6mt, +6%QoQ) were 4% higher than expected;
long term volumes were 8% below but was offset by higher service cargoes (Gail,
GSPC) and short term imports from PLNG’s 1.5mtpa portfolio and spot cargoes.
Trading gains on the short term and spot cargoes (18% of volumes) boosted pre-tax
profits by ~Rs1.1bn in our estimate (30% of EPS). In addition, management also
indicates that internal losses are now at ~0.5-0.6% cf. 1.2% earlier helping EPS.
Higher other income (cash up Rs8bn QoQ to Rs20bn) and lower tax rates also helped.
Raising FY12-14 EPS by 12-23%; target by 10%. While 1Q volumes annualised
10.4mt, management indicated in the post results conference call that it has been able
to run at 11.5mtpa in June. We hold our FY12 volume estimate of 10.4mt for now but
our discussions indicate that PLNG is striving to achieve 11mt by scheduling ships
more efficiently; night berthing and larger shiploads may also help. Every 1mt adds
Re1/sh (8%) to EPS. We now model a lower 1% internal loss, though, and also build in
trading margins of US$0.2-0.5/mmbtu (cf. our estimate of US$1 in 1Q). These changes
lead to 12-23% upgrade to FY12-14 EPS and 10% to our target to Rs165/sh.
Strong medium term outlook. With gas output at Reliance KG-D6 struggling and
production from other sources several years away, domestic gas production has
plateaued near term. Nevertheless, we expect gas demand in India to rise at a 9%
Cagr over FY11-13CL. This bodes well for LNG; PLNG should be able to capitalise on
this trend as was evident from the strong traction in short term and spot cargoes.
Building long term growth options. Indeed, management is looking to capitalise on
the buoyant outlook by raising Dahej capacity by 5mtpa (US$0.5bn capex) taking
capacity to 18mtpa and is evaluating a 5mtpa terminal on the East Coast (US$1bn).
Our models now assume 13mtpa at Dahej (after the second jetty is complete in 2H-
2013) and 5mtpa at Kochi; we will review this after clarity on capex, timeline (3-4
years), sourcing, offtake, re-gas charges (PLNG indicates premium to current margins)
and funding. PLNG is evaluating partnerships with Gail, GSPC for the Dahej expansion.
Maintain O-PF (+8%). PLNG has outperformed the market by 35% since our
upgrade in March but we continue to find valuations (13x Mar12 PE) reasonable given
the buoyant medium term outlook and strong earnings traction. An earlier than
expected cut in Dahej tariffs (we model 10% cut in 2014, 5ppt = 10% on EPS) and
decisions that impair Kochi economics (we model ~16% equity IRR) are key risks.
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