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Underperformance pricing in concerns; upgrade to ADD. PLNG reported weak results led by dismal marketing margins and lower regasification volumes. Nevertheless, the recent underperformance is adequately pricing in concerns on volatility of spot margins and lower utilization of Kochi terminal. We upgrade PLNG to ADD from REDUCE earlier with a revised TP of `220 (`190 previously) and we would advise investors to look for good entry points noting strong medium-term growth prospects.
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Dismal spot margins mar results; margins should normalize with stability in spot LNG prices PLNG reported 3QFY15 EBITDA at `3.4 bn (-34% qoq, -2.6% yoy) and net income at `1.6 bn (-38% qoq, +20% yoy), meaningfully lower than our estimates of `5.2 bn and `2.7 bn respectively, led by (1) dismal marketing margins in a declining spot price environment and (2) lower-than-expected regasification volumes. We expect the marketing margins to normalize, as spot LNG prices have likely bottomed out and are expected to remain steady (or increase) in the near term. Cumulative regasification volumes across two LNG terminals declined 6% qoq to 141.4 tn BTUs led by lower spot as well as tolling volumes. Implied tariff on LNG volumes was sharply lower at `33/mn BTU as compared to `42/mn BTU in the previous quarter reflecting modest marketing margins of about US$0.1/mn BTU in 3QFY15 versus US$0.9/mn BTU in 2QFY15. Upgrade to ADD noting robust earnings growth trajectory in the medium term We upgrade PLNG to ADD rating from REDUCE earlier, as we believe that the stock is adequately pricing in concerns on volatility on spot margins and lower utilization of Kochi terminal, post the recent underperformance of 16% versus BSE Sensex in the past one month. We would advise investors to look for good entry points in the stock noting strong mediumterm growth prospects from (1) timely expansion of Dahej terminal to a capacity of 15 mtpa, with an option to augment it further, (2) likely resolution of issues around off-take pipeline from Kochi terminal—a low-hanging fruit for the government to enhance energy security and (3) improved viability of LNG in a lower crude price environment; we note that the company has take-or-pay contracts with off-takers for high-priced volumes from RasGas. Reasonable valuation at 12X FY2017E EPS and strong 22% CAGR in cash EPS in FY2015-18E will provide enough support on downside. Raise TP to `220 (+15%); fine-tune estimates We raise our TP to `220 from `190 previously to reflect (1) lower discount rate of 11.5% versus 12.5% earlier, as our economist expects 75-100 bps reduction in interest rate over the next 12 months and (2) roll-forward of DCF model. Our assumptions of stable long-term tariffs, post 5% annual escalation for three years and low marketing margins of US$0.3/mn BTU, yield a reasonable 19% CROCI for the company in the long term, which factors in potential regulatory/competitive risks to the LNG re-gasification business. We revise our EPS estimates to `10.6, `12.3 and `15 for FY2015E, FY2016E and FY2017E from `10.9, `12.5 and `15.4 previously to factor in (1) slower ramp-up of Kochi terminal and (3) other minor changes.
LINK
http://www.kotaksecurities.com/pdf/indiadaily/indiadaily06022015mh.pdf
Underperformance pricing in concerns; upgrade to ADD. PLNG reported weak results led by dismal marketing margins and lower regasification volumes. Nevertheless, the recent underperformance is adequately pricing in concerns on volatility of spot margins and lower utilization of Kochi terminal. We upgrade PLNG to ADD from REDUCE earlier with a revised TP of `220 (`190 previously) and we would advise investors to look for good entry points noting strong medium-term growth prospects.
�� India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details ��
��
Dismal spot margins mar results; margins should normalize with stability in spot LNG prices PLNG reported 3QFY15 EBITDA at `3.4 bn (-34% qoq, -2.6% yoy) and net income at `1.6 bn (-38% qoq, +20% yoy), meaningfully lower than our estimates of `5.2 bn and `2.7 bn respectively, led by (1) dismal marketing margins in a declining spot price environment and (2) lower-than-expected regasification volumes. We expect the marketing margins to normalize, as spot LNG prices have likely bottomed out and are expected to remain steady (or increase) in the near term. Cumulative regasification volumes across two LNG terminals declined 6% qoq to 141.4 tn BTUs led by lower spot as well as tolling volumes. Implied tariff on LNG volumes was sharply lower at `33/mn BTU as compared to `42/mn BTU in the previous quarter reflecting modest marketing margins of about US$0.1/mn BTU in 3QFY15 versus US$0.9/mn BTU in 2QFY15. Upgrade to ADD noting robust earnings growth trajectory in the medium term We upgrade PLNG to ADD rating from REDUCE earlier, as we believe that the stock is adequately pricing in concerns on volatility on spot margins and lower utilization of Kochi terminal, post the recent underperformance of 16% versus BSE Sensex in the past one month. We would advise investors to look for good entry points in the stock noting strong mediumterm growth prospects from (1) timely expansion of Dahej terminal to a capacity of 15 mtpa, with an option to augment it further, (2) likely resolution of issues around off-take pipeline from Kochi terminal—a low-hanging fruit for the government to enhance energy security and (3) improved viability of LNG in a lower crude price environment; we note that the company has take-or-pay contracts with off-takers for high-priced volumes from RasGas. Reasonable valuation at 12X FY2017E EPS and strong 22% CAGR in cash EPS in FY2015-18E will provide enough support on downside. Raise TP to `220 (+15%); fine-tune estimates We raise our TP to `220 from `190 previously to reflect (1) lower discount rate of 11.5% versus 12.5% earlier, as our economist expects 75-100 bps reduction in interest rate over the next 12 months and (2) roll-forward of DCF model. Our assumptions of stable long-term tariffs, post 5% annual escalation for three years and low marketing margins of US$0.3/mn BTU, yield a reasonable 19% CROCI for the company in the long term, which factors in potential regulatory/competitive risks to the LNG re-gasification business. We revise our EPS estimates to `10.6, `12.3 and `15 for FY2015E, FY2016E and FY2017E from `10.9, `12.5 and `15.4 previously to factor in (1) slower ramp-up of Kochi terminal and (3) other minor changes.
LINK
http://www.kotaksecurities.com/pdf/indiadaily/indiadaily06022015mh.pdf
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