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In-line numbers sans some staff cost one-off
* Petronet LNG (PLNG)’s Q2FY19 adjusted PAT/EBITDA of Rs9.0bn/5.8bn was flat/down 2% yoy; down 3%/2% qoq; and in-line/6% below our estimate. The adjustment was a oneoff staff cost of Rs210mn. Other income was also lower, while tax rate was higher.
* Dahej/Kochi terminals operated at 109%/9% utilization in Q2, in line with our estimates. Dahej long-term/3rd party regas/tolling volumes were up 4%/down 9%/up 40% qoq at 116/88/7tbtu. Kochi term volumes were flat qoq at 6tbtu. Total volumes were flat yoy/qoq.
* Regas service income was down 10% qoq to Rs3.93bn. Implied marketing margin of US$1.1/mmbtu on spot volumes was down 36% qoq. EBITDA/mmbtu was up 2% yoy and down 2% qoq at Rs41.7.
* PLNG declared a special interim dividend of Rs5.5/share, which is 72% of 1HFY19 EPS.
* Management guidance:
Management maintained Dahej 2.5mmtpa expansion and the completion of Kochi-Mangalore pipeline time-line at end of Q4FY19, after which PLNG’s volumes would grow. In Dahej, the aim is to hit 100% of the 17.5mmtpa capacity and PLNG wants some flexibility to import spot LNG as well. It remains confident of facing incoming competition successfully as already major tie-ups are in place and the pricing is unlikely to be a threat. In Bangladesh, PLNG is in the process of submitting a final terminal use and implementation agreement as sought by the government. However another 12 months could be required for the construction to start with 3-4 years for completion. PLNG is looking for a 70-75% stake and it would be a 100% tolling unit. In Sri Lanka, pre-FEED studies have been completed, while a financial consultant would be hired. The 2.5mmtpa planned FSRU would require 15-24 months for project work to start, although completion is likely in 1-2 years. It is looking at international upstream opportunities but nothing concrete is there yet. Within India, an East Coast terminal is an aspiration although it depends on market conditions. PLNG expects LNG prices to be range-bound, as a result of global demand growth and China being a volatile demand factor.
* Outlook and valuation:
We maintain our positive view on PLNG due to the upcoming volume growth in next fiscal from the Dahej expansion and the Kochi ramp-up. Further, supported by robust FCF generation, dividend payout can be attractive as seen from the recent special interim dividend. We maintain our FY19/20 estimates while introducing FY21E numbers and roll over our DCF. We lower our terminal growth assumption in the DCF from 2% to 1% due to which the target price remains unchanged at Rs305, providing a 40% upside. Reiterate Buy.
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