Dahej expansion, Kochi ramp-up to aid near term volume growth
Petronet LNG’s (PLNG) FY18 Annual Report highlights the commissioning of Dahej’s 2.5mmtpa capacity expansion by end-FY19 and the expectation for Kochi to see better utilization due to the completion of the Mangalore pipeline. The Bangladesh terminal and auto-LNG are the new growth areas. The company has also announced plans to build a third jetty in Dahej. PLNG has signed an agreement with ONGC-OPaL for C2-C3 extraction, and has received Rs346mn in advance. Future dividend payout should be in the 30-40% range. We note that PLNG has maintained its solid financials, while the Dahej expansion and the Kochi ramp-up should help grow core volumes. It is ready to face competition through long-term tie-ups, but with new terminals like Jafrabad and Dhamra, in particular indicating higher tariffs than Dahej with a 5% escalation clause embedded, we do not see any threat to PLNG’s margins. Reiterate Buy with Rs305 TP.
Bangladesh, auto-LNG new growth areas; third jetty in Dahej under consideration
PLNG highlighted the commissioning of Dahej terminal’s Phase IIIB (2.5mmtpa/Rs 4.2bn) expansion by end-FY19 and an expected uptick in Kochi utilization in FY19 with completion of GAIL’s Mangalore pipeline. Dahej’s seventh tank tendering process is in the advanced stage, and the feasibility study for a third jetty has also started. Although the reason is cited as “better reliability of LNG ship receiving system”, the new jetty may help in capacity expansion beyond 20mmtpa. Although, not much was stated on the Sri Lankan terminal, for Bangladesh, the commercial proposal and T&C were submitted to NOC Petrobangla. For Andaman, DFR has been submitted, though no mention was there on global upstream plans (Qatar, USA, etc.). It has signed an agreement with ONGC/OPaL for C2-C3 extraction at the Dahej plant, and received Rs346mn of advances. With regulations in place, for the small-scale/auto LNG foray, PLNG has prepared a business plan to develop 4,000kms of highways and has shortlisted 20 locations (for LNG retail stations) for running a pilot. Oil and gas marketing companies are working together on this.
Global LNG market to remain surplus despite project slowdown, ideal for India
LNG demand/supply grew 11.3%/10.5% in CY17. The market remained oversupplied, but the surplus was not excessive. With only three financial closures, that too of brownfield liquefaction plants and just one FID, the future looks uncertain. Japanese demand is expected to weaken amid liberalized gas and power markets and nuclear restarts. Korea may also remain flat. China should be the biggest driver in North Asia, with 32% estimated LNG demand growth in CY18 (to 49mmt). South Asian demand would grow by 41% to 50mmt. Platts’ estimate is for an overall demand growth of 23mmt, while supply would rise by 32mmt in CY18. In CY17-20, 100mmtpa of new capacity should come, with 85mmtpa in CY19, mostly from Australia and the US. The market could reach a balance in CY22, but after Qatar’s expansion, overcapacity could resume. This is an ideal situation for the development of the Indian gas market. India’s quest to double the share of gas in its energy basket is challenging and require significant LNG capacity. Global contracts are shifting toward shorter-term, Brent linked ones; in CY17, average slope has reduced to 11-11.5% from 11.5-13% yoy.
Maintain estimates and TP; reiterate Buy at Rs305 TP
We maintain our estimates and DCF-based target price of Rs305. We are yet to assign any value for the Bangladesh terminal, and we await more details on auto-LNG. Reiterate Buy.
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