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Satyendra Pathak
Doha
Qatar Gas Transport Company (Nakilat) is the best avenue for equity investors to participate in the long term growth expected in Qatar’s LNG sector, QNB Financial Services has said in its company report released on Thursday.
Irrespective of the volatility of the LNG shipping market, the report said, Nakilat’s business should remain relatively unaffected given the LT nature of its charters.
“Nakilat’s fleet continues to provide the company with stable, contractually sustainable cash flow that allow for a healthy residual income stream for equity investors after providing for debt service. Moreover, the 40-year life of Nakilat’s vessels against maximum debt life of 25 years with last debt maturing in 2033, continues to create refinancing opportunities to increase fleet size,” the report said.
“Thus, we think further deals in LNG ships and floating storage regasification units (FSRUs) are likely. In the near-term, addition of four LNG vessels with one added in early January followed by one each in the second half of 2021 and in early 2022 via Global Shipping, should help earnings growth in 2020 and 2021. In terms of catalysts, we continue to believe that expansion of Qatar’s LNG output from 77 MTPA to 126 MTPA is a significant driver. Currently, our model does not assume any fleet growth and we will incorporate such expansion once more details become available. We foresee significant upward revision to our estimates and price target once we factor in this expansion,” it said.
“We maintain Nakilat as an ‘Outperform’ and raise our price target. Nakilat capped off a strong 2020 despite the global pandemic. For the first quarter of 2021, we are projecting 16.2 percent and 24.5 percent YoY and QoQ earnings increases respectively driven by lower G&A, higher JV income and a continued decline in finance charges. We remain bullish on Nakilat and consider it as the best avenue for equity investors to participate in the LT growth expected in Qatar’s LNG sector,” it said.
Since we upgraded the stock to an Outperform, the report said, Nakilat’s share price has appreciated by 18 percent, beating the QE Index’s increase of 8 percent as Nakilat was re-included in the MSCI EM Index.
“We project 12.5 percent EPS growth for 2021 followed by a 7.5 percent increase in 2022. In 2021, JV income should benefit from two new LNG vessels in Nakilat’s 60 percent-owned Global Shipping JV and improving shipyard performance, along with lower finance charges given principle repayments and considering that 25 percent of Nakilat’s debt (including JV debt) is unhedged. For 2022, another ship should be added, increasing Global Shipping’s fleet to four LNG carriers, along with a further decline in finance costs,” the report said.
“Transition of fleet management in-house from STASCO has enhanced profitability. Nakilat has successfully completed phase II of its fleet management transition programme with management and operations of an additional 10 vessels including the one delivered in January 2021. So far, this has played a major role in expanding Nakilat’s EBITDA margin from 74.6 percent in 2017 to 77.7 percent in 2020. We could see upside to our future margin assumptions when Nakilat is able to transition the remaining eight wholly-owned LNG vessels from STASCO,” it said.
“Nakilat’s stable business profile is highlighted by its industry-leading margins with average adjusted EBITDA margin of 78.3 percent over 2010-2020 followed by 80.0 percent over 2021-2033. We model in a dividend yield of 3.4 percent in 2021 growing to 4.7 percent by 2033, with 9.9 percent in FCF yield growing to 17 percent over the same period,” it said.
Highlighting that expansion of Qatar’s LNG output from 77 MTPA to 126 MTPA is a significant driver,the report said, “Qatar Petroleum (QP) has signed major LNG shipbuilding capacity agreements to build more than 100 LNG vessels, worth in excess of QR70 billion to cater to this expansion. Recently QP issued an ‘Invitation to Tender’ package to ship owners in relation to this project. While details are yet to be released, we expect Nakilat to be a major beneficiary of this LNG expansion. We note every vessel adds roughly 1 percent to QGTS’ target price and we should hear more about carrier selection by the end of 2022. We continue to favour Nakilat as a long-term play geared to Qatari LNG’s dominance.”
“Our one-year target price is QR3.5 against QR3.4 previously. We have rolled forward our DCF-based valuation model to 2021,” the report said.
Doha
Qatar Gas Transport Company (Nakilat) is the best avenue for equity investors to participate in the long term growth expected in Qatar’s LNG sector, QNB Financial Services has said in its company report released on Thursday.
Irrespective of the volatility of the LNG shipping market, the report said, Nakilat’s business should remain relatively unaffected given the LT nature of its charters.
“Nakilat’s fleet continues to provide the company with stable, contractually sustainable cash flow that allow for a healthy residual income stream for equity investors after providing for debt service. Moreover, the 40-year life of Nakilat’s vessels against maximum debt life of 25 years with last debt maturing in 2033, continues to create refinancing opportunities to increase fleet size,” the report said.
“Thus, we think further deals in LNG ships and floating storage regasification units (FSRUs) are likely. In the near-term, addition of four LNG vessels with one added in early January followed by one each in the second half of 2021 and in early 2022 via Global Shipping, should help earnings growth in 2020 and 2021. In terms of catalysts, we continue to believe that expansion of Qatar’s LNG output from 77 MTPA to 126 MTPA is a significant driver. Currently, our model does not assume any fleet growth and we will incorporate such expansion once more details become available. We foresee significant upward revision to our estimates and price target once we factor in this expansion,” it said.
“We maintain Nakilat as an ‘Outperform’ and raise our price target. Nakilat capped off a strong 2020 despite the global pandemic. For the first quarter of 2021, we are projecting 16.2 percent and 24.5 percent YoY and QoQ earnings increases respectively driven by lower G&A, higher JV income and a continued decline in finance charges. We remain bullish on Nakilat and consider it as the best avenue for equity investors to participate in the LT growth expected in Qatar’s LNG sector,” it said.
Since we upgraded the stock to an Outperform, the report said, Nakilat’s share price has appreciated by 18 percent, beating the QE Index’s increase of 8 percent as Nakilat was re-included in the MSCI EM Index.
“We project 12.5 percent EPS growth for 2021 followed by a 7.5 percent increase in 2022. In 2021, JV income should benefit from two new LNG vessels in Nakilat’s 60 percent-owned Global Shipping JV and improving shipyard performance, along with lower finance charges given principle repayments and considering that 25 percent of Nakilat’s debt (including JV debt) is unhedged. For 2022, another ship should be added, increasing Global Shipping’s fleet to four LNG carriers, along with a further decline in finance costs,” the report said.
“Transition of fleet management in-house from STASCO has enhanced profitability. Nakilat has successfully completed phase II of its fleet management transition programme with management and operations of an additional 10 vessels including the one delivered in January 2021. So far, this has played a major role in expanding Nakilat’s EBITDA margin from 74.6 percent in 2017 to 77.7 percent in 2020. We could see upside to our future margin assumptions when Nakilat is able to transition the remaining eight wholly-owned LNG vessels from STASCO,” it said.
“Nakilat’s stable business profile is highlighted by its industry-leading margins with average adjusted EBITDA margin of 78.3 percent over 2010-2020 followed by 80.0 percent over 2021-2033. We model in a dividend yield of 3.4 percent in 2021 growing to 4.7 percent by 2033, with 9.9 percent in FCF yield growing to 17 percent over the same period,” it said.
Highlighting that expansion of Qatar’s LNG output from 77 MTPA to 126 MTPA is a significant driver,the report said, “Qatar Petroleum (QP) has signed major LNG shipbuilding capacity agreements to build more than 100 LNG vessels, worth in excess of QR70 billion to cater to this expansion. Recently QP issued an ‘Invitation to Tender’ package to ship owners in relation to this project. While details are yet to be released, we expect Nakilat to be a major beneficiary of this LNG expansion. We note every vessel adds roughly 1 percent to QGTS’ target price and we should hear more about carrier selection by the end of 2022. We continue to favour Nakilat as a long-term play geared to Qatari LNG’s dominance.”
“Our one-year target price is QR3.5 against QR3.4 previously. We have rolled forward our DCF-based valuation model to 2021,” the report said.
