Energy Sector

In this briefing:

1. Kunlun Energy (135 HK): Solid Growth in Downstream Gas Sales Is the Driver
2. Morning Views Asia: Agility, Car Inc, Future Retail, Glenmark Pharmaceuticals, Medco Energi
3. Weekly Oil Views: US Eyes Intervention as Crude Hits 17-Year Lows: What Next?
4. Morning Views Asia: Anton Oilfield, Geo Energy Resources, MGM China Holdings, Wynn Macau Ltd
5. Morning Views Asia: Abm Investama, Anton Oilfield, Chandra Asri Petrochemical, Softbank Corp

1. Kunlun Energy (135 HK): Solid Growth in Downstream Gas Sales Is the Driver

2. Morning Views Asia: Agility, Car Inc, Future Retail, Glenmark Pharmaceuticals, Medco Energi

Lucror Analytics Morning Views comprise our fundamental credit analysis, opinions and trade recommendations on high yield issuers in the region, based on key company-specific developments in the past 24 hours. Our Morning Views include a section with a brief market commentary, key market indicators and a macroeconomic and corporate event calendar.

• Agility
• Car Inc
• Future Retail
• Glenmark Pharmaceuticals
• Medco Energi

3. Weekly Oil Views: US Eyes Intervention as Crude Hits 17-Year Lows: What Next?

Benchmark Brent and WTI crude prices hit 17- to 18-year lows on March 18 at $24.88 and $20.37/barrel. The following day, WTI staged an unprecedented one-day spike of 24%, while Brent jumped by 14%.

US President Donald Trump’s comments that he would intervene in the Saudi-Russia oil price war triggered a wave of short-covering in the oil market, even though he didn’t indicate when or how. By Friday, the coronavirus chaos was back and crude surrendered about half the previous day’s gains.

We highlighted in our last week’s insight that this is now a three-sided game and the US is a key player. We stand vindicated. Behind-the-scenes activity to try and restore a semblance of stability in the global oil market appears to have shifted west, with conversations involving OPEC officials, the Texas oil industry regulator, the US Department of Energy, and some shale sector executives.

US intervention could become the circuit-breaker for the beleaguered oil market. But it’s not the only one. We see two other factors on the horizon that could lead to an inflection point.

4. Morning Views Asia: Anton Oilfield, Geo Energy Resources, MGM China Holdings, Wynn Macau Ltd

Lucror Analytics Morning Views comprise our fundamental credit analysis, opinions and trade recommendations on high yield issuers in the region, based on key company-specific developments in the past 24 hours. Our Morning Views include a section with a brief market commentary, key market indicators and a macroeconomic and corporate event calendar.

• Anton Oilfield
• Geo Energy Resources
• MGM China Holdings
• Wynn Macau Ltd

5. Morning Views Asia: Abm Investama, Anton Oilfield, Chandra Asri Petrochemical, Softbank Corp

Lucror Analytics Morning Views comprise our fundamental credit analysis, opinions and trade recommendations on high yield issuers in the region, based on key company-specific developments in the past 24 hours. Our Morning Views include a section with a brief market commentary, key market indicators and a macroeconomic and corporate event calendar.

• Abm Investama
• Anton Oilfield
• Chandra Asri Petrochemical
• Softbank Corp

In this briefing:

1. Morning Views Asia: Agility, Car Inc, Future Retail, Glenmark Pharmaceuticals, Medco Energi
2. Weekly Oil Views: US Eyes Intervention as Crude Hits 17-Year Lows: What Next?
3. Morning Views Asia: Anton Oilfield, Geo Energy Resources, MGM China Holdings, Wynn Macau Ltd
4. Morning Views Asia: Abm Investama, Anton Oilfield, Chandra Asri Petrochemical, Softbank Corp
5. Weekly Oil Views: Prices May Not Find a Bottom Until Coronavirus Abates

1. Morning Views Asia: Agility, Car Inc, Future Retail, Glenmark Pharmaceuticals, Medco Energi

Lucror Analytics Morning Views comprise our fundamental credit analysis, opinions and trade recommendations on high yield issuers in the region, based on key company-specific developments in the past 24 hours. Our Morning Views include a section with a brief market commentary, key market indicators and a macroeconomic and corporate event calendar.

• Agility
• Car Inc
• Future Retail
• Glenmark Pharmaceuticals
• Medco Energi

2. Weekly Oil Views: US Eyes Intervention as Crude Hits 17-Year Lows: What Next?

Benchmark Brent and WTI crude prices hit 17- to 18-year lows on March 18 at $24.88 and $20.37/barrel. The following day, WTI staged an unprecedented one-day spike of 24%, while Brent jumped by 14%.

US President Donald Trump’s comments that he would intervene in the Saudi-Russia oil price war triggered a wave of short-covering in the oil market, even though he didn’t indicate when or how. By Friday, the coronavirus chaos was back and crude surrendered about half the previous day’s gains.

We highlighted in our last week’s insight that this is now a three-sided game and the US is a key player. We stand vindicated. Behind-the-scenes activity to try and restore a semblance of stability in the global oil market appears to have shifted west, with conversations involving OPEC officials, the Texas oil industry regulator, the US Department of Energy, and some shale sector executives.

US intervention could become the circuit-breaker for the beleaguered oil market. But it’s not the only one. We see two other factors on the horizon that could lead to an inflection point.

3. Morning Views Asia: Anton Oilfield, Geo Energy Resources, MGM China Holdings, Wynn Macau Ltd

Lucror Analytics Morning Views comprise our fundamental credit analysis, opinions and trade recommendations on high yield issuers in the region, based on key company-specific developments in the past 24 hours. Our Morning Views include a section with a brief market commentary, key market indicators and a macroeconomic and corporate event calendar.

• Anton Oilfield
• Geo Energy Resources
• MGM China Holdings
• Wynn Macau Ltd

4. Morning Views Asia: Abm Investama, Anton Oilfield, Chandra Asri Petrochemical, Softbank Corp

Lucror Analytics Morning Views comprise our fundamental credit analysis, opinions and trade recommendations on high yield issuers in the region, based on key company-specific developments in the past 24 hours. Our Morning Views include a section with a brief market commentary, key market indicators and a macroeconomic and corporate event calendar.

• Abm Investama
• Anton Oilfield
• Chandra Asri Petrochemical
• Softbank Corp

5. Weekly Oil Views: Prices May Not Find a Bottom Until Coronavirus Abates

The ghost of the 2014-2016 oil glut is back! Benchmark crude prices collapsed to four-year lows last week — levels not seen since the start of the historic OPEC and non-OPEC collaboration to restrain output in a bid to maintain global oil market stability.

We unpack the situation and our views on what may come next in three parts:

• Consequences of the worsening global outbreak of coronavirus
• Why the market is bracing for a tsunami of oil
• It is not just Saudi Arabia vs Russia. There is a third actor complicating the picture.

In this briefing:

1. Weekly Oil Views: US Eyes Intervention as Crude Hits 17-Year Lows: What Next?
2. Morning Views Asia: Anton Oilfield, Geo Energy Resources, MGM China Holdings, Wynn Macau Ltd
3. Morning Views Asia: Abm Investama, Anton Oilfield, Chandra Asri Petrochemical, Softbank Corp
4. Weekly Oil Views: Prices May Not Find a Bottom Until Coronavirus Abates
5. Crude Oil Downside Target and Buy Level

1. Weekly Oil Views: US Eyes Intervention as Crude Hits 17-Year Lows: What Next?

Benchmark Brent and WTI crude prices hit 17- to 18-year lows on March 18 at $24.88 and $20.37/barrel. The following day, WTI staged an unprecedented one-day spike of 24%, while Brent jumped by 14%.

US President Donald Trump’s comments that he would intervene in the Saudi-Russia oil price war triggered a wave of short-covering in the oil market, even though he didn’t indicate when or how. By Friday, the coronavirus chaos was back and crude surrendered about half the previous day’s gains.

We highlighted in our last week’s insight that this is now a three-sided game and the US is a key player. We stand vindicated. Behind-the-scenes activity to try and restore a semblance of stability in the global oil market appears to have shifted west, with conversations involving OPEC officials, the Texas oil industry regulator, the US Department of Energy, and some shale sector executives.

US intervention could become the circuit-breaker for the beleaguered oil market. But it’s not the only one. We see two other factors on the horizon that could lead to an inflection point.

2. Morning Views Asia: Anton Oilfield, Geo Energy Resources, MGM China Holdings, Wynn Macau Ltd

Lucror Analytics Morning Views comprise our fundamental credit analysis, opinions and trade recommendations on high yield issuers in the region, based on key company-specific developments in the past 24 hours. Our Morning Views include a section with a brief market commentary, key market indicators and a macroeconomic and corporate event calendar.

• Anton Oilfield
• Geo Energy Resources
• MGM China Holdings
• Wynn Macau Ltd

3. Morning Views Asia: Abm Investama, Anton Oilfield, Chandra Asri Petrochemical, Softbank Corp

Lucror Analytics Morning Views comprise our fundamental credit analysis, opinions and trade recommendations on high yield issuers in the region, based on key company-specific developments in the past 24 hours. Our Morning Views include a section with a brief market commentary, key market indicators and a macroeconomic and corporate event calendar.

• Abm Investama
• Anton Oilfield
• Chandra Asri Petrochemical
• Softbank Corp

4. Weekly Oil Views: Prices May Not Find a Bottom Until Coronavirus Abates

The ghost of the 2014-2016 oil glut is back! Benchmark crude prices collapsed to four-year lows last week — levels not seen since the start of the historic OPEC and non-OPEC collaboration to restrain output in a bid to maintain global oil market stability.

We unpack the situation and our views on what may come next in three parts:

• Consequences of the worsening global outbreak of coronavirus
• Why the market is bracing for a tsunami of oil
• It is not just Saudi Arabia vs Russia. There is a third actor complicating the picture.

5. Crude Oil Downside Target and Buy Level

W&T Offshore (WTI US) continues to show a bear bias from our recent sell call at 52 with demand and output concerns weighing. From a chart perspective we have outlined downside projection target where we want to closer shorts and try to bottom pick under the assumption that  OPEC parties come back to the table after being nudging by global leaders.

The break of the old macro floor at 52 will now act as resistance on any forward rally cycle. This represents a macro breakdown.

WTI’s gap down will now act as resistance but is a very wide gap zone to manage. Immediate resistance lies at  36 with pattern resistance closer to  34. After gapping down, a flat range typically breaks lower.

Fresh lows into late March offer an long opportunity in oil and more importantly in energy shares for a rise in April/May.

In this briefing:

1. Gaslog Ltd – Downgrade to Neutral on Multiple Headwinds Ahead
2. Nakilat – 4Q19 Result Update
3. SPRC: Back to Its Normal Operation in 1Q20
4. Weekly Oil Views: Coronavirus Nips Crude’s Fragile Recovery

1. Gaslog Ltd – Downgrade to Neutral on Multiple Headwinds Ahead

2. Nakilat – 4Q19 Result Update

Vessel acquisitions drive strong results

Nakilat delivered strong 4Q19 results driven by vessels acquisitions in October 2019. We believe an attractive opportunity has emerged to own Nakilat stock post its recent decline. The company is well positioned to withstand the ongoing weakness in LNG shipping prospects given its solid revenue backlog.

3. SPRC: Back to Its Normal Operation in 1Q20

Analyst meeting held yesterday came out with a positive tone for SPRC’s operation 2Q20 onwards, supporting by improved refinery margin.

Key takeaway:

We maintain a BUY rating with a target price of Bt11.60 (1.3xPBV’20E), assuming SPRC’s GRM of US$4.7/bbl and 97% utilization rate.

4. Weekly Oil Views: Coronavirus Nips Crude’s Fragile Recovery

Crude is back on a slippery slope, first knocked down at the end of last week by signs that optimism over the China coronavirus (Covid-19) abating might have been premature.

Prices suffered another major blow as markets opened on February 24, on news over the weekend that the deadly disease had flared up in Italy, Iran and South Korea.

Crude’s gradual recovery over Feb 11-20 was in large part predicated on the assumption that the coronavirus had been mostly contained within China.

The flare-up of the contagion in at least three other countries has just multiplied the known unknowns. 

If this epidemic turns into a pandemic, oil will have to recalibrate for demand destruction across the globe, not just China.

Will the latest turn of events bridge the divide that had opened up between Saudi Arabia and Russia, de facto leaders of the OPEC/non-OPEC alliance, over the idea of deeper supply cuts?

In this briefing:

1. Morning Views Asia: Anton Oilfield, Geo Energy Resources, MGM China Holdings, Wynn Macau Ltd
2. Morning Views Asia: Abm Investama, Anton Oilfield, Chandra Asri Petrochemical, Softbank Corp
3. Weekly Oil Views: Prices May Not Find a Bottom Until Coronavirus Abates
4. Crude Oil Downside Target and Buy Level
5. PRM: Lackluster Earnings Growth in 2021-22E, but Cheap Valuation

1. Morning Views Asia: Anton Oilfield, Geo Energy Resources, MGM China Holdings, Wynn Macau Ltd

Lucror Analytics Morning Views comprise our fundamental credit analysis, opinions and trade recommendations on high yield issuers in the region, based on key company-specific developments in the past 24 hours. Our Morning Views include a section with a brief market commentary, key market indicators and a macroeconomic and corporate event calendar.

• Anton Oilfield
• Geo Energy Resources
• MGM China Holdings
• Wynn Macau Ltd

2. Morning Views Asia: Abm Investama, Anton Oilfield, Chandra Asri Petrochemical, Softbank Corp

Lucror Analytics Morning Views comprise our fundamental credit analysis, opinions and trade recommendations on high yield issuers in the region, based on key company-specific developments in the past 24 hours. Our Morning Views include a section with a brief market commentary, key market indicators and a macroeconomic and corporate event calendar.

• Abm Investama
• Anton Oilfield
• Chandra Asri Petrochemical
• Softbank Corp

3. Weekly Oil Views: Prices May Not Find a Bottom Until Coronavirus Abates

The ghost of the 2014-2016 oil glut is back! Benchmark crude prices collapsed to four-year lows last week — levels not seen since the start of the historic OPEC and non-OPEC collaboration to restrain output in a bid to maintain global oil market stability.

We unpack the situation and our views on what may come next in three parts:

• Consequences of the worsening global outbreak of coronavirus
• Why the market is bracing for a tsunami of oil
• It is not just Saudi Arabia vs Russia. There is a third actor complicating the picture.

4. Crude Oil Downside Target and Buy Level

W&T Offshore (WTI US) continues to show a bear bias from our recent sell call at 52 with demand and output concerns weighing. From a chart perspective we have outlined downside projection target where we want to closer shorts and try to bottom pick under the assumption that  OPEC parties come back to the table after being nudging by global leaders.

The break of the old macro floor at 52 will now act as resistance on any forward rally cycle. This represents a macro breakdown.

WTI’s gap down will now act as resistance but is a very wide gap zone to manage. Immediate resistance lies at  36 with pattern resistance closer to  34. After gapping down, a flat range typically breaks lower.

Fresh lows into late March offer an long opportunity in oil and more importantly in energy shares for a rise in April/May.

5. PRM: Lackluster Earnings Growth in 2021-22E, but Cheap Valuation

We came out from the PRM’s conference call yesterday with neutral tone given unexciting fleet expansion plan in 2020-21E together with weaker-than-expected earnings growth outlook in 2021E. This prompts us to revise our target price down to Bt7.50 (previous TP at Bt9.10) derived from 16.2xPE’20E, average of Asia ex-Japan transportation sector.

The story:

Risks:  Lower-than-expected domestic oil consumption and trading activities in ASEAN, foreign currency and fuel cost fluctuations

In this briefing:

1. Nakilat – 4Q19 Result Update
2. SPRC: Back to Its Normal Operation in 1Q20
3. Weekly Oil Views: Coronavirus Nips Crude’s Fragile Recovery

1. Nakilat – 4Q19 Result Update

Vessel acquisitions drive strong results

Nakilat delivered strong 4Q19 results driven by vessels acquisitions in October 2019. We believe an attractive opportunity has emerged to own Nakilat stock post its recent decline. The company is well positioned to withstand the ongoing weakness in LNG shipping prospects given its solid revenue backlog.

2. SPRC: Back to Its Normal Operation in 1Q20

Analyst meeting held yesterday came out with a positive tone for SPRC’s operation 2Q20 onwards, supporting by improved refinery margin.

Key takeaway:

We maintain a BUY rating with a target price of Bt11.60 (1.3xPBV’20E), assuming SPRC’s GRM of US$4.7/bbl and 97% utilization rate.

3. Weekly Oil Views: Coronavirus Nips Crude’s Fragile Recovery

Crude is back on a slippery slope, first knocked down at the end of last week by signs that optimism over the China coronavirus (Covid-19) abating might have been premature.

Prices suffered another major blow as markets opened on February 24, on news over the weekend that the deadly disease had flared up in Italy, Iran and South Korea.

Crude’s gradual recovery over Feb 11-20 was in large part predicated on the assumption that the coronavirus had been mostly contained within China.

The flare-up of the contagion in at least three other countries has just multiplied the known unknowns. 

If this epidemic turns into a pandemic, oil will have to recalibrate for demand destruction across the globe, not just China.

Will the latest turn of events bridge the divide that had opened up between Saudi Arabia and Russia, de facto leaders of the OPEC/non-OPEC alliance, over the idea of deeper supply cuts?

In this briefing:

1. Morning Views Asia: Abm Investama, Anton Oilfield, Chandra Asri Petrochemical, Softbank Corp
2. Weekly Oil Views: Prices May Not Find a Bottom Until Coronavirus Abates
3. Crude Oil Downside Target and Buy Level
4. PRM: Lackluster Earnings Growth in 2021-22E, but Cheap Valuation
5. FLASH VIEWS: Crude Crashes by 30% at Market Open Mar 9. An All-Out Price War?

1. Morning Views Asia: Abm Investama, Anton Oilfield, Chandra Asri Petrochemical, Softbank Corp

Lucror Analytics Morning Views comprise our fundamental credit analysis, opinions and trade recommendations on high yield issuers in the region, based on key company-specific developments in the past 24 hours. Our Morning Views include a section with a brief market commentary, key market indicators and a macroeconomic and corporate event calendar.

• Abm Investama
• Anton Oilfield
• Chandra Asri Petrochemical
• Softbank Corp

2. Weekly Oil Views: Prices May Not Find a Bottom Until Coronavirus Abates

The ghost of the 2014-2016 oil glut is back! Benchmark crude prices collapsed to four-year lows last week — levels not seen since the start of the historic OPEC and non-OPEC collaboration to restrain output in a bid to maintain global oil market stability.

We unpack the situation and our views on what may come next in three parts:

• Consequences of the worsening global outbreak of coronavirus
• Why the market is bracing for a tsunami of oil
• It is not just Saudi Arabia vs Russia. There is a third actor complicating the picture.

3. Crude Oil Downside Target and Buy Level

W&T Offshore (WTI US) continues to show a bear bias from our recent sell call at 52 with demand and output concerns weighing. From a chart perspective we have outlined downside projection target where we want to closer shorts and try to bottom pick under the assumption that  OPEC parties come back to the table after being nudging by global leaders.

The break of the old macro floor at 52 will now act as resistance on any forward rally cycle. This represents a macro breakdown.

WTI’s gap down will now act as resistance but is a very wide gap zone to manage. Immediate resistance lies at  36 with pattern resistance closer to  34. After gapping down, a flat range typically breaks lower.

Fresh lows into late March offer an long opportunity in oil and more importantly in energy shares for a rise in April/May.

4. PRM: Lackluster Earnings Growth in 2021-22E, but Cheap Valuation

We came out from the PRM’s conference call yesterday with neutral tone given unexciting fleet expansion plan in 2020-21E together with weaker-than-expected earnings growth outlook in 2021E. This prompts us to revise our target price down to Bt7.50 (previous TP at Bt9.10) derived from 16.2xPE’20E, average of Asia ex-Japan transportation sector.

The story:

Risks:  Lower-than-expected domestic oil consumption and trading activities in ASEAN, foreign currency and fuel cost fluctuations

5. FLASH VIEWS: Crude Crashes by 30% at Market Open Mar 9. An All-Out Price War?

It’s a bloodbath in the oil markets Monday.

Crude futures have crashed by 30% in the first few hours of trading at the start of a new week.

What happened to trigger the crash and what comes next? Our quick take.

In this briefing:

1. PTTEP: Headwinds from Saudi Oil Price War
2. Oil Shock: Russia Walks Out of Alliance with OPEC. What Next?
3. Smartkarma Webinar
4. BCPG: Huge Growth Potential from Los-Vietnam Cross Border Power Sales
5. LNGL (LNG AU): An Unhappy Ending

1. PTTEP: Headwinds from Saudi Oil Price War

We revise down our 2020-22E earnings forecast by 17% anticipating the average crude oil price will plunge to US$50/BBL (from US$60/BBL), due to Saudi’s sudden oil price cut and production surge announcement following Russia’s denial to join additional production cut proposed by OPEC+ at the meeting last Friday.

The story:

• Aggressive response from Saudi to its collapse of OPEC+ alliance with Russia, by increasing oil production and price cut.
• Revise 2020-22E earnings down by 17% anticipating average crude oil price will plunge to US$50/BBL (from US$60/BBL)

We also cut our target price by 16% to Bt119 to reflect the earnings revision. However, the BUY rating is maintained given the decent upside from current share price. The new TP is derived using DCF methodology (WACC 10% and TG 2%), implying 11.4x PE’20.

2. Oil Shock: Russia Walks Out of Alliance with OPEC. What Next?

A spectacular collapse of the three-year-old OPEC/non-OPEC alliance on Friday stunned the oil market and sent crude prices plunging to levels not seen since 2017.

Not only did heavyweights Saudi Arabia and Russia fail to agree deeper production cuts to offset the global oil demand destruction being inflicted by the coronavirus, but in a high-stakes all-or-none gamble, also appear to have ended all existing OPEC/non-OPEC supply restraints starting next month.

Russia can now be expected to open the spigots from April. Meanwhile, Saudi Arabia over the weekend slashed crude prices for its term customers way beyond market expectations, signalling the likely start of a price war.  

The Kingdom needs much higher crude prices than Russia to balance its budget, but it has way more firepower of the two in terms of readily available spare production capacity.

With the growing coronavirus crisis starting to clobber economic activity across the world, should we brace for a renewed race to the bottom among the world’s biggest oil producers, unleashing a tsunami of oil supply in the market?

3. Smartkarma Webinar

In light of the developments over the weekend, Smartkarma will be hosting a flash webinar with Vandana Hari to discuss the outlook for energy markets. The webinar will begin on Monday 9th March at 0715 hours Singapore/ Hong Kong Time, before Asian markets open for trading.

Click here to register.

Also in this series: 

• Smartkarma Webinar | Energy Markets Price-War: Impact on Singapore Banks (Monday 9th March at 0800 hours Singapore/ Hong Kong Time)

4. BCPG: Huge Growth Potential from Los-Vietnam Cross Border Power Sales

Yesterday analyst meeting came out in a positive tone, given 1) strong earnings growth momentum in next two years from 114MW hydro power plants added in 2019-20, and 2) Capacity expansion from new 600MW wind project in Laos.

Updates:

We estimate the 45MW Nam San 3B power plant to contribute Bt0.7/share and roll out the new 2020 target price of Bt22.8. The BUY recommendation is maintained given significant upside from current share price. Our valuation is based on DCF methodology (WACC 5.1% and TG 1%) implying 17.8xPE’20E or 0.8x relative PE to Thai utility sector

5. LNGL (LNG AU): An Unhappy Ending

With the shares down more than 95% from highs, on 28th February 2020, long-suffering ASX-listed Liquefied Natural Gas (LNG AU) (LNGL) announced they had entered into a Bid Implementation Agreement with Singapore-based private company LNG9 PTE LTD (LNG9). 

LNG9 will launch an all-cash Off-market Takeover Bid to acquire all the shares of LNGL (including all shares underlying the outstanding LNGL sponsored ADRs) at an Offer Price of US$0.13/share (or the Australian dollar equivalent- A$0.198/share based on exchange rate on 27th Feb).  The Deal values LNGL at a market cap of approximately US$75mn.

That is a bit less than half the value of the equity raised in early 2015 when the company sold new shares to fund its big push to a FID. Almost five years later and LNG prices are a lot lower, and there is still no FID.

The Offer proposed is conditional on a 90%-minimum acceptance threshold and receiving regulatory approvals. The Tender Offer period is currently expected to be open from 2nd April to 3rd May. 

LNGL’s shares are currently trading at A$0.14, with 41% upside to the Offer Price. That is a VERY big spread and indicates how much risk there is in this.

In this insight, we take a look at the reasons behind this wide spread. 

In this briefing:

1. Weekly Oil Views: Prices May Not Find a Bottom Until Coronavirus Abates
2. Crude Oil Downside Target and Buy Level
3. PRM: Lackluster Earnings Growth in 2021-22E, but Cheap Valuation
4. FLASH VIEWS: Crude Crashes by 30% at Market Open Mar 9. An All-Out Price War?
5. PTTEP: Headwinds from Saudi Oil Price War

1. Weekly Oil Views: Prices May Not Find a Bottom Until Coronavirus Abates

The ghost of the 2014-2016 oil glut is back! Benchmark crude prices collapsed to four-year lows last week — levels not seen since the start of the historic OPEC and non-OPEC collaboration to restrain output in a bid to maintain global oil market stability.

We unpack the situation and our views on what may come next in three parts:

• Consequences of the worsening global outbreak of coronavirus
• Why the market is bracing for a tsunami of oil
• It is not just Saudi Arabia vs Russia. There is a third actor complicating the picture.

2. Crude Oil Downside Target and Buy Level

W&T Offshore (WTI US) continues to show a bear bias from our recent sell call at 52 with demand and output concerns weighing. From a chart perspective we have outlined downside projection target where we want to closer shorts and try to bottom pick under the assumption that  OPEC parties come back to the table after being nudging by global leaders.

The break of the old macro floor at 52 will now act as resistance on any forward rally cycle. This represents a macro breakdown.

WTI’s gap down will now act as resistance but is a very wide gap zone to manage. Immediate resistance lies at  36 with pattern resistance closer to  34. After gapping down, a flat range typically breaks lower.

Fresh lows into late March offer an long opportunity in oil and more importantly in energy shares for a rise in April/May.

3. PRM: Lackluster Earnings Growth in 2021-22E, but Cheap Valuation

We came out from the PRM’s conference call yesterday with neutral tone given unexciting fleet expansion plan in 2020-21E together with weaker-than-expected earnings growth outlook in 2021E. This prompts us to revise our target price down to Bt7.50 (previous TP at Bt9.10) derived from 16.2xPE’20E, average of Asia ex-Japan transportation sector.

The story:

Risks:  Lower-than-expected domestic oil consumption and trading activities in ASEAN, foreign currency and fuel cost fluctuations

4. FLASH VIEWS: Crude Crashes by 30% at Market Open Mar 9. An All-Out Price War?

It’s a bloodbath in the oil markets Monday.

Crude futures have crashed by 30% in the first few hours of trading at the start of a new week.

What happened to trigger the crash and what comes next? Our quick take.

5. PTTEP: Headwinds from Saudi Oil Price War

We revise down our 2020-22E earnings forecast by 17% anticipating the average crude oil price will plunge to US$50/BBL (from US$60/BBL), due to Saudi’s sudden oil price cut and production surge announcement following Russia’s denial to join additional production cut proposed by OPEC+ at the meeting last Friday.

The story:

• Aggressive response from Saudi to its collapse of OPEC+ alliance with Russia, by increasing oil production and price cut.
• Revise 2020-22E earnings down by 17% anticipating average crude oil price will plunge to US$50/BBL (from US$60/BBL)

We also cut our target price by 16% to Bt119 to reflect the earnings revision. However, the BUY rating is maintained given the decent upside from current share price. The new TP is derived using DCF methodology (WACC 10% and TG 2%), implying 11.4x PE’20.

In this briefing:

1. Caltex Australia’s Takeover Conundrum
2. Morning Views Asia: Shui On Land, Softbank Corp, Yanzhou Coal Mining Co H
3. Caltex: EG Inconveniences ATD’s Offer
4. Weekly Oil Views: As OPEC+ Dithers, Coronavirus Keeps up Pressure on Crude

1. Caltex Australia’s Takeover Conundrum

Caltex Australia (CTX AU) is one of Australia’s largest convenience retailers and the leader in transport fuels, supplying one-third of all of Australia’s transport fuel needs. Caltex is the middle of a takeover tussle between Alimentation Couche-Tard (ATD/A CN) and EG Group. 

2. Morning Views Asia: Shui On Land, Softbank Corp, Yanzhou Coal Mining Co H

Lucror Analytics Morning Views comprise our fundamental credit analysis, opinions and trade recommendations on high yield issuers in the region, based on key company-specific developments in the past 24 hours. Our Morning Views include a section with a brief market commentary, key market indicators and a macroeconomic and corporate event calendar.

• Shui On Land
• Softbank Corp
• Yanzhou Coal Mining Co H

3. Caltex: EG Inconveniences ATD’s Offer

Immediately after Caltex Australia (CTX AU) announced plans for a property IPO involving 250 freehold sites of 500 core sites previously flagged, Caltex announced on the 26 November the receipt of a US$5.8bn non-binding, indicative, conditional proposal from Quebec-based convenience-store operator Alimentation Couche-Tard (ATD/A CN) at A$34.50/share, in cash, by way of a Scheme, less any dividends declared by Caltex. This proposal followed an earlier indicative bid from Couche-Tard at A$32, which was rejected on the basis the price was inadequate.

The Offer provided for the payment of a fully franked special dividend, which could add up to ~A$3.30/share to the Offer.

After Caltex again rejected this Offer, ATD returned with a A$35.25 bid (less any dividend declared), a 27% premium to the undisturbed price and a 2% bump to its previous Offer. Caltex said it was in its shareholder’s interest to engage further with ATD.

Often “best and final” Offers flush out competitive bidders. And so it did with Britain’s EG Group announcing a somewhat overwrought cash/scrip Offer by way of a Scheme, such that Caltex shareholders receive $15.62/share in cash (tied to the convenience retail business) and a security in Ampol, a newly listed company on the ASX, holding (& rebranding) the existing fuel & infrastructure biz.

EG indicated it was prepared to acquire up to 10% in Ampol.

The issue is that EG does not offer an overall bid price for the break-up of Caltex, leaving the scrip portion open to interpretation. That plays into ATD’s hand. 

As always, more below the fold.

4. Weekly Oil Views: As OPEC+ Dithers, Coronavirus Keeps up Pressure on Crude

It’s going to be four weeks since the deadly China coronavirus first rattled financial markets across the globe and pushed crude into bear territory.

There is still no sign of the epidemic peaking, and the sour sentiment over the clobbering of China’s economy is maintaining a stranglehold on the oil market.

Benchmark crude prices staged a modest recovery last week but one couldn’t call it a rebound.

The uncertainties around the novel virus are well-known. But what is it that we do know about the crisis so far, about the potential OPEC/non-OPEC response, and what expectations can we build on that information? Here’s our take.