Category

Energy Sector

Brief Energy: Kunlun Energy (135 HK): Solid Growth in Downstream Gas Sales Is the Driver and more

By | Daily Briefs, 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

Kunlun%20 %202019%20profit%20breakdown

Kunlun Energy (135 HK) has a slightly lower-than-expected FY19 result (+6.2% YoY for core profit), but we read that the good news is the strong growth in the natural gas sales business with positive margin improvement. We believe the market’s focus on Kunlun should move to its downstream business which will see strong growth prospects in the next three years.  

Trading on 0.7x P/B, it is more than 1SD below the historical average since 2013. Some 40% drop in share price YTD should have discounted the oil price collapse. We project ROE of 9.4% for FY20 – still a healthy level. Upside potential will come from better-than-expected city gas project acquisitions, rebound in oil price, successful disposal of E&P business and a favourable outcome from pipeline injection to PipeChina. 

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.

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

Screen%20shot%202020 03 22%20at%203.12.46%20pm

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.

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.

You are currently reading Executive Summaries of Smartkarma Insights.

Want to read on? Explore our tailored Smartkarma Solutions.

Brief Energy: Morning Views Asia: Agility, Car Inc, Future Retail, Glenmark Pharmaceuticals, Medco Energi and more

By | Daily Briefs, Energy Sector

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.

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

Screen%20shot%202020 03 22%20at%203.12.46%20pm

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.

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.

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

Screen%20shot%202020 03 15%20at%201.30.06%20pm

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.

You are currently reading Executive Summaries of Smartkarma Insights.

Want to read on? Explore our tailored Smartkarma Solutions.

Brief Energy: Weekly Oil Views: US Eyes Intervention as Crude Hits 17-Year Lows: What Next? and more

By | Daily Briefs, Energy Sector

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?

Screen%20shot%202020 03 22%20at%202.35.22%20pm

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.

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.

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

Screen%20shot%202020 03 15%20at%201.30.06%20pm

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

Wti%20for%20sk

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.

You are currently reading Executive Summaries of Smartkarma Insights.

Want to read on? Explore our tailored Smartkarma Solutions.

Brief Energy: Gaslog Ltd – Downgrade to Neutral on Multiple Headwinds Ahead and more

By | Daily Briefs, Energy Sector

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

Gaslog%20partners%20share%20price

Downgrade to Neutral on multiple headwinds ahead

We have downgraded Gaslog to Neutral on account of weak industry prospects, a plunge in Gaslog Partners’ share prices and subdued valuations. We have also revised our spot rate forecasts as the tonne-mile demand is getting weaker with the coronavirus outbreak creating uncertainties on China’s LNG demand. Gaslog Partners’ share price has declined 60.5% following the company’s announcement to reduce the dividend by about 78% during its recent 4Q19 results. We have arrived at a fair value of USD 6.4 per share for Gaslog.

 

Industry prospects are getting weaker

We expect lower LNG charter rates during 2020-22, compared with 2018 and 2019, on account of the vast increase in liquefaction capacity in the market amid sluggish growth in demand in the major LNG-importing countries. We expect LNG shipping charter rates to be lower in 2020 than in 2019 owing to abundant LNG supply, low LNG prices and shrinking tonne-mile demand expected during this year.

 

Gaslog’s EBITDA margins to decline as spot exposure increases

We expect Gaslog’s EBITDA margins to decline to 63.6% in 2022 from 69.4% in 2019 as the number of vessels in the spot fleet is expected to increase from 6 vessels at the end of 2019 to 12 vessels by the end of 2020. Gaslog has six vessels coming off fixed charter in 2020. We believe the company will find it challenging to employ these vessels in the time charter market due to sluggish LNG shipping prospects. Consequently, we expect these vessels to trade in the spot market and earn lower earnings. As five of these vessels are less energy-efficient (steam turbine vessels with average age of more than 10 years), we expect their spot earnings to be about 35% lower than those of TFDE vessels, resulting in lower utilisation rates. Meanwhile, Gaslog recognised an impairment loss of USD 162.1mn on its six steam turbine vessels in 4Q19 due to negative market conditions.

 

Steep decline in Gaslog Partners’ share price restricts its ability to raise funds

We believe the recent steep decline in Gaslog Partners’ share price and the cut in its dividend, in addition to a weak market for LNG shipping, will restrict the company’s ability to raise fresh equity. Gaslog has traditionally used Gaslog Partners’ equity issue to finance its dropdown of vessels. Gaslog Partners did not do any equity issuance under its ‘At-the-market’ programme in 2019. As we value Gaslog Ltd’s stake in Gaslog Partners at market value, a sharp decline in the latter’s share price will adversely affect the former’s fair value.

 

Downgrade to Neutral with a fair value of USD 6.4 per share

We have downgraded Gaslog to Neutral in the wake of multiple headwinds ahead. Gaslog’s stock price has already declined 37.7% YTD (as of 19 February) and we see limited downside from this level. We have arrived at a fair value of USD 6.4 per share based on blended valuation. We have used a mix of DCF and NAV to arrive at the fair value. The key upside risks include an unexpected increase in crude oil prices, a better-than-expected win of fixed charter contracts and a sustained rise in spot freight rates. The main downside risks are a sustained drop in LNG shipping spot rate prices, a prolonged impact from coronavirus and the shutdown of many LNG liquefaction projects.

 

Weak industry prospects due to sluggish demand

We expect lower LNG charter rates during 2020-24, compared with 2018-19, on account of the vast increase in liquefaction capacity in the market amid sluggish growth in demand in major LNG-importing countries. Furthermore, over 200 vessels will be added to the fleet by 2024, while 26 vessels are estimated to have been removed from the effective fleet for conversions and scrapping. We believe 2020-22 will be the period when LNG trade rebalances with vast incoming vessel supply, liquefaction capacity from different regions and slower growth in demand in major LNG centers.

2. Nakilat – 4Q19 Result Update

Nakilat%20fair%20value%20calculation

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

Picture1

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

Key takeaway:

• Management focuses more on operation optimization, which its utilization, crude selection and yield optimization depend on market situation.
• Its utilization is expected to swing around 90-97%.
• SPRC views market GRM to recover to US$3-4/bbl in 2020 (starting in March) on the back of lower crude premium and lower freight.
• A loss in email compromise (Bt700m) is an one-time expense with no further liability. The company has already prevent the re-occurrence and reported for further investigation.

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

Screen%20shot%202020 02 23%20at%2011.19.04%20am

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?

You are currently reading Executive Summaries of Smartkarma Insights.

Want to read on? Explore our tailored Smartkarma Solutions.

Brief Energy: Morning Views Asia: Anton Oilfield, Geo Energy Resources, MGM China Holdings, Wynn Macau Ltd and more

By | Daily Briefs, Energy Sector

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.

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.

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

Screen%20shot%202020 03 15%20at%201.30.06%20pm

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

Wti%20for%20sk

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

Prm%20update%203

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:

•Minor impact from concern over COVID-19 outbreak.
•Revise down earnings by 7-8% in 2021-22E

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

You are currently reading Executive Summaries of Smartkarma Insights.

Want to read on? Explore our tailored Smartkarma Solutions.

Brief Energy: Nakilat – 4Q19 Result Update and more

By | Daily Briefs, Energy Sector

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

Nakilat%20fair%20value%20calculation

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

Picture1

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

Key takeaway:

• Management focuses more on operation optimization, which its utilization, crude selection and yield optimization depend on market situation.
• Its utilization is expected to swing around 90-97%.
• SPRC views market GRM to recover to US$3-4/bbl in 2020 (starting in March) on the back of lower crude premium and lower freight.
• A loss in email compromise (Bt700m) is an one-time expense with no further liability. The company has already prevent the re-occurrence and reported for further investigation.

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

Screen%20shot%202020 02 23%20at%2011.19.04%20am

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?

You are currently reading Executive Summaries of Smartkarma Insights.

Want to read on? Explore our tailored Smartkarma Solutions.

Brief Energy: Morning Views Asia: Abm Investama, Anton Oilfield, Chandra Asri Petrochemical, Softbank Corp and more

By | Daily Briefs, Energy Sector

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.

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

Screen%20shot%202020 03 15%20at%201.30.06%20pm

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

Wti%20for%20sk

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

Prm%20update%203

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:

•Minor impact from concern over COVID-19 outbreak.
•Revise down earnings by 7-8% in 2021-22E

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?

Screen%20shot%202020 03 09%20at%2012.53.41%20pm

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.

You are currently reading Executive Summaries of Smartkarma Insights.

Want to read on? Explore our tailored Smartkarma Solutions.

Brief Energy: PTTEP: Headwinds from Saudi Oil Price War and more

By | Daily Briefs, Energy Sector

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

Pttep%201

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?

Screen%20shot%202020 03 08%20at%2012.03.16%20pm

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: 

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

B8

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:

• Expect 1Q20 earnings to improve both YoY and QoQ, given the full quarter and partial earnings recognition from 69MW Nam San 3A and 45 MW Nam San 3B projects acquired in Laos.
• BCPG announced plan to develop a new 600 MW (45% stake/ 270 MWe) wind power plant in Laos, representing a 48% growth from current committed project capacity
• Budget allocation of Bt45bn for 2020-25 focusing capacity expansion in Laos aiming at cross border Laos-Vietnam  electricity sales potential.

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

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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. 

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Brief Energy: Weekly Oil Views: Prices May Not Find a Bottom Until Coronavirus Abates and more

By | Daily Briefs, Energy Sector

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

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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

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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

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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:

•Minor impact from concern over COVID-19 outbreak.
•Revise down earnings by 7-8% in 2021-22E

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?

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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

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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.

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Brief Energy: Caltex Australia’s Takeover Conundrum and more

By | Daily Briefs, Energy Sector

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

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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. 

EG Group’s offer was hoped to be the catalyst to start a bidding war. We believe that EG Group’s offer is inferior to Couche-Tard’s offer and absent another bidder, is unlikely to compel Couche-Tard to raise its bid. On the other hand, Couche-Tard’s offer is reasonable but not a knockout bid, which raises the possibility that bid does not get shareholder backing. Consequently, with shares trading around 1.5% below the Couche-Tard bid, we think that short-term investors/traders should take profits. 

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.

3. Caltex: EG Inconveniences ATD’s Offer

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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

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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.

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