Smooth sailing ahead as Nakilat set to grow 7.3% in 2021 H2, says QNBFS

Satyendra Pathak Doha Nakilat is expected to have smooth sailing ahead as the company’s earning is slated to grow 7.3 percent in the second half of 2021,...

Satyendra Pathak Doha Nakilat is expected to have smooth sailing ahead as the company’s earning is slated to grow 7.3 percent in the second half of 2021, QNB Financial Services (QNBFS) has said in a report released recently.Nakilat, which owns the largest fleet of LNG carriers in the world, provides the essential transportation link in Qatar’s LNG supply chain. According to the QNBFS report, in-house fleet management expertise enhances Nakilat’s profitability while positioning it for future opportunities.“We reiterate our outperform rating on Nakilat and tweak our estimates post the company’s second-quarter results for 2021. The results were generally in line with our model and our estimate changes are mostly marginal. We remain bullish on Nakilat and consider it as the best avenue for equity investors to participate in the long-term growth expected in Qatar’s LNG sector. Our one-year target price is QR3.5 per share,” it said.“Since we upgraded the stock’s rating to outperform, Nakilat’s share price has appreciated by 12 percent, beating the QE Index’s increase of 9 percent,” the report said.Irrespective of the volatility of the LNG shipping market, QNBFS said, Nakilat’s business should remain relatively unaffected given the long-term nature of its charters. “Nakilat’ fleet continues to provide the company with stable, contractually sustainable cash flow that allows for a healthy residual income stream for equity investors after providing for debt service. Moreover, the 40-year life of Nakilat’ vessels against maximum debt life of 25 years continues to create refinancing opportunities to increase fleet size. Thus, we think further deals in LNG ships and floating storage regasification unit (FSRUs) are likely,” it said.“In the near-term, addition of 4 LNG vessels via Global Shipping should help earnings grow in 2021 and 2022. In terms of catalysts, we continue to believe the 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 project 13.5 percent EPS growth for 2021. Our 2021 EPS forecast of QR0.24 is 0.9 percent or marginally higher than our previous forecast. For 2022, we estimate an EPS of QR0.25, which is also in-line with our old forecast. In 2021, JV income should benefit from two new LNG vessels in Nakilat’s 60 percent-owned Global Shipping JV and improving shipyard performance in the second half of 2021. For 2022, another ship should be added, upping Global Shipping’s fleet to four LNG carriers, along with a further decline in finance costs,” it said. So far, the report said, Nakilat’ subsidiary NSQL has been able to fast track 10 wholly-owned LNG carriers transitioned to in-house operations and management in 2017. In total, Nakilat now manages 23 LNG vessels, one FSRU and 4 LPG carriers from 2014 onward and will also manage Global Shipping’s upcoming two LNG newbuilds over 2021-2022. “We believe Nakilat’s push to assume in-house operations and management of its fleet enhances margins in two ways. It eliminates the profit margin for third parties, such as STASCO, and it allows for economies of scale as more ships are brought in-house. We could see upside to our margin assumptions when Nakilat is able to transition the remaining eight wholly-owned LNG vessels in-house from STASCO,” it said. Nakilat continues to be on the hunt for future growth opportunities and management is confident that its in-house expertise would allow it to operate and manage any new vessels acquired through these deals leading to further value enhancement, the report said.“Expansion of Qatar’s LNG output from 77 MTPA to 126 MTPA is a significant driver for Nakilat. QP has signed major LNG shipbuilding capacity agreements to build 100+ LNG vessels, worth in excess QR70 billion to cater to this expansion,” it said. In the first quarter of 2021, the report said, 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 Nakilat’s target price and we should hear more about carrier selection by end of 2022. We continue to favour Nakilat as a long-term play geared to Qatari LNG’s dominance,” it said,