PLNG has renegotiated the Exxon Gorgon contract that may cut LNG import price by ~USS$1 mitigating potential offtake risks even if direct benefits are limited. Indeed, the start of the new 1.2mt contract is also some time away precluding immediate upside there either. Still, near term momentum remains solid and PLNG is best placed to navigate the softening India LNG macro. Its rich 18.3x FY18 P/E for 11% FY18-21E EPS CAGR limits upside, though. A renegotiation of the 1.44mt Exxon-Gorgon import contract signed in 2009 was widely expected; Petronet formally announced its closure on 15 December. Concurrently, it also announced a new 1.2 mt 15-year import contract with Exxon – also along expected lines. The terms remain undisclosed but media articles had earlier suggested that the 14.5% 6m JCC FOB contract would shift to 13.9% 3m Brent DES. We see little change for Q118 but it should cut delivered LNG prices by ~$1/mmbtu thereafter in a $60-65 Brent macro making it much competitive while mitigating potential offtake risk. Indeed, the price would likely to trend below spot in the winter when LNG prices tighten in Asia.
A lower LNG price and a DES contract also limits boil-off losses for Petronet but the EPS impact is less material – especially as the extant back-to-back offtake contract may already have passed it on. Indeed, with the new 1.2mt contract unlikely to commence soon either, we see little immediate upside for Petronet there too even if it solidifies its LT outlook. Even otherwise, though, Petronet’s LT take-or-pay or use-or-pay contracts in Dahej (15.75 mt) and Kochi (1.44mt) make it best placed to navigate the softening LNG macro in India. Import capacity on the West Coast may rise 53% by end FY19, Mundra, Jaigarh, Dahej, e.g, and double in the South, Ennore even as domestic gas output is on the rise. We expect only a blended 4.4% FY18-21E volume CAGR after the strong FY18E, including Oct-Nov, therefore, even after building rising Kochi util. assuming the evacuation pipe is complete in FY19. This still implies just 11% FY18-21E EPS CAGR, though, with the stock at a rich 18.4x FY18 P/E after rising 37% in 2017. We recently cut to ‘Hold’, therefore. Our revised Rs 290 PT (DCFE, 11.5% COE) factors 2-3% EPS upgrades lower costs and depreciation, higher other income, lower capex (pushing back the potential Dahej seventh tank). Risks: Higher imports (upside); soft demand, tariff cuts, risky new projects (downside).
Source: financialexpress.com