>PETRONET LNG (CITI)

Sell: Disappointing 1Q Results

■ 1Q well below estimates — PLNG’s 1Q PAT came in at Rs1.03bn, down 2.2% YoY and significantly below our expectations. Despite volumes increasing QoQ from 82 to 99 TBTUs as was expected, EBITDA did not grow correspondingly and in fact registered a sharp decline (46.8% QoQ, 5.2% YoY) due to losses made on spot cargoes.

■ Losses on spot cargoes drive down profitability — Petronet bought and regassified c5 spot cargoes during the quarter, which contributed to the QoQ increase in volumes. Though global LNG prices were down sharply in the quarter due to the economic slowdown, Petronet had probably contracted these at higher prices and was unsuccessful in passing the prices to consumers when prices fell. This was likely further exacerbated by the commencement of KG gas which resulted in consumers shifting away from spot gas. This is a trend that we expect will likely continue over the coming few quarters and is the main thesis our Sell recommendation is premised on.

■ Maintain Sell — Given total capacity of 17.5 MMTPA after expansion, PLNG would have to sign more long-term contracts or continue its reliance on spot cargoes to improve its utilization levels (we factor total long-term plus spot volumes of 14.1 MMTPA in the long-term in our DCF). Spot volumes could be under risk with commencement of KG gas and if LNG prices pick up from current levels. Besides, robust long-term LNG outlook increases uncertainty for the company. Power plans, though interesting, are still a few years away and would be contingent on competitive pricing of long-term LNG. At current prices, the stock appears fully valued. W maintain our Sell (3H) rating.

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