20140109-Maybank_KERPL-New_Ocean_Energy_Only_The_End_of_The_Beginning_11页_303kb

New Ocean Energy Summary

Core Content

New Ocean Energy (NOE) is a leading liquefied petroleum gas (LPG) distributor in Guangdong Province, China, and has expanded into the bunker market, positioning itself among the top five providers in Hong Kong. The company's stock price was HKD6.11, with a target price of HKD8.88, indicating a potential 45% upside. The analysis highlights the company's strong fundamentals, operational performance, and strategic advantages in the energy sector.

Main Points

• Company Overview: NOE is the largest LPG distributor in Guangdong, and has ventured into the bunker market, making it a top-five provider in Hong Kong.
• Stock Information:
  • Ticker: 342 HK
  • Shares Issued: 1,483 million
  • Market Cap: USD1,170 million
  • 3-Month Avg Daily Turnover: USD2.5 million
  • Free Float: 49.7%
• Major Shareholders:
  • Shum Family: 39.21%
  • FIL Limited: 8.06%
  • Temasek Holdings: 6.15%
• Key Financial Indicators:
  • ROE (Annualised): 18.9%
  • Net Cash/(Debt): (HKD1,552 million)
  • NTA/shr (HKD): 1.47
  • Interest Cover: 7.0x
• Earnings Growth:
  • Recurring Basic EPS (cents): 0.32 (2012A), 0.54 (2013F), 0.74 (2014F), 0.88 (2015F)
  • EPS Growth (%) for 2013-2015: 71.0%, 36.9%, 18.3%
• Dividend Yield:
  • DPS (cents): 0.04 (2012A), 0.08 (2013F), 0.11 (2014F), 0.13 (2015F)
  • Dividend Yield (%): 0.6 (2012A), 1.4 (2013F), 1.8 (2014F), 2.2 (2015F)
• Valuation Metrics:
  • PER (2013E: 11.3, 2014E: 8.2)
  • EV/EBITDA (2013E: 12.3, 2014E: 9.0)
  • P/BV (2013E: 2.1, 2014E: 1.8)
  • Net Gearing (%): 116.10 (2012A), 26.44 (2013E), 32.63 (2014E), 26.84 (2015E)
• Target Price: HKD8.88 (a Street high), based on 12x 2014F earnings, with a 30% discount to peers.
• NPV Analysis: The stock trades at a 25% discount to its NPV per share, which is HKD8.30, based on a 12% WACC and 0% terminal growth.

Key Information

• LPG Retail Launch: The long-awaited HK LPG retail operation started in December 2013 and is progressing in line with expectations.
• Growth Drivers:
  • LPG Retail segment accounts for nearly half of the projected 2014 growth.
  • Autogas and bunkering segments exceeded conservative assumptions for Q4 2013, leading to revised 2014 earnings.
• Cost Advantages:
  • NOE has one of the 10 non-state owned deep sea ports in China, providing USD20/MT cost savings.
  • High asset turnover minimizes fixed costs.
• LNG Opportunity:
  • LNG is not a threat but an opportunity for NOE to expand into private sector markets.
  • NOE has a 65% market share in Guangzhou's LPG autogas market and is conducting pilot studies on LNG for public vehicles.
  • LNG profitability is comparable to LPG, even without storage facilities.
  • The company is in discussions with partners to convert private vehicle fleets to LNG.

FAQs

1. What is NOE's edge?

   • NOE has one of the 10 non-state owned deep sea ports in China, providing USD20/MT cost savings across all products. Its high asset turnover minimizes fixed costs.

2. How can NOE tap into the bunkering market?

   • NOE will be one of the only two players in Hong Kong with its own storage. This cost advantage allows it to compete more effectively in the market, which is 50% of the market.

3. Is LNG a threat or an opportunity?

   • LNG is an opportunity for NOE to expand into the private sector. It has a comparable margin to LPG and is in discussions to convert private vehicle fleets.

Valuation Comparison

Financial Highlights

• Revenue: Increased from HKD6,483.1m (2009) to HKD32,989.3m (2016E)
• Gross Profit: Rose from HKD392.1m (2009) to HKD2,667.0m (2016E)
• Gross Margin: Improved from 6.0% (2009) to 8.1% (2016E)
• EBIT: Increased from HKD214.7m (2009) to HKD1,842.3m (2016E)
• EBIT Margin: Improved from 3.3% (2009) to 5.6% (2016E)
• Net Income: Rose from HKD112.5m (2009) to HKD1,532.9m (2016E)
• Net Margin: Increased from 1.7% (2009) to 4.6% (2016E)
• Free Cash Flow: Improved from HKD-800m (2009) to HKD2,526.2m (2016E)

Operational Summary

• Volume Growth:
  • LPG - Wholesale: Increased from 872,000 MT (2009) to 1,628,000 MT (2016E)
  • Industrial customers (incl. auto-gas retailers): Increased from 470,000 MT (2009) to 1,063,000 MT (2016E)
  • Bottled LPG: Increased from 188,000 MT (2009) to 460,000 MT (2016E)
  • LPG - Retailing: Increased from 188,000 MT (2009) to 796,200 MT (2016E)
• Sales:
  • LPG - Wholesale: Increased from HKD4,670.9m (2009) to HKD10,992.5m (2016E)
  • Re-exports: Increased from HKD1,353.2m (2009) to HKD16,800m (2016E)
  • Bunker + Refined Products Wholesale: Increased from 0 (2009) to HKD2,600m (2016E)

Conclusion

New Ocean Energy is positioned as a strong player in the LPG and bunker markets with a solid financial foundation, cost advantages, and strategic growth opportunities in LNG. The company's earnings and operational performance are expected to improve, supported by its high asset turnover and existing market share. The target price of HKD8.88 reflects a 30% discount to peers, which is expected to narrow as the company delivers on its operational targets. The analysis indicates a positive outlook for NOE, with potential for further re-rating and growth.