QNBFS bullish on Nakilat as Q1 earnings beat estimates

QNB Financial Services (QNBFS) on Monday announced that it remains bullish on Nakilat following the company’s better-than-expected results in the first quarter of this year.
In a company report released on Monday, QNBFS said that Nakilat’s income of QR381.8 million in the first quarter of 2022 was higher than its estimate of QR353.5 million.
The report said, “Revenue from wholly-owned ships of QR873.9 million was in-line with our estimate of QR881.3 million. Adjusted revenue of QR1.04 billion was also in-line with our estimate of QR1.04 billion and was driven by the strength in JV income. EBITDA of QR680 million was just 0.6 percent ahead of our forecast of QR676.3 million given improvement in cash gross margins. EBITDA performance was aided by lower-than-expected direct operating costs of the wholly-owned fleet and continued progress in G&A expenses of QR20.5 million. JV income of QR159 million was 9.9 percent above our estimate of QR144.7 million.”
“We remain bullish on Nakilat and consider it as the best avenue for equity investors to participate in the long-term (LT) growth expected in Qatar’s LNG sector. Irrespective of the volatility of the LNG shipping market, Nakilat’s business should remain relatively unaffected given the LT nature of its charters,” the report said.
Nakilat’s fleet continues to provide the company with stable, contractually sustainable cash flow that allow for a healthy residual income stream for equity investors after providing for debt service, it said. Moreover, the report said, the 40-year life of Nakilat’s vessels against maximum debt life of 25 years continues to create refinancing opportunities to increase fleet size.
“In the near-term, addition of 4 LNG vessels should help 2022 earnings growth. We remain Accumulate on Nakilat with a price target of QR3.9,” it said.
According to the report, the year 2022 could be a watershed year for Nakilat if it is chosen as one of the ship owners involved in Qatar’s massive LNG expansion programme.
It said, “We remind investors that QatarEnergy is expanding Qatar’s LNG capacity from 77 MTPA to 110 MTPA with first production expected to begin in the fourth quarter of 2025 and further to 126 MTPA a couple of years later. To cater to this expansion, back in April/June 2020, QatarEnergy signed major LNG shipbuilding capacity agreements with Chinese and South Korean companies to build more than 100 LNG vessels worth more than QR70 billion.”
Given typical lead-times for LNG ship construction, the report said, “We should expect to hear about final ship owner selections latest by the first half of 2023. Considering Nakilat’s strategic importance and impressive track record in Qatar’s existing LNG shipping value chain, we expect Nakilat to be a major beneficiary of such future contract announcements. We also estimate that every incremental vessel adds roughly 1 percent to Nakilat’s target price and an award of 20-30 ships could significantly affect our price target and estimates.”