FRA DNB

LNG SHIPPING SECTOR Most attractive segment We believe LNG is the most attractive shipping segment, with our fifth annual LNG liquefaction survey implying 2019 demand roughly triple supply growth.
Survey shows 34% growth in LNG trade over 2017–2020e, but only 5% over 2020– 2022e. Based on our fifth annual LNG liquefaction survey, we estimate the LNG trade will grow from 290m tonnes in 2017 to 388m tonnes in 2020 (marginally down from 390m tonnes in our previous sector report (September 2017)), or a 34% increase. 2017–2020e tonne-mile demand growth of 50%; 2018e lowered, 2019e raised. We forecast 2017–2020 tonne-mile demand growth of 50%. We forecast 2018 tonne-mile growth of 13% (down from 16%, with 40% explained by the Papua New Guinea earthquake, and the remaining 60% by production delays in the US and Australia)). For 2019e we expect 18% tonne-mile (up from 14% as we assume Papa New Guinea operational again, and 2018 delays having a positive effect), and for 2020e tonne-mile growth of 12% (up from 10%). We also publish our 2021 estimate of 7%. Fleet growth set to halve YOY in 2019. We forecast 2018 fleet growth of 12.5% (up from 9.9% as a result of considerable slippage of 40% for 2017), halving in 2019 to 6.6% (down from 7.0%). For 2020 we forecast 8.5% fleet growth (up from 4.6% as 34 vessels have been ordered since our last update). We have raised our 2019 time-charter equivalent spot rate forecast for a 160k TFDE vessel to USD54k/day (up from USD53k/day), USD73k/day for 2020e (up from USD66k/day), and we publish our 2021 estimate of USD74k/day. We forecast that 174k MEGI vessels will earn on average USD20k/day higher TCE rates than 160k TFDEs. Gap between headline spot and effective spot set to halve. Our LNG peer group is down 4% YOY but down 17% YTD, which we believe is linked to the sizeable deviation in headline and effective spot rates. This explains our optimistic view on LNG stocks in Q4, when we forecast effective spot rates of USD85k/day or close to double that of Q3 2018. We expect 2017–2018 headline spot rates will average ~50% above effective spot rates, a difference we see more than halving in 2019–2021e to 20%. FSRU market set to trough in 2019. We calculate that contracted FSRU EBITDA has declined steadily since 2012–2013 (also driven by lower newbuild prices) from USD46m (EV/EBITDA of 5.7x) to USD27m today (EV/EBITDA of 9.1x). We count 10 open modern FSRUs by 2020e and 12 by 2021e, and based on our forecast of four annual FSRU awards, the vessel overhang would be reduced to six by the start of 2020, and four by 2021 (which could increase with new orders).
Our top sector pick is FLEX LNG (BUY, with a new target price of NOK18.8 (16.6)) trading at a 50% discount to GasLog (upgraded to BUY (HOLD) with a new target price of USD19.9 (18.2)) on 2020e P/E, followed by Golar LNG (BUY with a new target price of USD43 (39)). We have downgraded Golar LNG Partners to SELL (HOLD) with a new target price of USD11.1 (21)) as we expect a large cut in DPS. We expect the FSRU market to trough in 2019; we keep HOLD on Höegh LNG Partners with a target price of USD19.1, and reiterate our BUY on Höegh LNG Holdings with a NOK63 target price.