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FLEX LNG 15–18-month newbuild contract FLEX LNG announced it has fixed its first LNG MEGI newbuild for 15–18 months ex. yard at what we understand to be around USD60k/day (we forecast USD58k/day). While in line with our estimate, the contract could be perceived as on the soft side given the strength of the spot market (USD82k/day), but ex. yard comes with a discount.
Employment secured on delivery. FLEX LNG announced after market close that it has entered into a 15–18-month timecharter contract for its first MEGI LNG newbuild with Uniper Global Commodities, commencing immediately upon delivery in January. We understand the rate is around USD60k/day. The contract is in line with the company’s announcement post Q3 that it was looking to fix for 6–18 months to leave the ship open by mid-2019, when it expects an even stronger market. Timecharter contract on yard delivery with a discount. As we wrote in our Shipping Daily on 15 December, FLEX LNG could choose between two charter strategies: 1) fix ex. yard, meaning it would generate earnings upon yard delivery with the charterer bunkering the ship, cooling the tanks and taking the first voyage: or 2) take delivery and make it ready for a spot voyage. Hence, fixing ex. yard at around USD60k/day means the actual charter rates for ships already sailing are somewhat higher due to the additional costs for the charterer taking the vessel straight from the shipyard and the discount the charterer usually requires for the maiden voyage.
Timecharter rate in line with our estimate. In our LNG sector report of 13 September, we estimated MEGI/XDF rates of USD59k/day in 2018 and USD75k/day in 2019, which adjusted for our 90% MEGI utilisation forecast for 2018 and 95% for 2019, would yield a timecharter equivalent rate of USD58k/day for the next 18 months. This is broadly in line with the rate agreed by FLEX LNG; therefore, we see this as broadly neutral financially. We have a BUY recommendation and NOK15.9 target price. FLEX LNG has been valued based on its NAV, which we calculate to be NOK10.8/share. We believe this is set to change with increased earnings visibility. One should expect FLEX to be valued based on earnings, like its peer Gaslog, which is trading at 1.8x its NAV of USD12/share. Our target price is based on 12x our end-2019e fully delivered run-rate EPS of NOK1.32.
BUY