LNG Carriers: The Best Is yet to Come (25 page report)

As expected, LNG Carrier earnings have fallen since the peak in December. The start of the year is nevertheless the best over the past four years and spot rates are 60% above 2017 YTD. We see continuously rising annualized utilization towards the end of this decade, with corresponding improvements in earnings, vessel values and share prices. We reiterate our BUY recommendation on LNG Carriers and highlight Flex LNG (TP 18) and GasLog (TP 25) as our top picks.

Estimate changes: Although 1Q18 spot rates outperformed our forecast, we do limited changes to 2Q18 as vessel slippage was a key factor and current spot rates are in-line with our previous expectations. Looking further afield and building on seasonally strong 1Q18 demand, we marginally lift our utilization forecast to 81% in 2018 (79%), 83% in 2019 (82%) and 87% in 2020 (86%). This represents spot rates ((T)DFDE 160k cbm basis) of $57k/d ($52k/d), $67k/d ($62k/d) and $83k/d ($80k/d), respectively.    

Key investment opportunities: The second quarter of the year has historically been the weakest quarter of the year, coming off the heating season and awaiting air condition season in the Northern Hemisphere. Adding an estimated 4.3% net supply growth q/q, we forecast spot rates to edge down from current $44k/d to average $39k/d in 2Q. We expect improvements in 3Q before five-year highs towards $100k/d during 4Q18/1Q19. We highlight Flex LNG (BUY, TP 18) as our top pick in the sector but also upgrade GasLog to BUY (TP 25) due to raised EBITDA forecast and weak share price performance since our February downgrade to HOLD.

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