MOL - History Repeated Itself! – Guidance Upgrade To USD 2.4 Billion + 4%

MOL - Instant Earnings Comment

Recommendation: Accumulate (unch.)

Target price (12-month): 3400 (unch.)

Current share price: HUF 2,960

 

History repeated itself! – Guidance upgrade to USD 2.4 billion

 

 

• MOL posted HUF 203 bn clean CCS-based EBITDA for Q3/19 (3% YoY), beating analysts’ mean estimates by 6% and our forecast by 10%. Better than expected results came mainly from lower than anticipated HQ losses and intersegment transfer (the two segments’ combined Clean EBITDA was HUF -2 bn vs. forecast of HUF -11.7 bn). If not for these results Clean CCS EBITDA would have come to HUF 193.2 bn, yet a bit above the consensus estimate. Due to the better than expected Q3 results, MOL’s management raised FY2019 CCS Clean EBITDA guidance from USD 2.3 bn to USD 2.4 bn. Along with the EBITDA upgrade, management increased simplified FCF guidance as well by a similar amount to USD 0.4 bn.
• Reported net income attributable to equity holders came in at HUF 59.8 bn in Q3/19 (-34% YoY) and 15% lower than analysts expectation of HUF 69 bn because of the combination of higher CCS modification (+HUF 7 bn above exp.) and higher FX losses (HUF 3 bn above exp.), surprisingly low income from associates (HUF 3bn lower than exp.) and the last but not least higher tax expenses (HUF 3bn higher than exp.).
• Clean CCS EBITDA fall 3% YoY in USD terms to USD 689 mn in Q3/19 mainly because lower oil and gas prices drove upstream EBITDA down which was offset by better downstream performance. On a cumulative basis, Clean CCS EBITDA was ca. 8% lower in USD terms compared to the same period last year, as a combined result of weaker refinery earnings (-10% YoY) and lower commodity prices (Upstream segment’s clean EBITDA was down by 15% YoY).

 

• CAPEX increased further in Q3 to a level twice as high as last year’s Q3 amount, which was still in line with guidance. In cumulative terms, CAPEX has reached ca. USD 1.4 bn vs. a CCS clean EBITDA USD 1.84 bn, thus MOL maintained its self-funding status in the first nine months of 2019 with FCF arriving at USD 467 million by the end of Q3. MOL spent USD 556 mn on transformational projects in Q1-Q3 (the largest ones are the new polyol plant with USD 495mn, the propylene splitter and investments in alternative crude processing), while sustain capex also rose nearly 27% YoY in Q1-Q3 to USD 814 mn, albeit from a low base, boosted by major refinery turnarounds (Rijeka, Bratislava) as well as higher spending in Upstream. All segment excluding downstream (HUF -41 bn) remained self-funding.

 

• Net debt/EBITDA and net gearing increased slightly in Q3 2019 (to 0.79x and 19% respectively), with operative cash flow declining in line with EBITDA showing a ca. 16% decrease YoY.

 

• Upstream clean EBITDA fell by 22% YoY to HUF 69 bn (vs. the consensus estimate of HUF 71 bn and our estimate of HUF 68 bn), as favorable FX movements (+6% y-o-y) were not able to offset lower oil and gas prices (-19% y-o-y) and the lower production volumes (-4% q-o-q). It is worth to noting that with the higher share of UK production in MOL production portfolio, the discount between the realized oil price and Brent price continued narrowing to 3.5 USD/bbl from 4.1 USD/bbl in Q219. Production came lower by ca. 4% due to a natural decline in mature fields (-2.9kbed q-o-q) and because of unplanned shutdown on the Scott oil field (-1.1kboed). The decline in volumes seems to continue in October as well according to MOL’s estimates to 105kboed due to major turnaround in Hungary and some smaller planned turnaround in Shaikan, but MOl’s annual guidance for average production of 110 kboed seems still feasible as cumulative average. Production stood at 112kboed in the first three quarters. Despite a large drop in hydrocarbon prices (-19% y-o-y), Upstream segment delivered ca. HUF 46 bn simplified FCF, with which the segment has remained the largest contributor to total FCF.
• Downstream clean CCS-based EBITDA showed strength increasing by 10% to HUF 80 bn which however came slightly lower compared to the consensus. Petchem clean CCS-based EBITDA increased by 15% YoY and that of refinery segment by 10%. The surprise came from the refinery segment as notwithstanding the weaker refinery environment (-2% YoY refinery margin 5.8 USD/bbl vs. 5.7 USD/bbl) and lower throughout (-11% YoY), clean CCS refinery EBITDA increased by 4% YoY in USD terms to USD 272 mn and by 8% YoY HUF 58.7 bn. These superior results were primarily due to widened wholesale margins (motor fuel demand in the CEE + 3.5% YoY) and to the better financial performance of INA that alone added HUF 10.5 bn higher profits than last year (HUF 9.7 bn vs. –HUF 0.9bn) to the group clean CCS EBITDA. On the petchem side, Clean EBITDA arrived at HUF 21.3 bn (+15% YoY) fueled by weaker local currencies and improved sales margins. Also, management indicated that they expected lower margins to ca. 300 -350 EUR/t in the last quarter due to sluggish demand margins, which is the lower end of margin range of full year guidance.
• Consumer Services clean EBITDA rose substantially (+16% YoY) to HUF 47.4 bn (beating both analysts’ expectations of HUF 445. bn), in USD terms the segment grew by 10% y-o-y. Total volume sold y-o-y dynamic has accelerated from 3% in Q2 to 5%, while non-fuel margin also stood at a record high (28.9%) clearly supporting Q3 stellar results.
• Surprisingly, Midstream clean EBITDA increased more than anticipated to HUF 8 bn (+14 % YoY) vs. consensus estimate of HUF 7.2 bn, as lower OPEX and higher transmission volumes offset the negative impact of decreasing tariffs.
• Corporate and intersegment came substantially higher compared to consensus estimate (- HUF 2bn vs. –HUF 12bn) as well as last year’s results (HUF-12bn). It remains to be seen whether cuts cost proves to be sustainable, or it is only a one-time better result that will normalize as time goes by.
• As for earnings guidance, in light of the Q3 results Management increased the FY clean CCS EBITDA guidance by USD 100 million from USD 2.3 bn to USD 2.4 bn, while kept the CAPEX guidance unchanged resulting in a USD 100 mn increase in FCF.
• Short term outlook: MOL has reached HUF 529 billion CCS Clean EBITDA (USD 1.84 billion) in 9 months, and assuming the KPI’s (refinery margin, oil price remained in the guided range) management expect that FY Clean CCS EBITDA would arrive to USD 2.4 billion. We definitely expect positive share price reaction since the consensus for FY clean CCS EBITDA is at HUF 2.33 billion according to Bloomberg, also our estimates is at the same level. All in all, we saw very decent results from MOL, with probably a one-time better than expected results from corporate and other segment. Since the management, lifted its FY Clean CCS EBITDA guidance to the upper side of the range, the question of special dividends automatically comes up. We believe, that if FY EBITDA may arrive to above USD 2.4 bn, we could not exclude the possibility of special dividend again, though its size may probably be lower than last year, should it be paid.
• We reiterate our HUF 3,400 per share 12months ex-dividend TP and ACCUMULATE rating on MOL.

 

 

 

Gellert Gaál
Senior Equity analyst

CONCORDE SECURITIES LTD.

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