TURKEY OIL & GAS - Aygaz Meeting Notes
We recently met with Aygaz management to discuss its outlook.
Despite solid autogas segment growth in recent years, LPG consumption posted only 1% CAGR since 2010, curbed by stagnant cylinder segment. Even though the current weakness in LPG prices bolsters near-term demand, we think lower conversion rates of cars and a higher penetration of natural gas usage will limit LPG demand in the near future.
In March 2019, Aygaz signed an agreement to acquire a 50% stake in United LPG which is located in Bangladesh. If the deal concludes positively, Aygaz will participate in the JV and it will be active in LPG supply, filling and distribution in Bangladesh.
As the largest NAV contributor (65% of Aygaz TNAV), we expect Tupras to post discouraging results in 3Q19 on narrowing heavy crude differentials and higher energy costs. Even though Tupras will be one of the key beneficiaries of the upcoming IMO 2020 sulphur cap regulations, we think the appetite for the stock will remain muted until we see a significant improvement in its crude slate pricing, especially heavy crudes.
Aygaz is a liquefied petroleum gas (LPG) distribution company operating in a range of environments from cylinder production to marine transport operations. In its core business field, Co. distributes LPG as autogas, cylinder gas, and bulk gas, manufactures and sells LPG cylinders, tanks, valves and regulators, and also markets LPG-operated devices. Co. also sells and produces LPG devices and engaged in the maritime shipping of LPG. In the cylinder gas segment, Co. operates all over Turkey in points of sale under the brands of Aygaz, Mogaz and Lipetgaz. Co. has three segments: gas and petroleum products, electricity and other operations.
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