Hoegh LNG Partners LP: 1 director sold

A director at Hoegh LNG Partners LP sold 6,692 shares at 15.710USD and the significance rating of the trade was 71/100. Is that information sufficient for you to make an investment decision? This report gives details of those trades and adds context and analysis to them such that you can judge whether these trading decisions are ones worth following. Included in the report is a detailed share price chart which plots discretionary trades by all the company's directors over the last two years cl...

India/China near full regas capacity

We have cut our LNG rates as two out of the top three importers are set to reach full regas utilisation, resulting in lower tonne-mile and low gas prices. We forecast rates to double by Q4 2019, and utilisation to peak in 2020 ahead of a decline in utilisation until 2022.

No agreement in sight

After positive signals since February, last week was a big step back for those who believed US–China trade relations were improving. Tariffs remain at 25% for LPG, were lifted to 25% for LNG, and remain at zero for crude. We estimate a -1.8% tonne-mile impact for LPG and -0.4% for LNG and crude; we see limited downside, and significant upside should an agreement be reached.

Seasonal freeze set to ease

LNG shipping rates are down ~80% since November but up 7% in the past 10 days. Global LNG prices collapsed from Q4 into Q1, but Asian LNG futures have risen 15% in the past few days, thus we see fundamentals turning positive. With the current LNG pricing, gas is priced lower than coal in Chinese el production, likely not sustainable in our view, which in turn should reopen the US-Asia LNG price arbitrage, boosting tonne-mile, rates, and utilisation. We favour FLEX LNG at a ~8% discount to newbui...

2019e installations now at 2,000+

According to the latest DNV GL data, end-2020 scrubber uptake will be 3,169 (we forecast c3,700). We see room for more in tankers and bulkers, while container has already exceeded our estimate. Some 2018 installations have slipped into 2019, which now looks set for more than 2,000 installations.

20% of HFO demand scrubbed

The latest data on scrubber uptake showed an acceleration in uptake after two slower months. The main reason was a few large producers updating their reported numbers, but an all-time high uptake for 2020 installations shows scrubbers are still in demand. Current uptake implies c20% of HFO demand is set to stick, as numbers are closing in on our estimates.

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Höegh LNG Partners (Hold, TP: USD19.10) - Gallant first in line

We have raised our 2019–2020e net profit by 6% on reduced interest costs post the refinancing announcement. We believe it likely that Höegh LNG will try to employ the Höegh Gallant before fixing new FSRUs on contract, as Höegh LNG is contractually obliged to cover 90% of its current contract until 2025. This means that dropdown candidates are second in line. We reiterate our HOLD recommendation and USD19.1 target price following a change of analyst.

Recovery story continues

Shipping (, ) - Recovery story continues (2 pages)

Smallest scrubber revision to date

We previously highlighted capacity limitations for further 2019 installations, and another month of decelerating scrubber additions supports this view. However, the few additions for 2020 indicate that shipowners are hesitant to jump on the scrubber train at the last minute and risk missing out on wide fuel spreads in the first months of 2020, as Q4 saw 2020 fuel spreads cut by USD50/tonne.

2019 could be nearing the brim

DNV GL’s latest data shows 2019 scrubber additions are slowing, while additions to 2020 are accelerating. To us this signals: 1) 2019 capacity constraints with just 12 months remaining, and 2) most 2019 orders not yet in the statistics have been accounted for. Continued interest for 2020 installation is as anticipated on the current forward spreads and there remain c1,000 scrubbers to reach our end-2020 forecast of 3,500.

IMO disruptions to reduce fleet growth

We have revised our outlook on scrubber uptake based on the latest data, and updated our vessel segment uptake split. Our revised estimate for ~3,500 scrubbers by end-2020 implies 21% of HFO demand is intact beyond 2020. The installation of scrubbers and BWMS, in addition to cleaning bunker tanks, is set to take out a substantial amount of vessel capacity in 2019–2020, and we believe fleet growth will be cut by ~1.5% for crude and dry bulk. Our NPV for a VLCC scrubber investment of USD6.1m cor...

2,052 scrubbers so far

The latest scrubber data from DNV GL show an accelerating increase in planned scrubber installations during 2019. The pre-2020 total of scrubber-fitted vessels now stands at 2,052, quickly closing in on our 2,300 forecast. Dry bulk has the majority of this month’s additions. The accelerating uptake for 2019 installation indicates still-available capacity in our view, and our estimate is looking increasingly conservative.

High oil price could delay IMO 2020

The Wall Street Journal says the Trump administration is set to slow the IMO’s 2020 implementation and opt for an ‘experience building phase’. The IEA has advised that IMO 2020 could cause a surge in demand for specific fuels that would ripple across commodity markets and effect crude prices. We believe that a potential “experience building phase” would first be adopted if there is an oil price impact in 2020, as the current forward curve for 2020 is USD5/bbl lower than today. We calcu...

22% more scrubbers for 2020e

DNV GL published updated data on scrubber uptake showing a 22% increase in planned scrubber installations by end-2019. This leaves 48% upside to our 2,300 estimate, but a hefty 220 increase in planned 2019 scrubber installations from last month’s data implies room for more. Currently 836 scrubbers are confirmed for 2019 installation, according to DNV GL.

Scrubbing up nicely for IMO 2020

With the deadline for compliance with the IMO’s sulphur cap less than 16 months away, we have taken another look at the likely outcome for shipping. Following up on our December 2016 note, we conclude that current forward fuel prices imply a less significant impact on the shipping balance than previously. Scrubber uptake is accelerating towards 2,300 units by 2020 on our estimates (covering 15% of pre-2020 heavy fuel oil (HFO) demand) and largely offsetting potential positive effects of higher...

Most attractive segment

Slow growth story continues We reiterate our HOLD recommendation and USD19.1 target price as we believe it will take time before the company can increase its distribution with the lack of dropdown candidates from the parent. The stock is trading at a 16% premium to NAV and a 9% yield. Its 5-vessel fleet is employed on long-term contracts.

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Höegh LNG Partners (Hold, TP: USD19.10) - Slow growth story continues

We have made limited changes to our estimates following the Q2 results, as net profit was 2% above consensus after adjusting for insurance claims and unrealised gains on derivatives in the JVs. Its 5-vessel fleet is employed on long-term contracts, but distribution capacity is stagnating with the lack of dropdown candidates from the parent. We reiterate our HOLD recommendation and USD19.1 target price.

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