Investors upbeat on Hong Kong LPG business
See how NewOcean will benefit.
Accoding to Sunwah Kingsway, investors are upbeat on the lucrative Hong Kong bottled LPG business which New Ocean (NOE) plans to enter starting FY13.
"Minimal CAPEX is expected as the business will largely leverage on NOE’s existing infrastructure. One final hurdle is the approval from Hong Kong’s Buildings Department for the construction of a depot in Hong Kong. Audiences also find the oil trading business a sustainable growth strategy for the next couple of years." it said in a report.
Here's more from Sunwah Kingsway:
Regarding possible risk, there was a common question pointing to the potential threat of LNG. The management named Guangzhou as a case study. It took Guangzhou almost ten years to convert all taxis and buses to LPG-powered during the last decade, thus a smooth transition would require not only policy support but a combination of financing and social benefits. A key question if there is a switch from LPG to LNG is who and how it is going to be financed?
Besides, the safety of building LNG filling stations in a dense city like Guangzhou could also be a concern. Nevertheless, NOE has recently entered into alliance with Sinopec looking to solidify their market strength in the Guangdong province. The alliance can also fence out potential new entrants as both NOE and Sinopec are already leaders in LPG and oil products trading, respectively, in the province.
Given the less reliance on bulk trading of LPG and gradually moving down the value chain to directly secure demand from public transportation, industrial and households, meeting participants agree that NOE should deserve a re-rating. The counter is currently trading at only 5.1x FY13 PE. Our TP of HK$3.41 represents only 6x FY13 PE in which we have factored in certain execution risk on starting a new business line. We too agree that NOE has a sound growth story and is definitely a re-rating candidate. Indeed we are anxiously waiting for its first bottle of LPG to enter Hong Kong to confirm their execution ability.