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NCIG

NCIG FY21 Results

IAM Capital Markets View

Operationally, NCIG has been diversifying counterparties outside of China when the China coal ban took place. Many other countries are looking for coal exports, so it’s been relatively easy for Australia to shift the coal exports around.

However, China is now willing to pay up for Australia’s share of coal exports – given they have problems internally with getting appropriate power sources. Again, higher thermal coal prices helps NCIG’s counterparties and their credit strength.

NCIG’s revenue is derived from toll charges payable by shippers under long-term ship-or-pay agreements. Toll charges (in USD and AUD) are set under a full cost recovery model, which provides NCIG with stable and resilient cashflows. During FY21, shareholders paid around AUD2.8m in extra toll charges to top up NCIG’s debt service reserve account (DSRA) which was a credit positive development.

We believe the NCIG 27’s and NCIG 31’s are very cheap to the AUD BBB investment grade curve. Currently, the NCIG 31’s are trading almost 1% wider than the recently issued PNHAU 3.8. Furthermore, the NCIG 27’s and NCIG 31’s trade around 1% and 2% wider than the Santos and Woodside curves, respectively. Given the positive coal price environment, there is still an opportunity for investors to pick up alpha in a credit which remains significantly mispriced.

FY21 Results

NCIG has remained focused on delivering on its commitments in FY21, notwithstanding the challenges faced throughout the year.

In November 2020, a sudden and unforeseen storm cell passed through Newcastle, resulting in damage to one of NCIG’s two shiploaders. Following the shiploader incident, nominal capacity was reduced from 66mt pa to 47.6mt pa operating with a single shiploader over two berths. As a result, total terminal throughput was below FY20’s result, at 45.1mt for FY21. This represented a decreased of 9.4mt on FY20 (54.5mt).

Chart 1. China Coal Production and International Coal Prices (USD/tonne)

Source: Refinitiv

Chart 2. China Thermal Coal Imports by Country (Tonnes)

Source: Kpler

NCIG was pleased to advise stakeholders of the return to service of shiploader 2 in July 2021. The cost of reinstatement is fully recoverable under insurance, subject to market standard deductibles and exclusions. NCIG’s revenue was not impacted by the shiploader 2 damage due to the strong ship or pay agreements in place with all their customers.

NCIG has a USD2.2bn debt book and approximately 65% of their revenue is derived from USD. Because NCIG’s financial statements are shown in AUD, they are therefore impacted by movements in the AUD/USD. All else equal, a higher AUD/USD is better for NCIG on conversion of USD borrowings to AUD.

Financials

  • Profit before tax of AUD332m (FY20: AUD119m loss)
    • Insurance proceeds of AUD33m were in respect of the damaged shiploader 2
    • Repairs and maintenance of AUD66m were significantly higher than FY20 due to the repair cost of shiploader 2, which is recoverable under insurance (subject to market standard deductibles)
    • FX gains on foreign current of AUD286m in FY21 (FY20: AUD72m loss) due to the impact of an increase in the AUD/USD exchange rate on conversion of USD borrowings to AUD since FY20
    • Fair value gains on interest rate swaps of AUD53m in FY21 (FY20: AUD54m loss) due to a favourable movement in the MTM value of swaps caused by an upward shift in the forward interest rate curve since FY20
  • Current borrowings decreased by AUD41m and non-current borrowings decreased by AUD360m, mainly due to:
    • The repayment of a maturing USPP Note USD25m in November 2020, which was funded by drawing down on a facility established in 2019 for this purpose
    • NCIG’s principal repayments during FY21 of USD76m
    • An increase in the AUD/USD exchange rate
  • Current and non-current derivative financial instruments decreased by AUD13.3m and AUD39.6m respectively due to a favourable movement in the MTM liability value of swaps, which was caused by an upward shift in the forward interest rate curve and the maturity of some out-of-the-money swaps that were previously recognised as a liability
  • Interest paid to third parties decreased by AUD35m — mainly due to the repayment of USD25m USPP Notes (utilising undrawn committed bank facilities), the scheduled amortisation of USD76m bank facilities, and the prepayment of USD571m bank facilities in June 2021.

Chart 3. NCIG Holdings Financial Metrics

Source: NCIG Holdings 2021 Financial Statements

Relative Value

Chart 4. NCIAU Bond Curve vs AUD BBB Investment Grade Curve

Source: Bloomberg

Chart 5. NCIAU Bond Curve vs Santos/Woodside Curve

Source: Bloomberg

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