Morning Call about Pakistan Oilfields Limited – Arif Habib Limited

Karachi: Positive start to FY12

In 1QFY12 Pakistan Oilfields Limited (POL) recorded profit after tax (PAT) of PKR 3.45bn (EPS: PKR 14.61), which was above market expectations, exhibiting a growth of 55% YoY, when compared to net earnings of PKR 2.23bn (EPS: PKR 9.44) witnessed in same period last year.

According to Arif Habib Limited, this stupendous rise in the profitability was driven by surge in oil and gas production, higher prices and lower exploration cost.

Top line jumped by 36% YoY in 1QFY12

Net revenues rose by 36% YoY to PKR 7.33bn compared to PKR 5.39bn witnessed in the same period last year. The growth in top line is attributed to higher oil output by 12% YoY (4,881bopd) and gas production by 21% YoY (101 mmcfd/day), coupled with 45% YoY higher in crude oil prices. The surge in production was primarily driven by incremental production from TAL Block.

Exploration cost contracted by 29% YoY in 1QFY12

In 1QFY12 exploration cost contracted by 29% YoY to PKR 74mn due to lower geological expenses and no well is declared dry during the period. However, in 2QFY12 Arif Habib Limited expects exploration cost to jump QoQ as Chak Naurang is likely to be declared dry.

Other income increased by 59% YoY in 1QFY12

Other income recorded a healthy increase of 59% to PKR 430mn due to higher interest income. During the period increase in interest income was seen on account of higher short term investments to the tune of PKR 6.5bn compared to 4.5bn witnessed in 1QFY11. The other income in 2QFY11 is expected to further jump, due to dividend income from its associates. While dividend income during the quarter, is likely to contribute additional PKR 2.46/share on after tax basis in the company’s net earnings.

 

Financial Highlights (PKR mn) 1QFY12A 1QFY11A YoY
Net Sales  7,328 5,393 36%
Operating Costs 1,347 1,350 0%
Royalty 704  491 43%
Exploration Costs  74 105  -29%
Other Income 430 271 59%
Profit before tax 4,780  3,055 56%
Taxation 1,325 822 61%
Profit after taxation 3,455 2,233 55%
Earnings per share (PKR) 14.61  9.44
Source: Company Accounts & AHL estimates

 

Update on Development front

At TAL block, drilling of Manzalai-9 is in progress. Two new appraisal well

locations Mamikhel-2 and Maramzai-2 have been approved by the joint venture

partners. Also at Tal block, Makori East-2 well, which was spudded on July 5,

2011 has been drilled down to 13,271 feet and further drilling is in progress.

POL all set to record double digit earnings growth in FY12E

In FY12 the company is all set to record a double digit earnings growth of 19% YoY to PKR 54.53/share stemming from higher oil and gas production. Production additions from newly finds wells (Makori East and Tolanj X-1) support Arif Habib Limited’s hydrocarbon accretion expectations. In addition to stellar earnings upside in FY12, expected dividend payout of ~PKR 40/share, further strengthens Arif Habib Limited’s reasoning for investors to go long on stock.

Recommendation

At current price level, the stock is offering an upside potential of 26% to Arif Habib Limited’s June’11 target price of PKR 450/share. Thus Arif Habib Limited recommends a BUY, implying a TR of 38%. Further, the scrip is trading at a prospective PER of 6.21x based on Arif Habib Limited’s FY12E earnings estimates.

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