Morning Call about Pakistan Oilfields Limited – Arif Habib Limited

Karachi: Strong production growth may lead EPS of PKR 45.75

The Board of Directors of Pakistan Oilfields Limited (POL) is scheduled to meet on September 11, 2011 to discuss the financial result for FY11.

According to Arif Habib Limited expects the Company to earn profit after tax (PAT) of PKR 10.82bn (EPS: PKR 45.75) in FY11, a healthy rise of 46%, when compared with PAT of PKR 7.44bn (EPS: PKR 31.44) in FY10. This improvement in the profitability is expected mainly on account of strong oil and gas production coupled with a 24.7% YoY jump in crude oil prices. Arif Habib Limited expects the Company to announce a final cash dividend of PKR 20/share along with the result. This is in addition to interim cash dividend of PKR 10/share, taking full year’s payout to PKR 30/share. Besides, a possibility of a 10%-20% bonus issue along with the result cannot be ruled out.

 

Financial Highlights (PKR mn) 4QFY11E 3QFY11A QoQ  FY11E FY10A YoY
Net Sales 6,969  6,575 6% 25,120 19,306 30%
Operating Costs 1,470 1,386 6% 5,587 4,082 37%
Royalty 673 635  6% 2,360 1,596  48%
Exploration Costs                    276 623  -56% 1,200 1,606 -25%  
Other Income 345 375 -8% 1,750 1,377 27%
Profit before tax  4,119 3,642 13% 14,911 9,591 55%
Taxation  1,134 1,004 13% 4,089 2,154 90%
Profit after taxation 2,984 2,638 13% 10,822 7,437 46%
Earnings per share (PKR) 12.62 11.15  45.75  31.44    
Source: Company Accounts & AHL estimates

 

Top line is projected to jump by 30% YoY

Net sales of the company is estimated to rise by 30% YoY to PKR 25.1bn compared to PKR 19.3bn recorded in the same period last year. The phenomenal jump in top line is on account of higher oil and gas production of 11.8% YoY and 38.6% YoY, respectively. The rise in production is mainly attributable to Manzalai whose oil and gas production jumped by 52% YoY and 2.2x YoY, respectively. In addition to this, crude oil prices surged by 24.7% YoY during the period which would further augment the net sales of the company. In 4QFY11 Arif Habib Limited expects the top line to improve by 38.2% YoY to PKR 6.9bn.

Other income may rise by 27% YoY

POL is expected to record other income of PKR 1.75bn in FY11, an increase of 27% YoY, compared to PKR 1.37mn witnessed in the same period last year. This rise is on account of higher dividend income from NRL and APL of PKR 20/share and PKR 31.5/share, respectively. Dividend income contributes around PKR 440mn (PKR 1.85/share) in FY11 company’s net earnings. In addition to this, exploration cost is estimated to dip by 25% YoY to PKR 1.2bn on account of no dry well expensed out during the period.

Recommendation

At current price level of PKR 364.6/share, the stock of POL is trading at a discount of 11% to Arif Habib Limited’s Dec’11 target price of PKR 405/share. Thus Arif Habib Limited recommends a BUY. Further, the scrip is trading at a PER and dividend yield of 6.2x and 10.3% based on Arif Habib Limited’s FY12F earnings estimates.