Morning Call about Sui Northern Gas Pipelines Limited, Gas Water and Multiutilities – Arif Habib Limited

Karachi: Earnings to grow due to lower UFG losses

Arif Habib Limited has revised Arif Habib Limited’s Dec-12 target price upwards for Sui Northern Pipeline Gas Company limited (SNGP) by 24.8% from PKR 20.2/share to PKR 25.2/share as the company has curtailed unaccounted for gas (UFG) losses.

According to Arif Habib Limited expects that the company will post an earnings of PKR 1.36bn (EPS: PKR 2.36) along with a dividend of PKR 1.5/share translating into a dividend yield of 7.5% for FY12.

Earnings were up by 38% in 1HFY12 financial results

In 1HFY12 result announcement, SNGP posted a profit after tax (PAT) of PKR 648mn (EPS: PKR 1.12), registering a decline of 38% YoY as compared to a PAT of PKR 468mn (EPS: PKR 0.81) in corresponding period last year. This improvement in profitability is mainly attributable to 6.1% lower UFG losses booked during the 1HFY12. During the period company incurred a Capex of PKR 4.09bn which remained 9% lower as compared to PKR 4.52bn in the corresponding period last year. Arif Habib Limited believes this decline is attributed to circular debt issue which has started to hurt gas utilities too. Moreover the company has suffered an exchange loss of PKR 341.7mn due to 1.9% devaluation of PKR against USD.

 

Sui Northern Gas Pipelines Ltd- Financial Highlights PKR million
2QFY12 1QFY12 %Chg. 1HFY12 1HFY11 %Chg.
Net Sales 53,693 48,531 11% 102,225 94,292 8%
Cost of Gas 52,027 47,814 9% 99,842 92,828 8%
Gross Profit 1,666 717 132% 2,383 1,464 63%
Selling Cost 872 631 38% 1,503 1,319 14%
Admin and Other Expenses 1,029 582 77% 1,512 1,264 20%
Other Operating Income 1,841 1,521 21% 3,264 3,581 -9%
Finance Cost 849 767 11% 1,616 1,778 -9%
Profit before Tax 757 258 193% 1,016 684 48%
Taxation 277 90 207% 367 215 70%
Profit after Tax 480 168 186% 648 468 38%
Earnings per share 0.83 0.29 186% 1.12 0.81 38%
Source: AHL Research

 

25.7% QoQ lower UFG losses

The extent of UFG losses remains a matter of concern for the management as the company is facing difficulty in achieving efficiency target set by OGRA. However due to the continuous effort from the management the company was able to reduce it’s unaccounted for gas losses by 6.1% YoY from PKR 4.04bn in 1HFY11 to PKR 3.79bn in 1HFY12. On QoQ basis, company booked a UFG loss of PKR 1.62bn in 2QFY12 which is 25.7% lower when compared to PKR 2.18bn loss incurred during 1QFY12. Arif Habib Limited expects company will be able to further curtail its UFG losses as it has initiated several projects to reduce theft and leakages.

Recommendation

Based on Discounted Cash flow Model Arif Habib Limited’s target price for Dec 2012 works out to PKR 25.2/share, which offers an upside potential of 26.5% from its last losing price of PKR 19.92/share. Beside attractive upside potential, the stock offers FY12F dividend yield of 7.5%. Thus Arif Habib Limited recommends BUY.

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