April 22, 2020 (PPI-OT)

PPL: EPS to drop to by 1%YoY to PKR 5.18 amid lower production and oil prices; nil cash payout

Pakistan Petroleum Limited's (PPL) board meeting is scheduled on 23rd Apr-20 to announce financial result for 3QFY20, where we expect the company to post earnings of PKR 14.09bn (EPS PKR 5.18), down by 1%YoY,

We estimate decline in earnings on the back a) 15%YoY decline in oil prices, b) lower oil and gas production down by 6%/8%YoY and, c) higher effective tax rate. However, weaker PKR is likely to keep earnings decline restricted. Moreover, we expect PPL is book exchange gains which is likely to bring other charges down by 58%YoY amid PKR depreciation,

On a quarterly basis, earnings are expected to increase by +37%QoQ on the back of 76%QoQ drop in exploration cost as commercially unviable fields were booked as dry wells during 2QFY20. Furthermore, PPL is likely to book exchange gains amid weaker PKR closing towards Mar-20 end,

We recommend a 'BUY" stance on PPL with our Dec-20 target price of PKR 159/share offering 101% upside from last close. The company is currently trading at FY21 P/E of 5.1x.

Earnings to clock in at PKR 5.18/share for 3QFY20, down by 1%YoY

Pakistan Petroleum Limited's (PPL) board meeting is scheduled on 23rd Apr-20 to announce financial result for 3QFY20, where we expect the company to post earnings of PKR 14.09bn (EPS PKR 5.18), down by 1%YoY, compared to PKR 14.21bn (EPS PKR 5.22) in the same period last year. We estimate decline in earnings on the back a) 15%YoY decline in oil prices, b) lower oil and gas production down by 6%/8%YoY and, c) higher effective tax rate. However, weaker PKR is likely to keep earnings decline restricted. Moreover, we expect PPL is book exchange gains which is likely to bring other charges down by 58%YoY amid PKR depreciation at the end of Mar-20. Exploration cost are expected to drop amid lower seismic activity. We do not expect any cash dividend payout for the 3QFY20 on account of cash constraints due to elevated receivables.

Lower exploration cost to lift earnings on quarterly basis

On a quarterly basis, earnings are expected to increase by +37%QoQ on the back of 76%QoQ drop in exploration cost as commercially unviable fields were booked as dry wells during 2QFY20. Furthermore, PPL is likely to book exchange gains amid weaker PKR closing towards Mar-20 end compared to exchange loss of PKR 76mn in 2QFY20. Growth in earnings is likely to be limited by flattish oil and gas production (as only last week of Mar-20 witnessed production decline amid Covid-19 lockdown).

Oil and Gas production down by 6%/8%YoY during 3QFY20

Total gas production for the Company fell down by 8%YoY on the back of nearly lower production from Kandhkot. This brings total gas production for 9MFY20 to 786mmcfd down by 9%YoY. Oil production also fell by 6%YoY on account of lower production from Nashpa, Adhi and Tal block however addition of Dhok Sultan in Nov-19 restricted overall decline in oil production. This brings total oil production for 9MFY20 to 14,898bopd down by 5%YoY.

Recommendation

We recommend a 'BUY' stance on PPL with our Dec-20 target price of PKR 159/share offering 101% upside from last close. The company is currently trading at FY21 P/E of 5.1x.

© Pakistan Press International, source Asianet-Pakistan