Pakistan Petroleum announced a final cash payout of Rs7.5/share

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Pakistan PetroOilleum Limited (PPL) earnings clocked in above our and market’s expectations at Rs26.08/share for FY14 vis-à-vis earnings of Rs21.28/share in FY13 (+23% YoY).

  • In 4QFY14 earnings clocked in 58% YoY and 15% QoQ higher at Rs6.76/share vs. our 4QFY14 expectation of Rs6.1/share given lower-than-expected (1) field expenditures (-3% QoQ) and (1) effective tax rate of 26.6%.
  • Alongside result,
  • That said we trim our earnings forecast for PPL by 7%/6% for FY15F/FY16F owing to faster-than-expected decline in gas production from Sui and Sawan gas fields. In tandem, we tweak down our Target Price to Rs265 from Rs270 previously.

We maintain PPL as our most favored pick in Pak E&P space. PPL trades at an FY15F P/E of 7.4x vs. market’s FY15F P/E of 8.2x and JS E&P Universe FY15F P/E of 7.8x.

PPL reports above expected FY14 EPS growth of 23% YoY
Pakistan Petroleum Limited (PPL) earnings clocked in above our and market’s expectations at Rs26.08/share for FY14 vis-à-vis earnings of Rs21.28/share in FY13, a growth of 23% YoY. Up-tick in earnings was largely driven by 17% YoY rise in revenues emanating from (1) 28% YoY higher oil production (61% YoY and 23% YoY increase from Nashpa and Tal Block) and (2) an average depreciation of PKR vs. the USD by 6% YoY across FY14. In 4QFY14 earnings clocked in 58% YoY and 15% QoQ higher at Rs6.76/share vs. our 4QFY14 expectation of Rs6.1/share given lower-than-expected (1) field expenditures at Rs9.5bn (-3% QoQ vs. our expectation of +1% QoQ) and (2) effective tax rate of 26.6% (vs. our expectation of 31%). Alongside result, PPL announced a final cash payout of Rs7.5/share, taking cumulative dividend to Rs12.5/share for FY14.

Earnings trimmed, though PPL remains our favored pick
In spite of better-than-expected earnings, we trim our earnings forecast for PPL by 7%/6% for FY15F/FY16F owing to faster-than-expected decline in gas production from Sui and Sawan gas fields. Note that in FY14, gas production declined by 9% YoY due to natural depletion of Sui (-12% YoY) and Sawan (-29% YoY) fields. In tandem with our earnings revision, we tweak down our Target Price for PPL to Rs265 from Rs270 previously. That said, we reiterate PPL (‘Buy’) as our most favored pick in the Pak E&P space. We believe PPL remains poised to register 3-year (FY14-17) earnings CAGR of 10% on the back of (1) higher production from Nashpa and Tal Block and (2) commissioning of recent new finds. PPL trades at an FY15F P/E of 7.4x vs. market’s FY15F P/E of 8.2x and JS E&P Universe FY15F P/E of 7.8x.

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