AKD Quotidian about — POL: 1HFY12 Result Preview

Karachi: Pakistan Oilfields is scheduled to announce 1HFY12 results tomorrow where AKD Securities expects NPAT of PkR7.03bn against NPAT of PkR5.20bn in the corresponding period last year.

According to AKD Securities, the result translates into an EPS of PkR29.74 in 1HFY12 versus EPS of PkR21.99 in 1HFY11, a growth of 35%YoY. AKD Securities expects top-line led earnings growth where revenues are expected to increase by 25%YoY to PkR14.4bn, underscoring production profile expansion and higher development returns on increase in realized prices. AKD Securities expects oil and gas production growth to clock in at 7%YoY and 4%YoY respectively. Sequentially, AKD Securities expects 2QFY12 earnings of PkR15.13/share up 4%QoQ due to dividend income from NRL and APL (after-tax impact of PkR2.45/share) and despite muted production flows. Alongside the result, POL is expected to retain its high payout policy and AKD Securities expects an interim DPS of PkR15/share. Stock price has underperformed the broader market with recent disappointment regarding Domail-II suspension. That said, AKD Securities believes production catalysts over the next 3-6 months should provide for price outperformance and AKD Securities retains AKD Securities’ conviction on POL where a forward dividend yield of 11% on FY12F forecast further vindicates AKD Securities’ view. At current market price the stock offers an upside of 20% to AKD Securities’ target price of PkR432/share – Buy.

Domail disappoints: Recent unsuccessful appraisal efforts in Domail-II have decoupled market price performance with overall JV led asset monetization. With unresponsive formations POL has suspended Domail-II which may lead to side tracking to retest potential pay zones or abandonment. While well cost will likely to capitalized, AKD Securities believes near term impairment test poses risk of a P and L charge. That said, continuing TAL Block asset monetization and drilling time line over the next 6-12 months should provide for basis for continuing upgrade. While POLs JV exploration portfolio poses potential upside, AKD Securities believes the market will hold-off on a quick price in with regular featured delays and drilling challenges over POLs exploration log in the past few years.

Despite recent string of set-backs AKD Securities retains POL on AKD Securities’ conviction list underpinned by increasing JV asset monetization and continuing exploration focus. While the stock has recently underperformed, AKD Securities believes market will likely recouple with near term stable earnings profile and strong payout capacity. At current market price, the stock offers an upside of 20% to AKD Securities’ target price of PkR432/share. Exploration and development catalyst continue to pose upside risk to AKD Securities’ estimates.