Pakistan Petroleum Ltd (PPL) has posted a consolidated net profit of PKR14.2bn (EPS PKR5.21) for 4QFY21, up 18% qoq and 31% yoy, higher than our EPS estimate of PKR4.60. This takes FY21 net profits to PKR52.3bn (PKR19.21/sh), up 6% yoy. PPL also announced a final cash dividend of PKR2.0/sh (full year PKR3.5/sh), higher than our expectation of PKR1.5/sh. Major deviations from our 4Q estimate are lower Opex and effective tax rate, but these are partly offset by much higher exploration expenses.
Key Highlights for 4QFY21:
Net Sales have clocked in at PKR36.6bn, down 1% qoq but up 16% yoy (low base, as Covid-19 disrupted sales last year), in line with our estimate. Oil and gas sales were down 8% qoq and 4% qoq to c.13,300bpd and c.615mmcfd, respectively, while average exchange rate was down 3% qoq at c.155. The decline in production was majorly seen in Kandhkot, Gambat South and Adhi.
Opex of c.PKR7.9bn are down 26% qoq and 19% yoy – compared with average c.PKR11.0bn in the previous three quarters. We understand that the deviation from our estimate of Opex and the sharp qoq decline has come, because (i) of the recent upgrade of Sui's reserves (up 26% in June 2021) which reduced amortization expenses related to that field (Sui is c.30% of revenues); and (ii) PPL had settled arrears of certain contractual employees in the previous quarter (non-recurring adjustment; thus high base).
Exploration expenses of PKR6.8bn are significantly higher than expected even though exploratory activity was negligible during the quarter and there was no new dry well, as per PPIS data. We understand that PPL re-evaluated previously suspended wells and deemed six of them as dry wells – the cost of which is realized in the 4Q result.
PPL has also booked a reversal of impairment of bad debt worth c.PKR700mn. This is entirely related to a recovery from Byco; a recent NAB case related decided in PPL's favor. PPL may book an additional c.PKR250mn in subsequent quarters.
Effective tax rate has come in at 17% for the quarter, compared with 26% in 9MFY21, due to some prior period tax adjustment. ETR in FY21 thus turns out at 24%.
The result is fairly higher than expected where lower Opex should be recurring around the level seen in 4Q thanks to the reserves upgrade of PPL’s largest asset. Other deviation from our result are, however, nonrecurring. PPL should continue to post quarterly EPS of around PKR4.75/sh, in our view. Payout remains weak, and we await clarity on whether PPL has a more aggressive drilling plan for FY22; circular debt has negatively affected both, and a reversal in either should lead to better price discovery in the stock, in our view. We have a Buy stance on PPL with a TP of PKR146/sh.