Earnings Report /
Pakistan

Pakistan Petroleum: FY22 Review: Abysmally low 4Q earning from excessive exploration cost & high tax

  • PPL announced earnings of PKR53.5bn (EPS: PKR 19.68) after posting abysmally low 4Q EPS of PKR0.45

  • Excessively high exploration costs and super tax depressed operating performance

  • Revival in Kandhkot gas offtake has led to better gas output. We reiterate BUY with TP of 152/share

Intermarket Securities
20 September 2022

PPL announced FY22 PAT of PKR 53.5bn (EPS: PKR 19.68) which puts 4Q earnings at PKR 1.2bn (EPS: PKR 0.45). Abysmally lower-than-expected 4Q earnings (IMS expectation of PKR4.12/share) is a result of exceptionally high exploration costs and super tax. This has also dented the expected payout as company announced PKR0.5/share as final dividend, taking FY22 DPS to PKR2.00/share. This is the lowest payout ever made by PPL for any quarter.

Key highlights:

  • Net sales clocked in at PKR61.77bn for 4Q, higher by 21% QoQ as realized oil and gas prices jumped, underpinned by persistent PKR depreciation. It is pertinent to note that overall gas output jumped c.25% QoQ as Kandhkot output enhanced from higher energy requirements in the country.

  • Operating costs increased 16% QoQ, mainly due to higher costs directly linked to USD:PKR rate.

  • Exploration expenses of PKR 13.9bn is a major negative surprise in 4Q as the company booked high dry well costs. During 4Q, the only well plugged and abandoned, owned by PPL is Pandrani X-1 in Kalat concession.

  • Other income rose substantially on account of higher Fx gains from Short-term Investments in FCY term deposits and higher interest income from T-bills.

  • Other expenses also jumped on account of windfall levy on oil/gas from higher oil prices and possibly a high capital store write off.

The depressed Kandhkot offtake has recovered and Engro Powergen Qadirpur (EPQL) has also sought for gas allocation. The field is allocated to Guddu Power Plant and it can also help EPQL in overcoming its gas insufficiency. Owing to lower gas prices in the country, PPL’s suffers the highest impact of PKR 19.0/share annually. This is the amount which continues to get parked into PPL’s overdue receivables which stand at PKR 92/share as at Mar’22. Government’s attempt to increase gas prices will likely bode well for the scrip and we currently have a BUY stance based on our TP of PKR 152/share providing upside potential of 132%