omc: no mention; hence safe - BMA Capital Management

BUY
Fair Value: PKR 236
Current Price: PKR 186
Stock Statistics
Ticker PPL
3-month High/ Low 205.6/181.6
Mkt Cap USD mn 2,194
12M ADT mn 1.1
Beta 1.12
KSE vs PPL Relative Graph
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Volume mn(RHS) PPL KSE100
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PPL Profile: Pakistan Petroleum (PPL)
is amongst the older E&P companies of
Pakistan. Besides being the largest gas
producer of the country, it also produces
crude oil, Natural Gas Liquid (NGL) and
Liquifies Petroleum Gas (LPG).
Government of Pakistan (GoP) holds
78.4% of the company while the
remaining is divided between
International Finance Corporation and
private investors.
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Pakistan Petroleum: Where there’s will…
Investment Summary
June 7, 2010
� Unrivalled exposure to Gas – invaluable in a declining oil price
environment: Given that gas production accounts for 80%+ of PPL’s
revenues, coupled with the fact that around 85% of this production is
contributed by uncapped fields (namely Sui, Kandhkot, Sawan and Miano),
wellhead gas prices for these fields continue to be the single most important
determinant of PPL’s profitability. Hence with the announcement of 25-30%
increase in wellhead gas prices for these fields, the company stands to
benefit from 34% HoH growth in its EPS for 2HFY10
� More importantly, with wellhead gas prices benchmarked against trailing
average intl crude oil prices, we expect the revenue stream for the company
to stay stable in 1HFY11 even amidst declining global commodity markets
� Declining Sui production profile – but still lower than our forecasts:
Sui field (PPL ownership stake: 100%), the country’s largest gas producing
field, has been posting natural annual production decline of 3-5%. While the
market has shown concerns on recent 5% WoW decline in the field’s
production, it needs to be highlighted that it was in-line with FY09 average
statistics – thereby actually hinting towards annual depletion that is way
lower than our assumption of 5% pa
� Nonetheless, contributing to around 50% of PPL’s revenues, Sui is still a
major concern for the company’s ongoing production and revenue stream.
However, recent and upcoming oil and gas production additions from Tal
Block have largely allayed these concerns.
� We project PPL to post gas production growth of 1%, 4% and 4% for FY10,
FY11 and FY12, respectively. Further, upcoming additions from Mela and
Nashpa are projected to translate into oil production growth of 5% and 2%
for the same time period.
� Turning aggressive, finally! After staying relatively muted on the
exploration front for the last 3 years, the company has finally unravelled its
plans to explore untapped reserves in Pakistan. Plans to assess deeper
prospects at Sui are underway to offset depleting reserves and enhance
production efficiencies while an aggressive international exploration
program (with JV partners) in Iraq, Iran, Yemen and other countries can
provide further impetus to the growth story.
Financials
FY09A FY10E FY11E FY12E
EPS(PKR) 27.8 23.4 28.0 29.0
Price to Earnings (x) 6.7x 8.0x 6.6x 6.4x
Dividend Yield (%) 5.8% 5.4% 6.4% 7.0%
EPS Growth (%) 41% (16%) 20% 4%
Return on Equity (%) 44% 31% 31% 31%
Return on Assets (%) 32% 33% 26% 27%
Source: BMA Research