In Focus: Pakistan Petroleum Ltd (30062008)

Fair Value: Rs297
Investment Strategy: Buy
We estimate fair value of Rs297 for PPL while, it’s currently trading at the discount of 19.5 percent from our fair value and we maintain our “Buy” stance at current level. Going forward, we are expecting that the company would post PAT of Rs21.2bn in FY08 translating into EPS of Rs28.16 against EPS of Rs22.04 in corresponding period last year, showing enormous growth of 27.7 percent YoY. However, company had already announced full year cash dividend of Rs15.5 per share.
The expected substantial growth in bottom line earnings of the company would be mainly backed by massive increase in well-head gas prices during the period. On average well-head gas prices of Sui, Kandhkot, Sawn and Miano fields were increased by 13.1 percent in January, 2008. These fields accounts 89 percent of total gas production of the company. In addition, substantial increase in oil production of the company would also support bottom line earning of the company.
Revenue Mix – During 9M08, their were significant changes in the revenue mix of the company. Previously natural gas was accounting more than 90 percent in top line earnings of the company which is currently reduced to 83 percent. This is mainly due to massive increase in oil revenue of the company, which is now contributing around 14.7 percent in total revenue against 7.1 percent during same period last year.
Oil and Gas Production - During 11M08 oil production of the company had increased to 4,041bpd from 2,734bpd in corresponding period last year, depicting enormous growth of 47.8 percent on YoY. This is primarily due to increase in production from Tal block, Adhi field and additional production from Mela field, while Gas production of the company remain flat. Gas production from Sawn, Kandhkot, Adhi, Qadirpur fields were increase which has offset the decline in gas production from Sui field.