Result preview of OGDC FY08E (13082008)

Investment Strategy: Buy
The BoD meeting of the company is scheduled to held on 20th August, 2008. We expect the company would post after tax profit of Rs49.21bn in FY08, translating into EPS of Rs11.44 as compared to EPS of Rs10.61 in corresponding period last year which represents rational growth of 7.8 percent on YoY. In addition, we also expected the company would announce cash dividend of Rs3.0 for 4Q08, which would accumulate to full year dividend of Rs9.0 based on historic payout. However, based on Government dividend target of Rs10.9 for FY08, company may announce higher dividend during the year.
This expected growth in bottom line earnings of the company is mainly backed by massive increase in international oil prices, coupled with increase in oil and gas production of the company during FY08. However, due to adjustment in the taxation earnings of the company may decline as company had charged effective tax rate of 44% during 3Q08 compared to average tax rate of 28.8%.
Oil and Gas Production - During 11M08 company oil & gas production had increased by 5.1 percent and 7.0 percent respectively. The growth in oil production of the company was mainly due to increased production from Kunnar, Bobi, Pasakhi North and North west, Tando Adam, and Chanda fields, while, increase in Gas production of the company was primarily due to improved production from Dakhni, Uch, Bobi, Makori and Qadirpur fields during the period.
Recommendation
We estimate fair value of Rs151 for OGDC, while the script is currently trading at the discount of 36.6 percent from our fair value and we maintain our "Buy" stance at current levels. In addition, script is also attractive from the dividend yield prospective; we expect company would maintain dividend yield of 8.1 percent at current level.