In Focus: Pakistan Petroleum Ltd Fair Value: Rs297 (20052008)

Stance: “Buy”
PPL had posted PAT of Rs14.98 bn in 9M08 (EPS: Rs19.84) when compared to PAT of Rs13.1bn (EPS: Rs17.37) in corresponding period last year, representing substantial growth of 14.2 percent YoY. The robust growth in bottom line earning of the company was mainly backed by substantial increase in international oil prices during the period under review.
Investment Rational
During 9M08, top line of the company had increased to Rs33.12 bn from Rs28.03 bn during same period last year, resulting in extensive growth of 18.2 percent. This was mainly due to massive upsurge in international oil prices, which averagely increased by 43.4 percent to $83.3 per bbl (average Arab light during 9M08) from $58.1 per bbl in 9M07.
In addition, substantial increase of 13.1 percent in well-head gas prices of Sui, Kandhkot, Sawan and Miano fields, during 3Q08 have further supported top line of the comapany. These fields accounts around 89 percent of total gas production of the company.
Further, in 9M08 oil production of the company had increased to 4,007 bpd compared to 2,555 bpd, depicting massive growth of 59.6 percent over same period last year. This increase was mainly due to increase in oil production from Adhi and Tal fields during the period.
Moreover, gas production of the company was marginally increased by 1.5 percent to 919mmcfd against 905mmcfd during 9M07 due to increased gas production from Kandhkot, Adhi, Qadirpur, Sawan and Tal fields which had even offset the decline from Sui field.
Going forward, we expect PPL would post EPS of Rs27.18 in FY08 against EPS of Rs22.04 in corresponding period last year, resulting substantial growth of 23.31 percent YoY basis which would mainly be backed by increase in well head gas prices and increase in oil production of the company during current financial year.
Recommendation
The script is currently trading at the discount of 13.3 percent from our fair value of Rs297 and we maintain our buy stance at current levels.