OGDC – Downgrade to Neutral on strong price performance

Stellar 1QFY12 EPS led to a strong rally; downgraded to Neutral: OGDCL’s 1QFY12 EPS at PKR5.1, up 31% YoY, was ahead of market estimates due to sharp rise in other income and lower exploration costs. The scrip has risen 16.5% since result announcement, against 5.1% appreciation in KSE-100 index. With OGDCL now trading 3% higher than our Jun-12 PT of PKR150/share, we downgrade our rating to Neutral.

Stellar 1QFY12 EPS driven by strong other income: OGDCL posted highest ever quarterly other income during 1QFY12, on the back of highest ever cash balances and exchange gain. We remain conservative on our other income forecast for the remainder FY12 as 1QFY12 other income forms 31% of our full year estimates.

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Lower than normal exploration cost: 1QFY12 exploration cost was down 74% YoY due to absence of any dry wells in 1QFY12. Our estimates factor in higher exploration costs for the subsequent quarters as 1QFY12 exploration cost forms a mere 8% of our full year estimates.

Development projects pushed back further: OGDCL has extended the timelines of most of the development projects by 2-3 months. However, KPD-TAY phase I has been completed on time and is ready to supply 100 mmcfd gas and 1,000 bpd oil, and is awaiting completion of gas pipelines on SSGC’s end. Gas sale from the KPD-TAY phase I is expected to commence in Dec-11.

EPS revision: Incorporating 1QFY12 results, we have fine tuned our EPS estimates, leading to negligible changes in our FY12-13 EPS forecasts, while we cut our FY14 EPS estimate by 4% due to further three month delay in KPD-TAY phase II.

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Stellar 1QFY12 EPS led to a strong rally; downgraded to Neutral

OGDCL’s 1QFY12 EPS at PKR5.1, up 31% YoY, was ahead of market estimates due to sharp rise in other income and lower exploration costs. 1QFY12 EPS forms 27% of our full year estimates. The company also announced a DPS of PKR1.5 with 1Q results. The scrip posted a strong price performance, rising 16.5% since result announcement, against 5.1% appreciation in KSE-100. With OGDCL now trading 3% higher than our Jun-12 PT of PKR150/share, we downgrade our rating to Neutral.

Net sales up 13% YoY on higher oil revenues

Net sales for OGDCL rose 13% YoY mainly on the back of 41% YoY growth in oil revenues while gas revenues edged up only marginally by 4%. Growth in oil revenues was driven by higher Arab Light prices, which averaged USD109/bbl in 1QFY12, 49% higher than USD74/bbl during 1QFY11. As a result, net oil wellhead for OGDCL rose from USD60/bbl in 1QFY11 to USD83/bbl in 1QFY12. Oil production during 1QFY12 was almost unchanged on YoY basis.

Stellar 1QFY12 EPS driven by strong other income

OGDCL posted highest ever quarterly other income during 1QFY12 at PKR2.3bn, on the back of highest ever cash balances and exchange gain. We remain conservative on our other income forecast for the remainder FY12 as 1QFY12 other income forms 31% of our full year estimates. Cash holdings increased by PKR3.1bn during 1QFY12 to PKR58.7bn. While receivables rose by PKR15.3bn during the quarter, it was partly offset by PKR9.0bn rise in payables due to increase in outstanding tax payments. Net cash flows from operations stood at PKR15.3bn during 1QFY12.

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Lower than normal exploration cost

1QFY12 exploration cost was down 74% YoY due to absence of any dry wells in 1QFY12. Seismic acquisition also fell from 4QFY11 levels to 376line km of 2D seismic and 191 sq km of 3D seismic, though seismic acquisition was higher on YoY basis. Our estimates factor in higher exploration costs for the subsequent quarters as 1QFY12 exploration cost forms a mere 8% of our full year estimates.

Development projects pushed back further

OGDCL has extended the timelines of most of the development projects by 2-3 months. Sinjhoro phase-1 is now expected to be completed by Jun-12 (previous April-12), KPD-TAY phase II by Dec-13 (previous Sep-13) and Dakhni Expansion by Feb-12 (previous Dec-11). However, KPD-TAY has been completed on time and is ready to supply 100 mmcfd gas and 1,000 bpd oil, and is awaiting completion of gas pipelines on SSGC’s end. Gas sale from the KPD-TAY phase I is expected to commence in Dec-11.

Economic & Political News

Exports fall 2.2% in Oct-11

According to TDAP, Oct-11 exports clocked in at USD1.90bn, down 2.2% YoY while imports were recorded at USD3.61bn, up 12.9% YoY. Trade deficit was registered at USD1.71bn for 1QFY12. For 4MFY12 exports increased 13% YoY to USD7.9bn, while imports grew by 17% YoY to USD14.3bn. 4MFY12 trade deficit reached USD6.4bn

FX reserves decline

FX reserves declined to USD17.03bn during the week ending Nov 4, from the previous week’s level of USD17.15bn. Reserves held by SBP fell by USD34mn to USD13.3bn while commercial banks held USD3.75bn, USD29mn lower than last week.
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