OGDC, FFC and UBL Earnings Preview

OGDC to post EPS of PKR3.75 in 1QFY11: OGDC’s board meeting for announcement of 1QFY11 results is scheduled today. We expect the company to post profit after tax of PKR16.1bn (EPS: PKR3.75), up 34% YoY. We also expect OGDC to announce dividend of PKR1.5/share with 1QFY11 results. YoY growth in earnings is expected on the back of 18% YoY growth in realized prices, coupled with likely recognition of prior period revenues from Bobi (PKR3.9bn).

FFC – 9MCY10 PAT to increase 11% YoY; 3QCY10 DPS: PKR3.50/share: FFC is expected to announce its 9MCY10 financial result on October 27, 2010, where the company is expected to post a PAT of PKR7,400mn (EPS: PKR10.91), up 11% on YoY basis. However, 3QCY10 PAT is estimated at PKR2,299mn (EPS: PKR3.39), down 3% QoQ. We also expect a third interim cash dividend of PKR3.50/share, taking its aggregate payout to PKR11/share during 9MCY10.

UBL’s bottom-line to be up by 30% YoY during 9MCY10: UBL’s board meeting is scheduled on October 27, 2010 to announce 9MCY10 results. For 9MCY10, we expect bank’s net earnings to grow by 30% YoY with a PAT of PKR8.3bn (EPS: PKR6.77). For 3QCY10 our earnings estimates for the bank stand at PKR3.1bn (EPS: PKR2.52), up 28% QoQ. Better liability management coupled with lower provisioning charge will likely be key earnings drivers during 9-month period.

OGDC to post EPS of PKR3.75 in 1QFY11

OGDC will likely post profit after tax of PKR16.1bn (EPS: PKR3.75) in 1QFY11, up 34% YoY, with growth primarily fueled by 18% YoY growth in realized prices, coupled with likely recognition of PKR3.9bn in prior period revenues from Bobi (2HFY07 to 2HFY10 – EPS PKR0.53) due torecently notified wellhead prices by OGRA for the field. Barring the impact of Bobi wellhead prices notification, 1QFY11 EPS would likely have been PKR3.22, up 15% YoY. Volumes would likely show a disappointing performance in 1QFY11, with oil production down by 6.9% YoY and gas production to fall by 2.5% YoY. On QoQ basis, volume decline would likely be smaller with gas down 1.1% QoQ while oil shall be up 0.1% QoQ. Further support to bottom line shall come from 28% YoY growth in other income due to higher cash balances during 1QFY11, whereas tripling of exploration cost on YoY basis due to higher dry well expense would be the major dampener.

At yesterday’s closing, OGDC trades at FY11E PER of 9.72x, dividend yield of 6.7%, and offers downside of 18% to our June-2011 PT of PKR125/share. SELL!

FFC – 9MCY10 PAT to be up 11% YoY; 3QCY10 DPS: PKR3.50/share

Despite more than two-fold increase in ‘other income’ (DPS of PKR1.3 received from FFBL during 3QCY10 as against PKR0.50 last year) 3QCY10 PAT is estimated to decrease by 3% QoQ to PKR2,299mn (EPS: PKR3.39) primarily due to 19% QoQ decline in sales revenue to PKR8,492mn. However, on YoY basis net earnings are expected to increase to PKR7,400mn (EPS: PKR10.91) during 9MCY10, up 11% YoY.

This increase in earnings will most likely stem from 1) strong gross margins at 45%, 2) 11% YoY decline in finance cost and 3) 8% YoY increase in ‘other income’ (PKR4.05/share dividend received from FFBL during 9MCY10). We also expect the company to announce third interim cash dividend of PKR3.50/share, taking its cumulative payout to PKR11/share during the 9-month period.

At last closing price of PKR109/share, FFC offers an upside potential of 13% to our June-2011 PT of PKR123/share, trading at an attractive CY11E P/E multiple of 7.5x and offers CY11E dividend yield of 13%. Hence, we recommend risk-averse investors to BUY!

UBL’s bottom-line to be up by 30% YoY during 9MCY10

United Bank Limited (UBL) is expected to post buoyant earnings of PKR3.1bn (EPS: PKR2.52) during 3QCY10, up 28% QoQ, mainly on the back of 3% YoY decline in overall provisions, in addition to 14% QoQ decrease in the taxation charge. During 2QCY10 bank’s effective tax rate stood at 44%, owing to PKR400mn extra tax due to disallowance of provisions’ deduction from taxable income. This will take aggregate net profit for 9MCY10 to PKR8.3bn (EPS: PKR6.77), up by 30% YoY. 36% YoY expected decline in provisioning expense along

with controlled cost of funds (interest expense likely to fall by 17% YoY) due to management’s main focus towards increasing share of CASA in total deposit mix is expected to drive the bottom-line growth. Non-interest income, on the other hand, is expected to remain depressed, with 10% YoY decline, primarily due to shrinkage in equities and FX gains in addition to decrease in derivatives’ income.

At yesterday’s closing of PKR55.3/share, the scrip is trading at CY10E P/E and P/BV of 6.1x and 0.9x respectively and offers upside potential of 18% to our Jun-2011 PT of PKR65/share. BUY

Oil prices may be increased by PKR5/ litre

The government is expected to increase oil prices by nearly PKR5/litre from November 1, 2010, in line with the hike in global oil prices, “Global oil prices are posing rising impact in domestic oil prices by PKR4-5 per litre which will be passed on to the consumers from November 1, 2010,” sources said.
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