Pakistan Oilfields Ltd – Higher opex/taxation drags 1Q earnings

1QFY11 EPS lagged estimates: POL 1QFY11 earnings at PKR2.2bn (EPS: PKR9.44), though up 57% YoY, trailed our estimates by 10% (7% below market expectations). 1QFY11 earnings were up 21% on QoQ basis.

Higher operating costs/taxation behind lower than expected earnings: Operating cost jumped 22% QoQ and 79% YoY, as against our expectation of no QoQ change. Tax rate clocked in at 27% (FY10 tax rate: 22.5%) against our estimated 23%, which accounted for 50% of the variance from estimates. Exploration cost beat estimates while lower other income also contributed to lower than expected bottom line.

Maintain full year earnings estimate, raising DPS forecast; BUY: 1QFY11 opex and taxation forms 28%/26% of our respective full year estimates for FY11. We have revised our FY11E DPS to PKR31, raising FY11E payout ratio to 75%. POL offers an upside of 32% to our June-2011 Price Target of PKR320/share and offers an attractive FY11 dividend yield of 12.8%. BUY!

Higher operating costs/taxation behind lower than expected earnings

Operating cost jumped 22% QoQ and 79% YoY in 1QFY11, beating estimates by 22%. The impact of higher operating expenditures (PKR244mn) was partly offset by a positive sales variance (PKR192mn), thus indicating higher opex could well be due to higher than expected POLGAS cylinder refills with purchased LPG. Furthermore, despite a mere 6 line km in seismic during 1QFY11, exploration expenditure clocked in at PKR105mn, 2x our estimates, whereas other income was down 8% QoQ.  Tax rate clocked in at 27% (FY10 tax rate: 22.5%) against our estimated 23% which accounted for 50% of the variance from estimates.

Maintain full year earnings estimate, raise DPS forecast; BUY

While 1QFY11 opex and taxation forms 28%/26% of our respective full year estimates for FY11, we shall review our estimates once detailed accounts are available. We already factor in exploration cost at a conservative PKR1.76bn for FY11. We have increased our FY11E DPS to PKR31, reflecting payout ratio of 75%, after reviewing annual accounts. We highlight that POL would likely enjoy limelight in the near term as it holds stakes in five exploratory wells, four of which are nearing completion, where successes could be strong rerating triggers. POL offers an upside of 32% to our June-2011 Price Target of PKR320/share and offers an attractive FY11 dividend yield of 12.8%. BUY!

Economic & Political News

POL prices hiked up to PKR7.11/litre

Oil & Gas Regulatory Authority (Ogra), the price of petrol has been increased by PKR5.97 per litre, HOBC PKR7.11 per litre, High Speed Diesel (HSD) PKR4.51 per litre, Light Diesel Oil (LDO) PKR4.27 per litre, kerosene oil PKR5.15 per litre, JP-1 (local) PKR4.61 per litre, JP-4 PKR5.29 per litre and JP-8 PKR4.61 per litre. After the increase, the new prices of petrol stand at PKR72.96, HOBC PKR86.67, HS PKR78.33, LDO PKR66.61, Kerosene PKR70.95, JP-1 (local) PKR60.26, JP-4 PKR57.45 and JP-8 PKR59.96.

Power tariff may go up from November 1

The government may increase electricity tariff from November 1 to bridge the gap between generation cost and recovery, it is learnt. Sources said the amount on account of tariff differential during last three months from July to September 2010 has reached PKR57bn against PKR30bn allocated in the budget for the outgoing fiscal year. There is a proposal that 2% tariff be passed on to consumers every month to minimise the gap. An amount of PKR20bn per month was being added because of tariff differential between 20% to 25% on account of production cost and recovery that would have an accumulated impact of PKR220bn to PKR230bn on the budget for the outgoing fiscal year if the gap was not reduced.
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