Morning Call about Net earnings posted a spectacular growth of 45% YoY – Arif Habib Limited

Karachi: Pakistan Oilfields Limited (POL) posted net earnings of PKR 10.82bn (EPS: PKR 45.72) in FY11, recording a spectacular growth of 45%, when compared with PAT of PKR 7.44bn (EPS: PKR 31.44) in FY10.

According to Arif Habib Limited, this stupendous rise in the profitability was driven by surge in oil and gas production. Along with the results, the company announced a final cash dividend of PKR 25/share, exceeding market expectations. This is in addition to an interim cash dividend of PKR 10/share, taking full year’s payout to PKR 35/share.


Financial Highlights 4QFY11A 3QFY11A QoQ  FY11A FY10A  YoY
(PKR mn)  
Net Sales 6,800 6,575 3% 24,951 17,845 40%
Operating Costs 1,421 1,386 3% 5,538 4,082 36%
Royalty 623 635 -2% 2,310 1,596 45%
Exploration Costs 152 623 -76% 1,075 1,606 -33%
Other Income 404 375 8% 1,809 1,377 31%
Profit before tax 4,158 3,642 14% 14,950  9,591 56%
Taxation 1,181 1,004 18% 4,135 2,154 92%
Profit after taxation 2,977 2,638  13% 10,815 7,437 45%
Earnings per share (PKR) 12.59 11.15 45.72 31.44    



Top line jumped by 40% YoY in FY11

Net revenues increased by 40% YoY to PKR 24.9bn compared to PKR 17.8bn recorded in the same period last year. The growth in top line came on the back of higher oil and gas production of 12% YoY and 39% YoY, respectively coupled with 25% YoY hike in crude oil prices. The surge in production was primarily driven by incremental production from Manzalai and Makori.

Exploration cost remained on the lower side in FY11

In FY11 exploration cost contracted by 33% YoY to PKR 1,075mn with only one well expensed out of four at a cost of PKR 350mn. The other three wells which, POL discovered during the period were (Domail, Makori East and Tolanj. Currently, only one exploratory well, Chak Naurang where POL has a stake of 20% is under drilling status, thus downside risk going forward is limited even if this well is declared unsuccessful.

Other income rises by 31% YoY in FY11

An increase of 31% YoY in other income to PKR 1.81bn was recorded in FY11, compared to PKR 1.37bn observed in corresponding period last year. This rise was on account of higher dividend income from associates (NRL and APL) to PKR 547mn. Dividend income contributed PKR 2.10/share on before tax basis in company’s net earnings.

Production accretion to drive double digit earnings growth in FY12

In FY12 the company is all set to record a double digit earnings growth of 19% YoY to PKR 54.53/share stemming from higher oil and gas production. Production additions form newly find wells (Makori East and Tolanj X-1) support Arif Habib’s hydrocarbon accretion expectations. In addition to stellar earnings upside in FY12, expected dividend payout of ~PKR 35/share, further strengthens Arif Habib’s reasoning for investors to go long in the stock.

At current price level, the stock is offering an upside potential of 11% to Arif Habib’s Dec’11 target price of PKR 405/share. Thus Arif Habib Limited recommends a BUY, implying a TR of 21.3%. Further, the scrip is trading at a prospective PER of 6.2x based on Arif Habib’s FY12E earnings estimates.

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