June 15, 2012 (JS Research)
We fine tune our FY12 earnings estimate for POL to Rs51.5/share (Rs52.7/share previously), as we provisionally expect the company to post 4Q EPS of Rs12.03 (down 10%QoQ). On the other hand, we raise our FY13 earnings forecast by 12.5% to Rs64.1/share on the back of production additions from Makori East-2 (ME-2). We reiterate POL as our top pick in the E&P space, which offers a highly impressive dividend yield of 13.2% for FY13F. We expect an anticipated cash payout of Rs27.5 along with the FY12 result to act as a near term trigger for the stock.
PKR fall to somewhat mitigate lower oil prices
We provisionally expect POL to post EPS of Rs12.03 in 4Q (down 10%QoQ). The major reason for the decline in profitability is lower Arab Light crude oil prices by 7%QoQ. However, PKR depreciation by an average of ~2%QoQ is likely to somewhat mitigate the impact of lower oil prices. As a result, we fine tune our FY12 earnings estimate to Rs51.5/share (Rs52.7 previously).
FY13 earnings estimates raised by 12.5% on ME-2
We raise our FY13 earnings forecast by 12.5% to Rs64.1/share on the back of expected production additions from ME-2 (~4,900bpd of oil and 17.3mmcfd of gas) from October 2012. On the contrary, we cut our production estimates from Domial and Pindori to 200bpd and 500bpd.
Underperforms the market due to fall in oil prices
The stock has underperformed the market by ~12% in last 3 months predominantly due to sharp fall in international oil prices. However we highlight that our Arab Light crude oil assumption for FY13 stands at US$95/bbl for FY13, which is lower than the current spot rate of US$96.24/bbl. Hence, from that perspective the concerns have been slightly overplayed, in our view.
Dividend Yield stands at 13.2% for FY13
POL offers a highly impressive dividend yield of 13.2% for FY13 (21% for next 18 months). Further, we expect the company to announce a final cash dividend of Rs27.5/share in addition to its interim dividend of Rs17.5. Looking forward, production commencement from ME-1 and ME-2 and drilling results from Sadrial should provide further impetus to the stock price performance. The stock trades at an FY13F PE of 5.6x (discount of 19% vs. its 5 year average multiple of 6.9x) and offers a potential upside of 19% to our target price of Rs445.
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Also in focus
Foreign exchange reserves decline by US$119mn
Pakistan’s foreign exchange reserves have declined by US$119mn to US$15.417bn. Reserves held by the State Bank of Pakistan (SBP) fell to US$11.117bn while reserves held by the commercial banks rose slightly to US$4.3bn.
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