▪ Pakistan Petroleum Limited (PPL) reported its 3QFY20 earnings earlier today, reporting Profit after Tax (PAT) of PKR 14,151 MN (EPS: PKR 5.20/sh), higher than our expectation of PKR 4.85/sh. The company’s bottomline grew by 40% Q/Q, 2.8% Y/Y.
▪ For the 9MFY20 period, the company reported earnings of PKR 38,595 MN or PKR 14.18/sh, lower by 12% Y/Y. The 9MFY20 earnings were dragged down by the PKR 11 BN exploration expense booked by the company in 2QFY20.
▪ As expected, the company did not announce a cash dividend alongside its 9MFY20 earnings.
▪ Revenues of the company were lower by 6% Q/Q, while higher by 1% Y/Y coming in at PKR 40,911 MN for the quarter. These were largely in line with our expectations of PKR 41,503 MN for the three-month period.
▪ To recall, the company produced ~14,739 BPD of crude oil during the quarter and ~773 MMCFD of gas.
▪ The variance between our expectations and actuals was largely driven by lower-than-anticipated exploration expenses during the quarter, coming in at PKR 2,540 MN for the quarter. Exploration expenses were down by 76%Q/Q and 49% Y/Y.
▪ Furthermore, a boost was provided to the company’s bottomline during the quarter with a 5% Q/Q increase in Other Income, which we believe was driven by higher-than-anticipated exchange gains (PKR weakened 7% over the course of the quarter).
▪ However, a dampener on earnings was the higher effective tax rate (3QFY20: 33% vs. 2QFY20: 25%; 3QFY19: 25%).
▪ PPL is currently trading at 3.72x its FY21 projected earnings, and FY21 P/B of 0.55x. We have an “Outpefrom” rating on the stock with a TP of PKR 153/sh, representing an upside of 98% from current levels.
