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AKD Securities Limited – AKD Daily (August 04, 2022)

Karachi, August 04, 2022 (PPI-OT): Pakistan Oil and Gas: Macros play in E and Ps’ favour in 4QFY22; Super Tax dampens profits

AKD’s E and P Universe profitability is expected to tumble in 4QFY22, as growth in core profitability will likely be offset by higher taxation. The sector’s earnings before tax are expected to grow by 20.8%QoQ and 1.31xYoY, on the back of i) higher international crude prices, ii) PkR’s weakness against the USD, and iii) higher interest rates.

Profitability is expected to be subdued by higher taxation during the period, as 10% Super Tax on FY22 earnings would likely be charged in 4QFY22. AKD’s E and P Universe is expected to post an effective tax rate of 65%, compared to 33% in the earlier quarter.

Net sales of AKD’s E and P Universe are expected to show healthy growth of 15%QoQ and 69%YoY. OGDC/PPL/POL topline are expected to grow by 15.4%/14.4%/12.8%QoQ, with the effects of better macros being somewhat offset by lower production levels.

Higher interest rates, along with exchange gains, are expected to lead to an increase of 84%QoQ in AKD’s E and P Universe’s Other Income – further augmenting 4QFY22 earnings.

With an implementation plan for WACOG in the offing, receivable buildup for the sector is expected to lose steam, freeing up liquidity for exploration activities. We particularly like POL (TP: PkR 570/sh; upside potential: 41.3%), due to i) a relatively strong balance sheet (Receivables: 11% of Total Assets), and ii) dividend yield of 18%.