Karachi, February 02, 2023 (PPI-OT): BAFL and POL: Result Previews

BAFL – 4QCY22 earnings to clock in at PkR3.08/sh: BAFL is scheduled to release its CY22 earnings later today, wherein we expect the bank to post earnings of PkR19.6bn or PkR11.0/sh for the full year, higher by 38%YoY. For the final quarter of the year, we expect BAFL to report earnings of PkR5.5bn (EPS: PkR3.1), largely flat compared to the earlier quarter, however higher by 47% compared to the SPLY. 4QCY22 earnings are expected to be dampened by NIMs contraction (4QCY22E: 4.3% vs. 4.8% in 3QCY22), as a result of the 100bps interest rate hike in the Nov’22 MPC. Net mark-up income for the bank is expected to drop by a mere 5%QoQ to PkR20.8bn in the final quarter. Non-interest income is estimated at PkR5.4bn, lower by 17%QoQ, due to the absence of hefty FX income recorded in the previous quarter.

To note, the bank posted FX income of PkR3.5bn in 3QCY22, when the PkR had depreciated by ~11% over the quarter. In comparison, the interbank rate has remained largely flat in 4QCY22, down by a mere 1.5%. We estimate some respite to come from lower provisions in the final quarter, down by 37%QoQ, while 1.88x compared to the SPLY, as a result of the high base established in the earlier quarter. To note, the bank recorded provisions of PkR4.1bn (PkR2.3/sh) in 3QCY22, as the bank took a specific provision as a result of classifying certain parties in Non-Performing category. Alongside the earnings, we estimate the bank to pay out ~PkR2.5/sh in dividends during the quarter, which would take the full-year payout to PkR5/sh, or 45% of earnings. We have a “Buy” call on the stock, with a Dec’24 TP of PkR41.15/sh, offering an upside potential of 37% from the last close.

POL – 1HFY23 earnings expected at PkR53.3/sh: Pakistan Oilfields Limited (POL)’s board of directors are scheduled to meet sometime in mid-Feb to approve 1HFY23 results where we expect the company to post earnings of PkR15.12bn (EPS: PkR53.3) during the period, depicting a growth of 38%YoY. The growth in earnings is largely price driven, majorly due to increasing crude prices, up by ~28%YoY (vs. 1HFY22 average) alongside of ~31%YoY depreciation in PkR (vs. 1HFY22 average). Oil production on the other hand has fallen by ~11%YoY during 1HFY23 amid significant declines in blocks including Tal ((Down) 9%YoY), Adhi ((Down) 16%YoY) and Pindori ((Down) 32%YoY) during the period. For 2QFY23 alone, the profitability is expected to settle at PkR6.78bn (EPS: PkR24.0), down by 19%QoQ, compared to PkR8.3bn (EPS: PkR29.4) in the previous quarter. Here too the decline in profitability is production driven, as production in the Tal Block remained hampered (Makori East) due to maintenance works at SNGPL pipeline during the quarter.

Furthermore, we expect company to incur meagre exploration expenses of PkR384mn for the quarter. To recall, the company posted PkR4.35bn in dry well costs during the 1QFY23, on account of DGK-1 (DG Khan Block), taking total exploration expenses to PkR4.53bn for the period. Finally, given its immunity from circular debt, the company is expected to announce half year cash dividend of PkR45/sh. We have a buy call on the scrip with a TP of PkR600/sh alongside dividend yield of ~21% for the full year FY23.