Karachi, September 20, 2022 (PPI-OT): PPL: High Exploration Expense Drain Earnings

Pakistan Petroleum Limited (PPL) reported its FY22 earnings earlier today, clocking in at PkR54.4bn for the full year (EPS: PkR20), higher by a mere 4%YoY. For 4QFY22, PPL reported earnings of PkR2.82bn (EPS: PkR1.04), lower by 80%YoY/86%QoQ. Alongside the earnings, the company announced a cash dividend of PkR0.50/sh, taking the full year payout to PkR2.00/sh, corresponding to a payout ratio of 10% for FY22.

The lackluster quarterly earnings were largely driven by higher-than-expected exploration expenses, which amounted to PkR14.13bn in the final quarter, compared to PkR1.64bn in the earlier quarter and PkR6.76bn reported in SPLY.

Further pressure to the company’s bottom line came in the form of high taxation, with Effective Tax Rate during the quarter coming in at 88%, in lieu of super tax. The company’s FY22 ETR stood at 45% .The Company charged PkR20.6bn in taxes during the final quarter, doubling YoY and 599% QoQ.

Revenues grew at a healthy 22%QoQ/70%YoY to PkR62.3bn for 4QFY22, driven by higher crude oil prices and a favourable exchange rate. This was further aided by the resumption of gas supply from Kandhkot, with PPIS data suggesting 157MMCFD of average supply from the field in 4QFY22, as compared to 77MMCFD in the earlier quarter.

Other Income for the quarter came in at PkR3.78bn, slightly lower than our expectations, likely driven by lower-than-expected exchange gains during the period. Other income increased by 21%QoQ/105%YoY.

We have a Buy rating on the stock, with a Jun’23 Target Price of PkR113/sh, which represents a 74% upside to the last close.