JS Securities Limited – JS Research (24 May 2023)

Karachi, May 24, 2023 (PPI-OT): MARI: Growth trajectory intact but receivables build up gathering pace

From 18 blocks to 33 blocks in two years, MARI maintains its aggressive growth strategy reaffirming our view on the stock as one of our top picks. Trading at FY23 P/E of 3.8x, we believe MARI is trading at attractive levels. This is in addition to stable double-digit D/Y.

We however flag the company's growing exposure to the circular debt, which albeit lower than E and P giants is gathering pace of accumulation. MARI's receivables from SNGP have increased from Rs30/share to Rs151/share in 9MFY23, simultaneously increasing contribution to total receivables from 12% to 44%.

MARI’s gas production crosses 850mmcfd

Mari Petroleum Company Ltd (MARI) held its Corporate Briefing session today, sharing current developments and outlook. The company continues on a growth trajectory and has taken the total number of its blocks to 33. Out of the total, almost half have been acquired in the last two years. With regards to Bannu West Block (now Waziristan Block), where security situation and flash floods delayed progress at the block, the company has announced efforts underway to install an Early Production Facilities (EPF) at Shewa-1 well - at the Waziristan Block. A contract has also been signed with Orient Petroleum Inc for gas supply from the same. In addition, MARI is also working with Sui Northern Gas Pipelines (SNGP) for a timely competition of gas pipeline.

Regarding Sachal Gas Processing Complex (SGPC), MARI has completed Phase II, leading to 100mmcfd gas supply from the same to SNGP. With these developments, the company has achieved new production record of 117,010 Barrels of oil equivalent per day (BOE/day), where gas production reached 876 mmcfd. This was despite unplanned shutdowns announced by the fertilizer sector during Mar-2023, and higher RLNG supply in the system lowering SNGP demand from MARI.

3Q results affirm our stance

We reiterate MARI as one of our top picks with a capital upside of almost 70%, in addition to D/Y at 13%. Trading at FY23 P/E of 3.8x, we believe MARI is among the best picks from the sector as a growth play, as trigger of growth in gas volumes are intact with longer life. In addition, limited exposure to circular debt when compared to peers, also plays as an advantage to the stock with expectations of stable double-digit D/Y. All factors reflect room for the market cap to price in future growth.

The company reported robust 3QFY23 earnings at Rs123.16/share, up 51%/47% YoY/QoQ, respectively, over higher sales and better pricing. Bottom-line also received support from hefty Other Income, which saw a jump of 6x/4x YoY/QoQ, respectively. This took 9MFY23 earnings to Rs302.03/share, up 47% YoY. The company has so far announced a dividend of Rs89/share during 9MFY23.

On the balance sheet front, receivables increased to Rs45bn, out of which 44% of receivables pertain to SNGP. Receivables from SNGP amount to Rs151/share. Increasing contribution of receivables from SNGP is a risk we flag as the same was only 12% at FY22-end (Rs30/share). Sector exposure to circular debt is also one of the challenges the management has highlighted.