Karachi, October 27, 2022 (PPI-OT): PPL, HUBC, PSO and NML: Result Previews

PPL – Earnings expected at PkR8.90/sh: Pakistan Petroleum Limited (PPL) is scheduled to hold its Board Meeting later today, wherein we expect the company to post NPAT of PkR24.2bn (EPS: PkR8.89), higher by 7.6x QoQ and 43%YoY. The company’s topline is expected to come in at PkR66.5bn, higher by 7%QoQ or 53%YoY, driven by a weaker PkR, offsetting the lower average crude oil prices (down 22%QoQ) that affects ~12% of the company’s total production. The phenomenal sequential growth in the company’s bottomline is majorly attributable to the absence of any substantial dry well during the quarter. To recall, the company posted PkR11bn in dry well costs in 4QFY22, on account of Khipro East X-1 and Pandrani X-1, taking the exploration expenses to PkR14.1bn for the period. We expect the company the incur exploration expenses of PkR2.9bn for the quarter. Furthermore, 4QFY22 earnings were depressed due to higher tax rate in the previous quarter on account of Super Tax, which translated into an effective tax rate of 88% for the quarter, which would be missing in this period. Additionally, we estimate for the company to post Other Income of PkR7.3bn (Pre-tax PkR2.67/sh), compared to PkR3.9bn in 4QFY22, on account of the currency depreciation.

HUBC – 1QFY23 earnings to clock in at PkR7.1/sh: We expect The HUB Power Company Limited (HUBC) to post NPAT of PkR9.3bn (EPS: PkR7.) in the first quarter of FY23, up 25%YoY/32%QoQ compared to PkR7.4bn (EPS: PkR5.7) in SPLY and PkR7.0bn (EPS: PkR5.4) in 4QFY22. We expect the company to post a revenue of PkR30.3bn (+15%YoY/-6%QoQ) owing to lower generation from the Hub plant compared to the last quarter, while generation from the Narowal and Laraib plants remained flat. Due to this, gross margins have risen to 32%, as the inefficiency of the Hub plant has a lesser impact on profitability this quarter. CPHGC and SECMC are expected to contribute PkR3.1bn to the earnings of HUBC in the quarter, down 28%QoQ owing to the CPHGC plant generating 56% less this quarter as the plant remained cash-strapped owing to circular debt and hence being unable to import coal. We do not expect the company to announce another dividend as it has recently announced an interim dividend of PkR15.5/sh earlier this month.

PSO – PAT to clock in at PkR2.9bn (EPS: PkR6.21) in its 1QFY23 result: Pakistan State Oil (PSO) is expected to announce its 1QFY23 result later today, where we expect the company to post PAT of PkR2.9bn (EPS: PkR6.21), down by 76%YoY/86%QoQ. Like most players in the sectors, PSO is also expected to deal with substantial losses on the back of falling ex-refinery prices, majorly due to declining international gasoline/gasoil prices, which are down by 43%/27% from their respective peaks in mid-June’22. We expect the company to record inventory losses of ~PkR5.9bn (PkR12.3/sh) for 1QFY23, subsequently resulting in gross margins for the quarter to end at 1.40%. On the topline front, company’s revenue is expected to clock in at PkR867bn, changing by +89%YoY/-4%QoQ, as total offtakes for the quarter declined by 32% QoQ. Declining sales volumes for the company are correlated with an overall economic slowdown, as depicted by falling LSM index (July’22: below 16.4%MoM), auto-sales (below 53%QoQ), power generation (-1%QoQ) and the ever rising inflation (Avg. 1QFY23 CPI: 25.1%YoY). Finally, we expect the topline from LNG segment to clock in at PkR225bn, up 7%/113% QoQ/YoY, majorly on the back of rising LNG prices globally (energy crunch in Europe/Asia) coupled with increased volumes (new LNG deal with Qatar @ 10.2% slope, signed last year). PSO’s average DES price for the quarter stood at US$13.43/mmbtu, up 3%/22% on a QoQ/YoY basis.

NML – Earnings expected at PkR3.71/sh for 1QFY23: We expect Nishat Mills Limited (NML) to post earnings of PkR1.3bn for the quarter, translating into EPS of PkR3.71/sh, lower by 60%YoY and 4% higher than the earlier quarter. We estimate revenues for the quarter to clock in at PkR36.8bn, higher by 17% compared to the earlier quarter. We expect the topline to be driven by the weakness in the PkR (65% of NML’s FY22 revenues were from export proceeds). However, we expect higher power and fuel costs along with higher cotton prices have to slightly contract gross margins for the period. We expect the company to post Gross Profit of PkR4.0bn (Gross margins: 1QFY23: 10.8%; 4QFY22: 11.5%; 1QFY22: 19.5%). Furthermore, we estimate Finance costs to be higher by about 20% compared to the earlier quarter, clocking in at PkR838mn, driven by our expectation of enhanced working capital requirement during the period, which would lead to increased short-term borrowing requirements. Some respite for the quarter will come from lower tax rate, on account of the absence of Super Tax in this quarter. We estimate an effective tax rate of 16% for the quarter.