JS Securities Limited - JS Research (June 24, 2022)

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JS Securities Limited – JS Research (June 24, 2022)

June 24, 2022

Karachi, June 24, 2022 (PPI-OT): MARI: Triggers intact with attractive D/Y

The company recently announced a sizable discovery in the Bannu West Block that may add 7% (~Rs23/share) to our base case projections. However, the management apprised in its Corporate Briefing Session held today that the commissioning of the flows is subject to connection to the national grid, which SNGP expects to be completed during FY23.

The company has commissioned Sachal Gas Processing Complex (SGPC) during 3QFY22, connecting to SNGP’s network at a hybrid-based pricing mechanism.

Better profitability takes dividend yield expectations to 12%

We reiterate Mari Petroleum Company Ltd (MARI) as one of our top picks with a capital upside of more than 40%, in addition to D/Y at 12%. Trading at FY23 P/E of 5.2x, MARI offers the best exposure to the current E and P space of Pakistan, being relatively shielded from circular debt as most of its hydrocarbon sales are made to associates and private companies. As per latest results, the company has reported 3QFY22 earnings at Rs81.63/share, up 57%/46% YoY/QoQ, respectively, over higher sales and better pricing. This has taken 9MFY22 earnings to Rs205.84/share, up 18% YoY. The company has so far announced a dividend of Rs62/share during 9MFY22.

Bannu West discovery to add 7% to our base case

After being awarded four new exploration blocks in the bidding round in FY21, the company has been awarded five new blocks in FY22, and is currently an equal partner in Offshore Block-8 in Abu Dhabi with OGDC, PPL and GHPL. The capex committed for Abu Dhabi exploration is so far US$300mn.

During the period under review, the company also announced a discovery in the Bannu West Block in North Waziristan, with a size of 25mmcfd Gas flow and 300bpd Oil flow. While we expect the addition to result in annual incremental earnings of close to 7% (~Rs23/share) to our base case, the management apprised in its Corporate Briefing Session held today that the commissioning of the flows is subject to connection to the national grid. As per Sui Northern Gas Pipelines Limited’s (SNGP) latest notice, construction of the relevant pipeline is expected to be completed by FY23.

SGPC commissioned with hybrid pricing

The company’s Sachal Gas Processing Complex (SGPC – previously GTH project, Goru-B, Tipu and HRL) commissioned during 3QFY22, connecting to SNGP’s network. The management apprised that pricing of the same will be on a Hybrid-based mechanism where the first 20mmcfd will be priced at the base price, with incremental gas flows being priced as per the Petroleum Exploration and Production Policy 2012 (PP-2012) pricing. We expect the second phase CoD in 4QFY22 and last phase in 1QFY23; adding 150mmcfd to the national grid under an investment plan of US$250mn.