MORNING BRIEFING

February 24, 2011

Pakistan Market
E&P: POL & PPL upgraded to ‘Buy’ KSE100 Index: Closing 11,523.42 ↓ (125.96)
JS Research

In the wake of recent fall in respective stock prices, Domial-2 well is also in progress whereas testing on Domail-1 Pakistan Petroleum Limited
healthy 1HFY11 results, active exploration potential is likely post procurement of completion equipment.
Market Price: Kats Code:
and recent hike in oil prices, we are upgrading our Rs196.82 PPL
PPL also is currently drilling two appraisal wells in Nashpa Bloomberg Code:
recommendation from ‘Hold’ to ‘Buy’ on PPL and Market Cap:
block and is likely to commence drilling of another exploratory Rs235.2bn (US$2.8bn) PPL PA
POL. Based on our target price of Rs240 and Rs364, Reuters Code:
well in Hala from next month. Moreover, it has also planned to 1-yrs Avg. Daily Volum e:
the two stocks offer potential upside of 21% and 1.0mn shares, Rs203.7mn (US$2.4mn) PPL.KA
drill a well in Chachar field, likely to commence during
25%, respectively. 1-ye ar High/Low:
4QFY11. Rs227.75/170.26
Strong earnings recorded in 1HFY11
Oil price rally hints earnings upgrade potential
POL reported earnings of Rs5.2bn (EPS Rs21.99) for
Global oil prices have been on the consistent rise on the back
1HFY11, an increase of 57%YoY. The growth in earnings was
mainly attributed to new hydrocarbon flows from Manzalai and
of global economic recovery. To add to it, the recent Middle-
Also in focus
East turmoil has further added fuel as the Arab Light crude
Bela which pushed company’s oil and gas production to
prices have surpassed US$100 per level (currently trading at Cellular subs reach 102.8mn in Dec 2010
9,032bpd (up 18%) and 171mmcfd (up 85%), respectively.
US$103 per barrel). The average Arab Light price since July Total cellular subscribers in the country reached 102.8mn by
Other income too was up 22%YoY, led by dividend income
2010 to date is currently hovering around US$82 per barrel, Dec 2010, rising by 3.6mn in 1HFY11. As per the data,
from its group companies. Moreover, a 48% decline in
slightly exceeding our FY11 assumption of US$80 per barrel. Mobilink remains in pole position with 31.8mn subscribers
exploration cost in the absence of any drywell write offs
Although, we are keeping our oil price assumption intact, (down 1.5% in 1H), followed by Telenor (up 3.8% to 24.7mn)
further strengthened the company’s bottom line.
however an upward revision of US$1 in our oil price and then Ufone (up 3.7% to 20.3mn). Warid and Zong follow,
PPL too reported an impressive earnings growth of 70%YoY assumption would raise our E&P sector earnings estimates by with net additions of 586K and 1.8mn subscribers to reach
in 1HFY11 with net profit of Rs16.6bn (EPS: Rs13.9). This 0.5%, provided everything else constant. 17.5mn and 8.5mn subscribers, respectively. Resultantly,
was predominantly because of a 48%YoY rise in the
Recommendation: Upgraded to ‘Buy’ cellular teledensity has risen to 61.7% by Dec 2010, up from
company’s top line primarily led by higher oil (up 70%YoY) 60.4% in Jun 2010.
With current stock prices suggesting upside potential of 21%
and gas (up 5%YoY) production contributed by Manzlai, Hala
and 25% for PPL and POL, respectively, we now upgrade our
and Nashpa fields. Other income also witnessed an up-tick
stance to ‘Buy’ for the two with respective target prices of
and settled at Rs1.9bn versus Rs1.3bn reported in 1HFY10.
Rs240 and Rs364 per share.
In addition to the new production flows, 9% higher Arab Light
prices and an upward revision in gas wellhead prices also
umer.ayaz@js.com JS Global Capital Limited
92 (21) 111-574-111 (ext. 3103) 6th Floor, Faysal House, Main Shahrah-e-Faisal, Karachi
contributed to the profit growth of the two companies.
Research: Equity Sales:
Further news flow likely on production front Tel: +92 (21) 32799005 Tel: +92 (21) 32799513
Pakistan Oilfields Limited
Both PPL and POL remain direct beneficiaries of two recent Fax: +92 (21) 32800163 Fax: +92 (21) 32800166
discoveries at Makori East and Tolanj in Tal where they hold Market Price: Kats Code: js.research@js.com junaid.iqbal@js.com
Rs290.16 POL
post discovery stakes of 28% and 21%, respectively. The Market Cap: Bloomberg Code: Fixed Income Sales: Corporate Finance:
drilling is still in progress at Tolanj where the operator expects Rs68.6bn (US$803 .4mn) POL PA Tel: +92 (21) 32799541-44 Tel: +92 (21) 32799571
1-yrs Avg. Daily Volum e: Reuters Code:
improved flows once the well reaches its target depth. Fax: +92 (21) 32800165 Fax: +92 (21) 32800164
1.6mn shares, Rs420.6mn (US$4.9mn) PKOL.KA
1-ye ar High/Low: tariq.usman@js.com sajid.farooqi@js.com
POL is further drilling an exploratory well at Chak Naurang Rs338.40/210.39 JS RESEARCH IS AVAILABLE ON BLOOMBERG, CAPITALIQ &
drilling location at Ratana block has been finalized. Drilling on
THOMSON REUTERS

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