Pakistan Oil & Gas | Overweight
BUY
Though we do not completely subscribe to the referred numbers, we
think that the company can easily ramp up its production from Mari field
to 700mmcfd, which averaged around 596/582mmcfd during
FY15/FY14, respectively. We re-iterate that if the company qualifies for
PP2012, incremental gas production will further augment the company’s
profitability going forward, which is already on an upward trajectory
owing to rising entitlement factor during the next four years.
It is also relevant to point out that additional gas production from Mari
field will also benefit the fertilizer plants on the Mari field. We flag EFERT
as the key beneficiary of this incremental production along with some
gas being diverted to FFC and Fatima. Assuming 60 mmcfd gas is given to
Efert from 2HCY16, we expect CY16/CY17 earnings to rise by at least
11%/32%.
 Application of Petroleum Policy 2012 on incremental gas production from
Mari to have massive EPS impact: As per the recent media reports, Managing
Director of Mari, Lt. Gen (r) Nadeem Ahmed has recently chaired meeting with the
Finance Minister of the country, Ishaq Dar, during which it was revealed that the
company intends to bring additional 200mmcfd of gas shortly in the system. The
MD also brought up the issue of the company’s application for conversion to 2012
Policy which would allow the company to bring on stream substantial new
production (around 100-150mmcfd) by end-2016. Though we believe that these
figures are somewhat over-the-top, the company can easily enhance its production
from Mari gas field to 700mmcfd with additional drilling of a couple of additional
development wells. The company has successfully completed 2 development wells
in the Mari D&P lease while drilling on the 3rd development well is presently
underway.
Stock Details
Stock pri ce
June-16 TP
Ups i de/downs i de
Va l ua ti on
PKR
PKR
%
PKR
516.0
639.6
24.0
639.6
PKR bn
USDm
USDm
%
m
56.9
0.6
625
20.0
110
- reserve based DCF
Ma rket ca p
3-month a vg turnover
Ma rket ca p
Free Fl oa t
Tota l s ha res
MARI vs KSE100 performance
MARI
140
KSE-100
120
100
80
Investment fundamentals
Year end 30 Jun
Net revenue
F Y 16 E
F Y 17 E
F Y 18 E
bn
20.0
25.2
32.7
Op profi t
bn
Op profi t Growth %
Recurri ng profi t bn
Reported profi t bn
7.6
-8.1%
5.4
5.4
10.2
34.4%
7.1
7.1
14.8
44.9%
10.2
10.2
EPS rep
EPS rep growth
48.9
(4.5)
64.7
32.2
92.3
42.6
5.31
5.38
5.47
10.5
1.0
3.8
8.9
40.7
5.6
8.0
1.0
2.8
12.2
40.3
3.9
5.6
1.1
2.0
15.6
41.4
2.4
%
Tota l DPS
PE rep
Tota l di v yi el d
Pri ce/book
ROA
ROE
EV/EBITDA
x
%
x
%
%
x
So urce: A lfalah Research, KSE, B lo o mberg
However, the additional production will only materialize if the company is able to
fetch prices according to PP 2012. Though we have not incorporated its impact, we
assert that 60mmcfd of additional gas (barely enough to breach the 10% additional
gas benchmark threshold) attracting PP2012, at oil prices of USD50/bbl, will result
in incremental EPS of PKR20/share (even if the incremental gas is subject to
entitlement factor) to the company. The company’s management, however,
reckons that incremental gas would sidestep the discount factor applicable on the
field, which would further amplify the earnings by another PKR12/share.
Oct-15
Though market remained somewhat skeptical about MARI’s plan to
enhance its gas production by at least 10% from Mari gas field and the
company’s likelihood of qualifying for PP2012 on its incremental gas
production, the recent news flow reinforces our view. As per the recent
news, Finance Minister Ishaq Dar held a meeting with MD of MARI, Lt
Gen (r) Nadeem Ahmed, during which the FM was apprised about the
company’s plan to add up to 200mmcfd gas per day to the system within
a couple of months. The MD also briefed about MARI’s application for
conversion to 2012 Policy which would allow the company to bring on
stream substantial new production (around 100-150mmcfd) by
end-2016.
Mari Petroleum Co. Ltd
Aug-15
Inching towards another game changing
trigger
07-December-2015 | Perspective
Jun-15
|
Apr-15
Reuters: MGAS.KA
Mar-15
Bloomberg: MARI PA
Dec-14
KSE: MARI
(all figures in P KR unless no ted)
Analyst
Hassan Raza
92 2135645090-5 EXT: 336
[email protected] m
Danish Ali Kazmi
[email protected] m
Perspective
Pakistan Oil & Gas
 Additional gas to benefit fertilizer plants, especially EFERT. It is also
relevant to point out that additional gas production from Mari field will also benefit
the fertilizer plants on the Mari field. We flag EFERT as the key beneficiary of this
incremental production along with some gas being diverted to FFC and Fatima.
Assuming 60 mmcfd gas is given to Efert from 2HCY16, we expect CY16/CY17
earnings to rise by at least 11%/32% under a similar cost structure as being given
for Guddu gas, while assuming the current lower urea prices of PKR1900/bag,
instead of the official 1,994/bag rate. Under the official urea prices, the earnings
impact for CY16/CY17 augments to 25%/50% compared to our base case.
EFERT EPS scenario
CY16
CY17
Base Case
9.80
11.00
Additional gas
12.30
16.40
Additional gas but lower urea price
10.80
14.50
*Additional 60mmcfd gas assumed to come online from 2HCY16
Recommendation
 We have further trimmed down our crude oil estimates following the OPEC
meeting. Revised Arab Light prices, incorporated in our models, stand at
USD44.6/50/55/60/65/70 per barrel for FY16/FY17/FY18/FY19/FY20/FY21. Despite
conservative oil prices, the scrip offers 22% upside to our revised June’16 target
price of PKR640/share. Though FY16E PE multiple seems a bit stretched, its
impressive earnings growth going forward together with near term triggers will in
our view help the stock outperform in the near term compared to its peers.
Key valuation methodology & triggers
 June-16 price target: PKR640/share based on blended Dividend Discount Model
and Reserve based Discounted Cash-flow Methodology.
 Key upside triggers: Incremental gas production attracting PP2012, production
addition from new finds, recovery in oil prices, and annulment of cap on dividends.
 Key downside triggers: Further decline in crude oil prices.
2
Perspective
Pakistan Oil & Gas
Analyst Certification
The research analyst(s) involved in the preparation of this report, certifies that (1) the views
expressed in this report accurately reflect his/her personal views about all of the subject
companies/securities and (2) no part of his/her compensation was, is or will be directly or indirectly
related to the specific recommendations or views expressed in this report. Furthermore, it is
stated that the research analyst or any of its close relatives do not have
a financial interest in the securities of the subject company aggregating more than 1% of
the value of the company. Additionally, the research analyst or its close relative
have neither served as a director/officer in the past 3years nor received any
compensation from the subject company in the past 12 months.
Disclaimer
The report has been prepared by Alfalah Securities (Pvt.) Ltd and is for information purpose only.
The information and opinions contained herein have been compiled or arrived at based upon
information obtained from sources, believed to be reliable and in good faith. Such information has
not been independently verified and representation expressed or implied is made as to its
accuracy, completeness or correctness. All such information and opinions are subject to change
without notice. Descriptions of any company or companies or their securities mentioned herein are
not intended to be complete and this document is not, and should not be construed as, an offer, or
solicitation of an offer, to buy or sell any securities or other financial instruments.
Research Dissemination Policy
Alfalah Securities (Pvt.) Ltd. endeavors to make all reasonable efforts to disseminate research to all
eligible clients in a timely manner through either physical or electronic distribution such as mail, fax
and/or email. Nevertheless, not all clients may receive the material at the same time.
Company Specific Disclosures
Alfalah Securities (Pvt.) Ltd. or any of its officers and directors does not have a significant financial
interest (above 1% of the value of the securities) of the subject company. However, BAFL and IFC,
being associates of Alfalah Securities (Pvt.) Ltd., may trade or have significant financial interest,
under normal course of business, in the subject company from time to time. Alfalah Securities
(Pvt.) Ltd. may, to the extent permissible by applicable law or regulation, use the above material,
conclusions, research or analysis in which they are based before the material is disseminated to
their customers. Alfalah Securities (Pvt.) Ltd., their respective directors, officers, representatives,
employees and/or related persons may have a long or short position in any of the securities or
other financial instruments mentioned or issuers described herein at any time and may make a
purchase and/or sale, or offer to make a purchase and/or sale of any such securities or other
financial instruments from time to time in the open market or otherwise. Alfalah Securities (Pvt.)
Ltd. may make markets in securities or other financial instruments described in this publication, in
securities of issuers described herein or in securities underlying or related to such securities.
Alfalah Securities (Pvt.) Ltd. may have recently underwritten/or in the process of underwriting the
securities of an issuer mentioned herein. Alfalah Securities (Pvt.) Ltd. may also have
provided/providing advisory services to the issuer mentioned herein.
Rating System
Alfalah Securities (Pvt.) Ltd. uses a 3-tier rating system i.e Buy, Hold and Sell, based on the level of
expected return. Time horizon is usually the annual financial reporting period of the company. A
Buy rating is assigned to any company when it intrinsic value (using different valuation models)
exceeds the prevailing price by 10%. A Sell rating is issued whenever capital return is less than -10%
and for return in between the 2 ranges, Hold rating is meted out. Ratings are updated on a daily
basis and can therefore change accordingly. They can change because of a move in the stock's
price, a change in the analyst's estimate of the stock's fair value, a change in the analyst's
assessment of a company's business risk, or a combination of any of these factors.
© Copyright 2015, Alfalah Securities (Pvt.) Ltd. All rights reserved. This report or any portion
hereof may not be reproduced, distributed, published or sent to a third party without prior
consent of Alfalah Securities (Pvt.) Ltd.
3