Friday, 17 February 2017

OGDC half yearly profit declines by 12 percent

Pakistan’s largest exploration and production (E&P) company, Oil & Gas Development Company Limited (OGDC) has announced its half yearly (1HFY17) financial results. The Board of Directors also approved payment of one Rupee per share interim dividend. Both the financial results and dividend payout are below expectations.
OGDC has posted net profit of R15.38 billion (EPS: Rs3.58), down 4%YoY while up 5%QoQ. The earnings are lower than with major deviation coming from lower topline, higher operating expenses and exploration costs partially compensated by lower effective tax rate. While the 1HFY17 earnings are down 12%YoY to Rs30.01 billion (EPS: Rs6.98) owing to lower realized gas prices (result of lagged oil price linkage). The earnings are expected to increase onwards due to improvement in realized gas prices and significant addition in flows from KPD-TAY, Sinjhoro and TAL Block.
The major takeaways are:  1) Topline remained flat on quarterly basis at Rs41.52 billion, however, it improved by 5%QoQ owing to improved oil production and higher oil price, 2) operating expenses increased to Rs15.28 billion in 2QFY17, 3) exploration expense increased 33%YoY due to relative differential in dry wells’ expenses, 4) though other income was relatively flat at Rs4.25 billion and 5) tax expenses declined by 27% to Rs4.29 billion due to lower effective tax rate.
OGDC: Income Statement






(Rs million)
2QFY17
2QFY16
YoY
1HFY17
1HFY16
YoY
Net Sales
41,516
41,673
0.0%
81,081
86,186
-6.0%
Royalty
-4,521
-4,680
-3.0%
-8,828
-9,694
-9.0%
Operating expenses
-15,277
-13,934
10.0%
-28,356
-26,568
7.0%
Transportation charges
-426
-401
6.0%
-836
-869
-4.0%
Gross profit
21,291
22,659
-6.0%
43,061
49,055
-12.0%
Other Income
4,248
4,305
-1.0%
9,309
8,295
12.0%
Share of profit
369
246
50.0%
922
615
50.0%
Exploration expense
-3,868
-2,906
33.0%
-8,189
-4,713
74.0%
Admin expense
-925
-897
3.0%
-1,653
-1,812
-9.0%
Finance cost
-412
-408
1.0%
-815
-833
-2.0%
WPPF
-1,035
-1,150
-10.0%
-2,132
-2530.32
-16.0%
PBT
19,668
21,848
-10.0%
40,503
48,076
-16.0%
Tax
-4,291
-5,902
-27.0%
-10,494
-13,870
-24.0%
NPAT
15,377
15,946
-4.0%
30,008
34,206
-12.0%
EPS
3.58
3.71
-4.0%
6.98
7.95
-12.0%
DPS
1.0
1.2
-17.0%
2.5
2.7
-7.0%
ETR
-22.0%
-27.0%
-
-26.0%
-29.0%
-



Tuesday, 14 February 2017

US war mongers flaring Sunni-Shia conflict

I really don’t know how many readers of this post will agree with me, but I consider it my ardent duty to keep on reminding the readers that US is the biggest war monger on this planet. Its sole purpose of creating conflicts and/or initiating wars is to sell armaments, US is the largest arms supplier that include both conventional and non-conventional.
At the recent elections it was hoped that newly elected US president will try to pull its troops posted in many countries. However, now It seems people were hoping against hopes as President Donald Trump is also surrounded by war mongers. His thinking is being influenced to the extent that it is becoming evident that soon the world may see opening up of US-China, US-Russia, Saudi-Iran and India-Pakistan fronts.
Some of the readers may wonder how the US could open so many fronts. Since World War II, it is evident that the US has been fighting proxy wars. However, over the last five decades it has become evident that it is ‘war of crusades’, all the fronts have been opened against Muslims. This includes Iraq attacking Iran, US attacking Iraq, Afghanistan and Syria. All these are proxy wars.
Ironically this time the US is planning to initiate war between two oil rich Muslim countries Saudi Arabia and Iran in the name of Sunni-Shia conflict. The US has already installed is touts and the hype is being created has some of the glimpses:
  • The US has imposed new sanctions on Iran on the pretext that Iran remains both a major source of terrorism and a threat to the US interests.
  • President Donald Trump has declared his intention of crushing the Islamic State (IS).
  • The US strategy in Iraq prior to the 2007 was to oppose both Shia and Sunni factions but both have drawn strength from outside Iraq – the Sunnis from Saudi Arabia and the Shia from Iran.
  • The US considers the Iranian-supported Shia as the greater threat and tried to counterbalance them by reaching a financial and political understanding with the Sunni leadership.
  • IS has emerged as the champion of the Sunni Arab population.
  • The US has remained powerless in crafting the Iraq it wanted.
  • After 15 years of ineffective fighting the US must accept its defeat in the region, withdraw its troops and allow the region to evolve as it will.
  • The US could face an increasingly powerful Sunni world and even more powerful Shia Iran.
  • The US-led forces have failed in isolating therefore it has to be engaged in some form of military action, possibly directed at its nuclear program.
  • The US does not have a military force large enough to wage war at Iran.
  • The U.S. has limited forces, reluctant or discordant allies, and cannot win a war. Since the Islamic world is deeply divided along religious and ethnic lines. The option is allying with one faction to defeat the other.
  • It is being portrayed that Sunnis are weaker than the Iranians. But there are far more Sunnis, they cover a vast swath of ground and they are far more energized. Iran may be more powerful but Sunnis are more ruthless.
  • Some factions even go to the extent of saying that a US-Iran alignment may be more probable because they are the convenient option as they hate and fear the Sunnis.
I am of the opinion that the US cannot afford simultaneous conflicts with Sunnis and Shia, Arabs and Persians. Therefore, it is likely to opt for time tested strategy ‘divide and rule’. Muslims should be ready to face further fragmentation. If they (Muslims) want to survive they have to stand united despite being Sunni or Shia.






Saturday, 11 February 2017

Pakistan stock market witnesses 12 percent increase in daily trading volume


Exhibiting signs of investor weariness and mixed responses to earnings releases, the benchmark index of Pakistan Exchange (PSX) closed the week ended 10th February 2017 at 49,925 points. Market participants’ response to earnings announcements swayed greatly, with investors continuing to favor higher payouts over earnings growth, and corporate action, particularly in cements kept the sector in the limelight. Average traded volumes rose to 414 million shares, up 12%WoW. Key news flows were: 1) PSMC launched imported luxury sedan Suzuki Ciaz at competitive price, 2) International Steel Limited (ISL) stated in a filing that the National Tariff Commission (NTC) has decided to impose definitive anti dumping duties on galvanized steel coils/sheets for a period of five years, 3) PSO's receivables from different enterprises, particularly power companies, have swelled to Rs277 billion, and 4) As per State bank of Pakistan foreign exchange reserves of the country declined by US$413 million to US$22.03 billion by 3rd February and the external sector faces increased pressure as its trade deficit widened by 29%YoY to US$17.4 billion during 7MFY17 due to paltry exports and double digit growth in imports. Top performers at the bourse were: LOTCHEM, NBP, ASTL, NML, whereas laggards were: PTC, HUBC, AGTL and ABL. Volume leaders for the week were LOTCHEM, KEL, POWER and TRG. Oil is set to grab the spotlight in the coming week, where crude benchmarks are beginning to inch upwards on positive reviews of the OPEC and nonOPEC output freeze. Results will remain the center of gravity, where companies reporting in the coming week include AGTL, HBL, FCCL, MLCF, DGKC, UBL, ENGRO and OGDC.
Commencing this week, commercial banks are scheduled to declare their CY16F/4QCY16F results. The first was MCB (8th Feb), followed by ABL (9th Feb) HBL (15th Feb). As a group, the Big6 banks are likely to post cumulative profit after tax of Rs127.5 billion for CY16 as compared to Rs129.7 billion for CY15, a decline of 2%YoY. Topline growth is likely to be constrained on account of lower yield on earning assets amid ongoing PIB substitution and lower banking spreads (4QCY16 spreads lower by 26bps YoY). However, improvement in credit quality has restricted the earnings decline with provisioning charges for the Big6 down by a sizable 81%YoY for CY16. That said, revaluation surplus likely to improve by a significant Rs176 billion, where higher utilization of the same can cause earnings expectations to deviate particularly in case of banks like MCB, NBP and ABL that have sizeable equity portfolios in addition to the bonds portfolio. While CY16 results are expected to remain flattish, price performance should remain hinged upon the following: 1) higher than expected payouts, 2) earlier than expected monetary tightening, 3) formal inclusion into MSCI EM with HBL, UBL and MCB likely to make it to the list.
Latest APCMA data showed that cement dispatches during January'17 remained relatively flat at around 3 million tons, while it fell 12.86%MoM due to heavy rainfall/snowfall impacting local construction activity (domestic demand, a decline of 14.56%MoM to 2.722 million tons in January'17). Exports also remained subdued during the month and declined by 2.71%YoY/+1.85%MoM) due to rising fuel prices/other input costs and import/antidumping duties making it more difficult for Pakistan's exported cement to compete against the indigenous cement. Greater intensity of seasonal effect has slowed down the cumulative domestic demand growth was 9.52% in 7MFY17 as compared to 15.66% in 7MFY16. Though, analysts expect exports growth to remain flat due to prevalence of aforementioned issues, they also believe that domestic demand growth will likely resume double digits growth as construction activity is expected to pick pace due to relatively greater proportion of PSDP releases in second half of fiscal year and record level growth in private sector credit related to construction activity, up 25.25%YoY.
Two of the largest IPPs of Pakistan HUBC and KAPCO are also scheduled to announce their half yearly financial results. HUBC is anticipated to post profit after tax of Rs5.25 billion for 1HFY17 (down marginally) on the back of muted generation, Pak Rupee remaining firm against greenback and picking up of RFO prices. Expensing of higher O&M charges, inflated admin expenses and investment in associate related expenses are expected to taper profitability, while the higher receivables burden is expected to raise financial costs. KAPCO is forecast to post 1HFY17 net profit of Rs4.67 billion up 8%YoY, from lower generation, slight improvements in generation on gas and below the line expenses remaining in check. Devoid of major movement on the expansion front (financial close of CPHGC, TEL, KAPCO Energy) IPPs are expected to remain in the sidelines, for the time being.


Wednesday, 8 February 2017

Engro fertilizers posts 40 percent decline in profit fir CY16

Engro Fertilizers Limited (EFERT) has posted profit after tax of Rs9.02 billion (EPS: Rs6.78) for CY16 as against net profit of Rs15.03 billion (EPS: Rs11.30) for CY15, a massive decline of 40%YoY. The results were anticipated but decline is more than expected. Despite the decline in profit the Board of Directors has approved distribution of final dividend of Rs2.50/share, taking the full year payout to Rs7/share. The major takeaways are: 1) topline declined to Rs69.51 billion from Rs85.00 billion, a fall of 18 percent, 2) reduction in urea prices (down 9%YoY) due to depressed farm economics and low international price trends (down 28%YoY) to an average of US$213/ton during the year under review, 3) there was a 32%YoY decrease in finance cost on account of swift deleveraging and low interest rate environment, 4) other income increased to Rs8.13 billion for CY16 from Rs4.31 billion a year ago, an increase of 88 percent.



Monday, 6 February 2017

Pakistan State Oil Company disappoints shareholders

Pakistan’s largest oil marketing company, Pakistan State Oil Company Limited (PSO) has disappointed its shareholders by not announce any interim dividend at the time of release of its financial results for July-December 2016 period. This comes as a shock as PSO has posted an EPS of Rs36.86 as compared to an EPS of Rs24.75 for the corresponding period of 2015. This raises apprehensions that the Company suffers from serious liquidity crunch, circular debt being the most notorious.
The suspicion gets credence because PSO is the largest energy supplier to power generation companies as well as the state owned enterprises. The other apprehend is that if crude oil prices continue upward trend, it may yield substantial inventory gains but maintaining high profitability  would not be possible without asking the government to raise POL prices substantially.
Net sales of the company for the period under review increased to Rs411 billion from Rs353 billion, posting an increase of 16 percent. Further impetus was provided by 20 percent increase in Other Income and 21 percent reduction in financial charges. As a result profit after tax for six months period increased by 49 percent to Rs10.015 billion, from Rs6.726 billion.







Saturday, 4 February 2017

US oil producers gulping Saudi share

I am a novice and have hardly any competency to trade on the dynamics of oil trade, It is a business controlled by seven sisters and price is determined by super powers by crating geopolitical crisis.
As regards to containing oil glut I posted two blogs: 1) US shale producers to gulp Saudi market share of oil and 2) Curtailing oil production ‘an agreement of thugs to rip off consumers’. Both of my points have got credence by persistent increase in oil prices and number of active rigs in the US and further impetus has been provided by the intentions of US President for imposing fresh sanctions on Iran.
According to a Reuters report US companies added oil rigs for a 13th week in the last 14, extending a nine-month recovery. They are taking advantage of crude prices that have held mostly above US$50 a barrel since OPEC agreed to cut supplies in November 2016.
Drillers added 17 oil rigs in the week ended on 3rd February taking the total count up to 583, the most since October 2015, energy services firm Baker Hughes Inc said on Friday. During the same week a year ago, there were 467 active oil rigs.
Since crude prices first topped $50 a barrel in May, after recovering from 13-year lows last February 2016, drillers have added a total of 267 oil rigs in 32 of the past 36 weeks, the biggest recovery in rigs since a global oil glut crushed the market in mid 2014.
Analysts expect the US energy firms to boost spending on drilling and pump more oil and natural gas from shale fields in coming years now that energy prices are projected to keep climbing.
According to Reuters report quoting analysts at Simmons & Co, energy specialists at US investment bank Piper Jaffray, this week forecast the total oil and gas rig count would average 795 in 2017, 911 in 2018 and 1,022 in 2019. Most wells produce both oil and gas.
Analysts at U.S. financial services firm Cowen & Co said in a note this week that its capital expenditure tracking showed 31 exploration and production (E&P) companies planned to increase spending by an average of 36 percent in 2017 over 2016. That spending increase in 2017 followed an estimated 45 percent decline in 2016 and a 37 percent decline in 2015, Cowen said according to the 65 E&P companies it tracks.
In such a scenario US-Saudi alliance wants export of Iran to come down, by making it a target once again accusing it of any violation, real or part of any diabolic thinking, miles away from the ground realities. If anyone disagrees with me should refer back to three decades of impositions of economic sanctions on Iran and attack on Iraq for having weapon of mass destruction.


Friday, 3 February 2017

Pakistan Stock Exchange witnesses 30 percent decline in daily traded volume

The benchmark index of Pakistan Stock Exchange (PSX) once again failed in crossing 50,000 barrier but managed to close at 49,556, ending its last 10-week bullish run. This slow down could be attributed to rumors of action by SECP against brokers that were warned recently over compliance issues primarily related to financing. Activity at the bourse tapered almost 30%WoW with average daily traded volume declining to slightly less than 370 million shares. The volume leaders were: KEL, TRG, DSL, LOTCHEM and ASL. Key news flows during the week included: 1) GoP initiated the process for sale of its 18.39% shareholding in MARI at 7.5% discount to the closing market price of MPCL shares of 27th January this year of Rs1,402.9/share, 2) Sindh Bank Limited and Summit Bank begun due diligence process for merger, 3) Cabinet Committee on Privatization (CCoP) deferred the divestment of GoP's 5% stake in OGDC on the stock exchange until its share price touches Rs200/share, 4) SBP sold Rs589.7 billion worth of papers at the MTB auction held on 1st February, where cut off yields on 3, 6 and 12 months increased and 5) GoP raised prices of petroleum products. Performance leaders for the week were: LOTCHEM, PSO, EPCL, ENGRO and MTL; while laggards included: APL, FFBL, INDU, MCB and FATIMA. Foreign participation continued its negative trend with US$15.31 million outflows compared to US$13.67 million a week ago. Going forward, the market is likely to take its direction from the ongoing results season where strong earnings growth by Banks, Cements and Autos is likely to provide impetus to market performance. Major results announcement next week includes MCB, ABL, PRL, PTC, CHCC, LOTCHEM and EPCL.  
Engro Fertilizer (EFERT) is scheduled to announce its CY16 financial results on Wednesday 8th February. Analysts expect the Company to profit after tax of Rs10.79 billion (EPS: Rs8.11) for CY16 as compared to net profit of Rs15.03 billion (EPS: Rs11.29) for CY15, a fall of 28%YoY. The decline in earnings is expected on the back of: 1) gross margin (GM) sliding to 33.2% (including subsidy) on account of reduction in urea prices (down 9%YoY) due to depressed farm economics and low international price down 28%YoY to an average US$213/ton during the year under review, 2) 73%YoY decline in other income on account of reduction on term deposits and 3) 28%YoY decrease in finance cost on account of swift  deleveraging and low interest rate environment. However sequentially, analysts expect an increase of 79%QoQ in profit to Rs5.13 billion (EPS: Rs3.86) for 4QCY16 on the back of 61%QoQ growth in topline to Rs30 billion due to the increase in urea/imported DAP offatke to 630,000/292,000 tons due to Rabi season. Along with the result analysts expect a cash dividend of Rs2.50/share that could take full year payout to Rs6.9/share.
Pakistan’s largest oil marketing company, Pakistan State Oil (PSO) is scheduled to announce its 1HFY17 result on 6th February where analysts expect it to post earnings of Rs9.67 billion (EPS: Rs35.61) marking an increase of 44%YoY led by 1) inventory gains of Rs1.2 billion (Rs4.42/share) as against inventory losses of Rs0.91 billion (Rs3.39/share) for 1HFY16, and 2) a 20%YoY growth in overall volumes.
A rather smaller company, HASCOL is also scheduled to announce CY16 earnings of Rs1.31 billion (EPS: Rs10.84) up 15%YoY, where the normalization of taxes is likely to erode profitability significantly. Staggered rise in global oil prices and increase in HSD/Mogas retail prices, with a 13% fall in additional levies translate into higher prescribed price pass through (increasing 6.5%). On quarterly basis, 4QCY16 earnings are expected to grow by 6%YoY to Rs404 million led by 46%YoY growth in total volumes. Full year earnings are likely to be accompanied by a final dividend of Rs3.00/share that could take full year payout to Rs6.5/share.