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OGDC & NML_ FY20 Result Previews, (AKD Daily, Sep 17, 2020)

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OGDC & NML_ FY20 Result Previews

• OGDC - Slow FY20 earnings as operations stumble: OGDC is slated to report FY20 NPAT of PkR102.3bn (EPS: PkR23.79/sh) marking a decline of 14%YoY with 4QFY19 earnings of PkR18.7bn (EPS:PkR4.34/sh) slipping 44%YoY/39%QoQ. Materially lower earnings are predominantly a factor of weak crude pricing dynamics (Arab Light prices down 61%YoY/45%QoQ to avg. ~US$26/bbl for 4QFY20). Additional factors lowering profitability include: 1) significantly hampered production (oil/gas production for 4QFY20 falling ~26/~22%YoY taking FY20 decline to ~11/~12%YoY), and 2) booking of one dry well (Dhok Hussain North-1) vs. two in SPLY (including offshore Kekra-1) reducing exploration expenses (down 41%YoY for 4QFY20). Energy sector supply chain hindrances continue to limit OGDC’s production levels, where offtake from power producers remains a major sticking point. Monetary easing has stifled income from debt instruments where we foresee other income slowing 46%YoY for 4QFY20 (down 12%YoY for FY20). Full year earnings are expected to carry an effective tax rate of 32.2% vs. 32.9% during FY19. We expect an accompanying final year payout of PkR3.25/sh taking full year cash payout to PkR7.5/sh marking payout ratio of 30% well below its 5yr average of 40%.
• NML- COVID-19 and lower other income to push earnings lower:  NML is scheduled to announce its 4QFY20 result tomorrow (Sep 18’20), where we expect the company to report net profit of PkR482mn (EPS: PkR1.37) vs. net profit of PkR1,722mn (EPS: PkR4.9) in 4QFY19.  The earnings decline is on account of i) short term revenue hit due to COVID-19 (-21%YoY), and ii) absence of dividend income from the power holdings and one-off exchange gain during the SPLY (other income down 75%YoY). Sequentially, earnings are expected to decline by 53%QoQ due to weak core earnings (PkR0.31 per sh in 4QFY20 vs. PkR0.67 per sh in 3QFY20) and lower portfolio income (-41%QoQ) due to absence of payouts from power portfolio. Cumulatively, the company’s earnings are expected to decline 42%YoY (PkR3,398mn(EPS: PkR9.66) vs. PkR5,859mn(EPS: PkR16.66) in FY19) on the back of weak core earnings courtesy poor core margins and COVID-19 (EPS: PkR2.94 vs. EPS: PkR6.47 in FY19) and lower payouts from the portfolio holdings and one-off exchange gains recorded in the SPLY. Accompanying result, we expect the company to announce a final dividend of PkR2.5 per sh.

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