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Pakistan E&P - Digging for quality; we prefer OGDC

• We initiate coverage on Pakistan E&Ps with a Marketweight stance. OGDC is our only Buy as it is a superior proxy to the emerging prospects in the space. We are Neutral on PPL  but we rate POL as Sell because it is trading at an implied oil price of over US$75/bbl.
• Our earnings CAGR over FY17-19F is 20-34%, where significant jump in oil production in FY17/18F and conversion of gas prices will be complemented by rising oil prices. Exploration potential is vastly untapped but times are changing, and OGDC’s greater aggression on that end makes it our preferred pick in the space.
• On valuations, Pak E&Ps are no longer attractively valued against peers in APAC, notwithstanding the former’s superior profitability, in our view. OGDC is trading at an unfair discount of 32%/29% to local/regional peers; historically, it has traded at 18% higher EV/EBITDA than presently