Oil & Gas Development Co. (OGDC) has posted 1QFY20 NPAT of PKR27.3bn (EPS PKR6.35), up 2% yoy but down 17% qoq. The result is slightly better than our EPS estimate of PKR6.27. The announced payout of PKR2.5/sh is also in line with expectations.

Key deviation from our expectation is lower exploration expenses but that is offset by much lower-than-expected other income (lack of Fx gains).

Key Highlights for 1QFY20:

§ Net Sales of PKR66.2bn is close to our estimate of PKR67.5bn, where key highlights were lower gas revenue (because of lower well-head gas prices) and flattish oil revenue (courtesy PKR depreciation and despite decline in Nashpa’s production amid annual turnaround and 8% qoq lower oil prices). We estimated oil, gas and LPG production of 37,700bpd, 1,004mmcfd and 750tpd, respectively.

§ Exploration expenses came in lower than expected, where we had estimated the combined cost of onshore wells in Nashpa and Khewari blocks to equal the cost of off-shore well Kekra in the previous quarter.

§ Other income of PKR2.8bn, down 80% qoq and 31% yoy, is because of lack of exchange gains (some Fx losses are possible due to recent PKR appreciation).

Much of the earnings growth in this result is owed to recent PKR depreciation (ignoring exploration expenses), with the downtrend in production is likely to be worse in 2Q as low refinery utilization levels and LNG oversupply could escalate in winter. We have a Buy stance on OGDC with a TP of PKR180/sh (43% potential upside). The stock is trading at very cheap valuations of EV/EBITDA of only 1.6x, and it stands out also because of 10% forward dividend yield (shielded by low sensitivity to oil prices). (Courtesy:  Intermarket Securities Limited.)