Sui Northern Gas Pipeline (SNGP) held its analyst briefing today, during which management discussed financial performance and the outlook. Management plans to install 300,000 RLNG connections in FY25 and 600,000 connections annually thereafter. They noted that the average cost of RLNG is 30% lower than that of LPG, and that RLNG is more convenient and safer. As a result, the market response has been strong, with 50,000 RLNG connections already provided within 1.5–2 months, according to a report from Topline Pakistan Research.
Regarding RLNG diversion, management stated that two RLNG cargoes will be diverted each month and that they expect an improvement in forced curtailment from local E&P fields.
Regarding the UFG benchmark, management said the distribution benchmark for UFG is 6.25%. In addition, OGRA sets key monitoring indicators (KMIs), covering 31 factors, including theft and leakage. Based on the company’s performance against these indicators, OGRA allowed a 1.22% factor for the last year.
Management said that OGRA’s latest decision on REER allows 75% of working capital financing costs for RLNG, up from 50% in previous years. However, in the last FRR, OGRA approved almost all costs except Rs2bn. Following the change in the REER decision, management is confident that this cost will be fully allowed in next year’s FRR.
The company’s overall UFG increased to 5.27% in FY25 vs. 4.93% in FY24, primarily due to a reduction in gas input by the power sector and captive power plants by 65 BCF. If this sales reduction had not occurred, UFG would have been 4.73%. To highlight, UFG volume remained at 30,026 MMCF in FY25 vs. 31,319 MMCF in FY24.
The company’s profitability decreased to Rs14.6bn (EPS: Rs23.01) in FY25 from Rs19.0bn (EPS: Rs29.92) in FY24, mainly due to a reduction in the Return on Assets (ROA) as the regulated return fell from 26.22% to 21.25% following a decline in interest rates.
Management noted that their payout has decreased temporarily due to the circular debt situation; however, with the resolution of circular debt, they expect the payout ratio to improve. KPMG has been hired as a consultant to resolve circular debt, and serious efforts are being made.
Regarding changes to their asset-based model, management stated that OGRA has been working on revising the rate of return (ROA). In its previous ROA decision, OGRA indicated that a revision would occur at some point, and it is now exercising this option. They believe there will be no change to the fixed-based regime, and that it will continue as is.
The company’s mega project includes injecting 45 MMCFD of gas from the Palak gas project, with an estimated CAPEX of Rs 28 bn. Another project is the Augmentation of Network in Rawalpindi and Islamabad, with a cost of Rs 27 bn.
We maintain our BUY stance on SNGPL. The company is currently trading at an FY26E PE of 6.4x
