Morning Call about Sui Northern Gas Pipelines Limited – Arif Habib Limited
Karachi: UFG losses; anchoring down the profitability
Rising trend in the Unaccounted for Gas (UFG) continues to be a major drag on the profitability of Sui Northern Gas Pipelines Limited (SNGP).
According to Arif Habib Limited, its net income contracted from PKR 461mn (EPS: PKR 0.84) in 1QFY11 to PKR 168mn (EPS: PKR 0.31) in 1QFY12, a decline of 64% YoY. UFG losses jumped to 11.55% in 1QFY12, which were hovering around 10.7% in the same period last year. SNGP’s 1Q financial statements are prepared on Oil and Gas Regulatory Authority’s (OGRA) revised parameters under which UFG benchmark is assumed at 7% and late payment surcharge was treated as non operating income.
At yesterday’s closing price of PKR 16.94/share, the scrip has an upside potential of 24.6% to Arif Habib Limited’s Jun 2012 target price of PKR 21.10/share. Thus Arif Habib Limited recommends Buy.
Lowering Capex is putting a lid on earnings growth
During the period company incurred a Capex of PKR 923mn, which remained 64% lower as compared to PKR 2.54bn in the corresponding period last year. Company’s returns are determined at 17.5% of the net fixed assets, which are effected by a 64% YoY drop in Capex.
Arif Habib Limited believes that this decline is attributed to circular debt issue, which has started to hurt gas utilities too as the financial charges have increased by 6.5% YoY to PKR 767mn. On the other hand due to low pressure and shortage of gas, company’s sales recorded a decline of 0.39% to reach 144,946 MMCF as against of 145,507 MMCF in same period last year.
|Financial Highlights (PKR mn)||1QFY12||1QFY11||%Chg.|
|Cost of Gas||47,814||45,377||5%|
|Other Operating Income||1,521||1,692||-10%|
|Other Operating Expenses||40||63||-36%|
|Profit Before Tax||258||709||-64%|
|Profit After Tax||168||461||-64%|
|Source: AHL Research|
27% YoY increase in UFG losses
The extent of UFG losses remains a matter of concern for the management as the company is facing difficulty in achieving efficiency target set by OGRA. Despite assuming 7% UFG benchmark for FY12, UFG losses increased by 27% YoY to PKR 2,177mn in 1QFY12 as compared to PKR 1,712mn in 1QFY11.
Moreover, gas shortage has lead to curtailment of gas supplies to bulk customers in favor of the domestic and other consumers where gas theft is typically higher. Company has recently deployed a UFG reduction program in order to achieve the efficiency.