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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.
Net Sales 48,531 46,190 21%
Cost of Gas  47,814  45,377 5%
Gross Profit 717 813  -12%
Other Operating Income 1,521 1,692 -10%
Selling Cost  631  496  27%
Administrative Expenses 542 517 5%
Other Operating Expenses 40 63  -36%
Operating Profit 1,025 1,429 -28%
Finance Cost 767  719 7%
Profit Before Tax 258 709  -64%
Taxation 90 248 -64%
Profit After Tax 168 461 -64%
EPS 0.31 0.84 -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.

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