Sui Northern Gas Pipelines Limited (SNGP) announced its FY18 financial result on Monday, posted a profit after tax (PAT) of PKR 11,121mn (EPS: PKR 17.54), depicting a jump of 29% YoY as compared to a bottom-line of PKR 8,614mn (EPS: PKR 13.58) during SPLY.
The company also disclosed its 1QFY19 result, whereby profitability displayed a growth of 35% YoY to PKR 2,596mn (EPS: PKR 4.09) vis-à-vis PKR 1,919mn (EPS: PKR 3.03) in SPLY.
Alongside this, the board announced a final cash dividend of PKR 5.55/share (FY18: 7.05) and an interim dividend of PKR 1.5/share in 1QFY19. Gas sales of the company improved by 40% YoY in FY18 given 5% uptick in natural gas volumes (as per DERR FY18) tagged with volumetric growth of RLNG (imports went up by 68% YoY) and higher RLNG prices due to higher oil prices and USD appreciation. Similar reasons were observed in 1QFY19.
Finance costs of the company escalated to PKR 10,806mn in FY18, up by 102% YoY led by continuous rise in differential margin (receivable from the Government under the provisions of license for transmission and distribution of natural gas granted to the Company by OGRA) to PKR 57bn amid improvement in capex and hence, revenue requirement of the company.
As a result, SNGP relied on increased borrowing to meet working capital requirements. Whereas in 1QFY19, although the quantum of differential margin relaxed to PKR 2,185mn attributable to increase in consumer gas prices, finance costs took off by 152% to PKR 4,592mn owed to hike in interest rate by the SBP.
Operating profit of the company witnessed a growth of 55% in FY18 led by greater capital expenditure undertaken (majorly to spread the distribution network as OGRA had allowed the company to improve domestic offtake by 16% in the DERR FY18) which offset the impact of higher UFG (we estimate full year average at over 9MFY18 average of 10.80% vs. 8.07% in FY17) together with improvement in rental & service charges and surcharge & interest on arrears. While in 4QFY18, operating profit growth appears inflated (+297% YoY) given the company booked a one-off impact of prior years’ (FY13-FY17) UFG adjustment at 7.6% as opposed to the benchmark 4.5%; total impact on SNGP arrives at PKR 1.1bn (EPS: PKR 1.25). In addition, we believe the company made adjustment for a higher UFG allowance in the last quarter in-line with achievement of Key Monitoring Indicators (KMIs) as opposed to the first three quarters where flexible rate of 2.5% is only allowed up to 50% (i.e.: 1.3%).
During 1QFY19, operating profit exhibited a robust jump of 86%; augmenting capital expenditure cushioned the impact of UFG (we project UFG in the quarter at 11.50% vs. 10.98% in SPLY). The company booked effective taxation during FY18 / 1QFY19 at 28% / 31% (FY17: 31% / 1QFY18: 30%). Analysts also highlight that auditors of the company (A.F. Ferguson & Co. Chartered Accountants) have issued a qualified opinion on the FY18 accounts, as SNGP has recognized disputed revenue of PKR 17bn.
The matter has been referred for arbitration to an expert. Albeit, any decision, in favour of or against the company will not impact bottom-line as that remains dependent on a return-based formula.