We preview Kapco's 2QFY12 results (scheduled to be announced on February 15, 2012) and expect the company to report net profit of PKR1,380mn (EPS PKR1.57, down 24% YoY), gross profit of PKR2,663mn (up 4% YoY) and top line of PKR25,596mn (up 85% YoY). We also expect the company to announce cash dividend of PKR3/share. Target Price and Price catalyst ·          June-12 price target: PKR50.5/share on account of DDM based methodology. ·          Catalyst: Rupee devaluation and resolution of circular debt. (Source: Foundation Securities)

finan c ial valu a tions of P SO i s fut i le… Pakistan’s biggest petroleum handle r , Pakistan State Oil ( P S O ) is on the verge of financial collapse since its o u t standi n g dues from various ‘ e ner g y sector’ e ntities has reach e d to the extent of Rs 1 80 b n (whi c h is highest in 4‐y e ars). It seems t hat no bailing out is for t h c o ming from m i nistry of finan c e (M o F). A c tual cash flows o f t he entity have gone n e gative due t o incidence of more short term loans t o keep the dai l y operations afloat. It is imperative that the calculation o f DCF value o f such an entity may be a futile exercise and thus ta n t a mount to mislead investors. Liabiliti e s swe l ling… Wh e n PS O is not receiving du e p a yments, it is hard for the i r treasury to a r range paym e nts for r efineries. Ri g ht now PS O has t o p a y R s 1 7 2 b n of man y companies th a t also include international pri n cip...

KAPCO’s topline grew by a massive 120 percent in the first quarter of current fiscal year 2008-09 in year-on-year terms, however, the increase was relatively subtle when compared to 4QFY08 (18 percent Quarter-on-Quarter). KAPCO’s energy increased despite a 19 percent YoY decrease in net output (2,045GWh of electricity generation in 1QFY09). The reasons were, 61 percent YoY increase in fuel bill for 1QFY09, higher index figure resulting from increased US inflation (5.3 percent YoY increase in 1QFY09) and falling rupee value. KAPCO being the only IPP in Pakistan with a power plant that has the ability to self-start in case of a countrywide blackout has 10 gas turbines that power the complex and 5 steam turbines. Eight of the 10 gas turbines can operate on residual fuel oil while all 10 can operate on both HSD and gas, thus giving the plant flexibility of using 3 different fuels to generate electricity, namely natural gas, LSFO and HSD, analyst of power sector said in the report.The incre...