Pakistan State Oil (PSO) has posted a NPAT of PKR4.4bn (EPS PKR9.32) for 2QFY21, down 15% qoq but up 51% yoy (greater inventory losses last year). The result is below our 2Q EPS estimate of PKR12.0/sh due mainly to higher Opex and some inventory losses. This takes 1HFY21 NPAT to PKR9.5bn (PKR20.28/sh), up 48% yoy. PSO also announced a cash dividend of PKR5.0/sh (below our expectation of PKR7.5/sh).
Key Highlights for 2QFY21:
Net Sales of PKR287bn is nearly flat qoq (down 8% yoy due to lower prices). Both volumes and average retail prices were flat qoq (price cuts in the beginning but increase at the end of 2Q). PSO’s overall market share in 2QFY21 fell 3ppt qoq to c.45% (but flat yoy), because in 1Q PSO supplied more than its share amid weak supplies from other OMCs following the lockdown period.
Gross profit of PKR9.0bn is lower than our estimate of PKR9.7bn, indicating some inventory losses. Note that local HSD and petrol prices fell by about PKR5.0/liter early in the quarter but then increased by PKR7-8/liter at the end of 2QFY21. Inventory losses could have emanated from negative import differentials amid rising international oil prices. Future quarters, however, are likely to have inventory gains given surging oil prices.
Opex of PKR5.2bn are up 19% qoq and 36% yoy, notably deviating from the trend in sales. Note that Other income of PKR3.2bn also beat our expectation. We understand that PSO has booked exchange gains in Other income, while we had expected exchange gains in Opex (where Fx losses are usually parked). Secondly, PSO has booked some IFRS-9 related charge, in relation to receivables from non-Power sector entities (including PIA). Recall that IFRS-9 application for circular debt affected companies has been deferred by the SECP until after June 2021.
Normalized Other income would not include much penal income, as negotiations between the government and IPPs (for settlement of outstanding circular debt) had not completed, let alone lead to any cash inflow, by the end of 2Q. Finance cost is down 85%yoy because of significant deleveraging and lower interest rates.
Effective tax rate has come in at 33% same as in the previous quarter (impact by final tax regime on LNG sales).
We would say that the result missed ours and the street’s analyst expectations only marginally. We also think that the result is closer to the normal recurring earnings path for PSO in the near future (c.PKR10/sh per quarter). The stock has, however, reacted negatively (down c.3% as we write, as we understand the market was expecting a much higher EPS and payout closer to the result). We maintain our Buy rating for the scrip with a June 2021 TP of PKR300/sh.
Courtesy – Intermarket Securities Limited.