Pakistan State Oil Company Limited (PSO) announced its financial result for 1QFY21 whereby the company declared a Profit After Tax (PAT) of PKR 5.1bn (EPS: PKR 10.96) compared to PKR 3.5bn (EPS: PKR 7.52) in 1QFY20, depicting a growth of 46% YoY. The jump in earnings is due to growth in volumes and company recording inventory gains of PKR ~1.8bn in 1QFY21 compared to inventory gains of PKR 1.2bn in 1QFY20 and inventory loss of PKR ~16bn in 4QFY20, we view.
· Topline of the company settled at PKR 281bn for 1QFY21, down by 15% YoY. Despite increase in overall sales volumes by 9% YoY to 2.26mn tons (FO, HSD and MS volumes increased by 27%, 14% and 10% YoY) in 1QFY21, topline witnessed a decline due to decreased average selling prices of petroleum products as compared to same period last year. On sequential basis, topline witnessed hefty jump of 27% QoQ due to growth in overall volumes by 22% QoQ and rise in average selling prices.
· The company posted a gross profit of PKR 11.5bn with gross margins set at 4.09% in 1QFY21 compared to 3.25% in the prior year. We view noteworthy changes in ex-refinery prices that resulted in inventory gains of PKR ~1.8bn in 1QFY21 compared to inventory gain of PKR 1.2bn in same period last year.
· Other operating income decreased by 22% YoY to PKR 1,236mn. We reckon that decline in other income is on the back of lower markup on delayed payments in the period under review.
· Meanwhile, finance costs nosedived by 67% YoY and 71% QoQ to PKR 859mn which is owing to lower reliance on borrowings and decline in interest rates.
· The company recorded effective taxation at 33.0% in 1QFY21 compared to 43.2% in 1QFY20.
· Currently, we have a ‘BUY’ call on the stock with our Jun’21 target price of 284.3/share.