Pakistan State Oil announced FY22 record unconsolidated earnings of Rs86bn (EPS: Rs184) as compared to Rs29bn (EPS: Rs62) in the same period last year. This is due to, (i) higher volumetric sales, (ii) huge inventory gains and (iii) higher other income. The company also announced cash dividend of Rs10/share.

During FY22, company’s sales surged to a historic level of Rs2.45trn, showing an upside of 104% YoY which is mainly due to significant increase in volumetric sales by ~29% YoY to 11mn tons (SPLY: 8.9mn tons) coupled with 71% YoY increase in oil prices (Arab Light).

Gross profit of the company clocked in at Rs161bn, up by 195% YoY due to above-mentioned reason of increase in oil prices (Arab Light) resulting in inventory gains. This led to improvement in gross margins to 7% in FY22 vs. 5% SPLY.

Other income of the company surged to Rs25bn in FY22, up from Rs19bn in the SPLY, likely due to payments from power sector, which PSO recognizes on cash receipt basis. 

During FY22, the company recognized provision for impairment on financial assets of ~Rs5.1bn as against Rs898mn last year likely due to accounting for implementation of IFRS-9. 

During the last quarter of FY22, the company incorporated the super tax impact in the calculation of tax which led to the effective tax rate of ~61% in 4QFY22 taking the overall FY22 effective tax rate of 42% vs. 34% in FY21.

Expected revision in OMC margins going ahead will bode well for the company and will support any decline in sales volume. We maintain our ‘Buy’ stance on PSO with target price of Rs225/share.