Pakistan State Oil Company Limited (PSO) announced its financial result for 2QFY22 whereby the company declared a Profit after tax (PAT) of PKR 20.2bn (EPS: PKR 43.02) against PKR 4.4bn (EPS: PKR 9.32) in 2QFY21, showcasing a massive jump of 4.6x YoY. The growth in earnings is attributable to higher other income on account of late payment surcharge tagged with increase in overall sales volumes by 13% YoY and hefty inventory gains in 2QFY22, we view. On a cumulative basis, the bottom-line climbed up by 3.4x YoY, settling at PKR 32.2bn in 1HFY22.

Result Highlights

· Net sales of the company clocked-in at PKR 523bn for 2QFY22, up by 82% YoY amid increase in sales volumes of MS, HSD and FO by 12%, 15% and 7% YoY, respectively along with higher average selling prices of petroleum products. On 1H basis, topline witnessed a surge of 73% YoY in 1HFY22 due to growth in overall volumes by 24% YoY (FO, HSD, MS volumes went up by 44%, 20% and 17% YoY, respectively).

· The company posted a gross profit of PKR 27bn with gross margins set at 5.10% in 2QFY22 compared to 3.14% in the prior year. In our view, significant changes in ex-refinery prices resulted in inventory gains of PKR ~13bn in 2QFY22 compared to PKR 0.6bn in same period last year. Similarly, gross margins in 1HFY22 arrived at 4.96% (up by 135bps YoY) on the back of higher inventory gains of ~PKR 20bn compared to ~PKR 2.1bn in SPLY.

· Other operating income swelled up by 2.8x YoY to PKR 8,921mn on the back of higher late payment surcharge.

· The finance costs increased by 36% YoY to PKR 784mn which is owed to higher interest rates and increase in short term borrowings.

· The company recorded effective taxation at 31% in 2QFY22 compared to 33% in 2QFY21.

Recommendation and Outlook

· Currently, we have a ‘BUY’ call on the stock with our Dec’22 target price of PKR 300/share.

· We revise upwards our earnings estimate to PKR 110/share for FY22.

Courtesy- AHL Research