Pakistan State Oil report loses in 3QFY20

Pakistan State Oil (PSO) has posted 3QFY20 NLAT of PKR3.4bn (LPS PKR7.30), compared to an EPS of PKR6.19 in the previous quarter and PKR3.57 same period last year. This takes 9MFY20 earnings to PKR3.0bn (EPS PKR6.41), down 49% yoy. The 3Q result is worse than our expected LPS of PKR4.42 due to much greater inventory losses than we expected. There was no dividend announced (despite skipping it in 1H) as expected.

Key Highlights for 3QFY20:

Net Sales have declined 1% yoy and 22% qoq where lower volumes – Furnace oil / HSD / Mogas sales down 69% / 24% / 7% yoy – and lower prices were key factors. This has come in lower than we expected, potentially due to lower LNG sales.

Gross profit of PKR2.5bn is lower than our estimate of PKR4.4bn (where we were assuming inventory losses of about PKR2.6bn). Note that while retail fuel prices were reduced very late in the quarter by about PKR15.0/liter. We therefore suspect a greater than expected impact of NRV adjustment.

As expected there is very little penal income from IPPs, which looks like less than PKR1.0bn vs PKR5.0bn in the previous quarter.

On the one hand, other expenses of only PKR34mn suggest low exchange losses (likely in the next quarter), but the finance cost of c.PKR4.0bn is much higher than PKR2.6bn that we were expecting. This is despite the lack of penal income during the quarter (which causes a one-time elevation in finance costs). We await clarity on this in the upcoming analyst call.

Though the PBT balance is much worse than expected, PSO has booked a small tax credit for the period.

This is a very weak result by PSO, where the inventory losses and finance cost are worse than we expected. Oil price volatility will remain but interest rates have come off significantly. Given the weak outlook for petroleum consumption in the near term and volatile oil prices, we expect the spell of weak earnings to persist in the next two quarters (without assuming any penal income). We have a Neutral stance on PSO with a June 2021 TP of PKR171/sh. (Intermarket Securities Limited.)


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