Pakistan State Oil: Higher earnings on lower inventory losses – By Azee Research
Pakistan State Oil announced its half yearly financial results ended December 2015. During the year, the company earned Rs 6.73 billion (EPS: Rs 24.76), which resulted in 57% YoY growth against Rs 4.28 billion (EPS: Rs 15.76) it achieved during the same period last year. This increment is attributed to lesser inventory losses decline by 78% YoY, the growth in sales volume and margins of white oil products. Additionally, the reduction in operating and finance cost by 22% and 39%, respectively, also contributed to the profitability. However, decrease in black oil margins owing to 48% reduction in the OPEC’s per barrel crude oil price had an adverse impact on the company’s profitability. The Board of Directors has recommended the first interim cash dividend at Rs 5/share (50%).
Net Sales deteriorated: During half-year period, the company recorded the net sales revenue of Rs 353.97 billion, as compared to net sales of Rs 508.29 billion during the same period last year, reflecting 30% decline. The constant drop in global oil prices has affected the prices of petroleum products within the country, and remained the primary reason for reduction in sales. However, volumetric sales up by 4% to 5.83 million tons in 1HFY16 against 5.64 million tons in 1HFY15. Mogas and High Speed Diesel (HSD) sales remain major driver of volumetric sales as Mogas sales rise by 26% to 1.321 million tons in 1HFY16 against 963k tons in 1HFY15 due to CNG shortage and lower oil prices. Similarly, HSD sales up by 2% to 1.71 million tons compared to 1.68 million tons in 1HFY15 due to higher demand. During the 1HFY16, PSO’s market share stood at 55.5%. Its share in White Oil (Motor gasoline, High Speed Diesel, Superior Kerosene Oil, Jet Fuel) was 46.9%, whereas the share in Black Oil (Furnace Oil, Light Diesel Oil) was 69.6%. The sales increment was witnessed in PIA. On the other hand, decline in Furnace Oil was seen due to IPP’s transformation to coal and natural gas.
LNG margin likely to increase: The government has nominated PSO for the procurement of LNG in order to meet country’s gas deficit. In this regard, the company has entered into long-term sale and purchase agreement with Qatar Liquefied Gas Company Limited. However, OGRA has reduced margins on LNG from 4% to 1.8% remain negative for the company but from recent news government has principally agree to hike LNG margin to 2.5% would be positive (EPS impact of Rs 2.76/share).
By: Azee Securities Private Limited