Morning Call about Pakistan State Oil Company Limited – Arif Habib Limited

Karachi : PSO may earn PKR 11.06/share in 1QFY12

According to Arif Habib Limited, Pakistan State Oil Company Limited (PSO) is due to release its 1QFY12 financial results on October 31, 2011. Arif Habib Limited expects PSO to earn profit after tax (PAT) of PKR 1,716mn (EPS: PKR 11.06) compared to PKR 810mn (EPS: PKR 4.72) in the corresponding quarter last year. This estimated 134% YoY growth is mainly on account of 68% effective tax charged in the 1QF11, when the government lifted minimum turnover tax rate to 1% from 0.5% charged previously. Besides this, strong volumetric growth (due to lower base effect of last year’s floods) particularly in Furnace Oil (FO) and Motor Spirit (MS) is also expected to play its role in this profitability growth.

 

Financial Highlights
PKR mn 1QFY12  1QFY11  YoY
Net sales 242,394 170,362 42%
Cost of sales 235,035 163,649 44%
Gross profit 7,359 6,713 10%
Other operating income 454 365  24%
Operating expenses  2,436 2,138 14%
Other income  579 419 38%
Operating profit  5,956 5,358 11%
Finance cost  3,261  2,975 10%
Taxation (934)  (1,707)  -45%
Profit after taxation 1,897  810 134%
Earnings per share (PKR) 11.06 4.72 134%
Sources: Company accounts and AHL Research

 

Gross profit is likely to jump by 10% YoY

PSO is likely to bag a 10% YoY jump in the gross profit on account of strong volumetric sales recovery and healthy price movement particularly in the Furnace Oil (FO). The company is likely to achieve a YoY growth of 33% and 3% in Motor Spirit (MS) and FO volumes, respectively. Although the company suffered from a 39% MoM drop in FO volumes during September 2011, however lower base effect of 1QFY11 (due to floods), led to a modest 3% YoY growth in FO volumes. Besides PSO is likely to benefit from a 43.8% YoY increase in the average FO prices during 1QFY12, which is likely to fuel the gross margins due to deregulated nature of the product.

Finance Cost is likely to swell by 10% YoY

Finance cost of the Company is expected to record a rise of 10% YoY to PKR 3,261mn in1Q FY12. This is mainly on account of rising trade payables, which as per latest financials jumped to PKR 192bn as compared to PKR 156bn by the end of September 2010, a 16% YoY rise.

Circular debt continues to downplay on the Stock price

Increasing intensity of the circular debt continues to create negativity for the Stock of PSO, which since June 2011 has underperformed the benchmark KSE-100 Index by 6.2%. At closing price of PKR 222.44/share the stock offers an attractive upside potential of 96.7% from Arif Habib’s June 2012 target price of PKR 436.7/share. Besides sizeable upside potential, the stocks offers is trading at an attractive Price to Earnings Ratio (PER) of 3.7x based on FY12 earnings.

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