Earnings Report /
Pakistan

Pakistan State Oil: 1QFY23 Review - Deferred tax helps avoid losses

  • Massive inventory losses for the quarter caused gross profits to decline significantly on a QoQ basis.

  • Rapid increase in short term borrowings and elevated interest rates caused finance costs to sky rocket.

  • Recognition of deferred tax asset helped the company to avoid losses for this quarter.

Intermarket Securities
28 October 2022

PSO has reported an unconsolidated NPAT of PKR1.2bn (EPS: PKR 2.55) in 1QFY23, down 90% YoY and 94% QoQ. The result came in higher than our estimated LPS of PKR1.94. Lower-than-estimated Opex and taxation led to the deviation from our estimate. There was no interim dividend as expected.

Key observations:

  • Revenues of PKR862bn came in slightly lower than our estimate of PKR882bn. Gross profit of PKR6.72bn witnessed a massive 90% fall QoQ. PSO suffered inventory losses owing to a contraction in petroleum cracks.  

  • A sharp decline in volumetric sales due to a slowdown in economic activity and infrastructure damage caused by floods may have led to Opex declining by -24% QoQ to PKR4.1bn, significantly lower than our estimated Opex of PKR6.4bn.

  • Other income from trade debts due to late payment surcharge grew considerably by 2.6x QoQ, likely due to elevated interest rates during the period.

  • Finance costs in 1QFY23 of PKR4.8bn were materially higher compared to the last quarter. This is due to elevated interest rates combined with  a rapid increase in short term borrowings (178% YoY) 

  • The effective tax rate clocked in at 70%, compared to 61% in the last quarter. We highlight that PSO availed deferred tax asset, which reduced the overall tax burden on the company. Without this, PSO may have reported a loss. 

Declining volumes and large inventory losses hurt this quarter’s earnings. Going forward, we expect volumetric sales to recover, albeit slightly, from anticipated recovery in FO sales to the power sector in winter. Also, stability in fuel prices may reduce the volatility in inventory losses/gains in the coming quarters. The deregulation of OMC prices and potential increase in OMC margins are likely to bode well for PSO if these means come through. We currently have a Buy rating on PSO, with a TP of PKR309/sh.