Equity Analysis /
Pakistan

Attock Petroleum: 4QFY19 results – Earnings beat on higher inventory gains

    Ahmed Raza
    Ahmed Raza

    Investment Analyst

    Intermarket Securities
    30 July 2019

    APL posted 4QFY19 NPAT of PKR1,573mn (EPS: PKR15.80), up 13%yoy/4.5x qoq. This came in higher than our projected EPS of PKR14.35 due to bumper gross profits. FY19 NPAT thus totaled PKR3,961mn (EPS: PKR39.79), down 30% yoy. APL also announced a final dividend of PKR10/sh, taking full year dividend to PKR20/sh.

    Major highlights from 4Q include: (i) record high gross profit of PKR3,332mn, due to massive inventory gains (owing to recent ramp up in storages), (ii) 75%yoy jump in operating expenses due to FX losses (12% PKR depreciation in 4Q) and higher depreciation charge, and (iii) 56%yoy uptick in other operating income, possibly due to higher handling income.

    We also highlight that APL booked a PKR70mn impairment charge on financial assets, in accordance with IFRS-9. IFRS-9 requires companies to provide for any expected losses while also account for time value losses arising from late payment. While this charge is immaterial for APL, this may have significant implication for PSO.

    In FY19, NPAT declined by 30%yoy due to (i) inventory losses booked in 2Q/3Q (gross profit down 16%yoy in FY19) and (ii) 3x yoy jump in operating expenses, majorly due to PKR depreciation. Petroleum volumes also declined by 11%yoy for the company (vs 24%yoy for the industry) in FY19, due to a tough macroeconomic environment and Furnace oil phase-out.

    Our TP of PKR432/sh for APL implies a Buy stance. However, we are concerned with the delay in increasing OMC margins by the regulator (as per FY19 CPI) and we will revisit our estimates incorporating this delay.

    Risks: i) Exchange/inventory losses, ii) delay in increase in OMC margins, and iii) halt in group refinery operations.