Equity Analysis /
Pakistan

Pakistan State Oil: FY21 Analyst Briefing Takeaways

  • PSO is aiming for an overall market share of 50% and is expanding pumps and storages in that pursuit

  • Circular debt buildup has slowed considerably. PSO will invest in the up-gradation of PRL but plans are not yet final

  • We have a rating on the scrip with a TP of PKR300/sh

Intermarket Securities
10 September 2021

Pakistan State Oil (PSO) had posted an unconsolidated net profit to PKR29.1bn for FY21 (EPS PKR62.07 vs PKR13.77 in FY20). It had also announced a final cash dividend of PKR10.0/sh taking full year payout to PKR15.0/sh.

Key Highlights of FY21 & Outlook:

  • Market share rose: PSO outperformed the industry during the year. Its overall market share in White oil (HSD and Mogas) rose from 44.0% to 45.2%; and in Black oil (Furnace oil and LDO), up from 46.0% to 51.8%. PSO is aiming for an overall market share of 50% in the future. It expects Mogas and HSD demand to grow by c.5% yoy in FY22.

  • Storage capacity enhanced: PSO opened 71 new pumps in FY21 (total by June 2021: 3,480) and added 50,000 tons of new storages at Machike. It has also rehabilitated about 180,000 tons of its Furnace oil storages (originally 340,000 tons in total) and converted them into storages of HSD and Mogas (about 43,000 tons of that was rehabilitated during the year). About 150,000 tons will continue to be used for Furnace oil. As a result, PSO is presently able to maintain petrol inventory of 17-18 days in summer months and up to 30 days in winter.

  • Circular debt stagnating: Overall receivables of PSO rose by just c.PKR15bn – from PKR191.8bn by June 2020 to PKR206.1bn by June 2021. Receivables from the Power sector fell from PKR98.8bn to PKR85.4bn; meanwhile, that from SNGP (RLNG sales) rose from PKR71.2bn to PKR98.6bn.

  • Refinery Policy and Up-gradation of PRL: PSO management considers the passage of the Refinery Policy a “matter of time,” and it expects that the government will push further the 31 December 2021 deadline (for refineries to submit their plan), because of the delay by the government in approving the policy. PSO is presently considering two options for the up-gradation of its subsidiary, Pakistan Refinery (PRL): between a pre-owned and new refinery; the cost of the project is expected to lie between US$0.5-1.2bn.

  • HOBC and lubricants: PSO tripled its HOBC sales in FY21; it will launch a new product in this category during FY22 to cement its position. The company will also launch two new lubricant brands in FY22. It is aiming to dominate the high-street market of lubricants and grab more than 10% share from 5-6% presently.  

  • Recent strength in furnace oil is temporary: PSO management attributes the recent strength in Furnace oil sales to government trying to maximize power generation so that the fixed capacity payments of IPPs can be recovered from consumers to a greater extent. Once two new LNG terminals are commissioned in Pakistan, PSO’s FO sales will normalize to 1.5-2.0mn tons per year.

  • EV infrastructure: PSO is in talks with the Power sector regulator, NEPRA, to determine a suitable power tariff for electric vehicles in Pakistan, given the cost of an EV charger is significant (up to PKR20mn for a European technology). In FY22, PSO will commission three EV chargers on its pumps on the M2 Highway.

We have a Buy stance on PSO, with a TP of PKR300/sh.