Earnings Report /
Pakistan

Pakistan State Oil: FY22 review – Payout comes under the light of inventory gains

  • High inventory gains and volumetric sales along with elevated average prices of MS & HSD helped to overshadow super tax.

  • Massive provision on impairment of financial assets was a negative surprise that depressed earnings

  • The PKR10 per share dividend was broadly in line with the federal governments budget guidance

Intermarket Securities
26 August 2022

PSO announced all-time high earnings of PKR86.2bn (EPS: PKR 183.66) for FY22, nearly thrice that of last year’s earnings of PKR29.13bn (EPS: PKR 62.07). The company benefitted exponentially from high inventory gains because of the continuous rise in oil prices and PKR devaluation. These gains helped in neutralizing the impact of super tax. Majority of the impact of devaluation and elevated oil prices took place near the end of this year, as can be seen by the sequential rise in gross earnings. The company earned a PAT of PKR21.5bn (EPS: PKR45.7) in 4Q which was 97% higher YoY. Taking leads from the Budget FY22, which highlighted a revised budgeted dividend flow of PKR8.8/share from PSO, the company surprised with a slightly higher dividend announcement of PKR10/share.

  • The 4Q topline grew by 59% QoQ on the back of higher oil prices and PKR devaluation. On the other hand, gross profitability grew by 56% QoQ owing to inventory gains and higher average price of MS and HSD during the period.

  • The volumetric sales for MS/HSD/FO grew by 11.4%/26.2%/138.8% QoQ to 941K/1081K/918K tons during the 4Q, respectively.

  • The company booked financial asset impairment of PKR5.4bn, possibly on account of less trade debts recoverability which has become questionable. Further clarity is awaited on this in the detailed accounts. 

  • Higher finance cost arrived at PKR2.04bn during 4Q, which is 61% higher QoQ. This is most likely due to higher interest rates during the quarter.

  • The company’s 4Q effective tax rate was 60.6% leading to a FY22 tax rate of 41.7% compared to 33.9% last year.

PSO has benefitted greatly from the recovery in POL products’ demand during the year. Triggers that will contribute favorably to annual profitability going forward include upward revision in OMC margins, cash injection in the power sector and the upcoming new refinery policy. Dividend yield may be compromised for the next few quarters due to PSO hoarding cash in order to subscribe PRL’s right issuance. It is pertinent to note that PRL’s expansion and upgradation will cost USD1.2bn, one of the highest in the refinery space. We currently have a BUY stance on PSO, based on our Jun’23 TP of PKR309.0 per share.