Attock Petroleum Ltd (APL) posted 3QFY20 NLAT of PKR710mn (LPS PKR7.14), compared to a profit after tax of PKR355mn in 2Q and PKR284mn SPLY. This is the first quarterly loss posted by the company in the past 10 years. This takes 9MFY20 earnings to PKR870mn (EPS PKR8.75), down 68% yoy.
- Net Sales fell 12% qoq to PKR50.0bn, up 2% yoy but down 12% qoq. Overall petroleum sales were down 15% yoy with 18% /21% / 7% yoy decline in Furnace oil / HSD / Mogas. This was better than the industry (overall down 23% yoy); hence APL improved its market share by 1ppt to 11.4% (second highest after PSO). Retail HSD and petrol prices fell by PKR7-8/liter during the quarter.
- APL has booked its first gross loss since 2QFY15, amid the previous episode of oil price collapse, as it has booked hefty inventory losses. Note that APL had substantially upgraded its storage capacity in recent years, with an outlook for growing sales and intense competition from smaller OMCs. While this has helped in protecting and improving market share in a declining market, it has increased APL’s susceptibility to oil price gyrations – much like in case of PSO and Shell.
- There is a significant jump in opex, up 24% yoy and 27% qoq (divergent from the trend in sales), which is also largely attributed to the big additions in storage capacity.
- Other income fell 26% qoq where APL has notably depleted its cash balance (seen for the first time in recent years).
- APL has booked an impairment of PKR70mn related to its investment in group refineries – Attock Refinery and National Refinery – the stock prices of which of which have tanked amid furnace oil phase out and Covid-19 lockdown. The same have also yielded negative share of profits.
- APL has booked a tax credit of PKR310mn due to a negative PBT balance.
Until recently, APL has enjoyed years of much lower earnings volatility vs. PSO and Shell courtesy small inventory size and integration with group refineries (little imports as well). APL has complemented this with a friendly payout regime. However, responding to the needs of growing demand and competition has rendered it with similar attributes as that of the other three large OMCs (including HASCOL). Notwithstanding the vulnerability to volatile oil prices, APL still enjoys a better competitive position, adequate presence in deregulated markets (higher margins) and low exposure to circular debt. For these reasons, we maintain our liking for the stock; we have a Buy stance on APL with a TP of PKR440/sh.