AKD Securities Limited Equity Research - Daily Report (December 03, 2021)

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AKD Securities Limited Equity Research – Daily Report (December 03, 2021)

December 3, 2021

Karachi, December 03, 2021 (PPI-OT): OMC volumes increase by 2%YoY for Nov’21

OMC sales clocked in at 1.8mn tons for Nov’21, up 2%YoY while on MoM basis, sales witnessed a decline of 12%. The YoY increase was led by FO sales as power production on FO has increased while HSD posted a meagre increase of 1%YoY and MS remained flat for the month on YoY basis.

Overall, OMC volumes have increased by 18%YoY for 5MFY22 where FO took the lead with an increase of 28%YoY while MS/HSD posted increase of 11/20%YoY.

APL turned out to be the star performer for the month with an increase in total volumes of 19%YoY against 2%YoY of the industry where the difference was even more stark in retail fuels segment with APL’s retail fuels’ volume increasing by 34%YoY against 1.1%YoY of the industry, taking APL’s market share to 9.0% for Nov’21 against 6.8/7.7% for Nov’20/Oct’21

We expect OMC volumes to tread the same path with economic activity picking up pace while we believe the incentives provided in FY22 Budget to agriculture sector along with focus on infrastructure spending can provide a significant uplift to volumes in medium term.

OMC sales increased by 2%YoY for Nov’21: OMC sales clocked in at 1.8mn tons for Nov’21, up 2%YoY while on MoM basis, sales witnessed a decline of 12%. The YoY increase was led by FO sales as power production on FO has increased in the wake of default by some LNG suppliers resulting in lower than expected LNG supply and hence LNG-based power production.

However, on MoM basis, furnace oil sales declined by a massive 46% as overall power demand in the country decreased during winter. HSD sales increased by a mere 1%YoY where high base has apart to play, in our opinion. To recall, HSD sales during Nov’20 stood at 802k tons, up 17% against average HSD sales of 686k tons for FY21. On the other hand, sales of MS remained flat on YoY basis for Nov’21. Both the retail fuels witnessed a decline on MoM basis (MS/HSD down by 9/3%MoM).

HOBC sales continue their dream run with an increase of 18/36% YoY/MoM where we believe decreased price differential between MS and HOBC continues to support switching from MS to HOBC. Overall, OMC volumes have increased by 18%YoY for 5MFY22 where FO took the lead with an increase of 28%YoY while MS/HSD posted increase of 11/20% YoY.

APL – the winner of Nov’21: APL turned out to be the star performer for the month with an increase in total volumes of 19%YoY against 2%YoY of the industry where the difference was even more stark in retail fuels segment with APL’s retail fuels’ volume increasing by 34%YoYagainst 1.1%YoY of the industry, taking APL’s market share to 9.0% for Nov’21 against 6.8/7.7% for Nov’20/Oct’21. The resurgence in company’s market share could be a reason of improved storage network of the company on which APL has been working since last year.

PSO on the other hand witnessed an increase in overall volume of 9%YoY against 2% YoY for the industry majorly due to furnace oil sales increasing by 86%YoY against 3%yoY for the industry. In the retail fuels’ segment, PSO’s volume increased by 0.8% against 1.1% of the industry, taking PSO’s market share to 44.8% for Nov’21 against 44.9/49.5% Nov’20/Oct’21. Private players increased their market share in the retail fuel segment to 35.4% for Nov’21 against 33.2/31.5% for Nov’20/ Oct’21.

Outlook: We expect OMC volumes to tread the same path with economic activity picking up the pace while we believe the incentives provided in FY22 Budget to agriculture sector along with focus on infrastructure spending can provide a significant uplift to volumes in medium term.

Additionally, government’s continued vow to increase curbs on influx of grey product provided an additional uplift to volumes of HSD in particular and continuation of the same can keep

HSD volumes uplifted. We expect MS/HSD to post a growth of 10/9%YoY for FY22. APL is our top pick from the sector given i) company’s low leverage protecting it against any increase in interest rates, ii) high payout ratio of the company providing it attributes of a defensive play, and iii) improved storage network of APL expected to aid in enhancing market share.