Karachi, February 11, 2022 (PPI-OT): PSO: EPS of 43.02 for 2QFY22 – Skips dividend

Pakistan State Oil (PSO) announced result for 2QFY22 where company posted unconsolidated PAT of PkR20.2bn (EPS: PkR43.02) increasing by 361/68% against PAT of PkR4.4/12.0bn for 2QFY21/1QFY22. For 1HFY22, PAT stood at PkR32.2bn (EPS: PkR68.6), increasing by 238% against PAT of PkR9.5bn for 1HFY21.

The result came in higher than our expectations where major deviation occurred due to higher than expected inventory gains of ~PkR14bn against our expectation of PkR8.5bn. Another major difference occurred due to other income of PkR8.9bn against our expectation of PkR2bn.

To note, significant inventory gains arose on the back of increasing oil prices where difference between ex-refinery prices of Sep’21-end and peak stood at 22% though towards the end of the quarter, a decline was witnessed.

Other income of PkR8.9bn is a result of company recording late payment surcharge, in our opinion, due to partial clearance of circular debt. To note, company records late payment surcharge on cash basis.

Topline of the company increased by 82/14%YoY/QoQ for 2QFY22 supported by increasing prices of MS and HSD while company’s retail fuel volumes also increased by 6% YoY for the quarter. Overall, for 1HFY22, PSO’s volumes increased by 14%YoY.

Against our expectation, company did not announce a dividend or a bonus issue which led to stock receiving a significant battering post result announcement. We await clarity from the management for reasons behind skipping payout.

Overall, we maintain a Buy stance on the scrip based on increasing market share in retail fuel segment and recent increase in margins. However, we do highlight increasing receivables from SNGP as a major drag on cash flows. We have a TP of PkR250.4/sh on the stock, providing upside of 27%.