Karachi, July 26, 2021 (PPI-OT): PSO Earnings Preview

We present earnings estimates of Pakistan State Oil (PSO) where we expect the company to post a full year Profit After Tax of Rs24.6bn (EPS: Rs52.50) for FY21 as against a Loss After Tax of Rs6.5bn (LPS Rs13.77) during the previous year. Furthermore, we expect the company to announce a final dividend of Rs9.50/share.

Inventory gains to substantially decline going forward

With a YoY growth of 24% in overall volumetric sales, PSO was the only oil marketing company to out-perform the industry growth of 18% during FY21. Not only this, the company also outperformed the industry in the three major products Motor Gasoline (MS), High Speed Diesel (HSD) and Furnace Oil (FO). Given so, the company’s market share has increased from 44% last year to 46% in FY21.

Given the bullish trend in the international crude oil market, earnings reported by oil marketing companies have been boosted by inventory gains this year. However, given the current prices of oil in the international market, it is very likely that the magnitude of inventory gains will substantially erode going forward and OMCs will move towards their core earnings.

Given that exchange gains and losses have now become a part of the pricing formula, the upcoming few quarters will be rare in that OMCs whose core earnings had been veiled by oil price and foreign exchange movements for years will finally come to light.