Karachi, Pakistan State Oil (PSO) has effectively addressed the challenges associated with the collection of receivables for its Regasified Liquefied Natural Gas (RLNG) segment, boasting an impressive improvement in its collection ratio to 95% during the calendar year 2023, up from 78% in 2022. This enhancement comes as part of a broader strategy to prepare for a macroeconomic upswing, with PSO positioning itself to capitalize on the anticipated recovery.
According to AKD Securities Limited, the notable improvement in receivables collection for RLNG was achieved through the incorporation of the cost of diverting RLNG, amounting to PKR 232 billion, into the tariff calculation for indigenous gas customers for the first time. This adjustment corresponds to the sale of approximately 161 MMCFD of RLNG to system gas users throughout the year. The move, reflected in the Sui Northern Gas Pipelines Limited's (SNGPL) revised revenue requirement, has been aptly mirrored in consumer prices as of February 2024, thereby aligning gas prices more closely with the actual revenue requirements.
The report also highlights the significance of adjusting margins in the petroleum, oil, and lubricants (POL) segment to ensure sustainability amidst rising inflation and finance costs. Despite three major upward revisions since 2022, the average regulated margins remain below the industry’s desired threshold, necessitating higher sustainable margins to protect the company against volatile inventory prices.
PSO's aggressive market capture strategy over the past 24 months has strengthened its retail presence, with its retail fuel market share climbing to 50% during the first eight months of fiscal year 2024, up from 40% in the same period of 2019. This growth is attributed to its extensive retail network and the relative protection from exchange losses, positioning PSO well for increased profitability from retail fuels as reliance on furnace oil diminishes with greater power generation from alternative sources.
Moreover, PSO's subsidiary Pakistan Refinery Limited (PRL) has entered into Memorandums of Understanding (MoUs) with Oil and Gas Development Company Limited (OGDC) and United Energy Group (UEG) of China for brownfield refinery upgrades. This move, supported by the Brownfield policy's duty protections, is expected to enhance PSO’s procurement from PRL, reduce dependence on imported supplies, and contribute to price and margin stability in the long run.
PSO is identified as a top pick from the sector by AKD Research, with a target price of PKR 290 per share, signaling a 73% upside potential. The company's forward-looking strategies, coupled with its robust financial performance and strategic initiatives, position it favorably for future growth and sustainability in a challenging economic landscape.