Dear Clients,

Based on data released by OCAC, Pakistan OMC sales increased 26% Y/Y to 1,398kT during Feb21 as against 1,109kT recorded during Feb20. The increase emanated from the 3 major POL products largely supported by recovering economic activity. Sequentially, however, OMC sales fell by 8% M/M primarily because of normalizing FO sales.

MS Sales increase by 7% Y/Y during 8MFY21

Total MS sales increased by 7% Y/Y to 5,372kT during 8MFY21. The increase was largely a product of: 1) rising automobile sales, 2) comparatively lower MS prices, and 3) increased inter-city travel amidst restrictions on air routes. Sequentially, MS sales remained relatively stable, witnessing a marginal drop of 2% M/M to 627kT during Feb21. PSO emerged as the market leader for the commodity with a share of 41%.

Onwards, we foresee MS sales to grow as COVID-19 restrictions ease further amidst a large-scale rollout of the vaccine.

HSD Sales increase by 15% Y/Y during 8MFY21

Total HSD sales increased by 15% Y/Y to 4,838kT during 8MFY21 supported largely by: 1) sharp economic recovery with the LSM index crossing pre-COVID levels, 2) strict action against the sale of smuggled petroleum, and 3) comparatively lower HSD prices. On a monthly basis, HSD sales depicted a surge of 47% Y/Y to 550kT during Feb21 for the aforementioned reasons while sequentially, HSD sales remained relatively stable with an increase of 1% M/M. PSO emerged as the market leader for commodity with a share of 47% during Feb21, largely benefitting from actions against smuggled petroleum.

Onwards, we project HSD sales to continue their elevated levels supported by the rising economic trajectory and continued action against smuggled petroleum.

FO Sales increase by 36% Y/Y during 8MFY21

Total FO sales increased by 36% Y/Y to 2,089kT during 8MFY21 primarily because of: 1) the prevalent gas shortage increasing reliance of FO-based electricity generation, and 2) comparatively lower prices incentivizing utilization of FO-based captive power plants. On a monthly basis, however, FO sales dipped 40% M/M to 176kT during Feb21 on account of subsiding winters, alleviating the gas-supply shortage. Furthermore, a sharp increase in FO prices also limited utilization of FO-based captive power plants. PSO once again emerged as the market leader with a share of 52% during Feb21.

Onwards, we project FO-sales to resume their declining trend primarily because of the commencement of coal-based power plants. Moreover, the planned expansion of RLNG capacity is expected to further alleviate gas supply shortage, constricting use of FO-based generation.

PSO is our top-pick within the sector

PSO is our top-pick in the sector with a Jun21 TP of PKR 274/sh. Our preference for the stock stems from: 1) changes in pricing mechanism limiting the impact of exchange rate and oil price volatility, 2) recovering market share amidst action against smuggled petroleum, and 3) major steps taken to curb the proliferation of the circular debt. The stock is presently trading at an FY22 PE of 6.8x.

Regards,
KASB Research