Dear Clients,

Pakistan State Oil (PSO) scheduled its analyst briefing today to shed light on the company’s financial performance during 9MFY21 and to discuss its future outlook onwards. To note, the company’s bottom-line surged by 6x YoY during 9MFY21 largely aided by sharp inventory gains in lieu of inventory losses and a lower debt balance amidst a low-interest rate environment. Moreover, the company’s bottom-line performance overshot street estimates during 3QFY21 because of higher than projected inventory gains.

Key takeaways

– During 9MFY21, PSO improved its market share in all 3 major product categories with its share for MS/HSD/FO improving by 3pps/3pps/4pps YoY, respectively. The company credits this increase to improving supply chain efficiencies, additions of key parties to its clientele base and focus on improving relations with all relevant stakeholders. The management also highlighted that the present OMC landscape restricted discounted offerings by competing OMCs and hence, allowed PSO to outperform in a “level playing field”.

– Discussing its infrastructure, PSO highlighted that its retail network has expanded to 3,500 outlets, supported by ~1.0mn MT of storage capacity (47% of the Pakistan’s total capacity). Overall, the company has 9 storage installations, 23 depots, and refueling facilities at 10 airports & 2 seaports.

– PSO’s receivables from SNGPL have surged to PKR 100bn (+40.4% FYTD) as of May 05’21. The management credits this increase to the supply of expensive LNG during winter months to domestic consumers, who receive gas at a subsidized rate. The discrepancy in pricing limited SNGPL’s collection, and in turn, led to the sharp increase in PSO’s receivables. The management suggested an efficient price-recovery mechanism should be implemented to counteract the issue.

– PSO’s management notified that the company has introduced an electric vehicle charging facility in Islamabad, and plans to increase its footprint on this front once EV adoption gains pace in the country.

– PSO remains our top-pick in the OMCs space with a TP of PKR 291/sh (+31% upside). We believe the stock is set to benefit from improved cash-flows post circular debt reduction, lower financial burden amidst a low interest rate environment and higher offtake, supported by the government’s focus on economic growth.

Regards,
KASB Research