PSO Results Key Highlights: KASB Research

PSO Results Key Highlights: KASB Research

• PSO posted FY13 net earnings of PRs50.84/sh which is up by 39% YoY. Earnings are in line with our and market expectations. DPS was well below market expectation of PRs8-10/sh.
• Sales increased 7% YoY. driven by higher OMC Margins,  int’l oil prices and higher MS sales
• Gross profit increased due to inventory gains and higher OMC margins on regulated and deregulated products
• As expected interest expense declined by 35% YoY. The main reason for the decline is lower furnace oil sales and continuous money injection from the govt.

§        Our PO remains intact at PRs388, with FY14E EPS of 62.63.  We maintain our BUY.

 

Key Risk in our view will depress near term price movement:

• Pak rupee devaluation in 1QFY14 (July todate) of 4.3% will have a negative bearing on the earnings.
• Lower than expected DPS. In our view, the below expected dividend is due to over estimation by the market participants that the PRs106bn received by the PSO in energy debt settlement will increase the cash and bank balances. But as per our calculation, the remaining cash on the PSO books will be around PRs4.0-5.0bn.
• The circular debt again on the rise as it reached PRs90bn at the end of July as per news reports.

 

On the flip side, near term spike in oil prices due to tension in Syria can result in inventory gains in 1QFY14 for PSO.

 

We will revert with more details after PSO analyst briefing which will be schedule for Friday August 30, 2013.

 

	FY13	FY12	YoY
Net Sales	1,100,122	1,024,424	7%
Cost of sales	1,063,613	990,101	7%
Gross Profit	36,509	34,323	6%
Operating  Expense	16,339	19,143	-15%
Operating  Profit	20,170	15,179	33%
Interest Expense	7,591	11,659	-35%
Other income	6,510	10,154	-36%
Pre tax income	19,089	13,674	40%
After Tax Profit	12,558	9,056	39%
EPS	50.8	36.7	39%
DPS	5.0	5.5	-9%
Effective Tax Rate	34%	34%
Gross Margins	3.3%	3.4%
Net Margins	1.1%	0.9%