Pakistan State Oil (PSX: PSO) announced its first financial result for FY19, showing a 17 percent year-on-year decline in after tax profits for 1QFY19. However, the performance of the company cannot be termed weak especially under the ongoing unfavourable circumstances where the OMC sector is undergoing a major shift in the fuel mix and hence market shares.
PSO has an overall market share in the liquid fuel segment of 50 percent, and the company witnessed growth of 5.7 percent in white oil sales in FY18. However, black oil sales that constitute furnace oil witnessed a decline of over 29 percent, year-on-year in FY18 owing to the supply situation and the government’s strategy of switching priority of existing power plants from FO to RLNG/natural gas.
Regardless of the changing sales mix, overall revenues of PSO in 1QFY19 were higher by 8.3 percent, year-on-year, and gross margins improved by 0.35 percentage points. Jump in revenues came despite higher petroleum prices, high competition and low utilisation of furnace oil. Market sources opine that the increase in net sales came from increased lubricants and LPG sales as well as the inventory gains accumulated from higher oil prices.
However, the net profits for PSO witnessed a dip due to a fall in other income and the omnipresent financial charges. This was despite the decrease in furnace oil utilisation that is the major cause of payables and receivables accumulation for the company. Finance cost increased by 141 percent year-on-year in 1QFY19. On the other hand, other income that includes penal income fell by over 56 percent, year-on-year.
The firm’s earnings declined by 17 percent, in 1QFY19. However, PSO has also been focusing on retail side including the LPG and lubricants – all of which are high margin fuels – to overcome the void that the furnace oil volumes might leave. PSO scrip is currently trading at Rs264.99 with an average TP (target price) in the range of Rs333-339 per share and a P/E multiple of 6.0x for FY19.
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