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The Bell about Oil & Gas – Elixir Securities Limited

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by August 12, 2011 Brokerage

Karachi: PSO: Inventory gains and tax reversal led to exceptional earnings

According to Elixir Securities Limited,

 

Pakistan State Oil

Outstanding Shares: 171.5mn

PKR mn  FY11A  FY10A  YoY 4QFY11A 4QFY10A  YoY
Net Sales 820,530 742,758 10% 262,153.85 211,601 24%
Cost of Products Sold 786,250 713,592 10% 249,571.72 202,237 23%
Gross Profit 34,280 29,166 18% 12,582.13 9,363 34%
Other Operating Income 1,816 1,479 23%  370.00 388  -5%
Operating Expenses 10,879  9,412 16% 4,050.38 2,607 55%
Other Income  4,144 6,095 -32%  8,901.75 1,466 507%
Profit From Operations 29,361 27,329 7% 1,969.25 8,610 -77%
Finance Cost 11,903 9,882 20% 2,804.07  2,264 24%
Share of Profits            
from Associates 517 516   0% 105.85 112  -5%
Profit Before Taxation 17,974 17,963 0% 8,172.78 6,457 27%
Taxation 3,195 8,914  -64% 2,651.40  4,942 -46%
Profit After Taxation 14,779  9,049 63% 5,521.38 1,515 264%
EPS  86.17 52.76 63%  32.19 8.84 264%
DPS 10.00 8.00 25% 2.00 5.00 -60%

 

 

Colossal inventory gains lifted FY11 gross profit

Compared with FY10 inventory gains of PKR1.9bn (after tax), PSO recorded colossal inventory gains of PKR3.8bn (after tax) in FY11 with 70% or PKR2.7bn recorded in 4QFY11 alone. Before tax inventory gain was recorded at PKR6.4bn in FY11. Besides inventory gain, PSO realized 13% YoY higher margins on its FO sale during FY11. Without the inventory gains, FY11 gross profit would have fallen by 4% YoY as volumes were down 9% YoY during FY11.

 

EPS Composition

Per Share

 (PKR)  FY11 FY10
EPS W/O Inventory gain/(loss) & Tax reversal 47.09 58.41
Inventory Gain 22.16 11.08
EPS (Recurring) 69.24  69.49
Tax Reversal/(Write Offs) 18.93 (16.73)
Flood Surcharge (2.00)  N/A
EPS (Reported) 86.17  52.76

 

 

Source: Elixir Research

 

Finance cost rose 20% YoY

Unabated circular debt continued to devoure company’s profitability in FY11 in terms of rising finance cost, as PSO booked all time high financial charges of PKR12bn owing to rising interest cost on overdue payables. Despite a payment of PKR89bn in May‐11, PSO receivable has again swelled to PKR134bn as at 8 August 2011. However, payables to refineries have now declined by 46% to PKR56bn which shall result in lower finance cost during 1QFY12. Moreover, management also informed during its analyst briefing that PSO has managed to increase its letter of credit (for FO supplies) from previous 21 days to 60 days, which shall result in decline of finance cost by reduction in short term borrowing.

Lowest tax rate at 18.3%

Despite flood surcharge of 15% effective from March 15 2011, PSO’s effective tax rate was just 18.3% in FY11. This was due to reversal of deferred tax asset amounting to PKR3.2bn, with EPS impact of PKK18.93. Had the flood surcharge not been imposed during 4Q, PSO’s FY11 earnings would have been further up by PKR2/share to PKR88.19. Barring the tax reversal, effective tax rate would have been 37% which should result in EPS of PKR67.24.

Margin increase still on the cards

Management in its analyst briefing was confident of possible increase in margins especially on MS and HSD. According to the management, this matter shall soon be thrown to ECC for approval in a month times. PSO shall be the key beneficiary of this upward revision in margins as 39% of its sale comes from MS and HSD.

 

Up in Margin EPS

 

PT
PKR/litre  FY12  FY13 FY14 Jun-12
    – 54.8  56.4  61.0 397 (Base case)
   0.1 57.8 59.3  64.7 412
   0.2 61.3 62.8 68.5 433
   0.3 64.1  66.4 72.4  454
   0.4  67.0 69.0 75.4 474
   0.5 68.7 71.3 78.0 490

 

Source: Elixir Research

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