Author Topic: PSO -- Pakistan State Oil  (Read 439660 times)

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Offline SBM

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Re: PSO -- Pakistan State Oil
« Reply #2039 on: May 02, 2018, 02:11:51 PM »
Another MoU was inked between Pakistan State Oil and Power China for construction of the upcountry deep-conversion oil refinery and laying the crude oil pipeline.

The tax break and duty exemption were approved in a meeting of the Economic Coordination Committee (ECC) of the cabinet, chaired by Abbasi, at the Prime Minister’s Office on Friday.

In an effort to stimulate investment in the country, the ECC approved a landmark incentive package for setting up new state-of-the-art deep-conversion oil refineries anywhere in the country including the expansion of existing refineries by a minimum of 100,000 barrels per day. The package will also be applied to the Parco coastal refinery project.

another white elephant in the making ?
I hate waking up.

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Re: PSO -- Pakistan State Oil
« Reply #2039 on: May 02, 2018, 02:11:51 PM »

Offline Farzooq

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Re: PSO -- Pakistan State Oil
« Reply #2040 on: May 16, 2018, 01:22:52 PM »
PSO: Keeping 'Buy' intact despite earnings forecast cut; revised Dec-18 TP of Rs419
May 16, 2018 (JS Research)

Recent changes in landscape warrant changes in our estimates for Pakistan State Oil (PSO). We accordingly revise our estimates down by ~5%-17% throughout our projection period (FY18E-FY23F).
In-line with earnings forecast downgrade, we are also slashing Dec-2018 Target Price for the company to Rs419 (Rs458 previously) while retaining our 'Buy' stance for PSO.
Reduction in FO business is a boon for PSO, in our view, given the resultant improvement in cash flows. Possibility of speedy recovery from existing receivable base cannot be ruled out.
Increasing immunity from catch-22 (circular debt) of Pakistan's power sector will fetch gains for PSO and raise possibility of higher payouts in future. However, this will be somewhat offset by LNG related additions.
In the short term, imposition of Super Tax (ST) will also dent bottom-line (from FY18E-FY20F period). Nonetheless, negativities will be somewhat offset by decrease in corporate tax rate by 1% every year (25% by FY23F).
Our revised Target Price implies juicy upside of 31% from present levels. At current P/E multiples of 6.6x/6.3x for FY18E/FY19F respectively and exit FY18E P/E multiple of 8.59, the valuations seem undemanding.
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Online MZ

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Re: PSO -- Pakistan State Oil
« Reply #2041 on: May 20, 2018, 12:14:14 AM »

Offline kpall99

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Re: PSO -- Pakistan State Oil
« Reply #2042 on: May 31, 2018, 10:10:49 AM »
Good news for PSO. Although Govt earlier refused to revoke agreement between PSO-PNSC.

https://www.dawn.com/news/1411068/nab-wants-pso-chiefs-name-put-on-ecl

ISLAMABAD: The National Account­ability Bureau (NAB) wants placement of the name of the managing director of the Pakistan State Oil Shaikh Emran ul Haq on the Exit Control List (ECL) for allegedly causing a loss of over Rs20 billion to the PSO.

The NAB, Karachi, wrote a letter to the NAB headquarters on Wednesday seeking placement of the names of Emran ul Haq and some other officials of the PSO on the ECL on the basis of an inquiry conducted against them.

The NAB feared that the PSO head could escape abroad to avoid an investigation and any action against him. “Media reports say that there are higher chances of his escape abroad,” said the NAB’s letter available with Dawn.

The NAB’s letter said under the Cost and Freight (C&F) mode of import the PSO was more secure, especially when off-specification products landed at the country’s ports.
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Contrary to that, when the mode of import was shifted to Freight on Board (FOB), the PSO went into massive losses in the shape of demurrages and supply of off-specification petroleum oil products (POL) to public.

A detailed complaint verification report was submitted before the competent authority for perusal and the same was approved at the NAB’s regional board meeting and it was decided to authorise an inquiry through the NAB headquarters.

The matter was referred to the NAB headquarters and was discussed at its executive board meeting on May 30, whereas a formal inquiry was approved on June 2 last year.

The letter said due to mala fide decisions of the then MD, duly adopted by the subsequent MDs, a huge financial gain was illegally accorded to the Pakistan National Shipping Corporation and other shipping lines hired by the PNSC for PSO.

“The PSO management willfully did not offload the vessel after getting a message of readiness from the captain of the vessel,” it said.

According to the letter, this trend was encouraged since September 2015 which caused losses of billions of rupees to the national exchequer.

Emran ul Haq allowed most of the vessels to remain berthed at ports for a longer time or more than six days, causing a loss of $156,000 or Rs18.4 million per day.

During his tenure, the PSO suffered 1,150 days of demurrages causing a loss of $172,500,000 or Rs20.35bn to the national exchequer.

Published in Dawn, May 31st, 2018
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Offline Farzooq

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Re: PSO -- Pakistan State Oil
« Reply #2043 on: June 05, 2018, 09:17:36 PM »
Pakistan State Oil Company Limited : Concerns on cash-flows overshadow valuation; Neutral

We reinstate coverage on Pakistan State Oil Company Limited (PSO) with ‘Neutral’ stance and TP of PKR360/sh based on blended valuations (DCF and P/E ratio).
While the recent developments on repayment of circular debt (c.PKR50bn received by PSO in three tranches) and likely deceleration in fresh build-up of receivables may provide relief on cash flows, however settlement of backlog (PKR304bn overdue receivables as of 9M) may take time to transpire.
We believe the company remains behind the curve in its efforts to maintain its market share amidst growing competition and expect market share (excluding FO) to witness another 3-3.4ppt attrition by FY21 (already down 10ppt since FY14).
Key upside risks to our thesis include: (i) progress on HSD deregulation, and (ii) one-off circular debt settlement by upcoming government. Key down-side risks are: (i) possibility of further exchange losses on foreign currency borrowing, (ii) unfavorable oil price movement, and (iii) management’s inability to embark upon capex plans to arrest market share decline.
The company however remains attractive in terms of multiples where it currently trades at FY19E P/E of 7.63x reflecting 27% discount to peers and 12% discount to broader market.

Reinstate coverage with Neutral stance on tepid earnings growth outlook: We reinstate coverage on Pakistan State Oil Company Limited (PSO) with ‘Neutral’ stance and TP of PKR360 based on blended valuations (DCF and P/E ratio), offering 17% total return from current levels including 6% dividend yield. While the recent developments on repayment of circular debt and likely deceleration in fresh build-up of receivables owing to shift in power mix, appears to be positive for company’s cashflows, the outstanding receivables continue to weigh on the company’s balance sheet (PKR304bn as of 9M). Moreover, barring FO, PSO has been facing tough competition in other key segments including HSD/MS, which has resulted in decline in market share over the past few years. With competition only expected to rise in near to medium term, tepid retail outlet growth, and no material progress seen on company’s capex plans to build storages so far, we expect PSO to post negative 3-yr average earnings growth of 6%. The company however remains attractive in terms of multiples where it currently trades at FY19E P/E of 7.63x (27% discount to peers).

Valuations – The only attraction: PSO currently trades at a forward P/E of 7.63x reflecting 27% discount to industry average and 12% discount to broader market (proxy: BMA Universe). In terms of historical P/E the company trades at 14% discount to its historical five year average of 8.9x. While valuations look attractive, earnings growth outlook for the company remains not-so-encouraging with negative 3-yr average growth of 6%. Although PSO’s D/Y of 6% is comparable to average market yield, it does not compensate investors for tepid earnings growth outlook, in our view.

Circular debt issue- Subsiding but backlog is there: While the recent release of funds by the government (c.PKR50bn received in three tranches) to reduce the piling circular debt provided some relief to the company, the outstanding receivables position remains at historical high of PKR304bn in 9MFY18. To this end, expected steep decline in FO sales (45% drop expected in FY19 where PSO holds 70% share) owing to shift in power mix from FO to coal/RLNG in near-term is expected to reduce the pace of receivables buildup, however clearance of the backlog may take time to transpire. That said, any one-off bulk payment to clear the outstanding dues (seems less likely in near-term) remain crucial for cashflows improvement, in our view.

Shrinking market share; aggressive approach required to arrest the decline: PSO has been witnessing drop in market share in key segments of MS and HSD since FY14 (market share dropped by 9/10ppt respectively to 40/43 as of 11MFY18 respectively). Key reasons for the continuous drop in share include: (i) negative growth in retail outlets, particularly in urban centers due to lower profitability, (ii) increasing competition where three new players entered in Punjab market during FY17, and (iii) focus of existing industry peers on fast pace retail and storage expansion while PSO lags behind. Going forward, we expect further attrition (3-3.4ppt) in PSO’s market share over the next three years.

On one hand, demand in PSO’s legacy business of FO sales to IPPs is witnessing a shift while on the other hand demand dynamics in retail fuel market are also changing. To this end, an aggressive approach to rehabilitate existing storages and expand storage capacity particularly for Gasoline (only 10-14days cover available) remains a key to sustain market share amid rising competition, in our view.  The recent development of lifting ban on CNG kit imports is also expected to play a key role, where substitution of petrol with CNG in the backdrop of rising prices may taper petrol demand (11% growth seen in 11MFY18) thus igniting further competition from existing players to retain/increase market share in backdrop of unfavorable trade practices.

Support from LNG- May not last for long: LNG business contribution to the gross profit of the company stands at 13% in FY18, while the impact on bottom-line is ~4%. Keeping in view the possibility of long pending transfer of LNG business from PSO’s books to Pakistan LNG Limited (PLL) in the coming years, our estimates incorporate continuation of LNG business till FY19 only. Although, discontinuation of LNG will lead to earnings attrition for the company, it does provide a partial relief in terms of taxation as LNG is taxed at a higher rate (1% of import value), leading to higher effective tax rate for the company.

Key risks to investment thesis:

Upside risk: (i) Progress on HSD deregulation, (ii) one-off circular debt settlement by upcoming government, (iii) backward integration benefits emerging from investment in PRL, and (iv) progress on storage rehabilitation plans and retail outlets build up.

Downside risk: (i) Possibility of further exchange losses on foreign currency borrowing, (ii) unfavorable oil price movement, and (iii) management’s inability to embark upon capex plans to arrest market share decline.

bma
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Offline Thelma

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Re: PSO -- Pakistan State Oil
« Reply #2044 on: June 06, 2018, 12:40:26 PM »
Which is Spot date 7 or 8 th June

Offline zelmc

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Re: PSO -- Pakistan State Oil
« Reply #2045 on: June 06, 2018, 03:48:06 PM »
Which is Spot date 7 or 8 th June
Tomorrow it will open ex-div.

Online MZ

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Re: PSO -- Pakistan State Oil
« Reply #2046 on: June 14, 2018, 06:48:21 PM »
Elixir Insight

Pakistan State Oil Company Limited
Upwards Revision in LNG Margins to Raise Earnings

·         We update our investment case for PSO, revising up FY18/19 EPS by 15/18% largely owing to upward revision in LNG margins; we also roll-forward our PT to Jun-19 which now stands at PKR375/share (from PKR369/share) incorporating changes in margins and higher risk free rate assumption.

·         Owing to regulatory risk of revision in OMCs margins and deregulation of retail fuel prices, we have assumed upward revision in margins based on 50% of CPI through the investment horizon. Certainty with regards to long term policy outlook on CPI linkage can significantly improve earnings profile and valuations.

·         The stock trades at cheap FY18F/FY19F PE of 6.2x/6.1x and offers decent FY19F dividend yield of 6.6%. We have a Buy stance on the scrip as it offers capital/total upside of 13%/20% where we maintain liking for the scrip due to improved earnings profile and potential reduction in circular debt (post IMF Program entry) unlocking its value.

Upside/Downside Risks Hang in Balance: We update our investment case for Pakistan State Oil (PSO), incorporating 1) revised up OMC margins for Motor Spirit (MS), High Speed Diesel (HSD) and Liquefied Natural Gas (LNG) and 2) increase in risk free-rate assumption to 9% from 8.5% due to higher interest rate projections on rising inflationary expectations on account of recent and expected spurts of PKR/USD depreciation. Finally, we have also rolled forward our Price Target to Jun-19, increasing the PT for the stock by 2% to PKR375/share from PKR369/share previously.

Increase in OMC Margins Largely In-line with Assumptions: The government has approved 3.5%/9.5% increase in margins for MS/HSD to PKR2.64/liter each for FY19 from PKR2.55/PKR2.41 per liter. The greater increase in HSD margin is attributable to no change in its margin in Oct-17 as it was deregulated. However given the loss of profits due to unenforced deregulation, the government decided to keep it at par with MS till GST recovery mechanism is finalized. This OMC margin for retail fuels was in line with our expectation of PKR2.65/liter. Going forward, owing to regulatory risk of revision in OMCs margins in line with CPI inflation and deregulation of retail fuel prices, we have continued to assume upward revision in margins based on 50% of CPI inflation throughout the investment horizon. Certainty with regards to long term policy outlook on CPI linkage can significantly improve earnings profile and valuations.

LNG Profits to Increase but Business Continuity Remains in Question: LNG margins saw a 50% increase to 3.75% from 2.5% earlier as Ministry of Energy sought increase due to FBR refusing to withdraw 1% withholding tax on import stage. We estimate it to raise EPS for PSO by PKR8.75 (for 600mmcfd volumes) for FY19F with the post-tax earnings growth in LNG core profits expected to stand at 83% compared with 50% growth in PBT due to no change in absolute amount in tax rate.

While this move comes as a huge positive for PSO’s near term earnings, the fate of LNG business staying with PSO remains in question as the government plans to shift this business eventually to PLL; thus we have assumed that this business shall transfer to Pakistan LNG Limited (PLL) after Dec-19. Resultantly, the incremental earnings impact does not translate into significant increase in valuations.

Valuations May Rally On Circular Debt Resolution: PSO trades at cheap FY18F/FY19F PE of 6.2x/6.1x and offers decent FY19F dividend yield of 6.6%. The potential resolution of circular debt (post IMF Program entry in 2H2018) can unlock value resulting in multiple re-rating similar to last seen in a lead up to clearance of circular debt in 2013. Our revised up Jun-19 PT of PKR375/share offers capital/total upside of 13%/20% from last close implying Buy stance.