Author Topic: E&P, OMC, Refinery & Chemical Sector  (Read 337979 times)

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Offline Farzooq

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Re: E&P, OMC, Refinery & Chemical Sector
« Sticky post on: January 05, 2016, 04:06:16 PM »

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Re: E&P, OMC, Refinery & Chemical Sector
« Reply #1719 on: January 05, 2016, 04:06:16 PM »

Offline Farzooq

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Re: E&P, OMC, Refinery & Chemical Sector
« Reply #1720 on: March 22, 2018, 12:50:30 PM »

Pakistan Chemicals: Uptick in chemical margins to drive earnings

Petrochemical margins rally during 1QCY18 is anticipated to work in favor of Engro Polymer & Chemicals Ltd (EPCL) and Lotte Chemical Pakistan Ltd’s (Lotchem), in our view.

PVC core-delta remained almost stagnant with 1% MoM dip due to tight supply of ethylene (up 2% MoM). However, core-delta has registered 12% QoQ jump driven by upbeat PVC demand during the quarter while witnessing slight pressure in Mar’18.

Driven by better core-delta, we expect EPCL to announce earnings of PKR0.90/sh in 1QCY18 (up 4.8x QoQ). Additionally, with recent devaluation of PKR against USD, every 5% deval above our base case adds 12% to the bottom-line of EPCL.

PTA margins recorded significant boost of 22% QoQ to USD140/ton led by higher demand from downstream segments (PTA and PET). Our crude estimates suggest Lotchem may register EPS of PKR0.25-0.30/sh in 1Q18 (vs PKR0.005/sh in 4QCY17), though the stock is not actively covered.

PSF margins registered a growth of 12% MoM to USD282/ton taking 1QCY18 margins to USD250/ton (down 6% QoQ).

Petrochemical margins remained on the higher side: As per the latest weekly data, petrochemical margins remained on the higher side with Purified Terephthalic Acid’s (PTA) and Polyester Staple Fibre (PSF) margins growing by 13/9% MoM while PVC margins slightly went down by 1% MoM to USD355/ton. Detailed analysis of the commodities is provided below:

#1 Quarterly PVC margins on the uphill though dropped in March: Over the week, ethylene prices grew by 2% WoW to USD1,255/ton (as of 16th-Mar’18) led by tight supply of the commodity coupled with bullish demand. To note, several ethylene plants have gone under maintenance phase since the beginning of Mar’18 which takes ~40 days to complete. Resultantly we expect ethylene price to go up further in the near-term. On the other hand, PVC price went down by 1% WoW to USD965/ton owing to lower demand from India and China. Consequently PVC-core delta dipped to USD338/ton (down 6% WoW). On a monthly basis, PVC prices slightly went down by 1% MoM while tight supply of ethylene caused prices to surge by 2% MoM to USD932/ton.

Going forward, we expect the trend in core delta to reverse as construction activity in the USA has been on the rise. Furthermore, demand of PVC from India is also expected to pick up given seasonal factors (higher construction work during summer). In terms of ethylene price outlook, once plants start operations post maintenance lock down period, ethylene prices may soften. In the longer run, however, we foresee core delta to stabilize and progressively decline by 6-8% from current base, while remaining above USD300/ton mark.

The current scenario is expected to bode well for Engro Polymer & Chemicals Ltd (EPCL), as the core delta till 16th-Mar’18 has clocked in at USD325/ton in 1Q18 against USD289/ton in 4Q17. Resultantly, as per our rough estimates, EPCL may post earnings of PKR0.90/sh in 1QCY18 (up 4.8x QoQ).  Currently, we have a Neutral stance on EPCL with TP of PKR29/sh.

#2 PTA plant shutdown caused margins to rise: While PTA margins registered meager growth of 1% WoW to USD169/ton, it has been consistently rising this quarter. To note, a major Chinese PTA plant had undergone scheduled maintenance for two weeks causing excess supply of Paraxylene (PX) and tightening supply of PTA leading to 2% MoM dip in PX prices (USD923/ton) while boosting PTA prices by 1% MoM to USD790/ton.

During 1QCY18, PTA margins clocked in at USD140/ton (up 22/51% QoQ/YoY). We expect this to significantly enhance LotChem’s earnings and also explains upbeat performance of the stock (up 32% since Dec’17). Going forward, we expect margins to normalize with idle PTA plant commencing operations and upcoming PX plant addition to the system. Moreover prices of PTA and PX are highly correlated with crude oil price, which is expected to go down in the long run led by heightened focus on alternate energy. Though, in the short run, oil prices might continue their upward rally with OPEC supply cut anticipated to be extended till the end of 2018.

#3 Enhancement in PSF margins: On a weekly basis, PSF remained stagnant while MEG price plunged to USD875/ton (down 6% WoW) as downstream PSF have failed to pick up post Chinese new-year. Furthermore, downward movement in PTA prices led to hike in PSF margin (Up 9% WoW to USD308/ton).

PKR devaluation to play its due role: Recently, PKR lost its strength against USD (losing 3.8% on Monday to PKR115/USD). This is positive for the chemical sector as they calculate local prices based on international parity. We believe, as the raw material used by most of the manufacturers is imported, the impact of currency deval will likely be passed on to local consumers. To note, currently 13% duty is charged on international PVC prices while 3% regulatory duty is charged on ethylene. As per our estimates, every 5% deval above our base case add 10-15% to the bottom-line of EPCL over CY18-20E.

bma
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Offline Farzooq

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Re: E&P, OMC, Refinery & Chemical Sector
« Reply #1721 on: April 03, 2018, 12:36:36 PM »
OMCs: Energy product sales improve on a sequential basis
April 03, 2018 (JS Research)

As per numbers available with us, fuel product sales during the month of Mar-2018 improved by 22.8% MoM to 1,787k tons. On a YoY basis however, sales remained lower by 12.2%, mainly due to decline in Furnace Oil (FO) sales.
White Oil product sales resumed their upward trajectory with Motor Sprit (MS) sales clocking-in at 598k tons (+6.5%/13.5% YoY/QoQ) and High Speed Diesel (HSD) sales at 730k tons (+8.8%/23.5% YoY/QoQ).
Attock Petroleum Limited (APL) outperformed in the white oil segment during Mar-2018 with sequential increase of 1.1ppt in MS market share and 2.6ppt in HSD segment.
In JS OMC Universe, Pakistan State Oil Limited (PSO) and Hascol Petroleum (HASCOL) lost market share vis-a-vis Feb-2018 in both the MS and HSD segment.
We like APL (Dec-2018 Target Price: Rs768) at current levels due to its risk-return profile and lesser reliance on FO (and resultantly circular debt). In our report issued on 29 Mar-2018, we had recommended a 'Buy' stance on the company.
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Offline Hassan_Ali_Khan

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Re: E&P, OMC, Refinery & Chemical Sector
« Reply #1722 on: April 03, 2018, 01:45:56 PM »
Can anyone tell whats the problem with refineries, why is not changing with INDEX?

Offline Farzooq

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Re: E&P, OMC, Refinery & Chemical Sector
« Reply #1723 on: April 05, 2018, 12:03:56 PM »
Govt removes ban on furnace oil imports as power demand rises| (Tribune) Positive: The government has lifted the ban on import of furnace oil for running power plants and has directed state-owned Pakistan State Oil (PSO) to place orders for bringing fuel cargoes in order to meet growing electricity demand in summer.
https://epaper.tribune.com.pk/DisplayDetails.aspx?ENI_ID=11201804050145&EN_ID=11201804050050&EMID=11201804050021
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Offline hasanali

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Re: E&P, OMC, Refinery & Chemical Sector
« Reply #1724 on: April 05, 2018, 02:15:09 PM »
seniors pleas guide about atrl & pol

Offline ZafarAAA

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Re: E&P, OMC, Refinery & Chemical Sector
« Reply #1725 on: April 06, 2018, 02:37:56 PM »
POL is already over bought. ATRL may be tried this time.

Offline MZ

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Re: E&P, OMC, Refinery & Chemical Sector
« Reply #1726 on: April 10, 2018, 05:22:41 PM »
AKD Daily
 
OMCs: Lubes and Storage Update
 
Two crucial data sets regarding the OMC sector are difficult to tabulate and verify, one is regarding lubricant sales and market shares, which are excluded from monthly OCAC volumes and other is mid-stream storage infrastructure. Updating our data sets through the annual OCAC Pakistan Oil Report 2016-17, we observe: 1) 47.9%YoY increase in lubricant sales volumes for FY17 steered by 73%YoY rise in passenger motor car lubricant sales, 2) SHEL maintaining leadership in the segment (44% market share), and 3) total storage infrastructure for POL products growing by ~131k tons, up ~4%YoY. In-line with expectations of an FO-lite future, these data sets show that the OMC space (listed players at the least) are ready to put power sectors consumers (and accompanying arrears) in the rear view. Re-iterating strong retail dynamics furthered by core drivers (motor vehicles on road/total industry sales climbing +4.4/+17.9%YoY for FY17), we remain upbeat on the sector with APL offering the highest upside (~20% to DCF based TP of PkR725/sh) at current levels.              .
 
Continuing to meet healthy demand: Illustrating key industry data points concerning storage additions and lubricant volumes, we focus on changes to market structure, while emphasizing capital additions to support retail expansions. Salient features of these data sets include: 1) 47.9%YoY increase in lubricant sales volumes for FY17 where PSO/HPL/APL raised volumes by 27.5/26.3/21.5%YoY on the back of 73%YoY rise in passenger motor car lubricant sales, 2) market shares in the lubricant segment remain sticky, with SHEL leading the pack (44% market share), and 3) total storage infrastructure for POL products growing by ~131k tons, up ~4%YoY where additions were primarily made by OMCs in their upcountry depots (~109k tons of storage added, +22.2%YoY).
 
Preparing for life after FO: Although the numbers reported are in no way comprehensive (company wise storage data excludes leased facilities, lubes data has other companies including HTL missing) for our coverage universe, self-reported data by OMCs shows the continuation of an aggressive CAPEX upcycle, further inroads into transport-led demand and an industry yet to initiate any large scale price-based competition. In-line with expectations of an FO-lite future, these data sets show that the OMC space (listed players at the least) are ready to put power sectors consumers (and accompanying arrears) in the rear view.
 
Outlook: Re-iterating strong retail dynamics furthered by core drivers (motor vehicles on road/total industry sales climbing +4.4/+17.9%YoY for FY17), we remain upbeat on the sector with APL offering the highest upside (~20% to DCF based TP of PkR725/sh) at current levels. On a concluding note, plans for an additional white oil pipeline are vital for rationalizing storage costs, counter transporter lobbies and resolve safety concerns over OMC fleets, giving room to further competition based on price in the long run.

Offline MZ

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Re: E&P, OMC, Refinery & Chemical Sector
« Reply #1727 on: April 18, 2018, 07:43:41 PM »
AKD Daily
 
OMC’s: 1QCY18 Retail Operations Update
 
Transportations sector demand continues to remain firmly in the driver seat for OMC volumes, as power sector demand takes the long spiral down (secular, gradual decline in FO sales, where we expect FY19-21F sales declining at CAGR of 21%). Throughput calculations suggest an uptrend in retail volumes moved, where the industry's average quarterly volume sales per outlet stood at 828.6K ltrs/outlet (+18%QoQ/+10%YoY). Daily average throughput per retail output clocked at 9,207ltrs/day where 10.3%YoY climb drives home the growth of supply chain and storage to buttress growing retail POL volumes. HASCOL/APL/SHEL/PSO added 10/6/5/13 outlets QoQ, where PSO seems to have completed the consolidation phase initiated by current management in CY16 and is enacting a retail-led penetration tactic. Prominence of transport demand makes retail level data increasingly germane to outlooks, forecasts and stance on the sector at large. Moreover, aspects of operations such as outlet additions, average sales throughput underpin an OMC’s strategy, supporting CAPEX plans, fuel availability, and market share movements (in a post-FSA world).
 
Retail outlet update: For 1QCY18, retail outlet additions were made by all listed players signaling the end of a period of consolidation in the industry's retail operations, standing at average additions of ~9 outlets vs ~4 outlets for 4QCY17. HASCOL/APL/SHEL/PSO added 10/6/5/13 outlets QoQ, where PSO seems to have completed the consolidation phase initiated by current management in CY16 and is enacting a retail-led penetration tactic.
 
Quarterly product volumes rise: Throughput calculations suggest an uptrend in retail volumes moved, where the industry's average quarterly volume sales per outlet stood at 828.6K ltrs/outlet (+18%QoQ/+10%YoY). Average quarterly throughput for HASCOL/APL/SHEL/PSO reached 1,424K/745K/631K/515K ltrs/outlet where HASCOL remains 72% more and PSO moves 38% less than the industry average. In this backdrop, PSO's quarterly throughput remains below its trailing twelve month average of 557.6k ltrs/outlet showing space for further consolidation of retail outlets. HASCOL continues to outpace the industry, where discounts continue to play a role in attracting demand, while retail outlets and storage additions continue to enhance volume penetration (trailing twelve month average of 1,343.3k ltrs/outlet). Daily average throughput per retail output clocked at 9,207ltrs/day where 10.3%YoY climb drives home the growth of supply chain and storage to buttress growing retail POL volumes.            .
 
Outlook: Prominence of transport demand makes retail level data increasingly germane to outlooks, forecasts and stance on the sector at large. Moreover, aspects of operations such as outlet additions, average sales throughput underpin an OMC’s strategy, supporting CAPEX plans, fuel availability, and market share movements (in a post-FSA world). Cash based retail sales are a boon for the stressed balance sheet of PSO, where current price levels offer 17% upside to our FCFF based TP, implying an Accumulate stance.

Offline ABNEIQBAL

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Offline Farzooq

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Re: E&P, OMC, Refinery & Chemical Sector
« Reply #1729 on: May 03, 2018, 01:34:06 PM »
OMCs: Apr-2018 sales volumes show strong sequential improvement
May 03, 2018 (JS Research)

Our channel checks suggest strong growth in liquid fuel sales of 4.3% MoM (1,864k tons during Apr-2018 vis-a-vis 1,787k tons in Mar-2018).
Motor Spirit (MS) sales improved by 14.8%/8.8% YoY/MoM to clock-in at 651k tons during the month. Hascol Petroleum (HASCOL) remained the major outperformer with 63.9% YoY increase in volumes.
High Speed Diesel (HSD) sales on the other hand, declined by 3.7% YoY but improved sequentially by 5.5% MoM to clock-in at 770k tons. HASCOL outperformed in this segment as well.
Furnace Oil (FO) sales suffered, declining by 52.8% YoY. On a sequential basis however, numbers improved by 0.7% MoM to clock-in at 370k tons.
We have 'Buy' rating on all four oil marketing companies namely Pakistan State Oil (PSO, TP: Rs458), Attock Petroleum (APL, TP: Rs768), HASCOL (TP: Rs372) and Hi-Tech Lubricants (HTL, TP: Rs116) as we firmly believe that demand growth will continue on the back of ongoing work on China Pakistan Economic Corridor (CPEC).
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Offline MZ

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Re: E&P, OMC, Refinery & Chemical Sector
« Reply #1730 on: May 03, 2018, 10:34:18 PM »
AKD Daily
 
OMC: Rising prices and FO decline pressure volumes
 
April POL product offtake amounts to 1.86mn tonnes moving +4%MoM but slowing -16%YoY largely from halving of FO volumes (+1%MoM/-51%YoY) where ex-FO the industry endured stable volumes (+2%YoY/+5%MoM). Cumulative product volumes for 10MFY18 stood at 20.08mn tonnes lower by 5%YoY where secluding the secular slowdown in FO sales (-23%YoY) gives us total industry volume growth of 5%YoY, led by MOGAS/HSD sales growth of 10%/2%YoY. During a period where pump prices for MOGAS/HSD have climbed 11.0/12.2% CYTD to reach a 4MCY18 average of PkR85.02/95.16/ltr, an ascent of +21%/+20% from average pump prices during 4MCY17, the possible suppression of discretionary demand can’t be ruled out as both segments approach their summer seasonal upswings. OMC-wise market shares for listed players remained range-bound with PSO/APL/SHEL reaching market shares of 41.4/10.9/8.3% for April'18 (vs. 39.3/11.8/7.9% during March'18) while that of HASCOL grew to 15% (vs. 13.7% for March'18) of total product volumes with its share in MOGAS jumping to 15.6% (vs. 12.0% last month). We retain our BUY call on PSO which trades at appealing FY18E/19F P/E of 5.9x/6.3x.
 
Rising pump prices stifle retail demand: The staggering rise in retail pump prices continues to mimic larger trends in global oil prices (Arab light rising 8.5%CYTD) and cumulative PkR devaluation of ~9% along with higher GoP revenues (in the form of Petroleum Levy and Sales Tax). During a period where pump prices for MOGAS/HSD climbed 11.0/12.2% CYTD to reach a 4MCY18 average of PkR85.02/95.16/ltr, an ascent of +21%/+20% from average pump prices during 4MCY17, the possible suppression of discretionary demand can’t be ruled out as both segments approach their summer seasonal upswings. To that end, for 4MCY18 ex-refinery (cost of PSO's import) average ~78%/61% of HSD/MOGAS pump prices vs. 70.0%/60.5% during SPLY shows the negligible room for any additional price pass-on including possible rise in PDL as envisioned by the FY19 Budget.
 
Market shares more erratic: Cumulative 10MFY18 volumes show slide in market shares for PSO (50.8% vs. 55.1% in 10MFY17) and SHEL (6.6% vs. 9.4% SPLY). For PSO, share in FO was a major dampener, where its market share dipped 600bps while SHEL lost out on HSD demand (falling 480bpsYoY). Amongst listed OMCs growing their shares, APL/HASCOL have cumulative shares of 8.6/12.0% vs. 7.8/8.4% during 10MFY17 where HASCOL continued to outpace competition.
 
Investment Perspective: We retain our BUY call on PSO as pre-Ramzan debt clearance becomes increasingly likely, providing room for clearing high cost short term borrowing and clarity on refinery prospects emerge in light of announced package accompanying Budget FY19.

Offline Farzooq

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Re: E&P, OMC, Refinery & Chemical Sector
« Reply #1731 on: June 04, 2018, 11:56:06 AM »
OMCs: Fuel sales post encouraging improvement on a sequential basis
June 04, 2018 (JS Research)

As per sources, fuel sales during May-2018 posted increase of 31% MoM to clock-in at 2,449k tons. On a YoY basis however, sales remained 1% YoY lower.
Motor Spirit (MS) sales showed improvement of 5% YoY to clock-in at 637k tons. On a sequential basis however, this translates into a decline of 2% MoM.
High Speed Diesel (HSD) sales remained flat as compared to May-2017 but improved as compared to Apr-2018 by 15% MoM to clock-in at 889k tons. 
This month's star performer was Pakistan State Oil Limited (PSO) with sequential improvement of 11.1ppt in market share in fuel sales. The company showed the highest increase vis-a-vis Apr-2018 (+66% MoM).
PSO's outperformance was broad based as it bounced back to regain lost market share in MS (+2.6ppt MoM) and HSD (+1.2ppt MoM) as well.
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Offline MZ

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Re: E&P, OMC, Refinery & Chemical Sector
« Reply #1732 on: June 05, 2018, 06:14:57 PM »
AKD Daily
 
OMCs: Old habits die hard
 
Seemingly touted as a last resort, consistently high power demand shortfalls in the face of delayed on-boarding of new capacity meant reliance on FO, raising demand for the fuel by +132%MoM/-1%YoY to 0.86mn tonnes, near historical averages. Consequently, total industry sales for May'18 reached 2.45mn tonnes +31%MoM/+1%YoY where ex-FO total industry sales were +7%YoY. Retail segments remained strong, with MOGAS/HSD sales at -2%/+15%MoM and +4%/+2%YoY. Cumulative 11MFY18 volumes stood at 22.5mn tonnes was lower by -4%YoY (+4% ex-FO sales), where growth in HSD (+9%YoY at 8.38mn tonnes) and MOGAS (+9%YoY at 6.74mn tonnes already exceeding FY17 total) failed to bridge the gap left over from FO's decline (-21%YoY, decline of ~1.7mn tonnes). Market shares during the period for PSO/HASCOL/APL were 51.0/12.0/8.6% vs. 55.0/8.6/7.9% during 11MFY17.
 
Retail demand sustains: During the month retail fuels continued to drive sales growth (MOGAS sales up +4%YoY), while reversion to FO sourced power during peak power demand season furthered FO sales (higher by 132%MoM/-1%YoY). On a cumulative basis, 11MFY18 sales growth was sustained by transportation/retail fuels (MOGAS/HSD sales rose 9/2%YoY). In this regard, major source of higher demand is on the coat tails of higher infrastructure activity, heavy commercial vehicle sales and growth of commercial transport.
 
Market shares move: Company wise sales indicate some headwinds in PSO's strategy to regain market share (sales for May'19/11MFY17 were +110bpsMoM/-400bpsYoY). On a 11MFY18 basis, PSO/APL continued to grow in retail segments, recording MOGAS offtake growth of +9/+12%YoY and HSD offtake moving -3/0%YoY, signifying relative stability. Growth in HASCOL's volumes continued to outpace the industry, with MOGAS/HSD offtake for 11MFY18 rising 37/44%YoY continuing to wade out the low-base, yet maintaining growth at a clip, unmatched in recent times. Suffice it to say, HASCOL's growth remains the most exciting in the space, where the ~674,000 tons of increased volumes sold during the period is the highest in the industry, particularly cogent in the backdrop of total industry volume decline.
 
Outlook: For the outgoing month, aided by FO sales, PSO clocked volumetric growth of +66%MoM, near levels of past year (-2%YoY), improving market share in the process (at 52.5% for May'18 up 111bpsMoM). Reported release of PkR50bn in power sector dues adds to short term spark to profitability, possibly opening room for booking other income. At these levels the stock offerrs attractive valuations (FY18E/19F P/E of  6.1/5.7

Offline MZ

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Re: E&P, OMC, Refinery & Chemical Sector
« Reply #1733 on: June 14, 2018, 06:53:14 PM »
AKD Daily
 
OMCs: Turbulent end to FY18 is not of their own making
 
A shaky start to June'18 has materialized in the form of some negative developments for domestic OMCs, namely: 1) sustained hike in cost of supply signified by Jun'18 ex-refinery prices for MS/HSD rising 10/18%MoM and 47/66%YoY - the highest point in 3.5yrs and 2) domestic POL price levels hiked through raising GST (now at 10.7/14.4% of selling price for MS/HSD) taking cumulative MS/HSD pump prices to rise by 18.7/22.5% CY18TD. At the forefront is the weakening of marginal consumption and hampered discretionary demand for retail fuels. Additionally, the recent mid-month weakening of the PkR vs US% of ~4% opens OMCs to additional weakness from exchange losses, as regional crude benchmarks indicate little room for inventory-based gains (except for de-regulated FO). Moreover, our back of the envelope calculations suggests exchange losses at PSO/HASCOL/APL to amount to PkR0.61/0.92/0.88/sh for 4QFY18/2QCY18E. PSO continues to appeal on the back of continuation of RLNG shipments (segment to near MS's contribution to GP, covering up the demise of FO), possible RLNG margin hike and FE-25 arrangements (even if receivables are raised for PkR depreciation). At our current TP of PkR399/sh, PSO offers an upside of 22% from current price level.
 
Margin hike not a done deal: The ECC has reportedly recommended to raise the OMC margin on HSD/MS by PkR0.23/0.09/litre to PkR2.64/litre each (vs. PkR2.41/2.55/litre previously) and dealer margin on HSD/MS by PkR0.26/0.12/litre to PkR2.93/3.47/litre (vs. PkR2.67/3.35/litre previously). Additionally, the ECC has recommended to raise PSO/PLL margin on LNG from 2.50% at present to 3.75%. Applicable from FY19F, we await notification of the same to incorporate these into our estimates. Citing events leading to a reluctant margin indexation during FY18, we believe these measures may be anything but smooth sailing, with final say on OMCs and dealer margin indexations being left to the incoming Government.
 
FY19F margin hike impact: Crystallization of margin hikes for FY19F are on cue and incorporated as a part of CPI-linkage in our forecasts. To that end, reported doubling of LNG margins are particularly value accretive for PSO to tune of ~PkR6.25/sh, while the incremental impact on APL and HASCOL comes out to be negligible (as we had already linked retail fuel margins to CPI inflation in our models). Additionally, the levy of 1% non-refundable WHT on LNG cargoes at import stage against normal tax on profit previously leaves immense room for NM accretion, despite significant growth in RLNG volumes (34.1%YoY for 9MFY18 at 3.3mn tonnes) where we have assumed sustained peak RLNG volume of 4.2mn tonnes moved annually. 
 
Devaluation is a dampener: PkR devaluation at the tail-end of FY18 is an added dampener for the sector where regional crude benchmarks indicate little room for inventory-based gains (except for de-regulated FO). Moreover, our back of the envelope calculations suggest that recent PkR depreciation (at PkR119/US$) can lead to exchange losses for PSO/HACOL/APL translating into a negative impact of PkR~200mn/132mn/~73mn (PkR0.61/0.92/0.88/sh) on profitability for 4QFY18/2QCY18E.  We await any mitigating measures (mid-month price hike of ex-refinery component) and stability on the external front to incorporate the same in our forecast.

Offline Farzooq

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Re: E&P, OMC, Refinery & Chemical Sector
« Reply #1734 on: June 20, 2018, 11:27:17 AM »
Pakistan Chemicals: Margins showed a mixed trend in 2Q; LOTCHEM to outshine

Petrochemical margins have exhibited a mixed trend in 2Q18 where PVC and PSF margins went down by 16/21% YoY respectively, while PTA margins have bolstered by whopping 65.5% YoY to USD176/ton.
We expect drop in PVC margins (down 2.3% QoQ to USD320/ton) along with extension of super tax and absence of one-off seen in 1Q18 to drag EPCL’s earnings by 56% QoQ (EPS of PKR0.67/sh based on new number of shares).
On the other hand, 19.2% QoQ rally in PTA margins (led by higher downstream demand and improved buying from China) may lead to 38% QoQ jump in LOTCHEM’s bottom-line (2Q earnings expected to clock-in at PKR0.56/sh).
Recent round of PKR devaluation may bring good fortunes for chemical stocks where our sensitivity analysis suggests a positive impact of 10-17% on BMA chemical universe’s bottom line for every 5% deval above our base-case.
We maintain our Buy call on LOTCHEM with TP of PKR13.5 while an Underperform stance on EPCL with TP of PKR29.4.

Petrochemical margins took a hit WoW: As per the latest weekly update, petrochemical margins exhibited a mixed trend where Polyvinyl Chloride (PVC) and Polyester Staple Fibre (PSF) margins went down by 0.8/13.4% WoW, respectively while Purified Terephthalic Acid (PTA) margins recovered by 4.1% WoW. Detailed analysis has been provided below:

#1 PVC margins on the downhill in Jun’18: On a weekly basis, ethylene prices went up by 2% WoW to USD1,255/ton (as of 15th-Jun’18) led by persistently tight supply coupled with bullish buying trend. We highlight, several ethylene plants have undergone regular maintenance since the beginning of Jun’18 which usually takes ~40 days to complete hence plants may resume production by mid Jul’18. Resultantly in the near-term, ethylene prices may rally. Similar to the trend seen in ethylene prices, PVC prices during the week went up to USD935/ton (up 1.1% WoW) driven by stronger import offers from the overseas producers, along with bullish buying trends witnessed across the region. Consequently, PVC-core delta plunged by 0.8% WoW to USD308/ton. On a monthly basis, PVC prices have remained stagnant at USD926/ton during Jun’18 while ethylene prices surged to USD1,237/ton (up 3.9% MoM) causing core delta to plunge to USD308/ton (down 6.9% MoM).

On an aggregate basis, PVC-core delta during 2QCY18 went down by 2.3% QoQ primarily due to PVC prices nose diving during Apr’18 to USD930/ton led by steep drop in import offers, since then PVC prices have hovered in the range of USD925-935/ton. On the other hand, ethylene price dipped to USD1,230/ton (down 1% QoQ), primarily due to induction of new crackers in the USA. In the near-term, we expect PVC margins to remain range bound while our long term assumption of margin normalization remains intact. Incorporating the updated margins, we expect Engro Polymer & Chemicals Ltd’s (EPCL) to post 2Q earnings of PKR0.67/sh (down/up 56%/2.05x QoQ/YoY; based on new number of shares), driven by (i) drop in core delta, (ii) extension of super tax, (iii) normalization is volumes during 2Q, and (iv) absence of one-off seen in 1Q (PKR0.30/sh impact on after tax basis).

#2 PTA margins bolstered in Jun’18: PTA margins during Jun’18 rallied up to reach USD201/ton (jump of 21.8% MoM) led by 3.2% MoM recovery in PTA price to USD850/ton, triggered by improved buying interest from China. Furthermore demand from downstream PET segment also remained on the higher side. On the other hand, Paraxylene (PX) prices went down by 1.5% MoM to USD977/ton due to bearish upstream energy values coupled with sluggish demand outlook. On a quarterly basis, margins have improved by 19% QoQ to USD176/ton due to improved demand for PTA (up 6.4% QoQ).

The uptick in PTA margins is expected to bode well for Lotte Chemicals Pakistan Limited (LOTCHEM) and is the primary reason for the scrips outperformance (up 25.5% in 3mnths). Following the margins trend and recent round of PKR deval, we expect LOTCHEM’s 2Q earnings to improve by 38% QoQ to PKR0.56/sh.

Overall, in the long run we expect margins to normalize while remaining above USD110/ton level as idle PTA plants commence operations along with induction of planned PX plants. Furthermore higher correlation with crude oil prices also hints towards normalization in margins as heightened focus on alternate energy is anticipated to put pressure on crude oil prices.


#3 PSF margins nosedived: On a weekly basis, PSF margins took a hit of 13% WoW to land at USD236/ton while MEG prices surged up by 2.1% WoW to USD855/ton along with 0.6% recovery in PTA prices followed by superior demand from China. On a QoQ basis, PSF margins recovered marginally by 1.8% QoQ to USD259/ton, which may bode well for ICI Pakistan, in our view. 

Bleeding PKR to push chemical producer’s performance: PKR has been under pressure when compared to USD since the start of this month (4.7% since 8th-Jun’18). PKR devaluation bodes well for chemical sector as their local prices are based on international parity. Our sensitivity analysis on impact of 5% deval (above our basecase) on BMA Chemical Universe suggest 10-15% upside in EPCL’s earnings while for LOTCHEM the positive impact may range between 12-17% during CY18-21E. We maintain our BUY call on LOTCHEM with TP of PKR13.5 while an Underperform stance on EPCL with TP of PKR29.4.

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Offline Farzooq

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Re: E&P, OMC, Refinery & Chemical Sector
« Reply #1735 on: June 25, 2018, 11:36:49 AM »
Pakistan Strategy: OGRA’s decision on two Suis; -ve for industries, +ve for E&Ps

Details in Oil & Gas Regulatory Authority’s (OGRA) decision for Estimated Revenue Requirement (ERR) 2018-2019 for the two Suis (SNGPL & SNGP) are Positive for E&Ps, Negative for Industries (Chemical, Cement, Steel, Textile &Ferts) and broadly Neutral for Suis.
While OGRA has proposed a steep 200-300% rise in consumer prices, the proposed hike also includes the partial impact of revenue shortfall faced over 2017-2018 due to lack of price hike.
OGRA’s proposal is not binding on the government and as such the govt. is expected to notify price hikes within 40 days. We believe hike in consumer price may come ahead of our earlier estimates of 7% to 15-20% in Jul-Dec’18.
The anticipated increase in wellhead gas price based on OGRA’s data used in ERR suggests 11-23% hike in wellhead gas prices in FY19, ahead of our estimates. We estimate 11/9/3/2% earnings sensitivity for PPL/MARI/POL/OGDC for FY19E.
We reiterate our Buy rating on PPL, MARI, EFERT, LOTCHEM, EFERT, FFC (pricing power), FATIMA, LUCK, ASTL & ISL (margin pressure broadly built-in).
OGRA’s decision on gas price hike unveiled: The Oil & Gas Regulatory Authority (OGRA) has given its decision on the petition of Sui Northern Gas Pipelines Limited (SNGPL) and Sui Southern Gas Company Limited (SSGC) relating to Estimated Revenue Requirement (ERR) for the period of 2018-2019 on 21st-Jun’18. Key features of OGRA’s decision include:

OGRA’s decision takes into account revised market based return for the two Suis and incorporates return of 17.43/17.43% for SNGP and SSGC.
In terms of Unaccounted for Gas losses (UFG), the decision builds in 6.3% losses vs previous benchmark of 5%. Interestingly, SNPGL and SSGC had petitioned for 10.87/13.6% UFG losses in 2018-2019.
The decision also allows 50% exclusion of certain heads of non-gas income from operating profit as per the new tariff regime.
In terms of Weighted Cost of Gas (WACOG), OGRA has incorporated USD62/bbl and PKR119.75/USD in its calculation for FY19 wellhead gas prices. Combination of higher UFG disallowance and significant jump in WACOG is estimated to result in PKR9.9/PKR13.9bn unabsorbed UFG losses for the two Suis in FY19. In terms of context, UFG losses are calculated at 47/112% of regulated returns (defined as 17.43/17.3% of EBIT as a percentage of net average operating assets for SNGPL/SSGC respectively).
OGRA has allowed PKR67.8/11.1bn operating capex for the two companies applicable for calculation of regulated return vs petition amount of PKR92.6bn/PKR26.19bn for SNGPL and SSGC respectively.
In both cases, OGRA has disallowed interest expense (PKR4,019mn/PKR1,930mn) relating to RLNG transportation segments which has been ring-fenced with other operating assets/expenses.

While the two Suis are not under our coverage, however our back of the envelop calculation suggests PKR10-11/PKR0.8-0.9/sh EPS for SNGPL and SSGC respectively for FY19 based on EER. We sense the risk to earnings for both Suis is on the downside due to WACOG and other incidentals. Based on our preliminary estimates for FY19, SNGP and SSGC trade at FY19E P/E of 10x & 37x respectively.
Steep increase in consumer prices proposed: While OGRA has proposed a steep 200-300% rise in consumer prices, the proposed hike also includes the partial impact of revenue shortfall faced over 2017-2018 due to lack of price hike. OGRA’s proposal is not binding on the government and as such the govt is expected to recover past shortfall in a staggered manner. We believe hike in consumer price may come ahead of our earlier estimates of 7% to 15-20% in Jul-Dec’18. Along with EER, OGRA has also stressed upon the need to eliminate the cross subsidy on different sectors (likely), rationalize gas prices for domestic consumers to better reflect the cost of gas (partial consideration to proposal likely) and consider withdrawal of GIDC on gas cost (unlikely to be considered for now).

Sector-wise impact of latest ERR

E&Ps- Positive: Going by OGRA’s data on average oil prices and exchange rate, the increase in wellhead gas prices for E&P companies is estimated at 11-23% for major fields, modestly ahead of our existing estimates of 8-15%. The anticipated increase in wellhead gas price will likely benefit gas-heavy E&P companies more than oil-heavy companies. We estimate 11/9/3/2% earnings sensitivity for PPL/Mari/POL/OGDC for FY19E.

Fertilizers- Negative: We opine that manufacturers such as Fauji Fertilizer Company (FFC) and Fauji Fertilizer Bin Qasim (FFBL) would be most impacted by any increase in gas prices whereas Engro Fertilizers Limited (EFERT) and Fatima Fertilizers Limited (FATIMA) would be least impacted due to fixed price, concessionary gas available to them. For every 20-30% increase in feedstock and fuel stock gas prices, bottom-line of BMA fertilizer universe is likely to shrunk by 1-11% for CY18E. However, any increase in gas prices would strengthen the case for further increase in fertilizer prices and manufacturers are likely to pass on impact of increase in gas prices, in our view. Nitrogenous fertilizer manufacturers enjoy greater pricing power as domestic urea prices currently trade at 16% discount to int’l prices, whereas, sole DAP manufacturer, FFBL, may find it difficult to completely pass on impact of increase in domestic gas prices (albeit limited impact for DAP due to lower gas requirement of product) as its price is influenced more by int’l prices and exchange rates.

Chemical- Negative: Chemical production is highly energy intensive. Based on ERR published by OGRA, we ran sensitivity analysis on BMA Chemicals Universe where 15% hike in gas prices may lead to downward pressure on Lotte Chemical Pakistan Ltd (LOTCHEM) and Engro Polymer & Chemicals Ltd (EPCL) earnings in CY18 by 6/9%, respectively. 

Textile: Increase in gas tariff would have a limited impact on textile sector as most of the listed textile manufacturers are located in Punjab which have high proportion of RLNG in total gas consumption. However, South based textile players would be significantly impacted due to complete reliance on grid gas. Within BMA textile space, Nishat Mills Limited (NML) would be nominally impacted (~1%) due to aforementioned reason, whereas, Nishat Chunian Limited (NCL) would not be impacted due to its complete reliance on coal based power generation.

Cement- Negative: The impact of any increase in gas prices for captive power plants will be limited for cement manufacturers given most of the players with access to gas-based CPPs are based in Punjab (including MLCF, DGKC, GWLC, FCCL, BWCL) where RLNG rate is charged for gas usage and hence the latest development bears no impact for them. Amongst the players in KPK and South region, Lucky Cement (LUCK), Cherat Cement and Thatta Cement appears to be the most impacted where our analysis suggest 3-5% pruning in LUCK’s FY19E standalone earnings of PKR36.35/sh.

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Offline Farzooq

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Re: E&P, OMC, Refinery & Chemical Sector
« Reply #1737 on: July 03, 2018, 11:51:05 AM »
Pakistan Oil & Gas Marketing: Growth deceleration kicked in; margin outlook improves

OMC sales grew by 7% YoY (ex-FO) during FY18 driven by strong demand fundamentals. However, the same has failed to translate into market performance where the sector underperformed the index by 12% on relative basis in 12-mth.
A key highlight of FY18 was a steep drop in FO demand (down 25% YoY) owing to change in power generation mix post commissioning of new RLNG and coal based power plants.
HASCOL outperformed with 65% YoY growth in volumes and 4.8ppt jump in market share to 12% (claiming 2nd position in industry) while PSO lagged behind with sixth consecutive drop in overall market share to 51% in FY18.
The recent revision in MS and HSD margins for OMCs although much anticipated, bodes well for the sector where above-expected jump in HSD margins provides an upside of 2-3% for BMA OMC universe. Any development on revision in LNG margins by 50% may benefit PSO (12-13% bottom-line impact).
Looking ahead, we expect the pace of industry demand growth to slow down. PSO may continue to struggle on its market share. We have a Neutral rating on PSO with TP of PKR360 (blended valuation).
FY18- A sudden shift in FO demand dragged overall growth: OMC sales took a hit in FY18 (down 5% YoY to 24.5mn tons) courtesy the sudden shift in FO demand (comprise 30% of total industry sales) following abrupt closure of 4,250MW power capacities in Nov’17 (the plants however recommenced operations from Mar’18 as power demand picked up due to seasonality). Barring the 25% YoY decline seen in FO volumes, the industry sales recorded a jump of 7% YoY in FY18, mainly driven by 11% and 6% YoY growth in Motor Spirit (MS) and High Speed Diesel (HSD), respectively. Improved economic activity, better agronomics and record high growth in auto sales (21% in 11MFY18) led to the surge in white oil sales. Lower increase in POL prices (29% YoY for HSD and 26% for MS) mainly due to election year considerations despite 69% YoY jump in int’l oil price also supported white oil demand growth.

HASCOL- the most aggressive; big fishes continue to lose: Keeping its aggressive growth strategy intact, Hascol Petroleum Ltd (HASCOL) managed to increase its market share from 6.9% to 11.7% in FY18 (second highest after PSO) mainly driven by penetration in white oil market (HSD/MS share improved by 6/4.5ppt to 15/13%). Byco Petroleum (BYCO) and Attock Petroleum Limited (APL) followed suit with 2.6/0.6ppt jump in market share (4.4/8.7% in FY18 respectively). On the other hand, the bigger fishes continued to lose their market share where PSO’s share dropped sixth year in a row (down by 4.8ppt to 50.5% in FY18), mainly due to drop in FO sales (PSO commands 68% market share). Shell Petroleum (SHEL) followed the footsteps of the market leader PSO with 2.5ppt drop in market share (to 6.7% in FY18) courtesy restricted growth in retail outlets and lack of management commitment.

CPI linkage provides natural hedge to margins: OGRA has recently approved upward revision in both MS and HSD margins (based on CPI linkage), effective from 1st-Jul’18. Margins for MS rose by 4% to PKR2.64/ltr while margins for HSD increased by 10% (compensating for the delay in deregulation process). While our estimates already incorporate linkage of margins to CPI and hence there is no earnings impact for change in MS margins. However, as per our estimates, the above expected rise in HSD margins translates into 2-3% uptick in bottom-line for PSO and APL. To note, the Economic Coordination Committee (ECC) in its last meeting also approved 50% jump in LNG margins from 2.5% to 3.75% to be effective from Jul’18, however no official notification has yet been issued on the same. To this end, PSO remains the sole beneficiary of rise in LNG margins where, if approved, a jump of 12-13% can be seen in company’s bottom line.

We eye slowdown in demand growth: Looking ahead, we believe the overall industry sales volume may continue to decline in the upcoming year (22.4mn tons expected for FY19, reflecting a drop of 9% YoY) mainly due to drop in black oil volumes (44% YoY drop expected as cheaper coal and LNG replace FO-based power generation). In terms of white oil market, the changing dynamics and budgetary measures may slowdown the pace of demand growth (expect 6% YoY growth) given: (i) likelihood of slowdown in economic activity, (ii) the upward trend in POL prices (prices for MS and HSD have already jumped by 8% and 13% in Jul’18), (iii) water shortage issues leading to lower crop yield and hence slower agri growth, (iv) possibility of cut in PSDP leading to low infrastructure activity, (v) recent budgetary measures negatively effecting auto sales growth where non-filers have been barred from purchase of automobiles, and (vi) lifting of ban on import of CNG kits after eight years providing a substitute to petrol demand in the backdrop of rising prices.

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Offline Farzooq

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Re: E&P, OMC, Refinery & Chemical Sector
« Reply #1738 on: July 03, 2018, 11:52:44 AM »
OMCs: Increasing oil prices weigh down on demand - fuel sales down 22% MoM
July 03, 2018 (JS Research)

As indicated by Oil Companies Advisory Committee (OCAC) data, fuel sales during Jun-2018 declined by 9%/22% YoY/MoM to clock-in at 1,903k tons.
Motor Spirit (MS) sales showed improvement on a YoY basis of 9%. However, on a sequential basis, MS sales declined by 4% MoM to clock-in at 614k tons.
High Speed Diesel (HSD) and Furnace Oil (FO) sales also plummeted by 9%/34% YoY/MoM and 24%/25% YoY/MoM to stand at 589k tons and 645k tons respectively.
In terms of overall energy fuel sales, Attock Petroleum (APL) posted relatively better performance as compared to other mainstream OMCs during Jun-2018.
Overall, during FY18, total energy fuel sales posted decline of 4% YoY to clock-in at 24,256k tons mainly because of muted FO sales. Hascol Petroleum (HASCOL) remained a standout in FY18.

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Offline stuka

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Re: E&P, OMC, Refinery & Chemical Sector
« Reply #1739 on: July 03, 2018, 01:51:06 PM »
OMCs: Increasing oil prices weigh down on demand - fuel sales down 22% MoM
July 03, 2018 (JS Research)

As indicated by Oil Companies Advisory Committee (OCAC) data, fuel sales during Jun-2018 declined by 9%/22% YoY/MoM to clock-in at 1,903k tons.
Motor Spirit (MS) sales showed improvement on a YoY basis of 9%. However, on a sequential basis, MS sales declined by 4% MoM to clock-in at 614k tons.
High Speed Diesel (HSD) and Furnace Oil (FO) sales also plummeted by 9%/34% YoY/MoM and 24%/25% YoY/MoM to stand at 589k tons and 645k tons respectively.
In terms of overall energy fuel sales, Attock Petroleum (APL) posted relatively better performance as compared to other mainstream OMCs during Jun-2018.
Overall, during FY18, total energy fuel sales posted decline of 4% YoY to clock-in at 24,256k tons mainly because of muted FO sales. Hascol Petroleum (HASCOL) remained a standout in FY18.

Farzooq bhai long time no value buy share........... like sazew etc :thanks: :thanks:
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