Pakistan OMCs: Much ado about margins,(AKD Daily, Nov 11, 2019)
- After a delay of five months, Economic Coordination Committee (ECC) finally accorded approval to revision in OMC margins, setting them at PkR2.81/liter for MS and HSD for rest of FY20 (effective Dec’19) — increasing by 6.4%.
- Margin revision did not compensate OMCs for the delay where we had already incorporated margins of PkR2.77/liter for FY20 vs. now applicable weighted average margins of PkR2.74 resting lower than our estimates, pruning earnings of PSO/APL by 1.5/1% (avg. FY20-22).
- Though chances of passing the proposal for incorporation of exchange losses into the pricing mechanism remain slim (inflationary in nature), in case it does, we flag their incorporation as a material positive for HASCOL as the company imports significant portion of its products.
- PSO’s exposure to exchange rate movement is expected to increase post repayment/curtailment of FE-25 borrowings (at 18bn in Sept’19 vs. 62bn in June’19) as the GoP covers adverse exchange movements on loans arising on the facility. While, APL remains a safe bet with refinery upliftment standing at 69%.
- We maintain APL (TP: Pk369/sh, Buy) as our preferred play from the sector as unleveraged balance sheet protects the profitability from high interest rates while strong dealer network in North works as a shield against smuggling of HSD.
AKD Research
Hascol Petroleum Limited is a Pakistan-based company, which is engaged in procurement, storage and marketing of petroleum and related products. The Company is involved in the sale of petroleum products, such as fuel oil, high speed diesel, gasoline, Jet A-1, liquefied petroleum gas (LPG) and lubricants. The Company offers products, such as Tiger Super, Rocket Diesel and Furnace Oil. The Company offers Fuchs Lubricants products, which include corrosion preventives, quenching oils, industrial lubricants, open gear lubricants, greases, automotive oil and metal working fluids. The Company also markets LPG as an automotive fuel through its retail network. The Company is engaged in owning, leasing and renting oil storage facilities, as well as importing petroleum products. The Company has storage facilities at Machike, Shikarpur and Daulatpur. The Company sells its product to dealers, government agencies and autonomous bodies, independent power project and other corporate customers.
AKD Securities Ltd. is one of the leading securities firm in Pakistan, providing a comprehensive range of investor focused services, including equity brokerage, economic and securities research, investment banking and financial advisory services. AKD Securities accounts for more than 6% of the average daily value of the Karachi Stock Exchange. AKD Securities was the first brokerage house to launch an online trading platform in Pakistan in November 2002 and now has the largest market share with over 6000 customers. This has helped diversify and expand the retail investor base in the country and ushered in a whole new universe of investors to the stock market.
AKD Securities Ltd. caters to a diversified group of domestic and international institutional investors, high net worth individuals and upscale retail clients, including expatriate Pakistanis. With high quality research, unparalleled execution and distribution capability for both regular and large block trades, AKD Securities Ltd. has earned an outstanding reputation in the Pakistani securities industry.Outside of commercial banks, AKD Securities Ltd. is one of the biggest capital market firms in the country. AKD Securities is the leader in raising and providing risk capital in underwriting, market making and mergers and acquisitions in Pakistan. Good corporate governance and professionalism are emphasized throughout the firm and AKD Securities Ltd. is amongst the very few companies to have introduced a firm-wide comprehensive CODE of ETHICS, overseen by an independent compliance manager.Ultimately, our success is based on the quality of service we provide to our customers and the trust and confidence reposed in us by them. Our focus, therefore, remains on customer satisfaction at all levels in the company.
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