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.
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