PSO: Politics pervading profitability
As the state OMC is set to announce FY18 earnings over the weekend (11th August) we forecast tepid 4QFY18E NPAT of PkR3.54bn (EPS:PkR10.85/sh) shouldering a decline of 13%YoY/25%QoQ led by weaker GMs and mounting financial costs (spillover from foreign exchange weakness). FY18E earnings are set to rest at PkR51.42/sh (NPAT of PkR16.76bn) sliding 8%YoY despite topline growth of 17%YoY, a staggering decline in other income (down 45%YoY amidst the absence of major penal income) and a strained balance sheet keep profitability in check. Following the result and in the backdrop of a new Government being formed at the center, investor expectations are bound to shift to possible management restructuring, with repercussions on operations (market share) and profitability. Even so, in the current scenario of "professional management" professed by the incoming PTI-led government, we believe outcomes should swing to favor PSO (circular debt relief, PIA restructuring, lessening political interference) over the long term. At our TP of PkR399/sh an Accumulate stance is inferred.
Pakistan State Oil is a petroleum group based in Pakistan. Co.'s principal activities are the procurement, storage and marketing of petroleum and related products. Co. also blends and markets various kinds of lubricating oils.
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