MOL - Q4: Integrated model worked

MOL - Instant Earnings Comment

Recommendation: Accumulate (unch.)

Target price (12-month): 3400 (unch.)

Current share price: HUF 2,040

 

Integrated model worked 

 

Summary:

 

• We see similar pattern to other oil and gas companies, strong CCS EBITDA but disastrous bottom lie due to inventory and somewhere FX losses or impairments. MOL is not an exception, the Q1 figures beat the Q1 CCS EBITDA consensus significantly (+15%) but due to losses on inventory and unrealized FX (in total of HUF 155bn losses = HUF 68bn inventory losses and HUF 120bn FX losses) missed the bottom-line by ca. 128%. Better than expected CCS EBITDA arrived from better DS segment HUF17.5bn (+24%) compared to the consensus.  FY EPS arrived to HUF -68 per share. Negative share price reaction can happen as the bottom line looks more ugly than investors had expected (HUF -48bn vs HUF 24bn), BUT since these are only non-cash losses AND the FX LOSSES is due to accounting issues (losses are went via P&L but, asset side of the FX gain went via Other Comparative Income), share price should recover, in our view.

 

• All in all, result is mixed as CCS Clean EBITDA is very impressive (significantly beat the consensus + 15%), but FX losses are ugly. We believe that investor should concentrate on cash flows (CCS EBITDA) rather inventory and FX losses as those could reverse later the year. On a positive side, April’s operational numbers are encouraging (refinery utilization 70-75%, steam crackers at 90%), and assuming that the worst is behind the company (brent recovered from the lows of April, and lockdown measures gradually easing), MOL’s integrated profile could slowly return.

Operations:

 

• MOL posted HUF 191 bn clean CCS-based EBITDA for Q1/20 (+33% Y-o-Y) which was driven by weaker upstream (-29% Y-o-Y) and stronger downstream (+136% Y-o-Y) segment which came from a low basis. Consumer services remained on the upward trajectory but lockown measures in the end of March decreased the growth (+9% Y-o-Y) and gas midstream (+19% Y-o-Y) supported by large capacity demand due to the uncertainty of Russia-Ukraine transit agreement similarly than in the last quarter. CCS EBIT followed the dynamic of CCS EBITDA and arrived to HUF 93bn (+59% y-o-y). Net financials suffered from the weakening of the HUF (ca. 10% on our estimate for the period between March 31 and December 31.) leading to the striking HUF 120 bn loss (ca 50% of last year’s profit. Income from associates posted a minor decline -0.7 bn. As a result, pre-tax profit arrived at HUF - 63.5 bn (-246%), and net income to equity holders came to HUF 48.4 billion a large drop (-200% Y-o-Y) after deducting ca. half of INA’s loss (HUF 20bn). As mentioned previously, there was a FX gain in the OCI part amounted to HUF 160 billion offsetting the FX losses, therefore Total comprehensive income for the period arrive at HUF 85 billion.