Intermarket Securities Limited - Hascol Petroleum (HASCOL) HASCOL: Volume base conducive for earnings growth

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Intermarket Securities Limited

Abdul Samad Khanani

HASCOL: Volume base conducive for earnings growth

We remain Neutral on HASCOL but upgrade our Dec’18 TP to PRs331/sh (up from PRs268/sh), buoyed by c. 30% rise in our earnings estimate across the investment horizon. Major changes in our assumptions include: (i) downward revision in sales discounts, (ii) lower operating expenses (iii) removal of MENA Energy penalties from CY18/19F, and (iv) lower market shares for HSD/MS.
HASCOL’s encouraging 1Q EPS of PRs5.04 (up 96% YoY, normalized at PRs3.75/sh for inventory gains and exchange losses), was a glimpse of what HASCOL’s recurring earnings could be, without accounting for additional volumetric growth through upcoming storage additions and potential product diversification (geared towards automotive lubricants).
We believe HASCOL now operates with the minimum threshold level of volumes that can allow impressive earnings growth over the medium term (5yr forward EPS CAGR of 34%), which also justifies premium valuations – the stock is trading at CY18/19F P/E of 17.9x/14.1x

29/05/2018 4 EN

Underlying

Hascol Petroleum

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.

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PK0108001014 Pakistan Stock Exchange Pakistan

Provider

Intermarket Securities Limited

Intermarket Securities Limited (IMS) is a full service corporate brokerage firm based in Karachi, Pakistan. We service both domestic and international clients. IMS was ranked #2 Best Local Brokerage and #3 Best for Overall Country Research for 2016 by AsiaMoney.

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Analysts

Abdul Samad Khanani

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HASCOL: Volume base conducive for earnings growth

Pakistan OMCs_OMC volumes rose by 28%YoY for May'22, (AKD Daily, Jun 02, 2022)

Pakistan OMCs_Retail fuels continue to remain strong! (AKD Daily, Jan 10, 2022)

Pakistan OMCs_APL continues to gain market share (AKD Daily, Jan 04, 2021)

Intermarket Pulse: Pakistan Food producers: 1QCY18- Another weak quarter for consumers

Pakistan IPPs: Favor NPL over NCPL in a tougher macro environment

Intermarket Pulse: Pakistan Banks: Valuation anomaly warrants switch to large banks

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