HASCOL: Growth tied with rising costs; Neutral
- We lower estimates for HASCOL, following earnings miss in CY16 results, where the jump in distribution expenses may be a recurring phenomenon. Our new Dec’17 TP is PkR296/sh (down 6%), which incorporates the higher-than-expected distribution expenses and effective tax rate. We are Neutral on the stock.
- HASCOL is currently exploring new markets in the Jet fuel and LNG market to diversify the product mix which could be an upside trigger for the company. However we indicate that these markets are either very competitive or regulated, hence impact on the bottom line will be either small or delayed.
- HASCOL currently trades at CY17F P/E of 23x at a significant premium to the market, but this is justified by rapid market share gains and aggressive expansion plans. We, however, believe that earnings growth will lag sales growth due to rising costs of growth. That said, support from Vitol will help explore other product markets.
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.
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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