Intermarket Perspective - HASCOL - Organic growth is already priced in; Sell
- We reinstate coverage on HASCOL – the 3rd largest OMC in Pakistan – with a Sell stance and TP of PkR316/sh (downside: 12%). HASCOL enjoys unmatched ability to sustain sales growth momentum and management track record is excellent; however, changing industry dynamics will eventually decelerate growth, which itself will become more expensive to sustain, in our view.
- Four main factors that will slow down growth are (i) other OMCs will replicate HASCOL’s storage advantage, (ii) it will potentially be competing with 21 OMCs who have recently obtained OMC license, (iii) chronically shrinking FO market, and (iv) a less diversified sales mix than peers.
- HASCOL’s CY17F P/E of 23.6x appears stretched even as 3yr NPAT CAGR is projected at 26% (PEG of 0.91x). We believe that the present pace of earnings growth is difficult to sustain beyond the medium-term, particularly given the risks attached with high leverage to finance the rapid expansion and the working capital constraints of an imports based model.
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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