EUR 3.54 For Business Accounts Only

Pakistan OMCs: Good year of sales growth with a soft end

• Overall OMC sales declined 4% YoY in Jun’17, unlike full-year FY17 sales (up 8% YoY) which were led by robust demand in all major products. Sales of HSD/Mogas grew phenomenally (up 8/16% YoY) as we had expected. FO sales, though down 12% YoY in Jun’17, remained strong throughout FY17 amid rising RFO based power generation.

• In 4QFY17, a sharp decline was seen in international oil prices of 10.3% and prices of Gasoline also declined in tandem. This could mean that OMCs would have had the opportunity to book inventory gains during the quarter due to import differentials, as GoP did not fully pass on the decline in international prices.

• OMCs retain a good consumer demand story led by rising POL consumption. We maintain our Overweight stance on the sector where our top pick remains APL with a TP of PkR762/sh (total return: 35%). We also have a Buy stance on PSO (TP PkR509/sh, total return 38.5%), which is now trading at trough valuations.