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Pakistan State Oil (PSO): 4QFY18 EPS of Rs6.9, down 45% YoY; DPS Rs 5/share; Bonus issue 20% (Payout better than expectations)

• PSO announced FY18 financial results reporting earnings of Rs47, down 15% YoY which was slightly lower than expectations. The company though announced cash dividend of Rs5/share & bonus payout of 20%, which was better than expected.
• Sales of the company improved by 20% YoY to Rs1trn in FY18 driven by higher oil prices & inventory gains, we believe. Average International Oil prices have increased by 31% during the year. 
• In volumetric terms, oil sales of PSO were down 20% YoY to 12mn tons in FY18, primarily due to lower FO sales which was down 35% YoY amid lower demand from power sector. Oil sales excluding FO was up 3% YoY. 
• Consequently, Gross Profits of the company improved by 7% to Rs39.6bn during the year.
• Other income of PSO declined by 33% YoY to Rs7.5bn in FY18 on the back of lower penal income & absence of markup on Rs43.8bn worth of PIBs (matured in July 2017), we estimate. 
• On the other hand, other operating expenses also grew by 12% to Rs15.2bn containing the earnings of PSO during the year. 
• On QoQ basis, earnings were down 45% YoY to Rs2.2bn led by growth in operating expenses & lower operating income.
• Key risks to the stock includes: 1) volatility in oil prices and inventory losses, 2) rupee depreciation & exchange losses and 3) pile up in circular debt.