IGI Securities Limited – Day Break

Karachi, June 28, 2018 (PPI-OT):Oil and Gas Marketing Companies – OMC and dealer margins increased for MS and HSD in line with CPI inflation; rise in FO price and volume a further respite

We have revised upwards our earnings estimates for Hascol Petroleum Limited (HASCOL), Attock Petroleum Limited (APL) and Pakistan State Oil (PSO) based on a) increase in Motor Spirit (MS) and High Speed Diesel (HSD) margins post notification by Petroleum Division (mainly HSD as margin increase was delayed throughout FY18 due to deregulation of margins), b) higher price of Furnace Oil (FO) and, c) improved volumes of FO during 4QFY18,

The OMC margins have been augmented by PKR 0.09/ltr and PKR 0.23/ltr to PKR 2.64/ltr each for MS and HSD respectively,

Based on the hike in OMC margins, we expect incremental earnings impact of +15%, +6% and +5% for HASCOL, APL and PSO respectively for CY18/FY19,

The GoP imposed super tax of 3% in FY18 with a gradual reduction of 1% annually while simultaneously providing a gradual relief of 1% annual reduction in corporate tax rate to stand at 25% by FY23 from 30% in FY18,

We maintain PSO as our top pick with our Dec-18 target price of PKR 407.0/share offering +27.9% upside from its last close. PSO is currently trading at P/E of 6.0x and offers a dividend yield of 6.0%. We have a ‘BUY’ stance on APL and HASCOL with our Dec-18 target price of PKR 740.3/share and PKR 379.7/share, offering +26.4% and +25.6% upside respectively from last close.

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