JS Securities Limited – Morning Briefing

Karachi, November 17, 2017 (PPI-OT): APL: Reiterating ‘Buy’ with revised Jun-2018 TP of Rs834

We revise our estimates for Attock Petroleum Limited (APL) as we rollover our Target Price to Jun-2018 and incorporate 1QFY18 detailed accounts.

Our earnings estimates for the company are up by 0.8-8.0% for FY18E- FY20F and our Jun-18 Target Price is revised up to Rs834 from Rs821 earlier.

The company has remained relatively defensive in terms of market share hunt off late. Going forward, doubling of storage capacities can potentially help increase its market share.

We maintain our ‘Buy’ call on the firm as we opine that strong earnings growth and dividend yield could enable price performance going forward.

Estimates revised up

We revise our estimates for Attock Petroleum Limited (APL) as we rollover our Target Price to Jun-2018 and incorporate 1QFY18 detailed accounts. Incorporating recent changes, our earnings estimates for the company improve by 0.8-8.0% for FY18E-FY20F and our Jun-18 Target Price is revised up to Rs834 from Rs821 earlier. The company had announced an EPS of Rs16.04 during 1QFY18, down 14.9% YoY mainly due to inventory losses. Despite high base of last year, company posted revenue growth of 22.3% YoY to Rs38.53mn and strong GP margins of 5.1% (better than HASCOL and PSO) mainly on the back of increase in volumetric sales.

Expanding capacity to grab further market share

The company has remained relatively defensive in terms of market share hunt as compared to the likes of Hascol Petroleum (HASCOL) and Pakistan State Oil (PSO). Going forward, doubling of storage capacities can potentially help the company post improvement in its market share. This can be seen from the fact that APL’s overall market share during FY17 clocked-in at 9.2% as compared to 8.7% recorded in FY16, reflecting an improvement of 0.5ppt only. On the other hand, company’s key competitor HASCOL posted improvement of 1.8ppt in its market share to stand at 8.4%. Going forward however, we remain conservative in our estimates and assume market share of 10% for APL for our projection period. However, company’s investments into new storage capacities will serve as an upside risk to our estimates.

Attractive risk-return profile as compared to others

We maintain our „Buy‟ call on the firm as we opine that strong earnings growth and dividend yield should provide impetus for price performance going forward. The stock has corrected by 6.2% during YTD 2017 (outperformance of 8.0% vis-à-vis the benchmark KSE-100 index), providing an attractive point of entry, in our view. Key risks to our investment thesis include (1) sharp depreciation of PKR, (2) sharp movement in international crude oil prices resulting in inventory losses/gains, (3) loss of market share to other smaller OMCs.

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