morning shout

13 August 2008
KASB Research
research@kasb.com
(9221) 111-222-000

Pakistan Daily Notes

Mohammad Fawad Khan

PSO - earnings super spike Fawad.Khan@kasb.com
ƒ With a 2x jump in FY08 EPS, the expected super spike in Pakistan State Oil’s (PSO) Ph. No. (9221) 263 5501
earnings has materialized, driven by higher margins, volumes and timing gains.
ƒ We fine tune our future earnings estimates (by -0.5%) and reiterate Buy on PSO Current Price PRs337.00
given its strong fundamentals and likely near-term triggers. Price Objective PRs508.77
ƒ Contrary to the market’s view, we see limited potential of timing losses in 1QFY09
on account of the 22% correction in crude oil prices since the peak.
KATS PSO
ƒ For details, please refer to PSO note to be released shortly. Reuters PSO.KA
Super spike in FY08 earnings Bloomberg PSO PA
With a 2x jump in FY08 EPS, the expected super spike in Pakistan State Oil’s (PSO) earnings has
materialized, driven by higher margins, volumes and timing gains. FY08 EPS of PRs81.94/sh is in Market Cap
PRs 57,799m (US$791m)
line with the market expectations (KASB: PRs76.6/sh). Cash payout being below expectations, and
absence of stock dividends saw the stock close 4.6% down post results. We fine tune our earnings
Shares in Issue
estimates (0.5%) and reiterate Buy given its strong fundamentals and likely near-term triggers 171.51mn
(margin revisions, relief on receivables, new long-term contracts with IPPs).
PSO FY08 earnings review Major Shareholder
1QFY08 2QFY08 3QFY08 4QFY08 2008A 2007A %∆ Government of Pakistan (26%)
Net Sales 104,741 106,599 123,605 160,333 495,279 349,706 42%
Gross Profit 4,603 6,310 6,796 12,315 30,024 12,259 145% 3m average daily volume
EBITDA 3,584 5,649 5,837 9,245 24,314 9,935 145% 1,513,477 shares
Interest Expense 208 211 209 739 1,368 1,158 18%
After Tax Profit 2,103 3,385 2,968 5,598 14,053 4,690 200% 12-month High/Low
EPS 12.3 19.7 17.3 32.6 81.9 27.3 200% PRs539.70 / 317.50
DPS 5.0 6.0 0 12.5 23.50 21.0 12%
Source: PSO, KASB research Stock Performance
1M 3M 12M
Key highlights
Volume growth of 11% outperforming industry growth of 8% in FY08, as PSO improved its market Absolute% -13.37 -34.17 -3.24
share to 68% from 66%. Diesel off-take increased by 20% while gasoline sales increased by 32%.
Rel Index% -2.51 -2.68 18.61
While we expect consumption of transportation fuels to drop by 4% next year, power fuel should
cushion the overall drop in sales. The provisional sales numbers for July show an encouraging Abs. (PRs) -52.00 -174.90 -11.30
trend, however, as diesel consumption has jumped 15% YoY and 11% MoM (overall consumption
jumped 11%). PSO – Financial Highlights
Margins jumped 11% YoY on regulated products on the back of higher ex-refinery prices and (PRsmn) 2008A 2009E 2010E
government efforts to contain subsidy on diesel.
Sales 14,054 8,293 8,711
Receivables have emerged as the major issue, but relief seems to be on the horizon.
% Change 199% -41% 5%
Timing gains arising from higher product prices in FY08 contribute about 40% to bottom line. Our
EPS (PRs) 81.94 48.35 50.79
forecasts exclude timing gains/losses.
PER (x) 4.11 6.97 6.64
Exchange loss of PRs1.5bn booked in 4QFY08 due to 9% Rupee depreciation. These losses were
DPS (PRs) 23.5 35 36
booked on imported supplies.
Yield (%) 7.00% 10.40% 10.70%
Limited downside seen from timing losses
P/BV (x) 1.87 1.74 1.62
Contrary to the market’s view, we see limited potential of timing losses in 1QFY09 on account of the
22% correction in crude oil prices since the peak. We estimate potential timing losses of PRs480mn P/CF (x) 5.28 10.55 7.52
(PRs2.8/sh) at crude prices of US$115/bbl, FO spread of US$-20/bbl and exchange rate of Source: PSO, KASB Estimates
PRs72/US$. That said, a reversal in crude prices may alleviate market concern and can prove to be
a big price trigger.

Refer to important disclosures on page 2 page1

 morning shout

Morning News KSE-100 Intra-day Movement

` Shell posted 7.3x times higher earnings for FY08 (KSE Notice) 10253
High 10250.01
Shell has reported 7.3x times higher earnings for FY08 at PRs5.137bn or PRs93.76/sh. The company 10194
has also announced a final cash dividend of PRs40/sh (full year DPS: PRs50) and a 25% stock 10136
dividend. We have witnessed 22% YoY growth in the top-line and 7.8x times YoY increase in 10077
operating income, mainly supported by inventory gains on POL products from super spike in
10019
benchmark oil prices. Financial charges were up 10% indicating impact of rising interest rates and
9960
higher working capital requirement.
9902
Low 9849.98
9843
Technical View 9:45 AM 10:33 AM11:21 AM12:09 PM12:57 PM 1:45 PM
Aiyaz M. Hassan
aiyaz.hassan@kasb.com Source: KSE

Buy Between 9,695 Points And 9,825 Points; First Resistance 10,050 Points, Second Index Data & Volume Leaders
Resistance 10,155 Points Vol.
Close % Chg US$mn
The index opened on a positive note and after touching its day’s high it succumbed to profit-selling KSE30 11,194.24 -2.82% 89.15
to close well in the red. Volume was drastically down by 32.91% and stood at 81.83 mln, which KSE100 9,963.58 -2.05% 91.90
supports the view that the index witnessed profit-selling as the decline came in with very low KSE All
volumes. The formation suggests that the index is likely to undergo consolidation. Share 7,170.10 -1.96% 99.92
The Stochastic Oscillator continues to maintain its buy signal which makes yesterday’s formation a MCB 268.20 -4.93% 13.93
bullish divergence. The 14-D RSI has shown some weakness, however, its formation suggests that PSO 338.05 -4.37% 13.69
it is consolidating. Additionally the MACD has generated a buy signal and has started to conform to NBP 108.40 -5.00% 9.17
an uptrend.
OGDC 110.50 -0.99% 8.34
It is suggested to buy between 9,695 points – 9,825 points. The first resistance is at 10,050 points
POL 269.80 -5.00% 7.38
and the second resistance is at 10,155 points. Source: KSE
.
KSE-100: Top Gainers & Losers

PIA

SHEL

AICL

PICT

JSCL

ENGRO

AHSL

WAZIR

PPTA

WTL

-15% -9% -3% 3% 9%

Source: KSE

KASB Securities Limited, 6th Floor, Trade Centre, I.I. Chundrigar Road, Karachi
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