AKD Securities Limited Equity Research – Daily Report

Karachi, January 03, 2019 (PPI-OT): Pakistan OMCs: CY18 was the last nail in the coffin for FO

Altered composition of POL product volumes confirm major schisms in the power chain, confirmed in Dec’17 volumes (1.44mn tonnes -23%YoY/+12%MoM), with no segment growing volumes YoY (HSD/MS volumes -26/0%YoY) and FO’s increasingly finicky nature (greater monthly deviations) clouding the outlook for growth

Looking back, OMCs largely witnessed the secular decline of FO volumes, spilling over to retail fuels as higher pump prices (MS/HSD prices spiked 18/23%YoY), tough political transition and wider macro-woes factored into POL volumes.

Cumulative CY18 sales (20.4mn, -21%YoY) were pulled lower by FO (-50%YoY) whereas ex-FO sales volumes slowed 6%YoY, where HSD/MS composition in total offtake climbed to 39/36% matching the rise of transportation sectoral demand to ~76% over 5MFY19 vs. 63% in FY18, having wide-ranging repercussions on market shares of individual players

Considering hampered volumetric outlook, wider market aversion to circular debt exposures, undue leverage levels as monetary tightening ensues and growth multiples, we retain our preference for APL (TP of PkR485/sh, FY19 D/Y of 8.6%), while keeping an eye on HASCOL’s slowing volumes and project COD’s to adjust our estimates.