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JS Securities Limited – JS Research (September 30, 2021)

Karachi, September 30, 2021 (PPI-OT): Corporate briefing takeaways; APL and ATRL

Attock Petroleum and Attock Refinery held their corporate briefing sessions yesterday to discuss FY21 results and the outlook of the companies. We present key takeaways from the sessions.

Attock Petroleum Limited

Attock Petroleum Limited (APL) held its analyst briefing where the company’s management discussed the latest results and shed light on the future prospects. To recall, APL posted a profit of Rs4.9bn (EPS Rs49.43) for FY21 as against earnings of Rs1.0bn (EPS Rs10.13) in the previous year. Key takeaways from the briefing session are below.

The 4.9x jump in net earnings could be traced back to substantial inventory gains (Rs1.9bn) that boosted gross earnings. This also formed the basis for the board’s decision to limit the cash payout to 55% (89% in FY20).

With regards to expansion plans, the management shared that 36 outlets were opened during FY21. Moreover, APL does not have as strong a presence in the South, compared to the North (106 retail outlets vs. over 600). To bridge this gap, the management plans to invest over Rs2.5bn in retail expansion (24 outlets), the majority of which will be targeted towards the South.

The total storage capacity of the company has been enhanced to 188,797 MT after commissioning of Phase 1 of the Port Qasim Bulk Oil Terminal in June. Moreover, the storage capacity in KPK is expected to add another 30,000 MT.

The company is already in talks with the government and is pushing for an increase in OMC margins.

ODGC has entered into a 3-year contract with APL for the supply of petroleum products.

Attock Refinery Limited

Attock Refinery Limited (ATRL) held a corporate briefing session to discuss the latest annual results and share its views on the outlook. To recall, the refinery posted an after-tax loss of Rs2.1bn (LPS Rs20.12) for FY21, down from a net loss of Rs2.8bn (LPS Rs26.50) during FY20. During the briefing the management shared that:

The company is planning to undertake three major projects, depending on the approval of the Refining Policy.

1. Continuous Catalyst Regeneration (CCR)

2. Diesel Hydro De-Sulphurization (DHDS) revamp

3. Joint project for FFO upgradation

The FFO upgradation project is a relatively long-term project (still in the feasibility stage) and is expected to cost between US$1.5 to US$2bn. The CCR and DHDS are projects further along the line and are expected to cost approx. US$500mn (~60% for CCR and 40% for DHDS)

The CCR project is expected span over 5 years with a payback period estimated around a decade. This project will not only allow the refinery to convert its entire naphtha (a loss-making product) into Motor Spirit (MS), a profitable product but will also eliminate chemical costs.

The Refining policy was expected to be approved by July 2021. However, misconceptions about the refining industry, frequent reshuffling of government officials and lengthy approval procedures have caused serious delays. In the event of further delays, local refineries may approach the government with requests for an extension in the December 2021 deadline to submit expansion plans.