Almost 60% decline in PSO profit in Q3 on halving of GP margin

PSO | Pakistan State Oil Company Limited

Earning Release Q3-Mar 2024

For the quarter ending March 2024;

• PSO reported a profit after tax of Rs. 5,647 million, registering a huge decline of 59% over the same quarter last year.
• The earnings per share came out at Rs. 12.03 for the quarter.
• PSO did not announce any cash dividends along with the results announcement.

Note that over the course of the last one year, PSO has distributed a total of Rs. 7.5 per share as cash dividends.

On a 9-month basis, PSO registered growth of 30%, however. It announced a PAT of Rs. 13,397 million (EPS Rs. 28.5), compared to a PAT of Rs. 10,285 million in the same period last year. Such is the volatility in the profitability of the PSO.

To provide historical context to the earnings, note that on a twelve-month trailing basis, PSO has recorded a profit after tax of Rs. 8,774 million, compared to a profit after tax of Rs. 16,773 million last year. This also shows a substantial decline.

PSO booked a tax reversal of a small amount in this quarter, compared to 49% taxation in the same quarter last year.
_________________________________________________________

Analysis of Profit & Loss

To better comprehend changes in profit and loss in this quarter over last year, note that,

> the revenue increased by 3.9% in this quarter, compared to last year, and the gross profit margin decreased to 3% from 6% last year, resulting in a 47% decrease in gross profit, amounting to Rs. 21,991 million. So this being the main reason of profit decline.

> 'Other Income' increased by 12.5%, impacting the P&L positively by an amount of Rs. 243 million, compared to last year.

> Financial charges increased by 18.6% in this quarter, affecting  the P&L by an amount of Rs. 2,357 million compared to last year.

This resulted in a profit before tax of Rs. 5,398.9 million for the quarter, which was  lower by 79.8% over last year.

Finally, in terms of taxation, PSO recorded a tax reversal of Rs. 248.4 million this quarter. Last year, it had booked a tax of Rs. 13,096 million.

So in sum, in this quarter ending March 2024, PSO earned a profit after tax of Rs. 5,647.2 million for the quarter, which was  lower by an amount of Rs. 7,998.9 million than last year. The quarter would have been in loss had it not been for the tax reversal. 

Nonetheless this quarter was better than the second quarter of this financial year wherein PSO had made a gross loss.
___________________________________________________________

EBIT (Rs. Mill)

20,438

-1,229

53,146

12,690

39,425

3,783

8,803

PSO profitability remains highly volatile due to the volatility of international oil prices. The fortnightly adjustment in prices does not seem to be working for its intended purpose. To gauge the volatility of the PSO's earnings, see the above seven-quarters stream of its EBIT.

Financial charges significantly diminish PSO's core income. For instance, in the latest quarter, these charges accounted for up to three quarters of the EBIT. PSO stands at the center of Pakistan's circular debt dilemma, thus grappling with a persistent cash flow crunch.

While the directors' report is elegantly presented, it fails to address the reasons behind the profit decline in this quarter. Instead, it solely emphasizes growth over the 9-month period.

This deficiency in disclosure is not unique to PSO but is a common issue among listed companies on the Pakistan Stock Exchange. Financial results announcements often lack explanations for abrupt changes in profit and loss statements. Moreover, detailed directors' reports tend to prioritize international economic matters over the domestic economy or even the company's own operations.

___________________________________________________________

Market Performance

PSO is trading at a market price of Rs. 177.8, with a price-earnings ratio of 9.5 and a low price-to-book ratio of 0.4. PSO has a dividend yield of 4.2% on a twelve-month trailing basis.

In the last 52 weeks, the PSO stock reached a high of Rs. 218 and touched a low of Rs. 98.8.

Over the past 6 months, PSO returns have been 27%, compared to the 34% return of the KSE100 Index. And over the past year, PSO returns have been 58%, compared to the 74% return of the KSE100 Index.

Market Cap & Index Weighting

Currently, PSO has a market cap of Rs. 83,491 million, and its weighting in PSX-indices is as follows;

KSE100 Index: 1.63%, KSE30: 2.34%, and KMI30: 3.29%.

Download: PSO third-quarter announcement.