Hascol Petroleum Limited

 Hascol Petroleum Limited ‘BUY’ maintained on strengthening petroleum sales
In the wake of above expected growth in the market share of MOGAS (up 1.4ppsYoY) and HSD (up 1.0ppsYoY) during 2MCY15 given 71%YoY‐88%YoY uptick in volumetric sales, we revisit our estimates of volumetric sales for Hascol Petroleum Limited (HASCOL). Our earnings estimates of CY15F‐CY17F are upward revised by 16%‐18% to account for i) 8%‐19% higher than estimated sales of MOGAS and ii) 11%‐19% higher than previously estimated sales of HSD. Consequently our TP of the stock now stands at PKR131/sh (up 19%), offering an upside of 30%. We expect HASCOL to conclude CY14 on a high note with 42%QoQ growth in 4QCY14 earnings to PKR3.1/sh, cumulating CY14 EPS to PKR8.7 (up 2.0xYoY). The growth in earnings will be driven by i) 1.7xYoY higher petroleum sales, ii) 6.4xYoY higher other income and iii) 5%‐26% higher margins on MOGAS and HSD realized in 4QCY14. Going forward, we believe the momentum in earnings to continue as we foresee a strong 3 year earnings CAGR of 23% primarily driven by 3 year CAGR of 14% in volumetric sales owing to i) expanding retail outlets network, ii) reduced prices of motor fuel and iii) improving industrial activity. Moreover, strong cash balance (~PKR33/sh) coupled with steady operating cash generation (PKR14/sh‐PKR17/sh in next 3 years) will also ensure timely completion of key projects mainly i) Lubricants and Grease Plant, ii) LPG stations and iii) Aircraft refueling service. At last closing, the company is trading at CY15F P/E of 7.8x, depicting a notable discount of 22% over local comparables (excluding PSO) ‐ ‘BUY’ HASCOL ‐ BUY Target Price: PKR 131 Current Price: PKR 101 HASCOL Performance Absolute % Relative to KSE % 1M 3M 12M ‐2%
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Bloomberg HASCOL.PA
Reuters HASC.KA
MCAP (USD mn) 89
12M ADT ( USD mn.) 1.8
Shares Outstanding (mn) 91
HASCOL: Earnings and Valuation Revision (PKR/sh) CY15 CY16 CY17 TP New 12.9 14.4 16.3 131 Old 11.2 12.2 13.9 110 change 16% 18% 17% 19% Mounting petroleum sales to further strengthen core operations: The recent free fall in international oil prices with Arab Light crude down ~50% in last six months and consequent reduction in domestic MOGAS and HSD prices by 34% and 31%, respectively during the same period resulted in substantial increase in the demand of petroleum sales in the country. In this regard, both MOGAS and HSD sales in the country surged by 32%YoY and 40%YoY, respectively during 2MCY14. With i) increasing retail outlets and ii) timely procurement of inventory, HASCOL managed to outperform the industry by a remarkable 33pps and 58pps in HSD (up 71%YoY) and MOGAS sales (up 88%YoY). Consequently, market share of HASCOL in MOGAS and HSD also increased by 1.4pps and 1.0pps to ~5% and ~6%, respectively. HASCOL
KSE100 Index
We now foresee HASCOL to post 3 year CAGR of 23% and 13% in MOGAS and HSD sales, respectively. The growth momentum will be mainly carried by i) continued expansion in retail network, ii) reduced prices of Petrol (now at 2% discount to CNG compared to the average premium of 48% in CY14) and iii) improving industrial activity. Resultantly, we expect HASCOL to deliver strong earnings CAGR of 23% over next 3 years. Further uptick in MOGAS and HSD sales beyond our estimates due to potential increase in gas prices w.e.f. 01Apr’15 will remain key upside trigger to our base case earnings and valuation estimates. Dec‐14
Relative Chart KSE100 vs HASCOL 90%
CY14 EPS estimated at PKR8.7/sh – up 2.0xYoY: HASCOL is all set to conclude CY14 on a high note where we expect 4QCY14 profitability to increase by 42%QoQ to PKR3.1/sh compared to PKR2.2/sh in the preceding quarter. The notable increase in earnings can be attributed to i) 5%‐26% higher margins on MOGAS and HSD, ii) 18% growth in MOGAS and HSD sales and iii) exchange gains on 2.1% appreciation in PKR/USD. Cumulatively, CY14 earnings will increase by 2.0x to PKR791mn (EPS: PKR8.7) compared to PKR392mn (EPS: PKR4.3) last year. We also expect a final dividend of PKR1.5/sh in 4QCY14, cumulating full year payout to PKR4.7/sh. 70%
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Wednesday March 25, 2015 Source: BMA Research Muhammad Affan Ismail, CFA muhammad.affan@bmacapital.com +92 111 262 111 Ext: 2058 BMA Capital Management Ltd. 801 Unitower, I.I.Chundrigar Road, Karachi, 74000, Pakistan For further queries, please contact: bmaresearch@bmacapital.com or call UAN: 111‐262‐111 This memorandum is produced by BMA Capital Management Limited and is only for the use of their clients. While the information contained herein is from sources believed reliable, we do not represent that it is accurate or complete and should not be relied upon as such. Opinions expressed may be revised at any time. This memorandum is for information only and is not an offer to buy or sell, or solicitation of any offer to buy or sell the securities mentioned.
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Investment Perspective: We re‐iterate our ‘BUY’ stance on HASCOL with a TP of PKR131/sh, offering an upside of 30%. Our conviction on the stock is based on i) 3 year CAGR of 14% in volumetric sales (highest in industry), ii) diversification into other segments (Jet‐Fuel, Lubricants, LPG), iii) immunity against circular debt and iv) attractive valuations. At last closing, the company is trading at CY15F P/E of 7.8x, depicting a notable discount of 22% over local comparables (excluding PSO) ‐ ‘BUY’ BMA Capital Management Ltd. 801 Unitower, I.I.Chundrigar Road, Karachi, 74000, Pakistan For further queries, please contact: bmaresearch@bmacapital.com or call UAN: 111‐262‐111 This memorandum is produced by BMA Capital Management Limited and is only for the use of their clients. While the information contained herein is from sources believed reliable, we do not represent that it is accurate or complete and should not be relied upon as such. Opinions expressed may be revised at any time. This memorandum is for information only and is not an offer to buy or sell, or solicitation of any offer to buy or sell the securities mentioned.
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