Oil price drop: +ve for consumers,-ve for OMCs

 

Though a sharp drop in int’l oil prices since April-12 has translated into a much- needed relief to end consumers (prices down 4-10% effective 16th June), we see mixed fortunes for downstream companies.

 

The unwinding of heavy inventory gains realized in 9M appears inevitable, in our view, and will prove to be big drag on 4Q earnings.

 

We now estimate PSO to face inventory losses of PRs2.0-2.5bn with 4Q net losses projected at PRs4-5/sh. APL will be relatively cushioned with inventory losses of PRs3-4/sh and has emerged as our preferred pick.

 

Meanwhile, the downstream players may realize an indirect benefit stemming from reduction in power subsidy and monthly receivables generation.

 

We contend core-earnings trends are still intact (PSO and APL trade at undemanding FY13E P/E of 3.8x and 5.9x respectively), and current stock prices provide attractive entry points.

Oil price drop: +ve for consumers,-ve for OMCs