omc: no mention; hence safe - BMA Capital Management

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18 June 7, 2010 Our NAV based fair value for the index heavy weight OGDC stands at PKR139/share, translating into a Neutral stance for the scrip. However our fair value of PKR236/share for our favourite E&P pick, PPL offers an upside potential of 27% from last closing price. Similarly, POL offers 28% upside to our fair value of PKR282/share, along with an enticingly cheap FY11 PER of 6.3x.
OMC OVERWEIGHT Budget Impact Neutral Muhammad Ali Taufiq OMC Analyst 19 OMC: NO MENTION; HENCE SAFE June 7, 2010 While no direct budgetary measures were expected for the Oil Marketing Companies (OMCs), the industry was largely expecting concretre announcements from the Finance Ministry to resolve the circular debt menace in the system. Promises recently made by GoP to inject PKR116bn have been delayed and the uproar by the entire value chain managed to bring merely PKR20bn into PEPCO during the month of May10. Increase in GST to be valuation neutral As declared in the budget for FY11, GST has been raised from 16% to 17%. Assuming parity with current PKR/USD rate and intl Ex-refinery prices, the aforementioned change in GST slab is likely to raise POL product prices by PKR0.38-0.70/litre (~0.90%) wef July 1, 2010. Impact of increased GST on retail prices of POL products, assuming parity with current input prices POL Products Source: OGRA, BMA Research However the measure is expected to be valuation neutral for the sector as GST on POL products is applied on Prescribed + IFEM price which includes both, distributor and dealer margin. Hence the aforesaid change in GST slab has direct incidence on consumers and does not affect the respective margins. FED raised on gas tariff; No impact on CNG prices Budgetary measures announced an increase in rate of Federal Excise Duty (FED) on Natural Gas from PKR5.09/mmbtu to PKR10.0/mmbtu. However with CNG exempt from FED levy, the aforesaid announcement is not expected to have any impact on its prices. CNG dealers currently pay aggregate taxes of ~PKR33/kg (62% of retail price) in the form of 25% GST, 4% Income tax and 10% WHT. We maintain our view that decreasing price differential between 1) CNG and MoGas prices and 2) gas load-shedding at CNG stations will continue to encourage end consumer to switch to MoGas. Outlook FY11E Retail price @ 16% GST (amount in PKR) Retail price @ 17% GST (amount in KR) Premium Motor Gasoline 69.04 69.64 HOBC 82.04 82.74 Kerosene Oil 65.49 66.06 Light Diesel Oil 62.61 63.14 JP-1 (domestic) 55.36 55.86 JP-4 52.63 53.08 JP-8 (excluding PARCO) 55.08 55.55 We maintain OVERWEIGHT stance on the sector, backed by cheap valuations and growing offtakes for furnace oil and motor gasoline. Moreover given the recent unprecedented share price decline of Pakistan State Oil (PSO), we flag the stock as one of our high conviction ideas. Our DCF based fair value for PSO stands at PKR409/share, reflecting an upside potential off 50.9% from last closing price. %▲ 0.87 0.85 0.87 0.85 0.90 0.86 0.85
Page 1 and 2: 65 Federal Budget 2010-11 Cautious
Page 3 and 4: 3 TABLE OF CONTENTS Budget FY11: No
Page 5 and 6: 5 June 7, 2010 package will have li
Page 7 and 8: 7 June 7, 2010 against an average o
Page 9 and 10: 9 Sector wise Budget Impact and BMA
Page 11 and 12: ECONOMY Budget Impact Positive Abdu
Page 13 and 14: 13 June 7, 2010 announced in the bu
Page 15 and 16: 15 KEY MEASURES Income tax June 7,
Page 17: E&P MARKETWEIGHT Budget Impact Neut
Page 21 and 22: 21 June 7, 2010 Moreover, seemingly
Page 23 and 24: CEMENTS OVERWEIGHT Budget Impact Ne
Page 25 and 26: CHEMICALS MARKETWEIGHT Budget Impac
Page 27 and 28: 27 Outlook FY11E June 7, 2010 Incre
Page 29 and 30: 29 Top Investment Ideas June 7, 201
Page 31 and 32: BUY Fair Value: PKR 282 Current Pri

omc: no mention; hence safe - BMA Capital Management

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