PSO 2QFY25 earnings: strengthening liquidity

Pakistan State Oil Ltd. (PSO) has released its 2QFY25 earnings report, showing significant improvement in profitability despite a challenging market environment. The company reported a profit after tax (PAT) of PKR 7.2 billion, translating to an EPS of PKR 15.4 for the quarter. This marks a strong recovery from the loss after tax (LAT) of PKR 14.1 billion in the same period last year (SPLY).

However, earnings fell slightly short of analyst expectations of PKR 8.4 billion (EPS: PKR 17.9). The company’s net profit for 1HFY25 stood at PKR 11.2 billion, representing a remarkable 44% year-on-year (YoY) growth. Despite this financial turnaround, PSO opted not to distribute a half-yearly dividend, contrary to market expectations.

Key financial highlights

• Revenue decline, but higher OMC offtakes: Net sales for 2QFY25 stood at PKR 838 billion, reflecting an 8% YoY decline. The drop was primarily due to lower fuel prices compared to SPLY. However, the company recorded a 7% YoY increase in Oil Marketing Companies (OMC) offtakes, totaling 2.1 million tons.
  
• Gross profit rebounds strongly: The company’s gross profit surged to PKR 25 billion, with a gross margin of 3.0%, a stark contrast to the gross loss of PKR 3.2 billion in SPLY. This improvement stemmed from higher regulated margins and the absence of inventory losses that impacted results last year.
  
• Other income supports profitability: Other income declined 9% YoY to PKR 7.1 billion but witnessed a significant 118% increase on a quarter-on-quarter (QoQ) basis. This increase was driven by higher short-term investment returns and the recognition of Late Payment Surcharge (LPS) receivables from past-due customer receipts.
  
• Finance cost drops sharply: A key positive takeaway from the results was a sharp 42% YoY reduction in finance costs to PKR 8.8 billion. This marks the lowest level in eight quarters, largely due to a reduction in short-term borrowings and a favorable decline in interest rates.
  
• Higher taxation impacting earnings: The company booked an effective tax rate of 53% in 2QFY25, significantly higher than the 13% recorded in SPLY. This elevated tax rate impacted overall earnings but did not derail profitability.
  

Investment perspective

Despite the volatility in the energy sector, PSO’s strong financial performance highlights its ability to navigate market challenges effectively. The company has demonstrated resilience through improved margins, cost-cutting measures, and better financial management. Analysts at AKD Securities have assigned a ‘BUY’ rating to the stock, with a target price (TP) of PKR 729 per share by December 2025, implying an upside potential of 100% from the last closing price.

Outlook

PSO’s ability to sustain this growth trajectory will depend on maintaining strong sales volumes, optimizing financial costs, and leveraging favorable economic conditions. While the absence of a dividend may be disappointing for income-focused investors, the company’s strategic emphasis on liquidity and capital efficiency suggests a long-term growth strategy.

With improved operational metrics and a positive earnings outlook, PSO remains a compelling investment opportunity in Pakistan’s energy sector.