Pakistan Stock Market Review

pakistan-flagThe week ended on 16th October remained largely unexciting, where disappointing result announcements by (Exploration and Production companies (E&Ps) and oil marketing companies (OMCs) kept the market under pressure. Resultantly, the benchmark of Karachi Stock Exchange, KSE-100 Index closed almost flat at 33,955 and average daily volume at 181 million shares. The key news driving the market included: 1) The Ministry of National Food Security and Research notified detailed procedure for Rs20 billion subsidy on DAP, NP and NKP, 2) foreign exchange reserves slipped below US$20 billion, 3) Pakistan and Russia inked an agreement to lay 1000kms Karachi-Lahore LNG pipeline costing US$2 billion, 4) the GoP borrowed Rs170 billion through T-Bills auction and 5) trade deficit shrinking due to low international oil prices. Banking scrips namely NBP, HMB and MCB on the back of expected better results, along with PTC and INDU emerged as top gainers, whereas HCAR, ICI, PSMC, NCL and ABL were laggards. After OMCs and E&Ps result dragged market performance during the week, analysts expect promising announcement from Banking and Cement Companies to keep the market vibrant. They also believe that further improvement in oil prices will have a positive impact on the market.

After yielding a negative return of 7% for September’15, the KSE-100 Index bounced back and regained 5.4% of the lost value during October’15 to date; recovering almost 77% of the value it lost in just nine trading sessions of the previous month. Much of this recovery came from Oil & Gas stocks (having 16.5% share in the KSE-100 market capitalization), as these scrips replicated the movements shown by international oil prices, which rebounded by 13.7% to date during October.

Maple Leaf Cement (MLCF) is scheduled to announce its 1QFY16 earnings on 19th of this month. According to a report by AKD Securities the earnings of the Company are likely to grow by stellar 64%YoY for the quarter. The brokerage house expect MLCF to post profit after tax of Rs893 million (EPS: Rs1.69) as compared to Rs545 million (EPS: Rs1.03) recorded during the corresponding period last year. While a 10%YoY growth is expected in local dispatches, exports are forecast to be at lower levels, lower dependence on national grid to meet power requirements and failing coal prices are anticipated to improve the margins. Brokerage house foresees gross margin to improve to 38.6% during 1QFY16. Moreover, healthy cash generation easing the deleveraging process and a lower interest rate environment are expected to keep borrowing costs down by 46%YoY to Rs201 million. However, on a sequential basis net earnings are forecasted to slip 20%QoQ, primarily due to the seasonality factor where highest earnings are generally recorded in the fourth quarter.

Lucky Cement (LUCK) has expressed its intent to further strengthen its footing in the country’s Northern region by establishing a new cement plant; subject to approval by the Board of Directors which is scheduled to meet on 31st of this month. While details remain scanty, it is believed that a plant with a capacity to produce up to 2.5 million tons per annum might be on cards. This will mark the sector’s fourth expansion expected to come online over the next five years taking the aggregate installed capacity in Pakistan to 53 million tons per annum from the current 45.6 million tons. Subsequently, capacity utilization is anticipated to improve to 86% during this period. Anticipated strong demand in dispatches is expected to be led by growing per capita consumption that is estimated to rise to 187kg by FY20 as compared to 147kg for FY15. Disregarding any threat of price war despite upcoming expansions, analysts believe the sector’s fundamental outlook remains largely positive.

Pakistan Telecommunication Company (PTC) is scheduled to announce its 3QCY15 financial result on 22nd of this month. The Company is expect post consolidated profit after tax of Rs2.9 billion (EPS: Rs0.57) for 3QCY15 as compared to net profit of Rs2.4 billion (EPS: Rs0.48) for 2QCY15. Revenues are likely to go up by 5%QoQ/4%YoY) in 3QCY15 due to: 1) a 3%QoQ growth in Ufone’s cellular subscribers and 2) higher international traffic considering Eid festivities to aid LDI revenues. While higher contribution of mobile broadband is expected to increase gross margin (likely to increase to 29.5%), decline in high margin EVDO subscriptions (down 5% since June’15) is likely to restrict the increment. This will effectively plunge 9MCY15 expected earnings to Rs6.1 billion (EPS: Rs1.19), down 22%YoY as the Company struggled with lower gross margins (down 560bps on stiff competition in the cellular segment).

 

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