Pakistan stock market awaits results season

During the week ended August 12, 2016, the benchmark of Pakistan Stock Exchange PSX‐100 Index grew by 1.3%WoW. It briefly rose above 40,000 mark but failed to sustain and finally closed slightly lower at 39,908. Top tier banks like UBL and HBL and E&Ps particularly PPL, OGDC, POL helped the Index attain new high.

Key news flows during the week were: 1) overseas Pakistanis remitted US$1.33 billion during July’16 as compared to US$1.66 billion received in July15, posting a decline of 20%YoY, 2) Government borrowing from the central bank shot up almost to Rs786 billion in July’16 against Rs113 billion during the corresponding month of last year, 3) PSO, the country’s biggest oil marketing firm, imported 42 cargos carrying 133,307,087 mmbtu of LNG since March’15 to meet growing energy requirements and, 4) cement sales to domestic markets showed a healthy increase of 12.4%YoY during July’16, whereas exports remained almost flat. Top performers for the week were: APL, HCAR, POL and PPL. On the flipside PTC, MCB, AGTL and NCL were the laggards. Volume leaders on the basis of average daily traded shares for the week were KEL, DSFL, DCL and NIB.

Attock group companies are likely to kick off the coming week’s earnings announcements. The key energy companies to follow are APL, POL and index heavyweights HBL and ENGRO. Devoid of major developments on the political front, continuation of earnings season may lead to consolidation in the market with side stocks gaining steam. Additionally, anticipations regarding OPEC’s meeting announced for next month may keep Oil & Gas scrips in focus.

In line with expectations, MCB Bank has posted consolidated profit after tax (PAT) of Rs11.1 billion (EPS: Rs9.84) for 1HCY16 as compared to PAT of Rs13.0 billion (EPS: Rs11.7) for 1HCY15, down 15%YoY. Alongside the result, MCB also announced a second interim dividend of Rs4.0/share. The 21%QoQ drop in earnings was on the back of higher tax incidence on continuation of super tax (tax rate of 52% in 2QCY16 as compared to 34% in 1QCY16). Key 1HCY16 result highlights included: 1) a 4%YoY decline in NII, 2) reversals of Rs564 million in 1HCY16 as against Rs756 million same period last year, 3) a 34%YoY decline in non-interest income amid lower capital gains, utilizing Rs682 million in the half under review against Rs2.9 billion in same period last year, 4) manageable 3%YoY increase in expenses.

ABL has posted slightly above expectations consolidated PAT of Rs8.8 billion (EPS: Rs7.58) for 1HCY16 as compared to PAT of Rs7.5 billion (EPS: Rs6.55) for 1HCY15, up by 16%YoY. The deviation in projection and actual can be attributed to higher utilization of capital gains of Rs2.5 billion. Also provisions were lower at Rs243 million against the forecast. Sequentially, a 20%QoQ decline in earnings was on the back of higher tax incidence (tax rate of 47.7% in 2QCY16 as compared to 35.0% in 1QCY16). Alongside the result, ABL also announced a second interim dividend of Rs1.75/share. Key 1HCY16 result highlights were: 1) a 2%YoY/8%QoQ uptick in NII, 2) provisioning of Rs243 million for 1HCY16 as compared to Rs550 million during the same period last year with reversals worth Rs33.3 million booked during the second quarter, 3) a 21%YoY jump in non-interest income amid higher capital gains and fee income and 4) a 9%YoY increase in total expenses.  While ABL’s 1HCY16 earnings performance remains heavily influenced by capital gains, growth in net interest income is encouraging. Non-interest income has grown too however still remains under 30% of total income, a concern particularly when peer banks have grown in this regard.

The AKD Cement Universe has remained in limelight on account of robust domestic demand. Going forward, the brokerage house expects this trend to continue to drive growth backed by the government’s strong focus on infrastructure development and rising private sector development. However, short term risks to domestic demand have sprung in the form of incidence of new property tax on SBP’s new valuation methodology. While the real estate market might suffer in the short‐run brokerage house believes it to have no viable impact on earnings growth so far. Moreover, irrational buildup of expansions in South Region may create significant pricing pressure as the domestic demand growth may not accommodate such a huge increase. This potentially points towards the rivalry between LUCK and DGKC for the market share. While risk of pricing indiscipline has increased, rapid increase in coal prices (+31% CYTD) will likely crimp up the margins further. Though, rising costs are unlikely to be passed on to consumers as the cement prices are at historic high levels, upcoming energy diversification projects are likely to provide some relief.

 

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