During the week ended 11th May 2018 Pakistan Stock Exchange (PSX) witnessed volatility. During the first three days the benchmark index lost 741 points, marginally recovered in the fourth session but failed in sustaining the recovering. The outgoing week closed on a negative note, losing 942 points to close at 43,595 level. The average daily trading volume remained on lower side, at 167.37 million shares. Volume leaders were: FDIBL, UNITY, SSGC, FCCL and BOP. Major news flows impacting the market included: 1) US announced to pull out from the landmark Iran nuclear deal and re-impose sanctions on Iran, 2) trade deficit up by 14%YoY to US$30.24 billion during first ten months of current fiscal years, 3) the Government of Pakistan announced to issue floating rate Pakistan Investment Bonds (PIBs), aiming to improve the country’s debt profile, 4) fertilizers manufacturers raised urea prices by Rs100 per 50kg bag, adjusting for recent budgetary measures, 5) cement dispatches in April 2018 rose by 17.46%YoY to 4.237 million tons and 6) SC announcing its verdict in Katas Raj Temple case, directing domestic cement manufacturers to find alternative water source. Price movement of the mainboard scrips remained dismal, with key losers being KEL, CHCC, ASTL, PIOC and HUBC, while major gainers were: PPL, POL and EFERT. With MSCI Semi-Annual Index Review scheduled on 14th of this month, foreign flows in the run up to review and post review will be the key in determining market direction. To note, MSCI will add Chinese “A-shares” in its EM index in the upcoming review, where potential inclusion of the same could further trim Pakistan’s current low weight in the EM index. Moreover, oil price movement post US withdrawal from JCPOA will determine price performance of the E&P sector.
Engro Corporation (ENGRO) has notified Pakistan Stock Exchange regarding equity investment of US$21.4 million in Siddiqsons Energy, a Special Purpose Vehicle (SPV) to set up 330MW coal fired power plant in Block II district Tharparkar. According to Topline Securities report total project cost will be US$500 million with debt-equity ratio of 75:25. The brokerage house estimates ENGRO’s equity share in SPV would be around 17%. The project is likely to commence operations in Jun-2021 and will have an impact of around Rs1-1.4 per share to the bottomline of the Company. Along with this, the core objective of the Company is to bring more players on Thar coal platform. Notably the Company was carrying cash amount of Rs65 billion (USD 565 million) as of Mar 2018 and it has also applied for “Letter of intent and rights” to develop 350MW of wind and solar power plant in Baluchistan. Moreover, management is also considering investing in logistics, ecommerce and transmission business.
Pakistan’s second largest oil marketing company, Hascol Petroleum (HASCOL) announced 1Q2018 posting earning per share of Rs5, up 74%. The rise can be attributed to inventory gains, strong sales growth of higher white oil products and lower discounts. HASCOL’s total oil sales volumes improved by 32% to 697,000 tons which coupled with higher margins resulted in net sales of the company rising by 60% for the quarter. The market share of the Company also improved to 14% as compared to 10% during the corresponding period of 2017. This can be mainly attributed to aggressive expansion in retail outlet network and addition of storage capacity by the Company. The total number of retail outlets throughout the country rose of 522 at end March 2018 as compared to 498 outlets at end December 2017 and a storage capacity of 140,900 tons, making it the second largest player in terms of storage capacity. Construction of 223,500 tons of storage facilities is under construction, which will further augment growth in volumes of the company going forward. The Company has its own fleet of oil tankers that ensures smooth supply of oil and also results in cost savings. Current fleet comprises of 70 bowsers, also expanding with the passage of time. Hascol has started construction of its own lube oil blending and grease Plant, at Port Qasim. The first phase will be completed in the third quarter of 2018. The plant has total production capacity of 40,000 tons and will result in margin improvement for the lubricant business of the Company. Hascol currently enjoys gross margins of around 20% on its lubes business which will improve to over 25% once the blending plant comes online.
After posting record high dispatches of 4.65 million tons in March 2018, cement sector extended its impressive FY18 run in April 2018 as well. Total dispatches registered a robust growth by more than 17%YoY to 4.19 million tons. Increase in dispatches were led by, 1) continued double digit growth by 11.8%YoY in domestic dispatches to 3.71 million tons in April 2018 and 2) strong recovery on the export front, with total exports rising to 0.476 million tons (up 65.2%YoY/21.5%MoM). On a cumulative basis, total dispatches grew by 15%YoY in 10MFY18 led by domestic offatke rising by 17.3%YoY. With the elections drawing close, analysts anticipate total dispatches to remain on the higher side (despite seasonal slowdown in the month of Ramdan – during remaining two months of the financial year. The growth expectations are based on: 1) strong PSDP and provincial spending in upcoming months ahead of national polls and 2) impressive growth in private sector credit offtake related to construction activity. While risk of pricing indiscipline prevails with each expansions (particularly among the players located in Southern region) coupled with higher coal prices.