Inflation report push stocks down; earnings of banks, chemicals may drive volumes
Higher than expected inflation recorded in January 2020 dampened investors’ sentiments on growing fears that monetary policy easing could be delayed. The benchmark index of Pakistan Stock Exchange (PSX) declined 3.6%WoW to close at 40,144 for the week ended 7th February 2020. Average daily trading volume plunged to less than 168 million shares, down almost 11%WoW as the beginning of earnings season failed to steer investors’ participation. Volume leaders for the week included: BOP, HASCOL, MLCF and UNITY. While FFC managed to post gains, laggard included DGKC, HASCOL, CHCC, FFBL and MLCF.
Key news flows driving sentiments included: 1) Pakistan likely to undergo a tough second quarterly review with visiting staff of IMF as the country’s fiscal deficit breached 2.3% of GDP in the first half of 2019-20, despite a tight control on the GoP’s expenditure, 2) FBR’s tax collection was recorded at Rs1,341 billion during 1HFY20 as compared to Rs1,066 billion in the corresponding period of last fiscal year, reflecting an increase of 27%YoY, 3) GoP expects foreign investment in treasury bills could rise to US$5 billion by end FY20, the country has already attracted US$2.9 billion foreign investment in T-bills (including US$25.5 million in Pakistan Investment Bonds) during first seven months of current financial year, 4) Moody’s Investors Service on Thursday maintained its forecast for stable outlook of five leading Pakistani banks over the next 12-18 months, and 5) Cement exports rose by almost 40%YoY to 0.808 million tons in January 2020. As against this, local sales increased by around 6%YoY to 3.265 million tons during the month under review.
With earnings season in full swing during the coming week companies scheduled to announce the results include CHCC, NETSOL, BAFL, DGKC, NML and LOTCHEM. Below expectations performance of Cement companies is likely to keep investors’ participation low, Chemicals and Banks could drive volumes. The news flow, particularly surrounding any fiscal adjustments could sway sentiments drastically on the ongoing second review of IMF.
Pakistan’s headline inflation spiked to 9-year high of 14.56%YoY for January 2020 as compared to 12.63%YoY for December 2019 and 5.60%YoY for January 2019), surpassing the consensus expectations by a wide margin. The surprise came on many counts, worst being higher than expected food inflation. Near term inflation outlook remains uncertain, with a multitude of factors at play that include price movement of food items, timing and scale of utility rate adjustments, and fiscal considerations that may lead to a delay in easing cycle beyond 2HFY20 and beyond.
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Bank Alfalah (BAFL) has scheduled its Board of Directors meeting for 13th February 2020 to approve CY19 financial results. The Bank is forecast to post earnings of Rs7.9/share as against Rs6.1/share for the corresponding period last year. Together with the result, the BAFL is also expected to announce a dividend of Rs.002/share as against a payout of Rs4.00 for CY19. Four quarter 2019 profit after tax is likely to rise to Rs4.3 billion, to be driven by NII growth of 10.0%QoQ and potential impairment reversal. NIMs are likely to improve to 5.9% for 4QCY19 as compared to 5.6% in the earlier quarter as re-pricing kicks in. NFI is expected to post 64.5% growth on a sequential basis with pull up coming from seasonal factor pushing up fee income growth, up 52.0%QoQ and capital gains. The 20%QoQ increase in total income should be able to absorb expected surge in administrative costs on the back of branch expansion and digitization costs.
Oil consumption in the country 2020 declined by 13%YoY during January 2020. The drop in sales was largely driven by 1) a 40%YoY lower Furnace Oil (FO) sales due to government’s policy of moving away from FO-based power generation and 2) an 11%YoY decline in High Speed Diesel (HSD) volumes amidst slow economic activity, particularly in the agriculture sector. However, on a sequential basis, oil sales witnessed limited decline of 2%MoM, supported by 88%MoM higher FO offtake as the government allowed partial resumption of FO-based power plants to support the local refineries and 2) possible exports by Byco Petroleum. HSD sales were down 13%MoM during the month, along with Motor Spirit (MS) volumes down by 5%MoM. In 7MFY20, a similar trend was witnessed, where oil sales declined by 10%YoY owing to 32%YoY lower FO sales and 10% fall in HSD volumes. That said, MS sales were reported 3%YoY higher. Looking at company-wise data, sale of Pakistan State Oil (PSO) declined by 16%YoY and 10%MoM in January 2020. However during 7MFY20 sales remain 6%YoY higher. Attock Petroleum (APL) sales were down 13%YoY and 9%MoM during the month under review, while Hascol Petroleum (HASCOL) volumes were up 17%YoY and 17%MoM. PSO’s market share is estimated to have shrunk by 39% during January 2020 as compared to its 7MFY20 average of 45%. As against this, HASCOL’s market share has grown to 9% as compared to 7MFY20 average of 6%.
Allied Bank (ABL) announced its CY19 results, reporting earnings per share of Rs12.65 as compared to that of Rs11.38 for the same period last year. The result can be termed above market expectations. The Bank also announced final dividend of Rs2.00/share taking cumulative payout to Rs8.00/share for CY19. Major deviation occurred as a result of reversal of Worker’s Welfare Fund (WWF) provision. Additionally the Bank booked impairment charge on equities which contributed to higher than expected provisioning for the quarter. 4QCY19 earnings were consequently reported at Rs4.8 billion (EPS: Rs4.23), up 42.9%QoQ and 65.8%YoY. Gross yield stood at 35.7% compared to 28.7% in the previous quarter. On the NFI front, the surprise factor was the capital gains reported at Rs853 million for 4QCY19 as compared to that of Rs516 million in the earlier quarter.