Pakistan Stock Exchange gains 1,261 points
Pakistan Stock Exchange (PSX) remained positive throughout the week ended on October 06, 2023. The benchmark index gained 1,261 points to close at 47,494 level.
In a meeting with the Senate Standing Committee on Finance, Dr. Shamshad Akhtar made a promising statement that the caretaker government will deliver on the IMF program to secure US$700 million under the SBA.
Pakistan is also seeking foreign investments from Saudi Arabia in Reko Diq’s copper and gold mining projects while companies like OGDC, PPL, and GHPL are contemplating on selling their partial or full stakes in an attempt to boost the country’s foreign exchange reserves.
As of September 28, 2023, foreign exchange reserves held by State Bank of Pakistan (SBP) declined by US$21 million to US$7.62 billion, while country’s total foreign exchange reserves were reported at US$13.03 billion.
International oil prices of Brent and WTI were on a steady decline and closed at US$83.88/barrel and US$82.08/barrel, which was reflected in the latest revision in local petrol and HSD prices.
Trade deficit for September 2023 was reported at US$1.49 billion, down by 30%MoM when compared to US$2.1 billion in August 2023.
CPI rose to 31.4% in September 2023 when compared to 27.4% in August 2023, amidst higher fuel prices and a lower base last year.
Overall, average trading volumes was reported at 291 million shares as compared to 202 million shares a week ago.
Other major news flows during the week included: 1) Government debt hit historic high of PKR 64 trillion by August end, 2) Foreign debt ratio exceeded 38% of total public debt in FY23, 3) September 2023 cement dispatches decline by almost 4%YoY, 4) Cotton arrivals rose by 29% but Punjab faced setback, 5) Money supply shrank by 1.3% in Q1 as cash holdings drop, 6) A 50bps hike in policy rate added PKR300 billion to domestic debt, 7) SBP mopped up PKR104.8 billion through PIB auction, and 8) Textile exports declined 12% to US$1.35 billion in September 2023.
Engineering, Refinery, and Cable & Electric goods were amongst the top performing sectors, whereas, Synthetic & Rayon, Vanaspati & Allied Industries, and Close end mutual funds were amongst the worst performers.
Major net selling was recorded by Brokers (US$3.48 million) and Mutual Funds (US$0.2 million). Banks and Companies absorbed most of the selling with a net buy of US$13.6 million and US$2.1 million respectively.
Top performers during the week included: KEL, ISL, AGP, CNERGY, and PGLC, while top laggards were: JDWS, PSEL, IBFL, THALL, and HINOON.
Going forward, the market’s performance is anticipated to be significantly influenced by the upcoming IMF review scheduled for November.
Regarding the political landscape, while the expected timeline for elections is given, providing exact dates for the elections would be a positive development.
Additionally, upcoming inflation readings and current account data would remain in the limelight.
Overall, analysts continue to advise investors to remain cautious while investing and consider companies with strong fundamentals and high dividend-yielding companies.
Intermarket Securities has raised it CY23/CY24 EPS estimates for Bank AL Habib (BAHL) after build in very strong 2Q results and faster balance sheet growth. However, its medium-term estimates remain largely unchanged. The brokerage house retains its Buy rating on the best valuation.
Core strengths remain strong asset quality on solid deposit franchise and market leadership in trade finance. While trade finance faces risks from a phasing out of SBP refinance schemes, this is a low-margin business and BAHL should be able to offset any impact through a combination of new lending avenues and deposit mix improvement.
BAHL has been an underperformer, with its NII pickup lagging behind peers due to legacy PIBs. Reinvestment at higher interest rates should now result in earnings acceleration in 2H23 and into CY24. This can help rerate the stock quickly. The bank also appears to have shifted to a biannual cash payout policy, which should improve price discovery.
The brokerage house has raised its CY23 and FY24 EPS estimates following recent strong results and sharper than expected balance sheet pick-up. The new CY23 and CY24 EPS estimates now stand at PKR32.16 and PKR34.64.
BAHL can deliver a 16% EPS CAGR across CY23 to CY27. That said, an unchanged mid-cycle ROE (conservatively placed at 16% vs. last 10-year average of 20%), leaves its TP unchanged at PKR70/ share.
The brokerage house flags that a revised payout policy (biannual payouts vs. year-end previously) and an improving capital profile (CAR: 15.4%) can potentially lead to greater payouts. BAHL is already offering an attractive CY24 dividend yield of 25%.
BAHL is delivering very strong deposit growth (25%YoY in 2QCY23), the fruits of its expansion strategy. Individuals contribute over 60% of BAHL’s deposit base. The brokerage house believes BAHL can benefit from customer loyalty and stickiness to further improve its proportion of current accounts from the mid-30%s at present. This, together with reinvestment at higher interest rates in 2H23 should result in accelerating asset yields, leading to more robust margin expansion and NII growth compared to the last few years. We see NIMs averaging c. 6% across CY23- CY25.
BAHL continues to maintain a conservatively structured loan book. While NPLs have doubled YoY to PKR16 billion in 2QCY23, the NPL ratio is still 2.0% while high general provisions have enabled total coverage to stay above 120bps.
Although ageing may result in the cost of risk remaining sticky in the 30-40bps range across CY24-CY25 (similar to the last 3-year average). The brokerage house remains confident that the sustainable cost of risk for BAHL is lower than these levels.
BAHL is a leading trade finance bank in Pakistan with an estimated market share of 15%. While the SBP’s export refinance facilities may be shifted to a dedicated export-import institution, BAHL should continue to remain a major player in trade finance given its entrenched relationships. In this regard, the anticipated extension of the EU’s GSP+ status for Pakistan for 4yrs and consequent positive outlook for the Textile sector should in turn benefit BAHL.
Valuations are unmatched where upside to the medium-term estimates can arise from better than expected margins on an improving deposit mix and better cost efficiency. In addition, BAHL is also standing out on dividend yield where higher profitability should feed into an improved CAR buffer, enabling BAHL to maintain a 35% cash payout ratio.