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Stock Review

Stock review December 2022
PSX benchmark index records highest-ever mark

Pakistan Stock Exchange (PSX) maintained its bullish momentum throughout the week ended on November 15, 2024, with the benchmark index closing at a record high 94,763 points, marking a 1.6%WoW increase, achieving its highest-ever closing.

The bullish momentum continues on the back of accelerated pace of monetary easing by State Bank of Pakistan (SBP) and IMF’s visit with a focus on structural reforms.

During the visit, the IMF mission held discussions with local authorities, focusing on the external financing gap and the Federal Board of Revenue (FBR) revenue collections. FBR officials assured the IMF that the revenue target would remain unchanged, attributing the shortfall in revenue collection during the first four months of FY25 to inaccurate economic assumptions, particularly regarding GDP growth, imports, and inflation.

Both the sides discussed short-term as well as long-term measures to address the potential revenue shortfall, including raising taxes on sugary drinks and the import of machinery and raw materials.

In the latest T-Bills auctions, the SBP raised PKR776 billion, with bulk of the participation confined to 3-month tenor. The yield on the 3-month bill decreased by 20bps, while the yield on the 12-month bill increased by 10bps.

Auto sector sales for October 2024 was reported at 15,192 units, up 31%YoY.

Foreign exchange reserves held by SBP increased by US$84 million WoW, ending the week at US$11.2 billion as of November 08, 2024.

Average daily traded volume rose by 19.6%WoW to 878.5 million shares, from 734.6 million shares traded a week ago.

PKR largely remained stable against the greenback throughout the week.

Other major news flow during the week included: 1) Gop awaits IMF stance on mini-budget, 2) Solarization plunging power demand upsets IMF, 3) APM Terminals commits to invest in Pakistan, 4) Finance Minister invites Turkish firms for JVs and 5) Russia expresses interest in working with Pakistan on North-South Trade Corridor (NSTC).

Transport, Woollen, Pharmaceuticals, Vanaspati & Allied industries and Glass & Ceramics were amongst the top performing sectors, while Jute, Mutual Funds, Automobile Assembler, Fertilizer & Engineering were the laggards.

Major net selling was recorded by Companies with a net sell of US$11.0 million, while Mutual Funds absorbed most of the selling with a net buy of US$13.9 million.

Top performing scrips of the week were: Searl, EFUG, BNWN, TRG, and ABOT, while laggards included: FCEPL, THALL, MLCF, MUGHAL, and KOSM.

Continuation of monetary easing and improving macroeconomic environment would make investment in equities more appealing, currently trading at P/E of 4.2x and DY of 10.8%.

Aforementioned factors, along with declining external financing requirement under the IMF program, would keep foreigners’ interest alive. We recommend sectors that benefit from monetary easing and structural reforms.

However, modest economic recovery may limit the upside for cyclicals. Top picks of AKD Securities include, OGDC, PPL, MCB, MEBL, FFC, PSO, LUCK, MLCF, FCCL and INDU.

NFDC reported October 2024 urea offtake at 358,000 tons, down 22%YoY from 459,000 tons for the same period last year. While offtakes declined, production increased by 10% YoY leading to the highest inventory buildup the industry has experienced since May 2020, recorded at 841,000 tons. Meanwhile, DAP offtakes experienced a strong recovery of 95%YoY to 309,000 tons as against 159,000 tons for the same period last year. This surge in demand was largely driven by bulk buying ahead of wheat cultivation.

Urea offtakes for FFC and FFBL, combined, remained stable at 179,000 tons. This takes their 10MCY24 offtakes to 2.5 million tons, up 6.5%YoY, while industry offtakes dropped 8.8% YoY. EFERT’s urea offtakes dropped 42%YoY to 99,500 tons, making 10MCY24 offtakes to 1.5 million MT, down 21%YoY.

Urea closing inventory surged to 841,000 tons at the end of October 2024. This marks the highest urea inventory level since May 2021. FFC and FFBL collectively account for 20% of the industry’s closing urea stock, while EFERT holds a larger share of 36%.

DAP offtakes rose by 95%YoY to 309,000 tons in October 2024, mainly attributed to bulk buying of DAP amid start of wheat cultivation. DAP offtakes for FFC and FFBL, combined, were recorded at 155,000 tons, up 70%YoY. EFERT DAP offtakes were reported at 49,000 tons, up 90%YoY.

Analysts expect a seasonal pickup in fertilizer demand for November 2024 owing to the start of the Rabi season. However, overall demand may remain strained on account of weak agronomics resulting from a substantial decline in cotton production.

D.G. Khan Cement Company (DGKC) posted net profit of PKR542 million for FY24 (EPS: PKR1.24) as against loss of PKR3.6 billion (LPS: PkR8.3) for FY23.

However sales increased by 2%YoY to PKR66 billion in FY24, from PKR65 billion in FY23, due to better retention prices.

Company’s utilization level stood at 72% in FY24, compared to industry’s utilization of 55%. However, utilization remained lower than levels witnessed in FY23 (75%).

Company’s total clinker capacity from DG Khan, Khairpur, and Hub put together is 22,400/ tons per day.

Company currently uses blend of Afghan and Darra coal at its northern facility, while its southern plant rely 80% on imported coal. With reduced excise duties on Afghan coal, management expects a similar reduction in Darra coal prices.

The company currently sources its power from a diversified pool including Furnace Oil, Gas, Waste Heat Recovery (WHR), Coal, and Solar energy. Reliance on the national grid is minimal, accounting for approximately 10-15% of total power consumption, with the majority of energy needs being met by the company’s own power plants.

Management stated that economic slowdown negatively impacted the construction sector during FY24, resulting in industry utilization levels dropping to 55% in FY24 compared to 60% in FY23.

The decline in utilization level is primarily due to a drop in domestic sales, which made up 46% of total utilization in FY24, compared to 54% in FY23. In contrast, export sales utilization increased to 9% in 2024, up from 6% in the previous year.

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