PSX remains volatile throughout the week
Pakistan Stock Exchange (PSX) remained volatile throughout the week, with the KSE-100 index closing at 113,252 points, up 0.4%WoW on Friday February 28, 2025.
The week started on a positive note, buoyed by initiation of talks for up to US$1.5 billion climate financing from IMF, government proposals for energy tariff cuts and resolving circular debt, and strong corporate results, particularly from banking and cement sector. However, the momentum faded during the latter half of the week due to absence of fresh triggers.
On the climate financing front, authorities are discussing the implementation of carbon levy, meanwhile, IMF has objected the exemption of sales tax on local EV component sales.
On the macro front, Pakistan signed several accords and committed to boosting bilateral trade with Azerbaijan and Uzbekistan during the Prime Minister’s visits to respective countries and signed agreements with UAE during the visit of Abu Dhabi’s Crown Prince.
Inflation is expected to ease further to a nine-year low of 1.9%YoY in February 2025, driven primarily by falling food and energy tariffs.
On the external front, foreign exchange reserves held by State Bank of Pakistan (SBP) rose by US$21 million to US$11.2 billion.
Domestic currency depreciated by 0.04%WoW to close at PKR279.67/US$.
Market participation also remained subdued during the week, with average daily traded volume falling by 17%WoW to 492 million shares, from 593 million shares a week ago.
Other major news flow during the week included: 1) GoP collected PKR23 billion from 16 banks against windfall tax, 2) Pakistan, Vietnam set US$3 billion annual trade target, 3) SBP invites bids for PKR200 billion PFL buyback auction, 4) Pakistan, Iran agree to boost bilateral trade to US$10 billion, and 5) Petroleum Division proposes PKR392.5 billion PSDP for in-house projects.
Glass & Ceramics, Real Estate Investment Trust, and Commercial Banks were amongst the top performing sectors, while Jute, Property, & Leasing Companies were the laggards.
Major selling was recorded by Individuals and Foreigners with an aggregate net sell of US$24.5 million. Mutual Funds absorbed most of the selling with a net buy of US$31.6 million.
Top selling scrips of the week were: TGL, PKGP, MLCF, NATF, and AGP, while laggards included: MEHT, NCPL, BIPL, SEARL, and AKBL.
According to AKD Securities, market outlook remains positive, with upcoming meeting of Monetary Policy Committee (MPC) meeting scheduled for March 10, 2025, and any developments on IMF review remaining in the investor’s focus.
Over the medium term, the KSE-100 is anticipated to remain on upward trajectory, primarily driven by strong earnings in Fertilizers, sustained ROEs in Banks, and improving cash flows of E&Ps and OMCs, benefiting from falling interest rates and economic stability.
Top picks includes, OGDC, PPL, MEBL, MCB, HBL, FFC, ENGROH, PSO, LUCK, FCCL, ILP, INDU, and SYS.
Oil & Gas Development Company (OGDC) released its 2QFY25 earnings earlier on Friday, posting profit after tax of PKR41.4 billion (EPS: PKR9.63) for the quarter, down by 44%YoY. Company also announced an interim cash dividend of PKR4.05/ share for the second quarter.
The decline in profitability was due to: 1) absence of tax breaks as compared to the same period last year, 2) lower hydrocarbon production due to supply curtailments, 3) lower average oil prices, and 4) one dry well during the quarter.
Net sales were reported at PKR100.4 billion for 2QFY25, down 13%YoY, mainly led by reduced hydrocarbon production alongside lower average oil prices (Arab light US$75.4/ bbl during 2Q, down 14%YoY). Regarding hydrocarbon production, OGDC’s estimated oil and gas output fell by 7%QoQ and 5%YoY, reaching 30,900 bpd of oil and 639mmcfd of gas.
Operating expenses for the quarter amounted PKR27.2 billion, marking a 18%YoY decline. Exploration expenses totaled PKR4.0 billion for 2QFY25, up 68%YoY, as the company incurred a dry-well in the 100% owned Thal Block (Kandenwaro-1) during November 2024.
Finance income surged by 89%YoY to PKR20.9 billion, due to company’s substantial cash and investment balances of PKR263 billion, up 88%YoY.
Pakistan’s leading brokerage house, AKD Securities believe that a second-quarter reversal of provisioning for accrued interest on the mentioned TFCs may have contributed to the higher finance income as well.
Balance sheet excerpts indicate a strong cash collection ratio of 105% during the second quarter, as the company’s outstanding trade receivables declined by PKR5.3 billion on a QoQ basis, marking second consecutive quarter of improvement.
Effective taxes rose to 43% during the quarter under review as compared to negative 3% for 2QFY24 and 51% for 1QFY25.
AKD Securities reiterate its ‘BUY’ stance on OGDC with a Dec’25 target price of PKR358/ share, alongside a dividend yield of 7% during the same period last year.
With the KSE-100 trading at a forward P/E of 6.2x, at a 17% discount to the 10-year average, Intermarket Securities retains its constructive stance on Pakistan equities. A successful IMF review should provide a significant boost to investor sentiment, and make for better share price performance as compared to the subdued start to 2025. It helps that noise on politics appears to have died down.
Top picks of Intermarket Securities remains unchanged. Results for state-owned oil & gas exploration companies have been encouraging, which can help them claw back the recent fall in share prices. While several cement stocks in its coverage trade near the target prices, sector results were strong and medium-term outlook is positive, which compels retention of LUCK and MLCF within its top picks.