Index almost flat; macro data, tax collection figures may drive investors’ sentiments
The benchmark Index of Pakistan Stock Exchange (PSX) closed the week ended on 27th September 2019 at 32,071 points, almost flat. The index lost 677 points in the first four trading sessions, as investors resorted to profit-taking following last four weeks’ strong performance. However, strongly bounced back on the last trading session, recovering 94% of earlier loses. Foreigners offloaded US$8.76 million worth of equities during the week. The market participation remained weak, with average daily trading volume declining 10.3%WoW to 107.96 million shares.
Top performers of the week included: FCCL, KEL, EFOODS, KAPCO and CHCC, while HASCOL, NBP, FFBL and HUBC were the major losers.
Key headlines impacting the market included: 1) the IMF mission appreciating the progress achieved so far in the program while highlighting the need for ‘decisive implementation’ to pave the way for stronger and sustainable growth, 2) Privatization Commission reportedly putting two state-owned exploration & production companies, OGDC and PPL on active privatization list, 3) National Tariff Commission (NTC) imposing provisional anti-dumping duty of 13.94% on CRC imports from Russia and Canada, 4) the government officially initiating the process of Eurobond/Sukuk issuance, inviting the financial advisors to submit their proposals, 5) Foreign exchange reserves held by State Bank of Pakistan (SBP) declining by US$135 million to US$8.465 billion.
Urea offtake for August 2019 was reported at 625,000 tons, taking cumulative 8MCY19 urea offtake to 3.8 million tons, up 7%YoY. The increase in urea offtake during the month under review can be attributed to sequentially lower price. Company wise offtake increased across the industry, except for FATIMA, whose offtake remained flattish on YoY and down 5%MoM, while, urea offtake of FFC, FFBL and EFERT increased. The urea inventory closed at 324,000 tons. DAP offtake during the month, on the other hand, declined by 48%MoM to 105,000 tons led by potential price hikes during upcoming Rabi season, taking cumulative 8MCY19 DAP offtake to 842,000 tons, down 9%YoY. DAP offtake declined sequentially across players.
The GoP has scrapped the presidential GIDC ordinance 2019 due to pressure from various stakeholders, while directing Supreme Court to conduct priority hearing of the GIDC case.
Macro data, tax collection figures and inflation numbers will drive investors’ sentiments and set market direction in the following weeks. FBR tax collection, being one of the ‘Indicative Targets’ under the IMF program, holds critical importance. The FBR needs to collect a massive Rs490 billion revenue for the month of September 2019 to meet its quarterly target of Rs1,071 billion. Apart from macro headlines, the FATF issue could once again flare up, as the FATF plenary session scheduled in the mid of next month draws closer.
Reportedly export of textiles and clothing for 2MFY20 increased by 1.9%YoY to US$2.3 billion with value added segment at the forefront, posting increase of 4.5%YoY, while non-value added declined by 5.6%YoY. For August, seasonality was visible in the 5.3%YoY decline with the exports of value added and non-value added products declining by 4.9%YoY and 6.6%YoY, respectively. Local cotton prices, also reflective of the trade data, increase by 2.0%MoM in August 2019 after raw cotton exports increased by 73.8%YoY, imports declined by 27.9%YoY while production remained low. Moving forward, analysts expect materialization of FTA with China to be a key trigger for textile related export growth. Further, market penetration in the backdrop of ongoing trade war between US and China should be a long term positive.
[ads1]
Non-Performing Loans (NPLs) of the banking sector jumped to Rs697.2 billion in 1HCY19, up Rs73.1 billion, whereas excluding the impact of currency devaluation on overseas bad loan book, system NPLs were reported at Rs678.5 billion. Leading banks have remained largely immune to a rise in infections, while coverage ratio improved to 88.5% in June 2019. Recent macro and sectoral trends do indicate rising credit risks piercing into banking sector profitability over the coming quarters. However it could be on a lower scale than in previous down cycle given better financing mix and higher government guaranteed financing.
Analysts expect investors to give more weight to ROE vis-Ã -vis valuation relative to possible credit risks in the loan portfolio in case NPLs accumulation remains moderate.
Negative sentiments were witnessed among investors due to persistent foreign selling. Furthermore, Asian Development Bank (ADB) reported a gloomy outlook for the economy estimating GDP growth rate of the country to settle at 2.8% in FY20, while average inflation is expected to be in the double digits.
Pakistan State Oil (PSO) recorded gain of 4.4%WoW as the Company reported impressive earnings in its financial result for FY19. This was also amplified by the rumors of potential settlement in circular debt through Sukuk issue.
Based on NCCPL data, foreigners remained net sellers amounting to US$8.76 million. On the local’s side, Individuals were net seller of US$1.18 million, while Banks remained net buyers of US$6.66 million.
Honda Atlas Cars (HACL) has reduced working days to 11 in September due to rising unsold stocks and depressed demand. The working days were 13 in August and 20 in July. However, the situation at Pak Suzuki Motor Company (PSMC) is less critical.
Universal Gas Distribution Company (UGDC), set up by compressed natural gas (CNG) station operators, and leading Singapore-based commodity trading company Trafigura have inked a cooperation agreement for terminal capacity handling and supply of liquefied natural gas (LNG).
Ismail Industries (ISIL) declared the financial result for FY19, announcing an EPS of Rs11.40 as against EPS of Rs21.76 in same period last year. Earnings were down by 48% owing to lower gross profit margin and lower profit from associated companies. Along with the result company announced cash dividend of Rs 3.00 per share.
Dost Steel (DSL) announced the financial result for FY19,announcing an LPS of Rs0.99 as compared to LPS of Rs0.33 for same period last year.
Ittehad Chemicals (ICL) reported its financial result for FY19, posting an EPS of Rs 4.78 as compared to EPS of Rs 4.91 for the same period last year. Earnings were down by 3% YoY due to higher finance cost.
In a notice to PSX, Hascol Petroleum (HASCOL) informed that OGRA has granted license to the company’s wholly owned subsidiary, Hascol Lubricants to start commercial operations of the lube oil blending plant, located at Port Qasim, near Karachi.