Benchmark index plunges 4.8%wow
IMF Program Resumption: The Pivot for Pakistan’s Financial Stability
Continuation of political uncertainty in the country, following the Punjab and KP government dissolution, kept the market under pressure during the week ended on January 20, 2023.
The KSE-100 index lost 1,915.5 points or 4.8% to end Friday’s trading session at 38,408.0 points. Volumes dried, with daily volumes averaging 143.2 million shares as compared to 183.3 million shares in the earlier week, registering a 22%WoW decline.
On the currency front, the PKR depreciated by 0.66%, ending the week at PKR229.67/US$.
Other major news of the week were: 1) July-December 2022 remittances fell 11% YoY to US$14.1 billion, 2) World Bank promised US$615 million for flood-relief work, 3) E&P companies raised alarm on brewing foreign exchange crisis, 4) Barrick Gold plans to start productions in 2028 at Reko Diq mine, 5) GoP to announce RKR200 billion mini-budget to appease the IMF program pakistan , 6) July-November 2022 LSMI output declines 3.58% YoY, 7) FDI plunges 59% during the first half of the current financial year, 8) Current Account deficit dipped 60% in H1FY23 on lower imports, and 9) GoP expressed readiness to meet all IMF program Pakistan demands to revive the loan program.
The reserves held by State Bank of Pakistan (SBP) showed a WoW increase for the first time in about 8 weeks, up by US$258 million to US$4.6 billion, corresponding to less than 1 month of import cover.
Sector-wise, the top performing sectors were: Modarabas, Leasing companies, and Insurance, while the least favorite sectors were: Cement, Leather & Tanneries and Cable & Electrical Goods.
Stock-wise, top performers were: EFUG, DCR, FFC, COLG, and ABL, while laggards included: KTML, CHCC, KOHC, CEPB, and TGL.
Foreign Investors were the major buyers with net buy of US$4.88 million, followed by Banks/DFIs with net buy of US$4.07 million.
Mutual funds were major sellers, with a net sell of US$9.64 million followed by Insurance companies with a net sell of US$4.96 million.
The market trajectory next week would be determined by the Monetary Policy Committee decision, scheduled to meet 23 January 23, 2023. Market is largely expecting a 100 bps increase in policy rates. It seems the market has already priced in the 100bps hike, and any deviation in the decision could impact the market.
In addition to this, the external position of the country would remain in focus, with the delay in resumption of the IMF program Pakistan detrimental to the sentiment in the market.
“The IMF program’s stamp of approval would unlock flows from bi-lateral and multilateral sources — a crucial step considering the alarming reserves position of the country.”
The GoP would have to take difficult decisions to appease the IMF, which includes additional revenue collection of PKR200 billion and gas and electricity tariff hikes, along with a market-determined exchange rate.
We continue to advocate companies that have dollar-denominated revenue streams as the weakness in the currency is expected to persist.
Pakistan’s Current Account Deficit for the month of December 2022 was reported at US$400 million as compared to US$252 million in the earlier month and US$1.9 billion in the same period last year.
For the first half of FY23, the country recorded a CAD of US$3.67 billion, lower by 60%YoY. Improvement in CAD is attributable to refinement in the country’s trade deficit during the period, with the balance on trade of goods and services having dropped by 32%YoY to US$15.7 billion.
Pakistan received US$2.0bn in the form of Workers’ Remittances during December 2022, down by 3%MoM and 19%YoY. To note, the average monthly rate for remittances inflow in 1HFY23 has been US$2.34 billion—attributable to differential in the official and unofficial exchange rates. Pakistan witnessed a net outflow of US$17 million during December 2022, as compared to an inflow of US$81.8 million recorded in the earlier month. The major outflow during the month was of US$222.7 million, most likely a part of the Tethyan Copper transaction for the Reko Diq project.
Maple Leaf Cement Factory Limited (MLCF) is expected to announce 2QFY23 result shortly. Analysts expect the unconsolidated EPS for the quarter to clock in at PKR1.38. On the topline front, revenue is expected to settle at PKR15 billion, mainly due to increased offtakes during the outgoing quarter, up 29%QoQ) as against 1QFY23 as torrential floods and demand destruction bore its effects during the period. Analysts expect the gross margins to clock in at 29%, as the company continues to show prowess in efficient coal inventory management alongside the ability to successfully utilize local coal (70% of coal mix) and pet coke in its fuel mix, significantly higher compared to peers. This is further aided by the commissioning of the newer Line-4 during November 2022. Overall, company is expected to post profit after tax of PKR2.6 billion (EPS: PKR 2.5) for 1HFY23, up 12%YoY.
Cherat Cement Company Limited (CHCC) is expected to announce 2QFY23 result. Analysts expect the unconsolidated EPS for the quarter to clock in at PKR9.3. On the topline front, sales are expected to clock in at PKR10.85 billion, mainly on the back of increased offtakes as demand recovered from low-base of 1QFY23, with offtakes expected to settle at 850,000 tons for the quarter. However, analysts expect gross margins to clock in at 31% for 2QFY23, majorly due to unavailability of captive gas generator in winters alongside depleting low-cost coal inventories, keeping margins in check. Overall, finance costs are expected to hurt in the near term, where-in the company is expected to borrow significantly high due to PKR36 billion expansions, expected to come online in FY25, although delays in the capital project may be expected due to the likely delay in L/C opening and supply chain issues. Overall, company is expected to post profit after tax of PKR3.3 billion (EPS: PKR17.0) for 1HFY23, up 33%YoY.