Pakistan Stock Exchange fails to sustain 50,000 levels

During the week ended 27^th January 2017, benchmark index of Pakistan Stock Exchange managed to cross 50,000 levels. It failed to sustain the level due to due to profit taking and closed the week at 49,964 points, up 1.21%WoW. Earnings and corporate announcements remained at the center of investor interest with major highlights including: 1) CHCC announcing capacity expansion of 2.1 million tons per annum, 2) PSMC’s plan to enter in to a JV to manufacture automobile glass and 3) ISL disclosing plans to enhance capacity. Volumes improved considerably during the week with daily average rising to 523.4 million shares, up 34.7%WoW with foreign outflows also tapering to US$13.7 million as compared to US$46.6 million a week ago. Top gainers were: EPCL, KEL, HUBC and BAFL, while laggards were: ASTL, SSGC, NCL and MTL.

Major news flows for the week were: 1) SECP constituted a committee to review matters of in‐house financing, 2) the ECC extended cash subsidy on domestic fertilizer sales and approved 0.3 million tons of urea till 28^th April, 3) CCP imposed fines of Rs62.3 million on EFOODS, Rs2 million on FFL and Rs0.5 million on Shakarganj Foods for deceptive marketing of dairy products as milk with EFOODS denying these allegations later, 4) FBR exempted sales tax on machinery imports by textile units and customs duty on import of 13 items for textiles till 30^th June 2018, 5) SBP raised Rs39.39 billion through PIB auction and 6) GoP signed implementation and power‐purchase agreements with two Chinese companies and HUBCO for setting up 1320MW coal plant at Hub and 330MW coal plant in Thar. With no excitement expected in the monetary policy review over the weekend, the market is likely to retain its focus on results announcements with major names in Sugar, Fertilizer, Foods and Autos reporting earnings. January CPI data due next week can prove a key in setting expectations for future interest rate trajectory. On the global front, the US FOMC is also scheduled to announce its interest rate policy, with broader anticipations of no change in the Fed rate.

Fauji Fertilizer Bin Qasim (FFBL) is scheduled to announce its full year financial results for CY16 on Monday 30^th January. The companies is forecast to post profit after tax of Rs678 million (EPS: Rs0.73) in CY16F as compared to net profit of Rs4.06 billion (EPS: Rs4.35) in CY15, down 83%YoY). This decline in earnings is expected on the back of: 1) gross margin (GM) coming off by 15.7% (including subsidy) on account of significant reduction in DAP prices (down 14%YoY) due to depressed international price trends, 2) a 39%YoY lower other income (excluding subsidy) on account of lower dividend payout from associated companies and reduction in term deposit placements, and 3) 19%YoY higher finance cost owing to increased borrowing to manage working capital requirements. Sequentially, analysts expect earnings to post a turnaround recording profit of Rs1.73 billion (EPS: R1.15) in 4QCY16 against net loss of Rs159 million (LPS: Rs0.17) in 3QCY16 on the back of 1.3xQoQ growth in topline to PkR23.7bn on account of increase in DAP offtake to 483,000 tons, courtesy the Rabi season. Along with the result we also expect a cash dividend of Rs0.60/ share. While earnings turnaround in 4QCY16 is expected to be led by strong volumetric growth, we feel an improvement in international pricing dynamics would be necessary for sustainability of the earnings trend, going forward.

Lucky Cement (LUCK) announced its 2QFY17 result posting consolidated/unconsolidated earnings of R4.34 billion/ Rss3.80 billion (EPS: Rs13.43/Rs11.75) in 2QFY17, up 16%YoY/12%YoY. The consolidated earnings came in line with the expectation of Rs4.27 billion (EPS: Rs13.21) where unconsolidated earnings of AKD Securities higher than our expectation owing to better than expected GM during the period. This was in spite of 68%YoY/30%QoQ surge in average coal price to US$85/ton suggesting LUCK utilized cheaper coal inventory during the period. On a cumulative basis, consolidated/unconsolidated earnings grew by 13%YoY/13%YoY to in 1HFY17. Growth in earnings was led by 1) Topline grew by 12%YoY/22%QoQ led by 16%YoY/19%QoQ growth in dispatches to 2.03 million tons in 2QFY17 as compared to 1.753 million tons/1.703 million tons in 2QFY16/1QFY17, (2) Gross Profit increased by 16%YoY/18%QoQ led by improved topline and 1.61ppt YoY GM expansion to 49.05% in 2QFY17, and (3) Other income growth  by 64%YoY/10%QoQ to Rs498 million in 2QFY17 owing to relatively higher cash and STI of Rs32.1 billion (Rs99.28/share).