During the
week ended 27th 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 28th 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
30th 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 30th 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).
