Pakistan stock market witnesses 12 percent increase in daily trading volume

Exhibiting signs of investor weariness and mixed responses to earnings releases, the benchmark index of Pakistan Exchange (PSX) closed the week ended 10^th February 2017 at 49,925 points. Market participants’ response to earnings announcements swayed greatly, with investors continuing to favor higher payouts over earnings growth, and corporate action, particularly in cements kept the sector in the limelight. Average traded volumes rose to 414 million shares, up 12%WoW. Key news flows were: 1) PSMC launched imported luxury sedan Suzuki Ciaz at competitive price, 2) International Steel Limited (ISL) stated in a filing that the National Tariff Commission (NTC) has decided to impose definitive anti‐ dumping duties on galvanized steel coils/sheets for a period of five years, 3) PSO's receivables from different enterprises, particularly power companies, have swelled to Rs277 billion, and 4) As per State bank of Pakistan foreign exchange reserves of the country declined by US$413 million to US$22.03 billion by 3^rd February and the external sector faces increased pressure as its trade deficit widened by 29%YoY to US$17.4 billion during 7MFY17 due to paltry exports and double digit growth in imports. Top performers at the bourse were: LOTCHEM, NBP, ASTL, NML, whereas laggards were: PTC, HUBC, AGTL and ABL. Volume leaders for the week were LOTCHEM, KEL, POWER and TRG. Oil is set to grab the spotlight in the coming week, where crude benchmarks are beginning to inch upwards on positive reviews of the OPEC and non‐OPEC output freeze. Results will remain the center of gravity, where companies reporting in the coming week include AGTL, HBL, FCCL, MLCF, DGKC, UBL, ENGRO and OGDC.

Commencing this week, commercial banks are scheduled to declare their CY16F/4QCY16F results. The first was MCB (8^th Feb), followed by ABL (9^th Feb) HBL (15^th Feb). As a group, the Big‐6 banks are likely to post cumulative profit after tax of Rs127.5 billion for CY16 as compared to Rs129.7 billion for CY15, a decline of 2%YoY. Top‐line growth is likely to be constrained on account of lower yield on earning assets amid ongoing PIB substitution and lower banking spreads (4QCY16 spreads lower by 26bps YoY). However, improvement in credit quality has restricted the earnings decline with provisioning charges for the Big‐6 down by a sizable 81%YoY for CY16. That said, revaluation surplus likely to improve by a significant Rs176 billion, where higher utilization of the same can cause earnings expectations to deviate particularly in case of banks like MCB, NBP and ABL that have sizeable equity portfolios in addition to the bonds portfolio. While CY16 results are expected to remain flattish, price performance should remain hinged upon the following: 1) higher than expected payouts, 2) earlier than expected monetary tightening, 3) formal inclusion into MSCI EM with HBL, UBL and MCB likely to make it to the list.

Latest APCMA data showed that cement dispatches during January'17 remained relatively flat at around 3 million tons, while it fell 12.86%MoM due to heavy rainfall/snowfall impacting local construction activity (domestic demand, a decline of 14.56%MoM to 2.722 million tons in January'17). Exports also remained subdued during the month and declined by 2.71%YoY/+1.85%MoM) due to rising fuel prices/other input costs and import/anti‐dumping duties making it more difficult for Pakistan's exported cement to compete against the indigenous cement. Greater intensity of seasonal effect has slowed down the cumulative domestic demand growth was 9.52% in 7MFY17 as compared to 15.66% in 7MFY16. Though, analysts expect exports growth to remain flat due to prevalence of aforementioned issues, they also believe that domestic demand growth will likely resume double digits growth as construction activity is expected to pick pace due to relatively greater proportion of PSDP releases in second half of fiscal year and record level growth in private sector credit related to construction activity, up 25.25%YoY.

Two of the largest IPPs of Pakistan HUBC and KAPCO are also scheduled to announce their half yearly financial results. HUBC is anticipated to post profit after tax of Rs5.25 billion for 1HFY17 (down marginally) on the back of muted generation, Pak Rupee remaining firm against greenback and picking up of RFO prices. Expensing of higher O&M charges, inflated admin expenses and investment in associate related expenses are expected to taper profitability, while the higher receivables burden is expected to raise financial costs. KAPCO is forecast to post 1HFY17 net profit of Rs4.67 billion up 8%YoY, from lower generation, slight improvements in generation on gas and below the line expenses remaining in check. Devoid of major movement on the expansion front (financial close of CPHGC, TEL, KAPCO Energy) IPPs are expected to remain in the sidelines, for the time being.

Engro fertilizers posts 40 percent decline in profit fir CY16

Engro Fertilizers Limited (EFERT) has posted profit after tax of Rs9.02 billion (EPS: Rs6.78) for CY16 as against net profit of Rs15.03 billion (EPS: Rs11.30) for CY15, a massive decline of 40%YoY. The results were anticipated but decline is more than expected. Despite the decline in profit the Board of Directors has approved distribution of final dividend of Rs2.50/share, taking the full year payout to Rs7/share. The major takeaways are: 1) topline declined to Rs69.51 billion from Rs85.00 billion, a fall of 18 percent, 2) reduction in urea prices (down 9%YoY) due to depressed farm economics and low international price trends (down 28%YoY) to an average of US$213/ton during the year under review, 3) there was a 32%YoY decrease in finance cost on account of swift deleveraging and low interest rate environment, 4) other income increased to Rs8.13 billion for CY16 from Rs4.31 billion a year ago, an increase of 88 percent.

Pakistan State Oil Company disappoints shareholders

Pakistan’s largest oil marketing company, Pakistan State Oil Company Limited (PSO) has disappointed its shareholders by not announce any interim dividend at the time of release of its financial results for July-December 2016 period. This comes as a shock as PSO has posted an EPS of Rs36.86 as compared to an EPS of Rs24.75 for the corresponding period of 2015. This raises apprehensions that the Company suffers from serious liquidity crunch, circular debt being the most notorious.

The suspicion gets credence because PSO is the largest energy supplier to power generation companies as well as the state owned enterprises. The other apprehend is that if crude oil prices continue upward trend, it may yield substantial inventory gains but maintaining high profitability  would not be possible without asking the government to raise POL prices substantially.

Net sales of the company for the period under review increased to Rs411 billion from Rs353 billion, posting an increase of 16 percent. Further impetus was provided by 20 percent increase in Other Income and 21 percent reduction in financial charges. As a result profit after tax for six months period increased by 49 percent to Rs10.015 billion, from Rs6.726 billion.

US oil producers gulping Saudi share

I am a novice and have hardly any competency to trade on the dynamics of oil trade, It is a business controlled by seven sisters and price is determined by super powers by crating geopolitical crisis.

As regards to containing oil glut I posted two blogs: 1) US shale producers to gulp Saudi market share of oil and 2) Curtailing oil production ‘an agreement of thugs to rip off consumers’. Both of my points have got credence by persistent increase in oil prices and number of active rigs in the US and further impetus has been provided by the intentions of US President for imposing fresh sanctions on Iran.

According to a Reuters report US companies added oil rigs for a 13th week in the last 14, extending a nine-month recovery. They are taking advantage of crude prices that have held mostly above US$50 a barrel since OPEC agreed to cut supplies in November 2016.

Drillers added 17 oil rigs in the week ended on 3^rd February taking the total count up to 583, the most since October 2015, energy services firm Baker Hughes Inc said on Friday. During the same week a year ago, there were 467 active oil rigs.

Since crude prices first topped $50 a barrel in May, after recovering from 13-year lows last February 2016, drillers have added a total of 267 oil rigs in 32 of the past 36 weeks, the biggest recovery in rigs since a global oil glut crushed the market in mid 2014.

Analysts expect the US energy firms to boost spending on drilling and pump more oil and natural gas from shale fields in coming years now that energy prices are projected to keep climbing.

According to Reuters report quoting analysts at Simmons & Co, energy specialists at US investment bank Piper Jaffray, this week forecast the total oil and gas rig count would average 795 in 2017, 911 in 2018 and 1,022 in 2019. Most wells produce both oil and gas.

Analysts at U.S. financial services firm Cowen & Co said in a note this week that its capital expenditure tracking showed 31 exploration and production (E&P) companies planned to increase spending by an average of 36 percent in 2017 over 2016. That spending increase in 2017 followed an estimated 45 percent decline in 2016 and a 37 percent decline in 2015, Cowen said according to the 65 E&P companies it tracks.

In such a scenario US-Saudi alliance wants export of Iran to come down, by making it a target once again accusing it of any violation, real or part of any diabolic thinking, miles away from the ground realities. If anyone disagrees with me should refer back to three decades of impositions of economic sanctions on Iran and attack on Iraq for having weapon of mass destruction.

Pakistan Stock Exchange witnesses 30 percent decline in daily traded volume

The benchmark index of Pakistan Stock Exchange (PSX) once again failed in crossing 50,000 barrier but managed to close at 49,556, ending its last 10-week bullish run. This slow down could be attributed to rumors of action by SECP against brokers that were warned recently over compliance issues primarily related to financing. Activity at the bourse tapered almost 30%WoW with average daily traded volume declining to slightly less than 370 million shares. The volume leaders were: KEL, TRG, DSL, LOTCHEM and ASL. Key news flows during the week included: 1) GoP initiated the process for sale of its 18.39% shareholding in MARI at 7.5% discount to the closing market price of MPCL shares of 27^th January this year of Rs1,402.9/share, 2) Sindh Bank Limited and Summit Bank begun due diligence process for merger, 3) Cabinet Committee on Privatization (CCoP) deferred the divestment of GoP's 5% stake in OGDC on the stock exchange until its share price touches Rs200/share, 4) SBP sold Rs589.7 billion worth of papers at the MTB auction held on 1^st February, where cut off yields on 3, 6 and 12 months increased and 5) GoP raised prices of petroleum products. Performance leaders for the week were: LOTCHEM, PSO, EPCL, ENGRO and MTL; while laggards included: APL, FFBL, INDU, MCB and FATIMA. Foreign participation continued its negative trend with US$15.31 million outflows compared to US$13.67 million a week ago. Going forward, the market is likely to take its direction from the ongoing results season where strong earnings growth by Banks, Cements and Autos is likely to provide impetus to market performance. Major results announcement next week includes MCB, ABL, PRL, PTC, CHCC, LOTCHEM and EPCL.  

Engro Fertilizer (EFERT) is scheduled to announce its CY16 financial results on Wednesday 8^th February. Analysts expect the Company to profit after tax of Rs10.79 billion (EPS: Rs8.11) for CY16 as compared to net profit of Rs15.03 billion (EPS: Rs11.29) for CY15, a fall of 28%YoY. The decline in earnings is expected on the back of: 1) gross margin (GM) sliding to 33.2% (including subsidy) on account of reduction in urea prices (down 9%YoY) due to depressed farm economics and low international price down 28%YoY to an average US$213/ton during the year under review, 2) 73%YoY decline in other income on account of reduction on term deposits and 3) 28%YoY decrease in finance cost on account of swift  deleveraging and low interest rate environment. However sequentially, analysts expect an increase of 79%QoQ in profit to Rs5.13 billion (EPS: Rs3.86) for 4QCY16 on the back of 61%QoQ growth in topline to Rs30 billion due to the increase in urea/imported DAP offatke to 630,000/292,000 tons due to Rabi season. Along with the result analysts expect a cash dividend of Rs2.50/share that could take full year payout to Rs6.9/share.

Pakistan’s largest oil marketing company, Pakistan State Oil (PSO) is scheduled to announce its 1HFY17 result on 6^th February where analysts expect it to post earnings of Rs9.67 billion (EPS: Rs35.61) marking an increase of 44%YoY led by 1) inventory gains of Rs1.2 billion (Rs4.42/share) as against inventory losses of Rs0.91 billion (Rs3.39/share) for 1HFY16, and 2) a 20%YoY growth in overall volumes.

A rather smaller company, HASCOL is also scheduled to announce CY16 earnings of Rs1.31 billion (EPS: Rs10.84) up 15%YoY, where the normalization of taxes is likely to erode profitability significantly. Staggered rise in global oil prices and increase in HSD/Mogas retail prices, with a 13% fall in additional levies translate into higher prescribed price pass through (increasing 6.5%). On quarterly basis, 4QCY16 earnings are expected to grow by 6%YoY to Rs404 million led by 46%YoY growth in total volumes. Full year earnings are likely to be accompanied by a final dividend of Rs3.00/share that could take full year payout to Rs6.5/share.

Pakistan Stock Exchange closes January 2017 almost flat

While the benchmark index of Pakistan Stock Exchange mostly remained on upward trajectory during January 2017, various factors also plunged it down. However, the month posted a nominal increase of slightly less than 2 percent. Though, the index breached 50,000 barrier it failed in sustaining this level and the month closed at 48,758 points.

The factors keeping the market under pressure included: 1) political volatility due to Panama case, 2) deteriorating economic indicators, 3) apex regulator enforcing rules more stringently and 4) foreign investors offloading their holdings. While foreigners remained net seller, local investors bought at dips.

Barring Automobiles and Chemical, all other major sectors posted flat returns. On top of that Oil & Gas and Commercial Banks ended in the red. The performance of market was mainly led by second tier scrips. As stated earlier, local participation remained robust, with average daily trading rising to 443 million shares, a hike of 26 percent.

Foreigners continued to trim their holding as part of the global strategy, with a net outflow of almost US$111 million during the month under review, taking net outflow to a whopping US$409 million. Positions were offloaded in Power Generation, Banks and Chemicals.

Going forward, the market is likely to take direction from the ongoing results season where strong earnings growth by Banks, Cements and Autos is likely to provide impetus to the market performance.

Attock Petroleum profit up by 92 percent

One of Pakistan’s leading oil marketing companies, Attock Petroleum Limited (APL) has reported better than expected financial results, mainly because of reversal of WWF expenses amounting to Rs621 million in 2QFY17. APL has posted profit after tax of Rs3.16 billion (EPS: Rs38.06) for the six-month period ended 31st December 2016 (1HFY16), up by 92%YoY, where ex-reversal earnings were Rs2.72 billion (EPS: Rs32.83) up by 66%YoY due to: 1) increase in gross margins to 6.4% as compared to 3.9% for 1HFY16 but lower sequentially as input costs rose, 2) profit from other associates recording a strong uptick (Rs68 million as compared to Rs14 million for the corresponding period last year and 3) finance costs rising 58%YoY as the company embarks on ambitious CAPEX plans.