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Stock Review

POSITIVE TREND TO CONTINUE; RESULTS SEASON WILL SHORE UP ACTIVITIES

Pakistan Stock Exchange (PSX) posted broad based recovery during the week ended 20th October 2017. The benchmark index mostly traded in green zone, gaining 2,241 points or 5.62% WoW to close at 42,088 points. Average daily traded volumes also improved significantly by 26.64%WoW to 185 million shares, volume leaders bring EPCL, KEL, ASL, TRG and DSL. Key news inflows impacting the market during the week included: 1) GoP hinting towards relief measures to address investor concerns over declining trend in the market, 2) GoP imposing regulatory duty on import of 36 new products and raising rates on the existing 240 items in a bid to contain rising trade deficit of the country, 3) Finance Minister Ishaq Dar dispelling the impression that the country is facing an economic emergency and will have to approach International Monetary Fund (IMF) soon, 4) LHC suspending a GoP’s notification which seeks NEPRA under the administrative control of Cabinet Division, 5) net foreign direct investment (FDI) rising by 56%YoY to US$662 million during 1QFY18 and 6) foreign exchange reserves rising by to US$20.05billion on account of borrowing worth US$450 million from a consortium of foreign and local banks.

The major gainers were: CHCC, GWLC, DGKC, LUCK and PSMC; while laggards included: KAPCO, NBP and KEL. Foreign interest weakened during the week with net outflow of US$7.36 million as compared to net inflow of US$38.9million a week ago. Strong positive trend was witnessed during this past week indicating optimism amongst the market participants. Analysts expect this trend to continue going forward and the market is expected to take direction from the results season with better earnings expectations from Banking, Auto and Cement sector, providing impetus to the market performance. Major companies scheduled to announce results next week include ENGRO, PSMC, INDU, MLCF, FATIMA, EFERT, PIOC, MTL, KTML, ABL, MCB, SEARL, & ICI.

State Bank of Pakistan (SBP) reported country’s liquid foreign exchange reserves at US$20,052.9 million on 13th October2017. According to the break up, reserves held by the central bank amounted to US$14,157.6 million, whereas reserves held by commercial the commercial banks were reported at US$ 5,895.3 million. The encouraging part was that during the week under review SBP’s reserves increased by US$370 million to US$14,158 million due to official flows. However, analysts continue to warn that the reserves held by the country may prove insufficient as the repayment of the funds may not be sustainable without going back to the lender of last resort, International Monetary Fund (IMF).

KAPCO released its 1QFY18 financial results, posting profit after tax of Rs2.18 billion (EPS: Rs2.48) that was lower than the market expectations. That said, suppressed non-pass through O&M costs and higher other operating income provided some respite. Financial costs increased by 67%YoY due to severe liquidity crunch emanating from mounting receivables. A 30% effective tax rate for the quarter was lower than the 31% rate applied to 1QFY17 earnings. The lower gross margins could be attributed to higher load factors on furnace oil. Additionally, lack of clarity on privatization and possible benefits for the same are expected to weigh on price performance in the near term.

United Bank Limited (UBL) has posted profit after tax of Rs6.161 billion (EPS: Rs4.99) for the quarter ended 30th September 2017, as compared to net profit of Rs7.15 billion (EPS: Rs5.770) for the corresponding quarter last year, down 13.8%. The bank also announced an interim dividend of Rs3.00 per share, which is in addition to Rs6.00 per share already paid to the shareholders. Net interest income for the quarter surged by 3.5% to Rs14.558 billion as compared to Rs14.054 billion for the same period last year. Interest income increased as asset growth offset compression in net interest margins, which was constrained due to a higher weighted average duration of Pakistan investment bond portfolio.

Pakistan Oilfields Limited (POL) has posted profit-after tax of Rs2.53 billion (EPS: Rs10.71) for the first quarter of current financial year ended 30th September 2017 as compared to net profit of Rs2.32 billion (EPS: Rs9.80), up 9%, the result was not far from market expectations. Net sales grew by 26%to Rs7.24billion, from Rs5.72billion YoY. Exploration costs rose to Rs272million from Rs64million. During 1QFY18, growth in bottom-line stemmed from robust growth in top-line on account of higher oil prices coupled with 5% increase in hydrocarbons production and 3%decrease in operating costs.

EFERT is scheduled to announce its 3QCY17 financial results on Tuesday, 24th October 2017.According to the forecast by Pakistan’s leading brokerage house, AKD Securities, the company is likely to post profit after tax of Rs2.63billion (EPS: Rs1.98), down by 8%YoY as compared to the corresponding period of last year. The decline in earnings has been attributed to gross margins (GM) declining to 27.5% (includes subsidy) on account of lower urea prices, higher discounts offered during the period and higher proportion of low margin DAP sales in sales mix (DAP offtake up 84%YoY to 210,000 tons in 3QCY17). On a cumulative basis, the brokerage house expect 9MCY17 earnings to grow to Rs6.73billion (EPS: PkR5.06) as compared to Rs5.66billion (EPS: Rs4.25) for 9MCY16, up 19%YoY. EFERT is expected to announce interim dividend of Rs1.00/share, along with the release of financial results.

FATIMA is scheduled to announce its financial results for 3QCY17 on Monday, 23rd October 2017. The Company is expected to post unconsolidated profit after tax of Rs1.48 billion (EPS: Rs0.70) as compared to net profit of Rs3.39 billion (EPS: Rs1.62) for 3QCY16, a decline of 56%YoY/27%QoQ. The fall in earnings is expected on the back of 1) decrease in topline to Rs6.93 billion due to the substantial decline in Urea/NP/CAN off-take and 2) also a decline in gross margin to 49.2% in 3QCY17 on account of lower urea prices and higher discounts offered during the period. On a cumulative basis, analysts expect 9MCY17 earnings to decline to Rs5.77billion (EPS: Rs2.75) as compared to Rs6.37billion (EPS: PkR3.03) for 9MCY16, down by 9%YoY.

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