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Anxiety prevails; result season, budget proposals may attract investors

During the week ended 13th April, Pakistan Stock Exchange (PSX) remained under pressure and lost 566 points to close at 46,072 levels, down 1.21%WoW. Even hike in international crude oil prices and much awaited tax amnesty scheme could not lend support to the market.

Investors’ concerns remained high due to: 1) FATF/IMF expressing concerns over the amnesty scheme aimed at bringing offshore assets back to Pakistan, 2) ADB becoming skeptical over Pakistan’s growth outlook for FY19 due to the Balance of Payment crisis and 3) the apex court ordering silicosis centers to be set up at all cement factories across the country, leading to pressure on the cement sector. Average daily traded volume for the week declined to 247million shares, down 4.59%WoW.

The top volume leaders where: KEL, EPCL, LOTCHEM, FFL and AGL. Major news driving the market included: 1) power sector receivables rising toRs805billion at end January 2018 from Rs750billion at the end of last financial year, 2) Federal Cabinet ratifying the decision of Cabinet Committee on Privatization (CCoP) for issuance of National Security Certificate for sale of KES Power’s 66.4% shares in KEL, 3) exports and imports for March 2018 rising by 24% and 5% respectively, narrowing trade deficit by 5%YoY to US$3.04billion for the month, 4) remittances for 9MFY18 growing by 3.5% to US$14.6billion and 5) government facing a daunting task of paying US$3.3billion in debt servicing by end June 2018, This is likely to further erode Pakistan’s paltry foreign exchange reserves.

Major gainers of the week were: FFC, KEL, FFBL, PPL and EFERT, while the laggards included: KAPCO, FCCL, DGKC, HBL and CHCC. Foreigners remained active with third consecutive week of net inflows rising to US$17.45million for the week as compared to US$3.62million a week ago.

The investors await upcoming results season starting next week with announcement of results by POL, NRL, ATRL, APL, BAHL and UBL. That said, any pre-budget proposals can also influence market sentiments.

Overseas Pakistani workers remitted US$ 14606.41 million during first nine months of FY18 as compared to US$ 14105.03 million received during the same period in the preceding year, showing a growth of 3.56 %. During March 2018, the inflow of worker’s remittances amounted to US$ 1772.77 million, which was higher than February 2018 and 4.62% higher than March 2017. The country wise details for the month of March 2018 show that inflows from EU (US $427.62 million), Saudi Arabia (US $420.24 million), UAE (US $236.17 million), USA (US $244.2 million), UK (US $183.79 million) and GCC countries (US $58.89 million).

 

The Board of Directors of POL is scheduled to meet on Monday, 16th April 2018 to approve its 3QFY18 accounts. Analysts anticipate the Company to post profit after tax of Rs3.75billion (EPS: Rs15.85) taking 9MFY18 profit to Rs8.51billion (EPS: Rs35.96), up 14.0% from last year’s Rs7.47billion (EPS: Rs31.55). While the 9M profitability is likely to rise on account of higher international oil prices and production rising by 4.8%YoY on BOE basis (majorly due to Jhandial’s addition). It may be pertinent to note that the results incorporate older gas prices for TAL block fields considering that the decision in this regard is still pending. Recall, the company reversed enhanced revenues amounting to over Rs3 billion during 2QFY18 earlier being accounted for TAL block fields from 1st July 2015 till 31st December 2017. Exploration expenses in the period are expected to grow by 118%YoY as the company conducted seismic surveys on Balkassar lease and D. G. Khan concession along with processing data from Joyamair/Khaur North leases as well. While other income may increase on account of exchange gains on US$ denominated financial assets, losses on account of US$ denominated decommissioning costs can limit the net positive impact. In-line with its policy, analysts do not expect the Company to declare any dividend.

APL is also scheduled to announce its 3QFY18 financial results and likely to post profit after tax of Rs1.41billion, up 17%YoY but down 5%QoQ. A 3%QoQ hike in volumes and smooth upwards movement of gasoline and high speed diesel ex-refinery prices in February and March 2018 could lead to inventory gains in the quarter (expected around Rs750million). That said, exchange losses resulting from erosion in Pak Rupee against USS are expected to contain the net earning to Rs226million for the quarter. Going forward, growth from fuel farm venture with PSO at the Islamabad airport (expected to be inaugurated within this month), expansion in storage facilities and retail fuels are expected to supplement earnings in the medium term. Keeping in view dividend payment policyof OMCs analysts don’t expectannouncement of any interim dividendalong with the results announcement.

As the incumbent government remains adamant at reducing dependence of furnace oil, the gasp is being filled with imported coal and R-LNG; both the fuels contributed 15.8% and 19.2% in the total power generation. Having a pure R-LNG based generation capacity of 3,600MW now includes Bhikki, Balloki and Haveli Bahadur Shah units. Almost 91% of the total R-LNG based generation of 1,995MW came from IPPs including KAPCO (558MW), Rousch (291MW), Saif (160MW) and others as the new plants continue to suffer from teething issues. During the month, HUBC’s base plant operated at a meager 8.6% load factor, while its Narowal plant was able to operate at 55%. KAPCO delivered 625MW electricity with R-LNG as the preferred source.

Two crucial data sets regarding the oil marketing companies are difficult to tabulate and verify, one is regarding lubricant sales and market shares, which are excluded from monthly OCAC volumes and other is mid-stream storage infrastructure. According to an AKD research report: 1) about 48%YoY increase in lubricant sales volumes for FY17 steered by 73%YoY rise in passenger motor car lubricant sales, 2) SHEL maintaining leadership in the segment (44% market share), and 3) total storage infrastructure for POL products growing by 131,000 tons, up 4%YoY. In-line with expectations, the data shows that the listed OMC are ready to put power sectors consumers (and accompanying arrears) at the back bumper and focus on retail consumers.

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