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Bulls lead; removal of gidc and support of oil marketing sector catch the eyes

Investors conducting transactions at Pakistan Stock Exchange (PSX) eagerly awaited for positive development ahead of the Federal Budget announcement on Friday, the last trading day of the week ended on 27th April 2018. GIDC removal/reduction beneficiaries again gained attention of investors where Fauji Fertilizer Company (FFC) gained 4% on last day of the week, followed by Fauji Fertilizer Bin Qasim (FFBL) +4%, and Lotte Chemicals (LOTCHEM) +2%.

The benchmark index gained 255 points to close at 45,543 points. Oil marketing sector stocks cumulatively contributed 123 points to the Index, where HASCOL gained 20% amid its better financial results, while PSO and SHEL gained 6% and 3%, respectively. Moreover, commercial banks and fertilizers contributed 86 and 70 points respectively. Market participation in terms of volume and value rose by 9% and 8% respectively. Foreigners emerged net seller liquidating US$2.8 million holding as compared to net selling of US$41.8 million a week ago. Amongst local investors, Mutual Funds were net sellers to the tune of US$4.00 million whereas companies emerged net buyers of US$4.7 million.

The Board of Directors (BoD) of National Bank of Pakistan (NBP) in its meeting was held on 27th April 2018 approved the financial statements of the Bank for three months period ended 31st March 2018. Operating income of the Bank remained flat with 1.7% increase amounted to Rs20.02 billion as compared to Rs19.69 billion for similar period last year. Net interest/mark-up income rose to Rs14.12 billion as compared to Rs12.29 billion for the corresponding period last year, posting 14.9% increase. As against this, non-interest/mark-up income declined by 20.3%YoY basis to Rs5.89 billion from Rs7.40 billion, mainly due to decline in Capital Gains and Exchange Income.

Pakistan State Oil Company (PSO) conducted analyst briefing on its nine-month financial results and future investment plans. Major highlights included: 1) a 6.58%YoY decline in 9MFY18 earnings to Rs13.2 billion was mainly led by cumulative inventory loss of Rs327million as compared to inventory gains of Rs685million as compared to the corresponding period of last financial year. Excluding inventory gains/losses, earnings largely remained flat. For 3QFY18, the Company booked inventory gains of Rs1.7billion as FO cargoes imported in November 2017 (at lower rates) were re-priced and sold during the quarter at higher rates. Gross profit rose to Rs29billion from Rs26billion on the back of incremental volumes of white oil and higher margins with significant contribution from HSD amounting Rs7.7billion. This compensated lower other income of Rs3billion on PIBs maturing in July 2017.Other expenses spiked due to hefty exchange losses amounting to Rs750 million during 1HFY18. However, the Company managed to curtail the losses to just Rs110million in 1QFY18 with higher offtake from local refineries and efficient cargo management. Financial costs declined by 15% to Rs3.7billion where quantum of FE-25 loans went up significantly to US$850million. The Company booked receivables on FE-25 mark-up (to be adjusted against future payables) as currency risk is handled by GoP.

 

For 9MFY18, receipts from the power sector have been in line with the supplies with a deficit of Rs4billion (payables of Rs129billion as against receipts of Rs125billion); although receivables on LNG are building up continuously. As regards future plans, the management believes: 1) GoP should disburse another Rs100billion to address the circular debt issue, 2) while the GoP is still considering complete deregulation of HSD, the management continues to push for margins to be raised to Rs2.55/litre, 3) the Company intends to retain LNG business in the near term, 4) FO phase out is a good omen for the Company as it gets rid of cash flow issues, 5) FO storages would be converted to HSD and MS storages to save itself from inventory losses and 6) investment in PRL would require US$1.00 billion as refinery intends to issue right shares.

Pakistan’s largest exploration and production company, OGDC has posted profit after tax of Rs20 billion (EPS: Rs4.7) for 3QFY18, up 15% YoY as compared to the corresponding period an year ago, mainly due to higher sales and considerable increase in other income. The company also announced cash dividend of Rs2.75/share. Net sales for the quarter were up 14% YoY due to: 1) increase in Arab Light oil prices by 24% YoY and 2) Rupee depreciation against the greenback, providing support to dollar linked revenues. However, oil production posted around 9% YoY decline in 3QFY18 where production flows from Nashpa field (30% of OGDC’s oil production) declined by24%. This can be attributed to natural depletion of the field and lower uplift by refineries. The company booked exploration charges of Rs3.8bn, up 74% YoY during the quarter, mainly on account of dry well cost. Other income and share of profits from associates were up 41% and 54% YoY, respectively, supported the company’s bottom-line. Increase in other income was mainly on the back of higher interest income and exchange gain, while improvement in profitability of Mari Petroleum (MARI) supported profits from associates. The points of concern are: 1) volatility in international oil prices, 2) lower than expected hydrocarbon production and 3) significant increase in exploration and development cost.

Pakistan Petroleum (PPL) has announced its 3QFY18 results posting profit after tax of Rs11.169 billion (EPS: Rs5.66). On YoY basis, earnings were 53% higher as compared to the corresponding period of last year, which can be attributed to: 1) 24%YoY increase in international oil prices and 2) other income emanating from exchange gains on the back of depreciation of Pak Rupee. Exploration expenses and administrative expenses were posted in higher than expectation as the Company likely booked Kalat/Zarbab as dry wells during the period under review. Lastly, effective tax rate declined to 26% as against expected rate of 33%, further enhancing the bottom-line. On sequential basis, earnings were up 20%.

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