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PSX posts marginal decline, assemblies transition and Imran’s takeover to improve investor’s faith

During the week ended 17th August 2018, Pakistan Stock Exchange (PSX) remained volatile and the benchmark index lost 881 pointed during first three sessions. However, the market posted decent recovery on the last trading day of the week to close at 42,447 points, registering a marginal decline of 0.92%WoW. Fitch Ratings highlighted concerns about Pakistan’s economic woes and IMF program. Adding to the miseries was the news regarding legal actions against cement companies and Mansha group, weighing on overall investors’ sentiment.

Average daily traded volumes at bourse declined by 22.58%WoW to 161.22 million shares, but volume leaders were: BOPS, PAEL, UNITY, LOTCHEM and WTL.

Major news impacting the market during the week were: 1) IMF ruled out the possibility that it would deny Pakistan a bailout package under the US influence, 2) Overseas Pakistani workers remitted US$1.93 billion during July 2018 as compared to US$1.54 billion sent during the corresponding period last year, 3) PAMA released sales data for July 2018, where car and light commercial vehicle (LCV) sales depicted 9%YoY growth to 21,344 units, 4) the official data showed Pakistan’s trade deficit widened by US$3.19 billion during July 2018, with exports inching higher by 1.8%YoY and imports declining by 15% YoY and 5) SBP revealed that Pakistan’s foreign debt and liabilities spiked by 14%YoY to more than US$95 billion at end FY18.

Performance leaders during the week included: APL, PSO, ABL and FFC; while laggards included: PSMC, HBL, DGKC, GWLC and PIOC. Au usual foreigners remained net sellers but of a lesser magnitude, with net outflows of US$6.55 million as compared to an outflow of US$38.63 million in the preceding week.

Smooth transition of National and Provincial assemblies with Imran Khan comfortably becoming 22nd Prime Minister of Pakistan is likely to improve investor’s sentiment. Moreover, market will continue to take direction from the ongoing results season where major companies scheduled to announce financial results next week include FCCL, PKGS, DAWH, FABL and INDU.

The country’s largest oil marketing company, Pakistan State Oil Company (PSO) announced its financial results for FY18 and declared cash dividend of Rs5/share, taking full year payout to Rs15.00/share. The Board of Directors also approved issue of 20% bonus shares. PSO has posted profit after tax of Rs15.46 billion (EPS: Rs47.42), slightly lower than market expectations. Top line of the company grew by 20% YoY to Rs1.00 trillion for FY18, most likely due to higher oil prices and inventory gains, increase in international oil prices by 31% during the year under review.

 

In volumetric terms, oil sales of PSO were down 20% YoY to 12million tons in FY18, primarily due to lower FO sales, down 35% YoY amid lower demand from power sector; sales, excluding FO were up 3% YoY. Gross profit increased by 7% to Rs39.6 billion. Other income declined by 33% YoY to Rs7.5billion in FY18 on the back of lower penal income.

Other operating expenses grew by 12% to Rs15.2billion. On QoQ basis, earnings were down 45% YoY to Rs2.2billion led by growth in operating expenses and lower operating income. Key risks to the Company include: 1) volatility in oil prices and inventory losses, 2) rupee depreciation and exchange losses and 3) further pile up of circular debt.

Engro Fertilizers (EFERT) held a briefing for analysts. Urea production during first half of 2018 (1HCY18) was down by 8% YoY to 2.658 million tons. Contrary to this, sales were up by 2% YoY to 2.738 million tons. The decline in production was attributed to closure of Fatima Fertilizer and Agritech plants. EFRT sales were up by 25% YoY due to induction of new dealers and closure of some plants, taking its market share to 36% during 1HCY18. The Company posted earnings growth of 32% YoY to Rs2.44/share in 2QCY18 due to decline in finance cost by 42% YoY and other expenses by 59% YoY.

Further, the Company also recorded tax credit (deferred tax) of Rs one billion due to reduction in tax rate from 30% in 2017 to 25% as per Finance Act. The similar amount of rebate of Rs one billion will also be recorded in 2HCY18. Currently, urea stocks available with the dealers are sufficient and may not trigger further increase in urea prices.

At present price of locally produced urea is Rs1,610/bag, while landed cost of imported urea is around Rs2,100/bag. Currently subsidy receivables of the industry are around Rs19.6billion, out of this EFERT share is around Rs6billion. Moreover, there was no development on Gas Infrastructure Development Cess (GIDC). Management expects urea demand of around 5.6million tons during 2018 as compared to 5.8million tons in 2017, due to expected water shortage for Kharif season.

Pakistan Petroleum Limited has made a gas and condensate discovery at exploratory well Yasar X-1 from its wholly-operated Kotri Block (2468-12) located in Sujjawal district, Sindh. Yasar X-1 was spud on June 22, 2018 and reached final depth of 2,720 meters on July 10, 2018. Based on wire line logs and drilling results, potential hydrocarbon bearing zone was identified, which is under testing. Initial testing in the Upper Sand of Lower Goru Formation flowed 3.2mmscfd gas and 475 bbl/day condensate at 32/64’’ choke, confirms the presence of commercial quantities of hydrocarbons at Yasar X-1. The well is being flowed at different choke sizes to measure the gas flow rates. Actual flow potential of the well will be determined after completion of the test.

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