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Index stays in red, Saudi crown prince visit likely to push positive outcome

The benchmark index remained in red during the week ended 15th February 2019 and closed at 40,487 points, down one percent WoW due to poor corporate earnings as well as lack of any positive triggers. Even the hint by Finance Minister of opting for an IMF program could not cheer the investors as they preferred to book profit. Moreover, news about a deadly attack in Indian occupied Kashmir (killed more than 40 soldiers) kept the market range-bound on the last day of the week. Investors eye forthcoming visit of Saudi Crown Prince, anticipated to be followed by multiple investment deals/MoUs worth billions of dollars. Commercial Banks, OMC’s and Fertilizer dragged the index, but E&P’s offered some respite due to rising international oil prices. Foreigners emerged net buyers with US$12.09 million; this was their third consecutive week of net buying. While local individuals were net buyers of US$5.9 million, insurance companies were net sellers of US$3.6 million.

Average daily turnover slipped to 125 million, down 34.7%WoW. Key news flows impacting the market during the week included: 1) the government reportedly deciding to take up to US$6 billion loan from the International Monetary Fund, 2) Pakistan and Saudi Arabia likely to ink three major Memorandum of Understanding (MoUs) amounting to over US$10 billion during the upcoming visit of Saudi Prince, 3) exports during 7MFY19 witnessing an increase of 2.24% to US$13.2 billion, 4) Moody’s Investors Services changing its outlook for the banking system in Pakistan to negative (B3 negative) from stable, and 5) Taliban saying that their negotiators would meet US envoys for talks this month in Islamabad, and will also meet Prime Minister Imran Khan to discuss Afghanistan.

Key performers of the week were: CHCC, DGKC, KEL, KAPCO and OGDC, while laggards included: PSMC, PSO, HBL, APL and EFOODS. Upcoming visit of Saudi Prince is expected to keep the investors. Continuation of result season will also keep the activity uplifted in selected stocks where some blue chips like PSO, UBL, MCB, ENGRO are expected to announce their results. However, analysts advice investors to keep a close eye on rising geopolitical tensions as any escalation can take a toll on the market.

The total liquid foreign exchange reserves held by Pakistan were reported at US$14,895.8 million on 8th February 2019. The break-up of the foreign reserves was: foreign reserves held by the State Bank of Pakistan (SBP) were reported at US$8,205.9 million, whereas net foreign reserves held by commercial banks at US$6,689.9 million. During the week under review, reserves held by SBP increased by US$13 million.

As per the latest stats by PAMA, auto industry witnessed a reduction in sales by 12% YoY (up 29% MoM) where PC+LCVs volumes were down 4%YoY (up 16% MoM) in January 2019. This takes 7MFY19 decline to 3%YoY. The decline is largely an outcome of: 1) higher vehicle prices due to rupee depreciation, 2) the impact of ban on non-filers and 3) partial effect of interest rate hikes. Player wise analysis suggests, PSMC witnessed double digit decline, HCAR showed modest growth, but INDU outpaced the industry.

 

Pakistan auto industry sales dropped by 12%YoY, with the decline in all major segments. This takes 7MFY19 volumetric growth to negative 5%YoY. During the month, passenger cars and LCV sales declined by 4%YoY (up 16% MoM).

In January 2019, passenger car segments of 1,300cc above/1,000cc segments showed decent performance with an increase of 13% and 11% YoY, whereas 800cc segment sales plunged by 37%.

PSMC witnessed a sharp decline of 15%YoY. PSMC’s flagship product Mehran volume shrank by 37%YoY as the discontinuation period comes nearer and buyer are expected to hold their purchases for new Alto. Swift faced a decline of 28%YoY as higher price is expected to result in cannibalization effect. In LCV segment, Ravi/Bolan sales declined by 11% and 27%YoY due to 1) relatively high demand in rural areas where non-filers are majority of buyers and 2) slowing down economic activities. On the flip side, Wagon R/Cultus continued their promising performance with a demand growth of 15% and 7%YoY attributable to corporate sales and car hailing app demand.

In January 2019, INDU was able to secure itself in a sweet spot with a surge in sales by 16%YoY (up 17%MoM) as recent sharp increase in industry prices has resulted in wider price difference with its competitor (Civic) that has resulted in substitution effect in Corolla sales (up by 26%YoY). However, in high end segment, Fortuner sales dwindled by 45%YoY as the new model novelty factor is expected to fade out in tougher economic conditions.

HCAR sales depicted a sign of relief with 3%YoY (up 91% MoM) higher sales during January 2019. Civic/City witnessed a modest increase of 4%YoY owing lower impact of non-filer sales restriction. On the other hand, BR-V volumes reduced marginally by 2%YoY.

CHCC posted profit after tax of Rs596 million (EPS: Rs3.38) for 2QFY19 as compared to Rs743 million in 2QFY18, registering a decline of 20%YoY. Sequentially, net profit increased by 38%QoQ. For 1HFY19, total net profit was reported at Rs1.03 billion (EPS: Rs 5.82), down 24%YoY. The result was significantly above market expectations mainly on account of reduction in effective tax rate. Gross margin for 2QFY19 improved to 19.3% as compared to 16.5% for 1QFY19. CHCC was able to pass on the increase in coal prices. However, on YoY basis, gross margin declined on the back of increased fuel/energy costs. Increasing financial costs have started to reflect on company’s income statement, increasing by 33%QoQ and 50%YoY for 2QFY19 and by 25%YoY for 1HFY19.

Lotte Chemical (LOTCHEM) announced its 4Q2018 results, posting an EPS of Rs0.68 as compared to an EPS of Rs0.005 in the corresponding period last year. This was because of a 77%YoY rise in sales, other income and gross profit margins.

Millat Tractors (MTL) announced its 2QFY19 results, recording EPS of Rs11.45. The decline in earnings was due to a 42%YoY decrease in sales, fall in gross profit margins and a 38%YoY rise in other expenses.

General Tyre & Rubber Company (GTYR) posted its 2QFY19 earnings, recording EPS of Rs0.3, down by 83%YoY. This was because of the rise in administration costs and financial charges.

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