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Stock Review

Index springs back on economic optimism; IMF plan and result season promising

On last day of the week ended on 19th April 2019, Pakistan Stock Exchange (PSX) witnessed a rebound due to renewed optimism on economic front driven by cabinet reshuffle and some changes in investors’ sentiments. The benchmark index closed almost flat at 37,292 levels.

Average daily trading volume surged to 175.7 million shares as compared to 148.36 million shares a week ago. Positive news flow of expected signing of agreement with IMF in late April/early May with policy level agreement between authorities and IMF failed to reinvigorate interest in the market, as delays in Amnesty Scheme and consultations on implementing Treasury Saving Account (TSA) to consolidate government deposits in Central Bank, overshadowed the positives. However, clarification from SBP that no TSA policy would be implemented without taking the banking sector onboard, improved investors’ sentiment with banks gaining 1.2% on the last trading session. The major performers belonged to Cable and Electrical goods, followed by Auto assemblers. Cement sector was down 1.5%WoW on rumors of further weakness in retail price as expansions came online amid weak demand.

Top performers included: PSMC, FFC, PAEL, UBL and HBL, whereas laggards were: CHCC, PIOC, HASCOL, HMB, and GWLC. The market during the upcoming week is expected to be driven by further news flows regarding development on IMF program and Amnesty Scheme, along with result season. The companies scheduled to announce results next week are: EPCL, PSMC, UBL, MCB, HBL, MLCF, ENGRO, CHCC, and INDU. Investors are advised to take a longer term view where any correction should be taken as an opportunity to accumulate. They are also advised to keep a close watch on Banking and Energy sector top picks, MCB, MEBL, HUBC and OGDC.

The departure of finance minister at this critical juncture when IMF deal is to be inked soon and budget is to be announced for next fiscal year, was termed ill-timed, though many raised questions about his performance.

Mari Petroleum Company (MPCL) notified the exchange that it along with its joint venture partner Pakistan Petroleum (PPL) has made an oil discovery at exploratory well Dharian-1 ST-3 near Rawalpindi which is 2nd consecutive discovery in Ghauri Block.

The Cabinet Committee on Energy has lifted the ban on import of furnace oil in an effort to meet the demand of power plants as electricity consumption grows with a gradual rise in temperature during the summer season.

Pakistan now enjoys a level playing field with member states of the Association of Southeast Asian Nations (ASEAN) in exports to China, which has waived duty on more Pakistani products under second phase of the Pakistan-China Free Trade Agreement (FTA).

Pakistan’s textile exports were recorded at around US$10 billion during first nine months of the current financial year. The country’s textile exports had remained at the same level of previous year, showing no significant growth.

Country’s foreign exchange reserves plunged by more than one billion dollars due to the repayment against Pakistan Sovereign Bond. The current account deficit narrowed considerably by 29.5% to US$9.6 billion in first nine months of the current fiscal year mainly due to much-needed drop in imports and a significant rise in workers’ remittances.


Pakistan Oilfields (POL) announced consolidated earnings of Rs3.2 billion (EPS: Rs11.4) for 3QFY19, lower than market expectations. This can be attributed to higher exploration charges reported at Rs1 billion. During the outgoing quarter, POL’s revenues grew by 22%YoY, mainly due to 20% deprecation of Pak rupee against the greenback. While Arab Light crude prices during the quarter under review declined by 3% to US$63.8/bbl, oil and gas production of POL declined by 5% each. Other income for the quarter was up 18%YoY, likely on the back of higher income on bank deposits on account of hike in policy rate to 10.75% and exchange gain on financial assets. The 9MFY19 earnings were reported at Rs11 billion (EPS: Rs39), led by higher oil prices up 19%YoY and currency depreciation. The key risks facing the Company are: 1) inability to receive higher gas price incentive on TAL Block owing to a dispute pending in the court, 2) lower than anticipated international oil prices, 2) significant exploration and development cost and 3) unexpected field shutdown.

Engro Fertilizer (EFERT) recorded 3% YoY growth in its 1Q2019 profitability, which was better than market expectations, mainly on the back of one-off gain in other income. Land valuing Rs650 million was sold to Engro Polymer & Chemicals (EPCL) which was not considered by analysts in income forecast released. Excluding this one-off gain the result of core operating income was in line with the expectation. EFERT achieved 30%YoY growth in revenue on the back of urea price hike, up 21%YoY. Gross margin reduced to 32% in 1Q2019, mainly due to impact of currency depreciation as 70% of the Company’s gas prices are indexed to US$-PKR parity. Finance cost took a quantum jump by 56%YoY due to the hike in interest rates, up 475bps to 10.75% from Jan 2018 to date. On QoQ basis, earnings were down 22% led by lower revenues, down 41%QoQ. The likely risks facing the Company include: 1) PKR depreciation, 2) regulatory control on fertilizer industry, 3) poor crop season and 4) unfavorable decision related to GIDC.

Pakistan State Oil (PSO) is expected to record an EPS of Rs15.76 for 9MFY19, down 53.4%YoY due to high inventory and exchange losses take a toll on the profitability. Sales volume also plays a significant role in the decline, decreasing by 42%YoY on the back of FO sales posting a decline of 73%YoY followed by HSD declining by 30%YoY. Profitability for 3QFY19 is expected to improve significantly on sequential basis, after a heavy inventory loss of Rs4.9 billion in 2QFY19 resulted in a dismal EPS of Rs0.17/share, while exchange losses exacerbated the injury.

Analysts expect PSO to record inventory loss of Rs3.3 billion for 3QFY19 as average decline in ex-refinery prices of 18.9%MoM in January 2019 across three major products (MS, HSD and FO) will outweigh the gains made over the next two months. However, analysts highlight the risk of inventory losses surpassing the estimates—further depressing the profitability.

Finance cost is expected to ease up a bit (down 17.9%QoQ) after PSO received Rs60 billion after clearance of circular debt. The story remains depressing with net profit down by 59.2% to Rs1.9 billion (EPS: Rs4.90). After skipping the half yearly payout, analysts expect the Company to announce a dividend of Rs5/share as cash flow situation eases up.

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