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Uninspiring corporate result season in Pakistan

Engro Corporation (ENGRO) posted 2QCY19 earnings of Rs2.87 billion (EPS: Rs4.97), up 37%YoY but down 29%QoQ. This takes the 1HCY19 profit after tax to Rs6.87 billion (EPS: Rs11.92), up 3%YoY. The sequential decline in earnings can be attributed to: 1) a 191%QoQ higher operating expenses – EPCL recorded 673%QoQ higher operating expense due to IFRS 16 implementation and exchange losses, 2) a 107%QoQ higher financial cost amid 200bps interest rate hike, and 3) higher effective tax rate of 50% during the quarter as against 31% for 1QCY19 (EFERT reversed tax credit recorded in 2QCY18). ENGRO also announced second interim cash dividend of Rs8.0/share, taking the 1HCY19 payout to Rs15.0/share as compared to Rs12.0/share for 1HCY18. However, the sustainability of payouts is contingent upon progress on potential ventures, where ENGRO has announced feasibility study on polypropylene facility.

Bank of Punjab (BOP) reported earnings of Rs0.78/share for 2Q2019, up 7%YoY, in line with market expectations. NII of BOP for 1Q2019 depicted outstanding growth of 70%YoY amid hike in policy rate. However, higher provisions capped the increase. Cumulative earnings of the Bank grew to Rs4.0 billion (EPS: Rs1.52), from Rs3.8 billion (EPS: Rs1.46) for the corresponding period last year. Non‐markup income during the outgoing quarter grew due to higher fees and commission and gains on securities, amounting to Rs19 million, from a loss of Rs7.8 million during the same period last year. Non‐markup expenses on the other hand were up 11%YoY mainly on the back of higher operating expenses up by 11%YoY to Rs3.5 billion. During the outgoing year bank has recorded hefty net provision of Rs774 million as against a massive reversal of Rs895 million during the same period last year. Effective tax rate of the Bank was marginally down to 39% as compared to 40%. The key risks facing the Bank include: 1) significant impact of IFRS-9, an accounting regulation, 2) slow down in advances growth, and 3) deterioration of Pakistan macros.

Pak Elektron (PAEL) announced its 2Q2019 results, posting earnings at Rs393 million (EPS: Rs0.77) down by 42%YoY mainly on the back of lower gross margins, high admin expense and higher financial charges. Discounts during the outgoing quarter increased to 29.8%, from 26.5% during the same period last year. This led to decline in net sales by 2%YoY. Gross margins during the 2Q2019 year remained under pressure owing to significant depreciation of Pak rupee, which increased the cost of doing business for the company. Gross margins were reported at 22.3%. Due to economic headwind, intense competition, weak buying power of consumers and lower aggregate demand, sales volumes remained on lower side. During 2Q2019 the Company has posted increase its administrative expense by 18% due to inflationary pressure. Financial charges increased significantly by 29%YoY owing to hike in policy rate and debt borrowing. Analysts flag, 1) increase in raw material costs and the Company’s inability to pass it on, 2) greater than expected Rupee depreciation, 3) higher financial charges to fund working capital and 4) greater competition due to new entrants as key risks for PAEL.

 

Askari Bank (AKBL) posted earnings of Rs1.03/share, up by 13%YoY for 2Q2019 primarily due to NIMs expansions and lower effective tax rate as compared to last year. Cumulative earnings for 1H2019 rose to Rs3.1 billion (EPS: Rs2.48), up by 24%YoY. It is pertinent to note that profit before tax of the Bank declined by 10%YoY, primarily due to higher provisions and operating costs. However, profit after tax grew by 13% owing to lower taxation compared to same period last year. Non-markup income of the bank grew by hefty 22%YoY to Rs2.0 billion as compared to Rs1.6 billion owing to higher fee and commissions along with income from derivatives. Non-interest expense grew significantly by 15%YoY owing to18% higher operating expenses. The Bank booked provision charge of Rs587 million, from Rs156 million. During 1H2019 the Bank booked provisional expense of Rs239 million as against a reversal of Rs402 million. As a result, effective tax rate of the Bank declined to 37%, from 50% for the same period last year. However, effective tax rate for 1H2019 was reported at 40% as against 43% for 1H2018. Key risks facing the Bank include 1) lower than expected advances and deposit growth, and 2) deterioration in Pakistan macros.

Bank al-Habib (BAHL) posted earnings of Rs2.15/share, up by 12%YoY for 2Q2019 primarily due to NIMs expansion owing to higher interest rates. Cumulative earnings for 1H2019 rose to Rs4.4 billion (EPS: Rs4.0), up by 6%YoY. Net markup income of the bank grew by hefty 23%YoY to Rs9.6 billion, from Rs7.8 billion during the same period last year. NII grew by massive 35%YoY owing to hefty gains in foreign exchange income of 102% to Rs841 million, from Rs403 million for the corresponding period.  The Bank booked provision charges of Rs1.7 billion as compared to Rs180 million. Effective tax rate of the Bank rose to 45%, from 42% for the same period last year. Key risks facing the Bank include: 1) lower than expected hike in interest rate, 2) lower than expected advances and deposit growth, and 3) deterioration in Pakistan macros.

Allied Bank (ABL) posted earnings of Rs2.75/share, down by 7%YoY for 2Q2019, primarily due to higher operating expenses. Cumulative earnings during 1H2019 of the Bank declined to Rs6.2 billion (EPS: Rs5.45), down by 14%YoY. Along with the results, the bank announced a cash dividend of Rs2.0/share. NII declined by 12%YoY, despite recording hefty gains in foreign exchange income of 56% primarily due to lower dividend income and gains on securities cumulatively of Rs866 million as compared to Rs1.6 billion for the same period. Non-markup expense grew significantly by 22%YoY to Rs7.2 billion as compared to Rs5.9 billion in 2Q2018. This was primarily on the back of higher operating expenses, which grew by 24%YoY to Rs7.1 billion. The Bank booked reversal of Rs85 million in provisioning during the outgoing quarter as against a reversal of Rs580 million during a similar period last year. Effective tax rate of the Bank declined to 36%, from 41% for the same period last year. Key risks facing the Bank include: 1) lower than expected advances and deposit growth, 2) higher than expected operating expenses and, 3) deterioration in Pakistan macros.

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