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Stock Review

Successive peak witnessed as earnings, corporate news keep investors’ confidence firm

Wildly fluctuating on the back of external factors (attacks on Saudi oil facility and likely disruption in global crude supplies) and expectations of a peaking monetary cycle, the benchmark index of Pakistan Stock Exchange closed at 32,111 points; up 2.1%WoW for the week ended 20th September 2019. A slew of major earnings announcements accompanied by corporate actions played a large part in the firming up of investors’ confidence.

Key news flows driving sentiments included: 1) current account deficit for 2MFY20 declining to US$1.29 billion from US$2.85 billion for 2MFY18, which was in line with a 31% decline to US$13.58 billion for FY19, from US$19.8 billion a year ago, 2) FBR conveying to the visiting IMF team that the revenue collection will be above the desired target, 3) State Bank of Pakistan picking up Rs274 billion through 3, 5 and 10 years bond with cut off yields declining across the board and 4) Policy Board of Securities & Exchange Commission of Pakistan approving amendments in the Regulations for the Exchange Traded Funds, which have been revamped to add flexibility for fund managers to appoint separate intermediaries for performing the functions of market maker and authorized participant.

Volume leaders for the week included: MLCF, PAEL, LOTCHEM, KEL and WTL. Average daily trading volume for the week declined to 127.53 million shares from 129.53 million shares, down 1.3%WoW. Top performers included: EFOODS, EFERT, APL, ASTL and FFC, whereas laggards were: MLCF, HASCOL, PIOC, FFBL and PAEL.

Important earnings announcements over the coming week include PSO and PPL, while the squaring of future interest in the month’s last week could fuel market activity. Additionally, developments on the international stage could sway sentiments.

The total liquid foreign exchange reserves of Pakistan were reported at US$15,898.1 million on 13th September 2019. The break-up indicates reserves held by the State Bank of Pakistan (SBP) at US$8,600.4 million and net reserves held by commercial banks at US$7,297.7 million. During the week under review the reserves held by SBP increased by US$138 million.

Exploration & Production sector in Pakistan has undergone wild swings this year, with the stock price swayed by developments surrounding Kekra-1 offshore well, selling by foreign institutional and a cloudy oil price outlook driving investors’ sentiments in an increasingly fluid manner.

Developments surrounding the GoP’s bid to privatize 7% holding in Oil & Gas Development Company (OGDC) can be held responsible for the recent spell of institutional selling. An analysis of historic shareholding pattern are not as unruly as previously as the top fifteen shareholders have maintained their share ownership in foreign funds mostly absorbing major selling.

OGDC is slated to report FY19 profit after tax of Rs113.77 billion (EPS: Rs26.45) marking a rise of 44.5%YoY with 4QFY19 earnings of Rs28.45 billion (EPS: R6.62) an increase of 30%YoY while remaining flat QoQ, on the back of value accretive macro factors and other income growth. OGDC is expected to announce payout of Rs3.0/share, taking full year payout to Rs11.5/share. Citing strong earnings growth, attached with resilient payouts and institutional shareholding remaining in tagged, analysts believe these trends bode well for easing investors’ sentiments.


Total cement sales of Pakistan during August 2019 are expected to decline by 4%YoY to 3.3 million tons. Cumulative dispatches during 2MFY20 of the sector are also anticipated to fall by 3%YoY to 6.8 million tons. Domestic sales during August-2019 are expected to decline by 9%YoY to 2.6 million tons from 2.9 million tons a month ago, while cumulative domestic sales for 2MFY20 are estimated to decline by 5%YoY to 5.6 million tons. The decline in domestic sales can be attributable to: 1) economic slowdown, 2) delayed sales owing to CNIC and other regulatory issues, 3) extended monsoon season in the southern region and 4) rising inflation and other construction costs.

Effective capacity utilization for the month is anticipated to decline to 71% primarily on the back of multiple expansions that include Maple Leaf Cement (MLCF), Cherat Cement (CHCC), Bestway cement (BWCL) and DG Khan Cement (DGKC). The region-wise data suggests that sales from the northern region are anticipated to decline by 3%YoY to 2.5 million tons owing to a significant decline in exports. Domestic sales during the said period remained flat at 2.3 million tons. Company-wise data suggests, MLCF is expected to post jump in dispatches; up by 67% to 408,000 tons, while Lucky Cement (LUCK) is expected to post decline in sales to 436,000 tons; down by 22%YoY. This is primarily due to disturbance in price arrangement amidst hefty capacity expansion.

D G Khan Cement (DGKC) reported a loss of Rs1.0 billion (LPS: Rs2.3) as against EPS: Rs11.8, below expectations mainly due to lower than anticipated margins, tax adjustments related to 65B and turnover tax. Along with the financial results, the Company also announced the cash dividend of Rs1.0/share. Cumulative earnings of the Company for the year of FY19 declined by 73% to Rs1.6 billion (EPS: Rs3.6) as compared to Rs5.9 billion (EPS: 13.5) a year ago.  During the quarter, net sales of the company witnessed a significant attrition of 49%YoY, despite 49%YoY growth in total dispatches owing to lower retention prices in both domestic and export sales. Gross profit margins declined to 4% as against 35% for the corresponding period last year primarily due to higher average coal price and price war in the northern region along with rising costs pressures. Tax remained the major factor to drag earnings as DGKC booked Rs604 million tax (turnover tax and 65B benefit reversal) as compared to effective tax rate of 21% a year ago.

Along with the result, the company also notified that it has jacked up its investments in Hyundai Nishat Motors to Rs1.05 billion. Furthermore, DGKC also renewed Rs1 billion loans to Nishat Hotels at 1% plus one month KIBOR. The risks facing the Company include: 1) price weakening, 2) lower than anticipated local demand, 3) unanticipated increase in gas and coal prices, and 4) delay in its upcoming ventures.

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