Market stays dull but likely support for govt come positive
The benchmark index of Pakistan Stock Exchange closed the week ended on 5th March 2021 at 45,837 points, almost flat. The week was marked by extreme volatility on the back of political drama surrounding Senate elections. The market registered major uptick in initial half of the week owing to anticipations regarding the elections. However, the index went downhill following the news of PTI’s Minister for Finance and Revenue, Dr. Hafeez Sheikh being unsuccessful in his bid to become a senator from Islamabad, losing to the former prime minister Yousuf Raza Gilani. It is another thing that PTI emerged as the single largest party in Senate with 26 seats. Nevertheless, the market recovered on last trading day of the week.
Other major news flows for the week included: 1) UN Secretary General and United States welcoming understanding between India and Pakistan for reducing cross-border tensions, hoping that this would pave the way for further talks between the two countries, 2) FBR surpassing 8MFY21 tax collection target by Rs13 billion to cumulative tax collection of Rs2,911 billion with downward revision in its tax collection target to Rs4,700 billion as part of agreement with the IMF, 3) CPI recording an increase of 8.7%YoY in February, 4) exports registering a growth of 4.6%YoY to US$16.3 billion during eight months of current financial year, 5) cement sales posting a growth of 14%YoY to 37.95 million tons, 6) oil consumption rising 13%YoY to 12.67 million tons.
Flow wise, Foreigners remained net sellers during the week (net sell of US$10.66 million) together with Mutual Funds (net sell of US$9.37 million) and Companies (net sell of US$1.42 million) which was mainly absorbed by Insurance Companies (net buy of US$8.40 million) and Banks (net buy of US$7.98 million).
Top performers for the week included: SNGP, KAPCO, ANL, INIL and GATI; whereas laggards were: FML, STJT, HMM, SFL and PSX.
The market sentiments in the next week will be driven by outcome of ‘Vote of Confidence’ in Parliament that will provide much needed stability on the political front. Major corporate result announcements in the upcoming week include GLAXO, HASCOL and IGIL.
Three month rally came to an end in February 2021 with the benchmark index closing at 45,865.02 points, down 1.1%MoM. In the process, FYTD and CYTD returns stood at 33.2 and 4.8% respectively. Average trading volumes stood at 621.7 million shares in February 2021 as compared to FYTD and CYTD average of 489.1 million and 622.7 million shares. Within main board sectors, Cement sector gained 12.3%MoM on above expected results, together with upbeat demand outlook as winter season subsides. Flow wise, Individuals and companies were the only players to be on the buying side with net buy of US$33.7 million and US$22.9 million respectively, absorbing sell-off mainly from foreigners (net sell: US$18.25 million), Insurance (net sell: US$18.0 million), and Banks (net sell: US$12.2 million).
Analysts maintain their optimistic medium to long term outlook based on undemanding valuations and continue advocating for positions in Cyclicals (Cements, Steel due to pickup in demand as winter season recedes), Power and OMCs. At the same time, they also like Banks on dividend resumption and undemanding valuations.
Local cement dispatches extended their outstanding run with an increase of 6%YoY to 4.0 million tons for February 2021 where South fared better among the two regions, witnessing an increase of 22%YoY while North posted an increase of 3%YoY. Low number of working days led to a sequential decline in exports by 11%, while on YoY basis, exports declined by 18% where number of factors are at play including logistical issues and seasonality while local players are also shifting their sales mix towards local market to take advantage of higher retention prices at offer. Along with the result announcements, expansion announcements also gained pace with KOHC, MLCF and DGKC announcing expansions of 2.3 to 3.0 million tons, 2.4 million tons and 2.7 to 3.6 million tons, respectively, while some other players are also going to follow suit soon.
OMC volumes remained on a growth trajectory with a massive increase of 47%YoY, to 1.4 million tons for February 2021. However, sequential decline of 8% was witnessed mainly due to lower working days for February. Overall, local OMC sales continued on a strong footing, up 13%YoY for 8MFY21 (up 10% excluding FO) where seasonal uptick in FO demand for power generation over the period drove growth of 36%YoY while MS and HSD followed with growth of 8% and 16%. Market shares remain fluid with PSO/APL/HASCOL/SHEL accounting for market shares of 46/8/3/9 percent during February 2021 where a comparison with February 20’20 reveals decreasing share of HASCOL and APL while market share of PSO increased. PSO remains the top pick where medium term developments include clearance of circular debt and shift in cash profile of cash flows due to increased share of retail fuels while focus on improving storage infrastructure will result in company sustaining the recently gained market share, moving forward.
AKD Cement universe has posted a stellar increase in profitability as profit after tax was reported at Rs6.6 billion for 2QFY21, while gross margins stood at 24% against 11% and 19% for 2QFY20 and 1QFY21 respectively. Profit for 1HFY21 was reported at Rs9.8 billion against a loss of Rs615 million. Gross margins improved to 22% from 9% in 1HFY20 on the back of players engaging in severe price competition during 1HFY20 in the backdrop of Northern region witnessing a significant increase in capacity. Company wise, LUCK continues to maintain the status of lowest cost producer with highest gross margins from its universe of 29%. On the other hand, major surprise was posted by CHCC with gross margins of 26%, while the Company also announced an interim dividend of Rs1.00/share. The brokerage house maintains optimism on the local cement sector as local cement demand remains upbeat (up 17% for 7MFY21) which is expected to continue supporting pricing power of local players as they look to pass on the impact of increasing coal prices.