Profit-taking witnessed; political, covid fear persist
After starting the week on a jubilant note on the back of strong economic data, market lost 1,420 points during last four sessions as political uncertainty mounted with a spat among ruling party’s members. Added to this were increased incidences of COVID-19, supporting a possible lockdown in highly affected areas. Resultantly, KSE-100 Index closed the week at 44,262 points, down 0.99%. Across the board profit-taking was witnessed where engineering sector, despite posting impressive results, remained under pressure, going down by 6.7% during the week. Participation remained low with average daily turnover decreasing to 332 million shares, down by 0.5%WoW.
Key news flow during the week included: 1) inflows of foreign exchange through the Roshan Digital Account (RDA) crossing the US$ one billion mark, 2) country posting a current account deficit of US$47 million in March 2021, after the first nine months of FY21 remaining in surplus, 3) urea off-take during 1QCY21 rose by 37%YoY to 1.34 million tons, 4) Pakistan recording 201 coronavirus deaths, which is the highest single day coronavirus toll, and 5) total liquid foreign exchange reserves of the country increasing by US$307 million to US$23.5 billion at the end of last week.
Foreigners remained net sellers with a net sell of US$13.14 million followed by individuals (US$6.28 million). The selling was absorbed by organizations (US$16.1 million) and mutual funds (US$13.35 million). Top performers of the week included: GATI, FML, SCBPL, COLG and ILP, whereas laggards were: PSMC, PAKT, NBP, INIL and LOTCHEM.
Political uncertainty and COVID-19 are expected to dictate the market sentiment post conclusion of result season. Any increase in intensity of pandemic will further increase the probability of lockdown, which can keep the market under pressure. However, stock specific activity cannot be ruled out particularly in the stocks which are expected to be added to MSCI Emerging Markets Index.
Banking sector spreads for March 2021 slipped to 4.31%, recording a marginal decline over February 2021 of 4.38%, taking 1QCY21 average spread to 4.35% as against 5.42% in the same period last year and 4.50% in the previous quarter. Fresh spreads continue to diminish for the fourth consecutive month with the latest reading exhibiting a dip of 10bps MoM taking 1QCY21 cumulative decline to 32bps from December 2020. First quarter 2021 earnings of registered a growth of 36.5%YoY/27.0%QoQ to Rs54.0 billion, while sequential growth was primarily driven by jump in Non Funded Income and steep decline in provisioning expense. Core income of the sector registered a decline of 3.7%QoQ with lower spreads and normalization in investment yield pulling down gross yields to 49.2% vis-à-vis 51.3% in the previous quarter. The banking sector has underperformed the market with CY21TD negative performance of 6.6% compared to KSE-100’s positive 3.5% with market participants looking for value elsewhere amid broad market expectation of stable interest rates. Analysts expect the sector to regain interest as COVID third wave dilutes and authorities mount on the normal course of policy making.
As per the numbers released by NFDC, urea offtake declined 16%MoM to 343,000 tons in March 2021. The sequential decline in numbers was witnessed industry wide due to seasonality factor. EFERT remained at the forefront, due to a low base effect in the same period previous year. The overall urea inventory rose to 297,000 tons as against 130,000 in February 2021, but still down 50%YoY. The GoP’s decision to supply LNG to hitherto closed fertilizer plants for 10 months may continue to improve inventory levels and reduce upside pressure on urea price. DAP offtake on the other hand increased 63/81% MoM/YoY to 143,000 tons, taking 1QCY21 DAP offtakes to 314,000 tons, up 49%YoY, with FFC leading the show. DAP inventory at March 2021 end was reported at 55,000 tons down 89%YoY due to lack of availability in global markets. DAP prices currently hover at around Rs5,500/bag, international DAP prices implying local prices still at a discount. Meanwhile, bull cycle in DAP prices comes at seasonally slow period, diluting its potential impact on FFBL’s earnings in 1HCY21, where upside risk emanates from continued bullish trend in DAP prices in 2HCY21.
Increase in volumes of OMCs directly lifted throughput levels, with 1QCY21 retail volumes at 3.05 million tons, up 20%YoY largely due to a 28%YoY increase in HSD, while sequential decline in retail fuels’ volume stood at 15%. Company wise, HASCOL/SHEL/APL/PSO delivered throughput levels of 308,000/613,000/477,000/554,000 ltrs/outlet, taking total average industry throughput +17%YoY/-13%QoQ to 577,000 ltrs/outlet. Difference between throughput level of HSD and MS standing 146,000 ltrs/pump for 1QCY21 as against 102,000 ltrs/pump for 4QCY20 despite government’s continued efforts to curb influx of grey product points towards slowdown in MS sales. PSO remains top pick from the sector 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.
Lucky Cement (LUCK) posted consolidated EPS of Rs24.3, up 31% QoQ due to significant improvement in profitability of Auto and Chemical Businesses alongside the core cement business. The result came in slightly higher than market expectations due to better GP margins in cement business and slightly higher profit of auto business. Lucky Motors Corporation (formerly KIA Lucky) posted gross margins of 16.8% for 3QFY21 as compared to 15.6% and 12.1% for 2QFY21 and 1QFY21 respectively. The Chemical listed subsidiary (ICI) of LUCK has posted profit of Rs1.96 billion for 3QFY21, up 269% YoY due to increase in sales and GP margins by 19%YoY. Auto business of the company has declared its first dividend of Rs2.85 billion for 3QFY21, fueling unconsolidated EPS to Rs22.1, up 209%QoQ.