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Upcoming results a welcome boost for investors

Weak sentiment coupled with geopolitical tensions in the region and uncertainty over talks with IMF continued to dampen investors’ confidence. Thursday session which saw massive buying by Mutual Funds, to the tune of US$12.7 million, helped the benchmark index to break the losing streak. However, the index could not sustain that level and closed in red in the following session by cumulatively losing 123 points (down 0.26%WoW) to close the week at 47,563 points. The withdrawal of US troops from Afghanistan is creating a vacuum in a high foreign stake region. Added to this was uncertainty over IMF stance on structural reforms regarding tax and energy sector. In light of increase in Covid-19 Delta variant and poor compliance of SOPs, NCOC has hinted towards a possible partial lockdown in the cities, further putting the investors on their toes. Participation during the week remained dull with average daily traded volume declining to 485.9 million shares, from 621.9 million shares recorded a week ago. Sector-wise, both Cement and Steel manufacturer increased local prices of cement bags and rebars amid soaring coal and scrap prices.

Major news flow during the week included: 1) NYSE-listed ETF offers exposure to Pakistani stock which included four firms Systems Limited, Meezan Bank, Lucky Cement and Searle, 2) Overseas Pakistanis remitted US$1.6 billion through RDAs, 3) Pakistan’s public debt rose by 8.23% to Rs2.89 trillion in 11 months of current financial year, 4) Pakistan sold US$1 billion on Tuesday in a reopening of existing three-tranche bonds launched in March this year, a deal that raised US$2.5 billion, 5) GoP raised Rs146.4 billion via fixed rate PIBs’ auction, and 6) Power Division informed Senate panel that the circular debt had increased by Rs260 billion this year.

Top performers of the market included AGP, SCBPL, GATI, HBL and HCAR. Meanwhile laggards included: PAKT, HMM, KAPCO, STJT and ANL.

Flow wise, Companies remained the major buyers with (net buy of US$4.14 million) followed by Mutual Funds (net buy of US$3.91 million), while Broker Proprietary Trading witnessed net sell of US$4.01 million, followed by Insurance Companies (net sell of US$2.79 million).

The market will remained focus on the upcoming results. Analysts expect margin suppression for cyclical plays on the back of increased raw material costs. However, surprises could arise from players maintaining large and low cost inventories. Auto assemblers and Auto part manufacturers are also expected to continue garnering investors’ interest with the recently announced incentives in auto policy. Construction and allied sectors, select Oil and Marketing Companies and Textiles are likely to perform well in anticipation of result season.

According to a report by Topline Securities, Pakistan’s crude oil production was down 3% QoQ to 74,700 barrel per day (bpd) in 4QFY21. The decline was visible in nearly all major fields namely Nashpa, Adhi, Makori East, Maramzai, Chanda, Mardankhel and Makori Deep. Production from Tal Block fields like Makori East, Mardankhel, Makori Deep dropped due to Annual Turn Around (ATA) in Mid April 2021. Production from KPD fields also declined due to Annual Turn-Around at the end of June 2021. During FY21, oil production increased by 24% to 75,600 bpd as production in FY20 was lower due to Covid-19 led lockdowns, which restricted overall throughput of oil and gas fields amidst lower demand. Two new oil fields started commercial production during the quarter namely Benari and Gagani, with cumulative production flows of 70-80 bpd.

Gas production remained flattish at 3,509 mmcfd during the 4QFY21, despite gas shortages making headlines during last couple of weeks of June 2021. Increase in gas flows was witnessed from Uch and Mari fields. The flows from the latter increased despite lower offtake by FFC (because of turnaround) as Mari diverted flows to the national grid (Guddu). Production from Kandhkot field declined 4%QoQ due to lower demand by Gencos. During FY21 gas production declined 2% to 3,511 mmcfd mainly due to 13% and 17% decline in flows from Qadirpur and Kandhkot, respectively. During the outgoing quarter, two new wells commenced commercial production line namely Benari and Gagani, with cumulative flows of 7-8 mmcfd.

AKD Securities has revisited its investment case on Fauji Fertilizer Bin Qasim (FFBL) and Fauji Fertilizer Company (FFC) on the back of continued uptrend in international fertilizer prices. DAP/urea prices in international markets are currently at US$650/US$420 per ton, translating into local price of Rs6,400/Rs4,200 per bag, respectively. Based on the aforementioned bull cycle, the brokerage house incorporate DAP primary margins for FFBL at US$190/ton for CY21, which are expected to normalize to US$150/120 per ton CY22/CY23 onwards (earlier assumptions of US$150/120/120 per ton for CY21/CY22/CY23). The brokerage house revised urea prices to Rs1,675/bag for its investment horizon. It also revised standalone earnings for FFBL and FFC for CY21/22 stand at Rs5.09/Rs3.84 per share and Rs17.78/Rs18.03 per share, respectively.

Primary beneficiary of the announced budgetary measures — Pak Suzuki Motors Company (PSMC) is likely to witness strong uptick in volumes with average passenger car retail price to be potentially reduced by Rs0.1 million. Resultantly, analysts expect 2HCY21 sales registering a growth of 13.0% over 1HCY21, with further carry over the medium run (CY21-23 CAGR: +9.3%YoY). Commodity bull run and reversal in Rs-US$ parity is expected to keep margins in check during CY21. However, normalization in commodity prices in the medium run should expand margins. Hence, analysts expect earnings to register a CY21-23 CAGR of 24.1%. Upside to the estimates could come from limited pass-through of price benefits to end consumers (companies are yet to announce revised retail prices). AKD Securities has incorporated new model of Swift from CY22 with related-Capex reflecting in 1QCY21 financial statements. It has a BUY stance on PSMC. Key risks arise from potential reduction in duties on imported CBUs under consideration in the upcoming Auto policy 2021-26.

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