Market set to maintain bull run
After gaining 1.8%MoM during January 2022, the positive momentum continued during the first week of February with index gaining 1.85%WoW in anticipation of normalization of relations with the IMF. Average daily trading volumes increased by 54%WoW to 289.1 million from 187.4 million shares a week ago. During the week, activity shifted slightly to small-cap stocks from mainboard items.
Major news flows during the week included: 1) GoP and IMF finally reaching an agreement to revive US$6 billion program, with IMF likely to disburse US$1.0 billion immediately, 2) Pakistan raising another US$1.0 billion through issue of Sukuk in international bond market, 3) Inflation during the month of January, 2022 rising to 13.0%, slightly above the estimates and 4) January 2022 trade deficit easing off considerably to US$3.4 billion (down 30%MoM from US$4.8 billion during December 2021).
In terms of top performing sectors, within mainboard, Textile weaving emerge clear winner with a gain of 7.2%WoW, while the Power Generation sector was down 3.0%WoW. OMCs were up 6.4%WoW, Chemicals up 4.2%MoM and Refineries up 4.1%MoM) also posted solid returns during the week. Flow-wise, Foreigners were the net sellers with a selloff of US$4.4 million, while Insurance also offloaded holdings worth US$4.01 million during the week. Other organizations, Mutual Funds and Banks were the major buyers with a net buy of US$3.91 million, US$2.97 million and US$2.11 million respectively. Stock wise, top gainers included: SHEL, PAEL, NML, COLG and ATRL, while the laggards were: HUBC, SML, CEPB, ISL and FHAM.
With GoP successfully concluding a with IMF to revive the dormant program and also unlocking US$1.0 billion in loan, the investors’ confidence will not only improve, but also translate into positive performance of the index. The GoP planning to further raise money through Eurobond auction. PKR is likely to gain further ground against US$, having earlier depreciated to 180/US$. Moreover, the result season is in full swing where we expect corporate profitability to remain buoyant amid 1) commodity bull run, 2) robust exports growth and 3) PKR appreciation. With valuations at very attractive levels, market may be set to post a sustainable bull run.
CY22 has started on a positive note, with stock market closing January 2022 at 45,375 points, gaining 779 points during the month. Also, with PKR largely holding its ground against the Greenback, the dollar adjusted return during the month also settled around 1.7%MoM. Investor sentiments improved after the government was able to achieve compliance on all major IMF preconditions to revive the dormant support program, paving way for the disbursement of US$1.0 billion in the upcoming executive board meeting. Average daily trading volume during January 2022 was reported at 369.5 million shares, as opposed to 342.8 million shares during December 2021, up 8%MoM. Foreigners remained buyers throughout the month with a net buy cumulating to US$17.6 million. Analysts expect the momentum to continue, going forward with the country officially expected to secure IMF’s tranche of US$1.0 billion in the coming days. Result announcement season is also here where analysts expect corporate profitability growth to remain robust owing to: 1) commodity price boom, 2) robust exports growth and 3) healthy economic activities in the country.
The wait is finally over. IMF program has resumed with the board approving US$1.0 billion tranche, taking cumulative program disbursements to US$3 billion (or 50.0% of the total program disbursements). Personal income tax reforms, further harmonization of GST and power sector reforms would continue to form base of the program, going forward. The extent of reforms under revenue mobilization remains to be seen with the incumbent government already battling higher inflation and eroding purchasing power of consumers amid election year in sight. Even power sector reforms are likely to bring inflationary pressure in our view, considering potential tightening of cap on GoP guarantees limiting options of direct settlement of circular debt in the sector (guarantees likely to reach PKR3.2 trillion by June 2022 — above original estimate of PKR2.7 trillion). IMF program resumption and the GoP’s intent to remain in the program is likely to bring much needed certainty in the market. Additionally, analysts see easing pressure in the currency market with CY22 PKR/US$ parity averaging around 175. In this backdrop analysts foresee margin improvement in Autos and Foods while Cements and Steel are likely to have added advantage of election year development projects.
Meezan Bank Limited (MEBL) is expected to report profit after tax of PKR27.6 billion (EPS: PKR16.9) for CY21 as compared to PKR22.6 billion (EPS: PKR13.8) in the same period last year. On a quarterly basis, earnings are expected to rise to PKR4.7/share, up8.8% QoQ and 82.5%YoY. Analysts see the Bank to be least effected from reprising mismatch due to profit sharing business model. Hence, they see NIMs sustaining in the current quarter at 4.7%, while the volumetric growth at the back of aggressive branch expansion is likely to push up net interest income by 6.2%QoQ. Administrative expenses of the bank are likely to grow 11.0%QoQ on account of branch expansion which usually speeds up in order to meet yearend targets. Together with the result, analysts expect the Bank to announce final dividend of PKR2.0/share, taking cumulative dividend payout to PKR6.5/share.
Bank Al Habib Limited (BAHL) is set to close another year of strong profitability with profit after tax of PKR18.2 billion (EPS: PKR16.5) for CY21. The earnings announcement is likely to be accompanied by a dividend payout of PKR4.5/share. For 4QCY21, earnings are expected to be recorded at PKR4.3 billion (EPS: PKR3.9) as against PKR4.4 for the earlier quarter and PKR4.2 for 4QCY20. The downtick in sequential earnings is attributable to: 1) historically higher administrative expense in the final quarter of the year, and 2) the large repricing lag coming into play for the bank with NIMs possibly diminishing to 3.3% in 4QCY21 as compared to 3.5% in the previous quarter but countered by balance sheet volumetric growth, keeping net interest income decline to 2.0%QoQ.