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Stock Review

Stock review December 2022
PSE witnesses decline; range bound expected

During the week ended on February 24, 2023, Pakistan Stock Exchange remained volatile due to news flows regarding the IMF deal and approval of Financial Supplementary Bill for raising additional taxes of PKR170 billion

Unease amongst the participants increased as T-Bills cut-offs in the latest auction by State Bank of Pakistan (SBP) went up to 19.95%, contributing to the fears of further hike in the interest rate.

Reserves held by the SBP witnessed an increase for second consecutive week, rising to US$$3.26 billion, still standing at a critical level. The noticeable improvement can be expected after IMF agreement and expected inflows from bi-lateral partners.

The KSE-100 index closed the week at 40,708 points, lower by 411 points, depicting 1.0%WoW decline.

Participation in the market declined by 10.4%WoW, with daily volumes averaging 138 million shares as against 154 million shares a week ago.

PKR continued to strengthen against the US$, gaining 2.82% over the course of the period to close in at PKR259.99/US$ on Friday.

Other major news flows during the week included: 1) foreign exchange reserves got much-needed boost on support from amid IMF procrastination, 2) GoP announced steps to correct fiscal imbalances, 3) Current Account for the first seven month of the current financial year dipped on import curbs to US$3.8 billion deficit, 4) Islamabad got positive signals for help from Riyadh, and Beijing, and 5) ECP failed in taking decision on election date.

Sector-wise, Miscellaneous, Cement and Vanaspati & Allied Industries were amongst the top performers. On the other hand, Leasing Companies, Close-End Mutual Fund and Oil & Gas Exploration Companies were amongst the worst performers.

Flow wise, major net selling was recorded by Individuals with a net sell of US$4.56 million. Companies absorbed most of the selling with a net buy of US$5.91 million.

Top performing scrips during the week were: PSEL, KTML, KOHC, and MUGHAL, while top laggards were: PGLC, HGFA, PPL, SHFA, and SHEL.

The market is expected to remain range-bound in the near future, clouded by concerns regarding the interest rate hike. Expected increase in the interest rate may be a huge downside for the aggregate demand and subsequently the equity markets.

Any news regarding a successful Staff Level Agreement with the IMF and inflows from bi-lateral partners would boost investor’s confidence. Investors are advised to stay cautious while building new positions in the market.

Meezan Bank (MEBL) posted a stellar result for 4QCY22, reporting profit after tax of PKR16.4 billion (EPS: PKR9.2), higher by 43%QoQ and 87%YoY. The higher earnings in the last quarter was driven by expansion in the net profit earned, increasing by 40%QoQ. The bank’s Current Accounts at the end of the year were reported at 49% of total deposits, as compared to 45% at end CY21. The bank’s CASA has improved to 88%, compared to 83% at the end of CY21. MEBL’s deposits have grown at a CAGR of 19.8% over the past 5 years, while the industry deposits have grown at a substantially lower rate of 13% during the same period. The bank’s ADR currently stands at 61%, keeping it shielded from the taxation measures. The bank has increased its coverage to 166%, protecting its book from economic shocks.

Attock Petroleum (APL) is expected to announce its 2QFY23 financial result on Monday. Analysts expect the company to post loss after tax of PKR135 million (LPS: PKR1.08), down by 103% on a YoY/QoQ basis. The said decline is mainly attributable to falling offtakes (down by 10%QoQ and 18%YoY) due to the declining ex-refinery prices over the last quarter. Analysts expect the Company to post inventory losses of PKR954 million (PKR7.7/share) for 2QFY23 as ex-refinery prices for MS and HSD fell by 18% and 11% respectively during the period under review as compared to the previous quarter, subsequently resulting in gross margins for the quarter to end at 1.2% against 8.1% in earlier quarter). On the taxation front, analysts expect effective tax to rise to 150% for the period. The minimum turnover tax (0.5% on gross POL sales) hampers the already beat down bottom-line. At a normalized tax rate of 33%, the earnings per share would be PKR1.50/share. Alongside the result, analysts expect the company to announce a cash dividend of PKR10.0/share.

Pakistan Petroleum (PPL) is also scheduled to hold its Board meeting on Monday. Analysts expect the Company to post profit after tax of PKR49.2 billion (EPS: PKR18.1) for 1HFY23, up by 58%YoY. The company’s topline is set to post its highest ever half-yearly topline, expected to rise to PKR138.7 billion (up 53%YoY), mainly driven by an appreciating US$ dollar (up 31%YoY) alongside higher crude prices (up 28%YoY), which averaged at US$98/bbl during the period, which affects approximately 29% of company’s total revenues. The said growth in the company’s bottom line is attributable to the absence of any substantial dry well during the period. To recall, the company posted PKR11.0 billion in dry well costs in 4QFY22, on account of Khipro East X-1 and Pandrani X-1, taking the exploration expenses to PKR14.1 billion for the period. For 2QFY23 alone, the profitability is expected to settle at PKR22.9 billion (EPS: PkR8.41), down by 13%QoQ, as compared to PKR26.33 billion (EPS: PKR9.70) in the earlier quarter. Overall, production is expected to fall to 9.2 million BOE (down 3%QoQ) amidst lower gas production at Sui/Qadirpur/Kandhkot/TAL during the quarter. Analysts expect the company to incur exploration expenses of PKR2.0 billion for the quarter. Alongside the earnings, analysts expect the company to announce a cash dividend of PKR2.0/share.

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