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Stock Review

Stock review December 2022
Market stays bearish, range-bound likely

Pakistan Stock Exchange (PSX) witnessed lackluster performance during the week ended March 31, 2023, with a weekly change of mere 59 points. This disappointing performance can be attributed to economic and political instability that haunted the investors throughout the week.

Currently, the IMF is seeking commitments from friendly countries to bridge the gap of external financing, and furthermore, the fund is demanding clarity on the announced fuel subsidies.

The foreign exchange reserves held by State Bank of Pakistan (SBP) decrease of US$354 million to US$4.24 billion as on March 24, 2023.

The benchmark index gained 59 points to close the week at 40,000 points.

Market participation also fell by 30.8%WoW as average daily traded volume plunged to 92.3 million, from 133.4 million shares last week.

Other major news flows during the week included: 1) GoP borrowed RKR 2.6 trillion for budgetary support during first 9 months of the current financial year, 2) IT exports declined 3%YoY to US$195 million in February, 3) FBR faced uphill task to meet tax collection target, and 4) UAE expressed keenness to invest in Pakistan economy.

Leather & Tanneries, Textile weaving, and Cable & Electrical goods were amongst the top performers, while Miscellaneous, Leasing companies and Property were amongst the worst performers.

Flow wise, major net selling was recorded by Insurance with a net sell of US$8.64 million. Banks absorbed most of the selling with a net buy of US$4.58 million, followed by Companies with net buy of US$4.46 million.

Top performing scrips of the week were: CEPB, SHFA, PIBTL, HCAR, and PAEL, while laggards included: PSEL, PGLC, YOUW, SHEL, and KTML.

The main focus of the market will be on the Monetary Policy announcement scheduled for April 04, where analysts are expecting a rise of 200bps.

In addition, the market will also be focusing on any positive developments on the SLA from IMF, which could create a rally in the market.

However, until there are clear economic and political developments, the market is anticipated to remain in a range-bound state. Investors are advised to take positions with caution.

Strong 1HFY23 marks a phenomenal period for the Mari Petroleum Company (MPCL) with weakening exchange rate alongside rising Arab light prices, providing a much needed impetus to the overall sector in face of lackluster production (flood damages, annual fertilizer plant turnarounds).

The US$ appreciated by 31%YoY over the 1HFY23, lending a boost to the Company in the form of: 1) higher price translations in PKR, and 2) exchange gains on foreign currency assets.

Furthermore, Arab light prices were higher by 28%YoY during the period as well, averaging US$98.4/bbl during the 1HFY23. MPCL Net sales rose by 44%YoY during the period to PKR61.0 billion. To note, company’s hydrocarbon production fell by 5%YoY during 1HFY23, clocking in at 17.5 million BOE as against 18.33 million BOE for the same period last year.

The said decline is mainly attributable to the torrential rainfall and flash flooding that happened over the period, rendering muted offtakes from several fields including Bolan East and Zurghan South etc alongside annual turnaround of fertilizer plants during November and December 2022.

Along with the result, MPCL also paid out routine half yearly DPS of PKR85/share as compared to PKR62/share for the same period last year.

According to the latest PPIS reserves data, MPCL’s 2P reserves stood at 870MMBOE as of June 2022. Reserves of its largest asset—Mari field—are estimated to stand at 4.84TCF of gas. Assuming throughput from the field at 750MMCFD going forward, the field could continue production for another 18 years, despite 58% depletion.

Furthermore, the company has been actively engaged in production enhancing activities, including higher exploration activity and enhancement at legacy wells, such as the Mari Revitalization program aimed to increase the pressure and production levels of the Mari reservoir.

Furthermore, projects such as 1) Sachal gas processing facility – potentially +47.5mmcfd gas supply to SNGPL post commissioning , 2) Mari-122H in HRL Reservoir of Mari Field at 21mmcfd of low pressure gas, 3) signing of a framework agreement with fertilizer customers for installation of pressure enhancement facilities at Mari field, and 4) drilling of Banu West-1 well, production to commence in FY24 at 50mmcfd gas, 300bpd oil, are expected to enhance the company’s hydrocarbon resource and provide impetus to operational sustainability going forward. Shielded from circular debt:

As the company supplies most of its gas production to the fertilizer sector (90% in FY22 at 662mmcfd), it is shielded from circular debt related receivable buildups. To note, MPSL’s trade debts stood at 19.4% of Total Assets as of December 2022, with company’s average NPAT to CFO conversion standing the strongest in the sector (5-year average of 105%). Consequently, at the quarter end, the company held PKR47.7 billion or PKR358/share in cash and short term investments.

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