Pakistan stock market closes almost flat
The most important news was MSCI unveiling the outcomes of its quarterly review. The update featured noteworthy additions: 15 stocks were integrated into the MSCI Frontier Market Index, while 41 stocks found their place within the MSCI Frontier Markets Small Cap Index. Particularly significant was the projection for Pakistan’s weight to ascend significantly, anticipated to rise from its current 0.6% to a more substantial 2.7%. These alterations are slated to take effect as of the close of business on August 31, 2023. Post-announcement, investors quickly adjust portfolios, implying potential capital inflows the upcoming week.
The week ended on August 11, 2023 started on a positive note, but faced volatilities as the week prolonged with the benchmark index closing the week at 48,424 points, reflecting a decrease of 0.33%WoW.
The average daily turnover clocked in at 287 million, down 26.9%WoW. The market capitalization dropped to PKR7,232 billion, from PkR7,290 billion.
Major drivers during the week remained multimillion investment commitments by GCC countries, UAE and Saudi Arabia and the triumphant oversubscription of MTBs much higher than the anticipated pre-auction target.
Furthermore, the total foreign exchange reserves witnessed a 0.9%WoWdecline, additionally workers’ remittances declined by 7.3%MoM and 19.3%YoY to US$2.03 billion in July 2023. Cumulatively remittances for 7MCY23 were reported at US$14.9 billion, down 16.9%YoY.
Other notable news from the week were: 1) CCoE approval for up-gradation for local refineries , 2) transfer of 15 companies to MSCI FM index from the small cap index, and 41 other companies were added to the small cap MSCI Index, 3) emergence of NBP, BoP and U bank as the top agri-microfinance creditors, 4) penetration of local rice traders into the global rice trade nexus as a result of restriction imposed by India on rice export, and 5) dissolution of the national assembly and anticipation of the caretaker govt.
Sector-wise, REFINERY declined by 11%, while INV. BANKS/ INV. COS/ SECURITIES COS. gained 8.3%.
Top performing scrips were: DAWH, AICL, FABL, UBL, and NATF, while laggards included PSMC, HCAR, CNERGY, SML, SEARL, and NRL.
BANKS/DFIs recorded a net sell of US$6.9 million. Insurance Companies absorbed all of the selling with a net buy of US$6.4mn.
The market is expected to portray positivity, while the installation of the caretaker government and the relation it fosters with IMF are likely to usher in market stability.
Despite a significant upside, market still remains attractive. Additionally, the influx of investments from UAE and Saudi can bolster and affirm stability.
Market participants are advised to implement a cautious approach when investing while focusing on dollar denominated revenue stream companies like E&Ps and Technology to hedge against currency risk or in companies with healthy dividend yields.
LOTCHEM has posted profit after tax of PKR0.3 billion (EPS: PKR0.21) for 2QCY23, down 88%QoQ and 89%YoY. The result was much below market expectation due to lower sales volume amid plant shutdown during the quarter under review and higher one –off effective tax due to super tax. This takes 1HCY23 net profit to PKR2.8 billion (EPS: PKR1.88), down 47%YoY. The company refrained from announcing any interim dividends against market expectation.
According to Intermarket Securities, Revenue was reported at PKR16.4 billion, down 26%QoQ and 45%YoY. This sharp decline in revenue is attributable to plant shutdown during the quarter due to raw material shortage amid import curbs by State Bank of Pakistan (SBP).
Gross margins were recorded at 12.2%. This gradual decline could be due to higher realized PX prices amid PKR devaluation, and inability to pass on the entire cost pressure in form of higher prices.
Other income was recorded at PKR598 million, up 2%QoQ and 31%YoY. The slight increase can be attributed to higher interest rates during the quarter under review.
Besides other odds: 1) distribution expenses were up 15%QoQ and 24%YoY to PKR42 million mainly due to higher inflation, 2) administrative expenses were reported at PKR161 million, up 28%YoY and 6%QoQ, 3) finance costs plunged to PKR140 million, down 81%YoY and 82%QoQ, due to repayment of short-term borrowings.
LOTCHEM has reported an effective tax rate of 85.1% for 2QCY23 as against 46.2% for the same period last year. This is largely due to super tax during 2QCY23 but there may be additional one-offs also.
Earnings have taken a steep decline due to weak demand and raw material shortage amidst challenging macroeconomic conditions. The subdued demand for Polyester yarn will predominantly afflict PTA demand resulting in lower volumes across CY23f. Given the prevailing macroeconomic landscape, the company’s earnings will likely maintain a strained outlook.
Car sales by PAMA were reported at 5,000 units down 16%MoM and 57%YoY. Non-PAMA members’ car sales were recorded at 6,000, down 13%MoM.
Escalating car prices, expensive auto financing, and declining purchasing power of consumers are among the primary reasons for the decline in sales.
Indus Motors (INDU) posted highest decline of 26%MoM to 1,368 units during July 2023 led by decline in sales of Fortuner and Hilux by 65%MoM.
PSMC recorded decline of 19%MoM to 2,444 units, led by decline in sales of Bolan (down 44%MoM), and Alto (down 25%MoM).
As against this, Honda Atlas Car (HCAR) recorded increase of 61%MoM to 494 units mainly due to low base of last month.
Hyundai sales were also up 2%MoM, where Tuscon sales up increased by 5%MoM to 328 units.
Millat Tractors sales declined 22%MoM to 1,656 units; Al Ghazi Tractors sales rose 20%MoM to 1,022 units.
Trucks & Buses sales were up 31%MoM, but down 29%YoY to 195 units.
Motorcycles sales were down 11%MoM and 24%YoY. Atlas Honda (ATLH) recorded sales of 62,000 units, down 17%MoM and 23%YoY. Higher bike prices, and low purchasing power of consumers are the primary reasons for the decline in sales.