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Stock Review

Stock review December 2022
Bulls to dominate on optimistic outlook

Pakistan Stock Exchange (PSX) witnesses persistent bullish run during the week ended on November 10, 2023. The benchmark index closed at 55,391 points, up 4.27%WoW, with daily trading volume averaging at 544.05 million shares, up 20.8%WoW.

The sentiments were driven by an overall positive atmosphere owing to IMF’s review under the SBA, after the completion of technical talks, followed by policy level discussions scheduled to begin on Monday (November 6).

Overall, discussions seem to be on a positive trajectory with IMF mostly questioning the fiscal targets and delay regarding gas price revisions. On the macro front, expectations of a reduction in CAD during FY24 to US$4.5 billion, alongside healthy agri output to boost exports are the positive triggers.

Further, crude oil prices continue to slide amidst uncertainty over China’s economic recovery and stability in US reserves, Arab light/ WTI/ Brent being traded at US$84.7/ US$76.7/ US$81.1 per barrel.

On the currency front, US$/PKR slid for the second straight week, ending at 287.03, down 0.95%WoW amidst rising import demand, alongside concerns regarding IMF talks.

Furthermore, PIB auction held during the week saw yields declining, with 3/ 5/ 10 year bond yields slipping to 17.39%/ 15.95%/ 15.10% (down 180/ 100/ 15bps), reinforcing expectations of an end to further monetary tightening.

Other news for the week were: 1) SIFC assessed Sinopec’s interest; 2) US$3 billion projects approved for flood-hit areas; 3) IMF talks uncovered major gaps; 4) Cotton production jumps by 83%; 5) Reko Diq deal with Saudi firm to be signed this year; 6) Nepra allowed Discos PKR0.4/unit tariff hike under FCA for September 23.

Top performing sectors included Chemical and Cement, while Close-end Mutual Fund saw major selling. Flow-wise, major selling was recorded by Insurance with a net sell of US$16.9 million, while Banks/DFI absorbed the selling with a net buy of US$16.3 million.

Top performing scrips were: CNERGY, KOHC, CEPB, FCCL, and KTML, while laggards included HGFA, UNITY, BNWM, EFUG, and ABOT.

Top volume leaders were: CNERGY, PRL, HUMNL, KOSM, and WTL.

Going forward, analysts maintain an optimistic outlook of the market and believe the present rally to continue, albeit with episodes of profit-taking. This stance stems from an expected positive conclusion of the IMF’s review amidst improving macro indicators and fading uncertainty over the upcoming elections, even though the country faces tough economic decisions in the near future.

Overall, brokerage houses advise their clients to focus on fundamentals, with exposure in high dividend yielding scrips.

Pakistan Stock Exchange (PSX) was incorporated in the year 1949 under the name Karachi Stock Exchange (Guarantee) Limited, as a company limited by guarantee without having share capital. On August 27, 2012 the Company was re-registered as public company limited by shares.

The high lights of its performance are: Operating revenue decreased by 5% reaching to PKR1,224 million for FY23, from PKR 1,289 million for FY22 due to reduction in trading fee, owing to lower average daily traded value at PKR 1,0111 million for FY23 as compared to PKR14,93 million for FY22 SPLY. However, the company’s performance has seen uptrend in 1QFY24 by 13% and 36%QoQ in operating revenue and average daily traded value respectively.

Profit after tax was reported at PKR220 million (EPS: PKR 0.27) down 45% for FY23 as compared to PKR399 (EPS: PKR 0.5) for FY22. The management claimed that the profit was mainly affected by higher deprecation due to real estate holdings and PKR100 million contributed by exchange losses. However, no exchange loss has occurred in 1QFY24.

Regarding UINs the number of investors has increased by 8.31% in FY23, currently the UINs are 306,954. As per management this relates to only capital market. Further, the management stated that the introduction of online trading, KYC sharing and Sahulat account has significantly contributed in increasing the number of investors.

PSX also achieved two listings in the equity segment both comprising of listing on the main board.

The contingencies were reported at PKR414 million FY23 and 1QFY24 as compared to PKR11,345 million and PKR1,264 million fir FY19 and FY21, respectively. The decrease in contingencies amount since FY19 was due to disposal of 4 cases amounting to PKR6.79 billion. In addition, 9 cases amounting to PKR4.14 billion have been removed from contingencies based on opinion of the legal counsel and consultation with external auditors. However, these cases are still pending in court.

Image Pakistan (IMAGE) held its analyst briefing to notify investors about performance in FY23 and to bring their future outlook to light: Image Tech, a tech subsidiary was incorporated to manage and operate the e-commerce division of IMAGE Pakistan. The division is facilitated by various fulfillment centers in UK, US and other Middle-East markets. Online sales provide cost savings of 5% more than retail outlet sales.

The company generates substantial revenue from the (local and export) e-commerce sales that comprise of 35% of the company’s total revenue. Whereby, the share of local to export is 27% and 73% respectively.

Furthermore, the management highlighted that it aims to continue the revenue growth trajectory by increasing volumes by 15-20% and the rest by increasing selling price and maintaining healthy gross margins (GMs). The company has 11 operational sales outlets in the Karachi, Lahore, Islamabad (KLI) region, which cumulatively generate revenue of PKR2 billion annually. The company is set to add another retail outlet in DHA, Lahore.

On the macro-economic woes, management stated that IMAGE caters to high income individuals and maintains high profitability, by cost cutting to ensure production of the same product at a more affordable rate than other competitors.

The management also talked about the disposal of their Polyester Filament Yarn (PFY) plant, due to the uncertainty and crisis of PFY industry in Pakistan in consequence of which 16-18 PFY plants were shut down nationwide over the span of 20 years.

Going forward the company foresees the revenue target of PKR3.7 billion for FY24 and PKR5 billion for FY25, by optimizing their retail sales incorporating retail sensing measures through footfall devices to monitoring the conversion per visiting customers on all of their retail outlets.

Additionally, the management plans to increase the capacity to decrease dependency on outsourced production to meet their requirements. Management highlighted they would need to incur CAPEX of around US$1.0 million to generate PKR one billion in sales to meet the revenue targets set for the coming years. This increase in CAPEX will in turn lead to a lower ETR in the years to come.

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