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Stock Review

Stock review December 2022
PSE index likely to move up on new govt formation

The week ended on February 09, 2024 was short three-day trading, the weight of a momentous event loomed large—the elections.

The week began with positive news of possible nods by the IMF on circular debt and power tariff rationalisation plans, as well as a narrowed trade deficit for the month of January. However, uncertainty surrounding the election results on Friday (February 9) shattered the early gains.

Contrary to expectations, the initial outcomes largely favoured PTI-backed independent candidates, resulting in the KSE-100 plunging by 2,300 points at the opening, before partially recovering to close the week at 63,003 points, with a loss of 59 points or 0.09%. As of the latest situation, a PDM-type government is expected to take office in the coming days.

Market participations remained lean with investors seeking clarity over the election results, as average daily trading volume further shrunk by 2.3%WoW to 3.5 million shares.

Foreign exchange reserves held by the central bank declined by US$173 million to US$8.04 billion as at February 02, 2024.

On the currency front, PKR appreciated by 0.05%WoW to close at 279.41/US$.

Other major news flows during the week included: 1) SBP mopped up only PKR64 billion against PKR480 billion target, 2) CCoE approved amendments to refineries policy, 3) exports of services shrank in December last year, 4) GoP borrowed over PKR4 trillion from banks in seven months.

Sector-wise, Synthetic & Rayon, Paper & Board, and Property were amongst the top performers, while Leasing companies, Transport, and Textile composites were amongst the worst performers.

Major net selling was recorded by Mutual Funds with a net sell of US$5.5 million. Foreigners absorbed most of the selling with a net buy of US$5.7 million.

Top performers of the week were: PSEL, SML, KTML, YOUW and IBFL, while top laggards included: PGLC, AGP, APL, PIBTL and NATF.

Market outlook hinges on the final result of the elections, with indications pointing towards formation of a PDM-like government. If this transition occurs peacefully, it could be positive for the market as it would boost investor confidence, especially considering previous efforts by a similar setup.

Overall, the market is currently at levels with attractive valuations. However, analysts advise clients and investors to adopt a cautious approach and either maintain or take positions in mainboard stocks to limit risks.

According to Taurus Securities, LCI has posted sales at PKR 60 billion for 1HFY24, up 21%YoY as compared to PKR 49.6 billion for the same period last year.

Gross margins were reported at 21 per cent on account of improved margins in pharmaceutical and chemical segments.

Profit after tax was reported at PKR 5.04 billion up 54 per cent.

Soda Ash revenue rose to PKR 24.5 billion up 26%YoY, mainly due to higher prices. However, the demand for Soda Ash declined by 8%YoY.

Moreover, the principal approval has been granted for 200,000 tons capacity expansion for Soda Ash which increases the capacity to 760,000 tons per year.

Furthermore, PKR 1.55 billion is invested in Dense Ash capacity which will commence its commercial operations by the end of FY24.

The Polyester segment achieved growth in sales of 12%YoY to PKR 19.7 billion. Similarly, EBITDA grew by 3%YoY mainly on account of cost efficiencies. However, the expected increase in the proportion of RLNG in the gas mix may adversely impact the subsidized advantage given to the textile sector.

Pharmaceutical revenue was reported at PKR 5.7 billion, up 30%YoY on account of CPI-based price adjustment, and sales of high-margin products.

EBIT clocked in at PKR 0.97 billion up 72%YoY, lower cost mainly attributable to internal production of cardio portfolio. To highlight, 20 new products have been launched in the last 3 years.

Chemical segment revenues soared to PKR 7.01 billion, up 49%. However, significant growth occurred in EBIT of 202% clocking in at PKR 1.14 billion. The growth is mainly attributed to higher margins in sunflower oil, inventory gains, and easing out of restrictions on LC.

There was marginal growth in the Animal Health segment with revenues of PKR 3.33 billion, up 2%YoY. EBIT grew by 12%YoY reaching PKR 0.50 billion mainly due to tighter controls and dependence on local raw materials.

On the float glass manufacturing front, a joint venture with TGL got delayed owing to economic headwinds, wherein the first phase of the project having a capacity of 500,000 was expected to come online during FY25. Nevertheless, both companies are fully committed to the project completion.

For CY23, FFL experienced a notable 60%YoY growth in sales revenue, rising to PKR 19.8 billion, driven primarily by increased sales volume. This growth was attributed to the company’s strategy of prioritizing margin accretive products, leading to improved gross margins.

FFL shifted its core focus from tea whiteners to higher-margin products like creams, UHT, and other dairy offerings, signaling a strategic pivot towards more lucrative product lines.

During CY23, its cost efficiencies improved by various measures, including 1) installation of a 1MW solar plant in production, 2) eliminating coal usage by shifting to other alternatives including biomass for steam generation, and 3) localizing packaging- resulting in a cost saving of PKR 1 billion during the year. Resultantly, the gross margin rose to 15% in CY23. Likewise, the profit after tax turned positive in CY23, reported at PKR 605 million.

On the products front, UHT, Butter, Cream, cheese (ex pizza-hut), and FM posted a value growth. On the contrary, the LTW segment posted a negative value growth of 33% in CY23.

FFL continued to focus on value-added portfolio growth, wherein the main metropolitan regions including Lahore, Rawalpindi, and Karachi. The non-metropolitan region growth was mainly driven by Gujranwala, Peshawar, and S&B.

The Company has shifted its focus from increasing in geographies to expanding the brand presence in the existing markets. To note, the outlets increased to 35,000 by the end of CY23 as compared to 18,000 outlets in CY21.

Moreover, the acquisition of Fauji Cereals and Fauji Infravest (Pasta) is in progress. The progress on pasta is near completion, with one approval remaining, and the signing of the agreement is expected in 1QCY24.

Going forward, the Company aims to continually add new products into the diversified portfolio, wherein currently three products are planned to be launched in near time.

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