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Stock Review

Stock review December 2022
Index moves up 2.84%WoW, profit-taking prevails

The week ended on March 29, 2024 witnessed bullish trend at Pakistan Stock Exchange. Overall, the first four trading days cumulatively added around 2,000 points, with the benchmark index closing at 67,005 points, up 2.84%WoW on Friday (March 29), following a slight profit-taking session noted on the last trading day of the week.

Positivity loomed over the successful last review of IMF’s SBA, the new incumbent government’s steps and commitment towards reforms. A new tax regime ordered for retailers and wholesalers, piloting initially in major cities, aimed to broaden the tax base. While similar taxation measures have failed previously, if successful this time, these could set the stepping stone for tax base broadening.

With FTSE Russell retaining Pakistan in the secondary emerging market for the next six months, further optimism prevailed.

Inflation outlook also presented a positive stance, with March 2024 CPI expected at 20.6%YoY, turning current real interest rates into positive territory after 38 months.

GDP growth for 2QFY24 was reported at 1.0%YoY, supported by a 5% annual growth in the agriculture sector, but dragged down by a 0.8%YoY contraction in industrial activity.

On the political front, reconstituting economic councils/committees, with the exclusion of the finance minister from heading CCI and previously from ECC (which eventually reverted), is causing confusion among the investors and likely to cause some delays in initiating reforms.

Smuggling of petroleum products from Iran is on the rise again as indicated by OCAC and PALSP, which is likely to hit adversely local refineries.

Overall, market participation improved with daily traded volume averaging at 330.7 million shares as compared to 323.5 million shares a week ago, up 2.2%WoW.

Other major news flows during the week included: 1) Tax collection gap rose to whopping PKR5.8 trillion, 2) Government borrowed PKR181.3 billion debt in a week; 3) M2 was up by PKR149.4 billion in a week, 4) foreign investors’ profit repatriation during 8 months of the current financial year rose 237%YoY to US$759.2 million and 5) Weekly SPI was almost flat.

Transport, Woollen and Tobacco were amongst the top performing sectors, while Jute, Leasing and Textile weaving were amongst the worst performers.

Major selling was recorded by companies with a net sell of US$7.6 million. Insurance absorbed most of the selling with a net buy of US$9.0 million.

Top performing scrips of the week were: PTC, KTML, SCBPL, FFBL and THALL, while laggards included: SHEL, PGLC, PIBTL, ASL and FCEPL.

Emerging risks include additional taxation and increases in international prices. Policy rate story could again come into focus. Analysts expect the first rate cut in the final quarter of the current fiscal year.

According to Topline Securities, Pakistan’s benchmark KSE-100 index up 7% QoQ in PKR terms and 9% QoQ in US$ terms in 1Q2024. This was fourth consecutive quarter of positive closing. Market is up 58% in last 4 quarters.

Successful IMF’s second and final staff-level agreement under Stand By Agreement (SBA), smooth transfer of power to new government, stable currency, and a 45% growth in earnings reported by KSE 100 companies in 2023 helped boost sentiments in the outgoing quarter.

As per Bloomberg data, Pakistan was not amongst the top or worst performers during this period. Kenya, Kazakhstan, and Argentina were top performers whereas Egypt, Lebanon and Nigeria were underperformers.

In 1Q2024, average traded volumes in the Cash and Ready market increased by 131%YoY, while down 40%QoQ to 400 million shares per day. The average traded value also jumped by 122%YoY, while down 25%QoQ to PKR14.5 billion per day during 1Q2024.

The average volumes in the futures market also increased by 113%YoY, but were down 14%QoQ to 157 million shares per day. The average traded value increased by 89%YoY, while down 10%QoQ to PKR6.4 billion per day.

Foreign interest in Pakistan’s equities was seen with foreign corporate buyers in the market during 1Q2024 with net buying of US$7.5 million in 1Q2024.

On local side, insurance companies were major buyers with net buying of US$58 million. However, local companies and banks remained major seller of US$19.8 million and US$18.4 million respectively in 1Q2024.

Key stocks of KSE-100 index that outperformed market 1Q2024 included Pakistan Telecommunication Company (PTC) up 49%, Engro Fertilizers (EFERT) up 38%, and Meezan Bank (MEBL) up 37%.

Key sectors that outperformed market during the quarter included transport, automobile parts and fertiliser.

During CY23, JS Bank acquired 67.33% shareholding in BankIslami Pakistan, taking its total shareholding in the bank to 75.12%. BIPL is currently operating over 440 branches in over 150 cities in Pakistan. Another 60 branches were opened in CY23 and the management plans to open another 100 new branches in CY24.

CY23 ROE clocked-in at 39.8%. BIPL offers a host of products and services including cash management and employee banking, personal banking, SME financing, Agri financing, Corporate banking, Investment banking and consumer finance products. Deposits market share currently stands at 1.8% while advances market share stands at 1.9%.

Since CY18, BIPL’s PAT has grown at a CAGR of 1.2x with total deposits and current deposits growing at a CAGR of 23% and 27%, respectively. BIPL’s CAR is also up from 3.87% in CY18 to 23.79%.

Financing portfolio was up 14%YoY in CY23 on a net basis. The Bank booked provision of PKR1.7 billion on existing NPFs along with new classifications of PKR979 million on objective basis, PKR1.3 billion on subjective basis and PKR1.5 billion in general provision. Infection ratio for the Islamic portfolio stands at 6.9% with a coverage of 80.4%. Gross ADR stands at 48.6%.

Composition of current accounts dropped from 41% to 37% as of December 2023. Share of term deposits increased to 38%. CASA also dropped to 62% from 67% as of last year.

BIPL’s investment mix comprises investment in Fixed Rate Sukuk of PKR10 billion having 5-year maturity and coupon rate of 15.4%, while the rest of the GOPIS are floaters. Other investments include Pakistan Energy Sukuk amounting to PKR30.9 billion.

The Bank booked PKR1.2 billion in provision against investments providing for loss making investments previously acquired from KASB in Dubai as well as investment in associate belonging to the dairy business.

The Bank’s recent issuance of Tier-1 capital Sukuk was part of the Bank’s committed capital enhancement plan. A SBP sponsored facility currently classified as Tier-II capital to the tune of PKR5 billion is expected to retire in CY25, following which CAR will come down by 2.5%. Also, IFRS-9 is expected to reduce CAR by 0.3%.

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