PSX hits record high on rate cuts and IMF boost
The Pakistan Stock Exchange (PSX) maintained its upward trend, driven by key factors from the previous week, such as an interest rate cut and Pakistan’s inclusion in the IMF executive board agenda. As a result, the benchmark index hit a record high, closing at 82,074 points, gaining 2,741 points, or 3.5% week-on-week (WoW).
Overall, the bullish sentiment was predominantly driven by high-dividend-yielding sectors including Banks, E&P, and Fertilizers, as falling fixed-income yields led to a rerating of these sectors.
Current account balance for August 2024 posted a surplus of US$75 million, largely underpinned by a 40%YoY increase in remittances. Additionally, exports also remained higher during the month, with growth largely supported by an annual increase of 13% in Textile and 40% in Food exports.
Subsequently, LSMI activity also rose by 2.4%YoY in July 2924, with Textiles and Food driving output expansion.
The GoP reduced POL prices for the fourth consecutive time, lowering these by over PKR80/liter compared to same period last year. This consistent decline in POL prices is expected to further alleviate inflationary pressures.
The rejection of all bids in recent T-Bills auction and the less-than-target acceptance in the PIB auction, along with declining yields, would potentially shift liquidity toward equities.
On the international front, the US Federal Reserve cut interest rates after four years by 50bps.
Market participation declined by 22.6%WoW, with the average daily traded volume dropping to 469 million shares from 607 million shares in the earlier week.
On the currency front, PKR largely remained stable against the greenback, closing the week at 277.8/US$.
Other major news flows during the week included: 1) ADB assures Pakistan US$2 billion annually in loans, 2) FDI rises to US$350 million in first two months of the current financial year, 3) Power demand slumps 17%YoY in August, and 4) In PIBs auction PKR111 billion was raised against PKR200 billion target.
Top performing sectors were Pharmaceuticals, Commercial Banks, and Fertilizer, while Woollen, Cable & Electrical Goods, and Engineering were amongst the laggards.
Major net selling was recorded by Foreigners with a net sell of US$23.2 million. Mutual Funds absorbed most of the selling with a net buy of US$15.5 million.
Top performing scrips of the week were: MARI, SHFA, HBL, MEBL, and MCB, while laggards included: SML, YOUW, WFUG, TGL, and PIBTL.
IMF Executive Board’s approval, along with continued monetary easing would keep equities in focus, with the market trading at an attractive P/E of 3.7x and a DY of 13.2%. The completion of the FTSE rebalancing would further boost investor confidence.
AKD Securities recommends sectors benefiting from monetary easing and structural reforms, particularly high-dividend-yielding stocks, which are expected to relate as yields align with fixed-income returns.
Board of Directors of Fauji Fertilizer Company (FFC) and Fauji Fertilizer Bin Qasim (FFBL) approved the merger of the latter company with and into FFC through a scheme of arrangement.
Under this scheme, the entire undertaking of FFBL will be merged with and into FFC by way of amalgamation. Consequently, all FFBL shares will be cancelled, and for every 4.29 shares of FFBL, shareholders will receive one share of FFC.
For this purpose, 150.9 million new FFC shares will be issued and allotted. As a result of the merger, FFBL will be dissolved without winding up and delisted from the Pakistan Stock Exchange.
The merger is subject to necessary approvals from shareholders, creditors, and the approval of the scheme by the Court.
Pakistan Petroleum (PPL) reported its FY24 earnings on Friday, posting profit after tax at PKR115.4 billion (EPS: PKR42.4), up 19%YoY.
According to AKD Securities the company reported earnings of PKR17.85 billion (EPS: PKR6.56) for 4QFY24, up 12%YoY amidst applicability of retrospective super tax charge for the same period last year.
Alongside the earnings, the company announced a final cash dividend of PKR2.50/ share, taking the full year payout to PKR6.0/ share, corresponding to a payout ratio of 14% for FY24 as compared to 7% for the same period last year.
Barring taxation, 4QFY24 earnings declined 24%YoY. This was largely led by lower revenues and higher operating expenses during the period.
Net revenues were lower than expected, amounting to PKR64.7 billion (down 11%YoY and 14%QoQ), possibly due to potential downward adjustments in Sui volumes during the final quarter.
Another factor contributing to lower revenues was the decline in production during the quarter, which declined by 3%YoY and 5%QoQ basis. This was likely due to administered supply halts due to line-pack pressure in the domestic distribution network, resulting in downward adjustments to lower hydrocarbon volumes, contrary to the data reported by PPIS. However, analysts await further clarity on the matter.
Lackluster quarterly earnings was driven by higher-than-expected operating expenses, reported at PKR17.3 billion in the final quarter, up 30%YoY. The increase is likely attributable to an upward adjustment in administrative costs during the year.
Other Income for the quarter rose to PKR5.5 billion, up by 133%YoY and 40%QoQ basis, driven by higher returns on financial assets during the period.
Company’s ETR for the final quarter rose to 36%, bringing the full-year ETR to 28% for FY24.