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Pakistan Stock Market Review

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Pakistan’s Karachi Stock Exchange remained volatile for most part of the week. Despite this volatility the benchmark KSE-100 managed to cross the 34,000 mark and closed at 34,262 levels, up 0.93%WoW. The gain came primarily on the back of a breather in global crude oil prices helping a rally in index heavy Oil & Gas sector as well as earnings surprise by select scrips.

Activity in the market failed to recover and average daily trading volumes for the week was recorded at 165 million shares as compared to 161 million shares exchanging hands a week ago.

Major news flows affecting the market included: 1) MTB cut-off yields registered a decline for 3, 6 and 12 month tenors, 2) PkR/US$ parity losing 0.96%WoW in the interbank market to close at Rs105.4 high, 3) LSM growth rising to 4.1%YoY for 2MFY16 as compared to 2.9%YoY during the corresponding period last year, 4) ECC approving extension for the reduced 0.3% WHT on banking transactions till 7th of November and imposition of 10% RD on yarn import effective becoming effective from 1st of next month, 5) Ogra recommended Rs5.28/ltr increase in petrol prices and 6) KSE approving schemes of its integration with the Lahore and Islamabad stock exchanges besides changing its name to Pakistan Stock Exchange Limited. Scrips that led the bourse included: INDU, DAWH, AGTL and HCAR, while laggards were: FFBL, SSGC, EFOODS and ICI. Foreign interest remained dull where net foreign outflows for the week were recorded at US$20.15 million, up considerably as compared to net selling of US$2.63 million a week ago. With results season coming to a close, movement in global oil prices is likely to set the tone for market’s performance next week. On the macro front, CPI numbers for Octover’15 are likely to increase market expectations for another rate cut in the upcoming monetary policy statement to be issued in November. Any surprise with a below consensus CPI reading can help cyclical stocks. Any further weakness in Rupee can benefit textiles on positive sentiments.

United Bank Limited (UBL) has posted consolidated profit after tax of Rs7.02 billion (EPS: Rs5.58) for 3QCY15 as compared to net profit of Rs5.8 billion (EPS: Rs4.71) for 3QCY14, up by a robust 18%YoY. This has effectively taken 9MCY15 earnings of the bank to Rs20.4 billion (EPS: Rs16.21) as compared to earnings of Rs17.2 billion (EPS: Rs13.94) for 9MCY14. Alongside the result, the bank announced third interim dividend of Rs3.0/share, cumulating 9MCY15 pay out to Rs9.0/share.

Key 9MCY15 result highlights included: 1) NII up 27%YoY on balance sheet growth, 2) provision expenses worth Rs2.6 billion as compared to expense of Rs1.2 billion during corresponding period last year, 3) impressive 16%YoY non-interest income growth led by significant capital gains and 4) an in-control 8%YoY increase in expenses. The sequential uptick in profitability (29%QoQ) was primarily on normalization of tax rate to 34% post adjustment of one-time super tax (effective tax rate of 50% in 2QCY15). Also a decline in provisions by 58%QoQ further lent support to earnings growth.

Fauji Fertilizer Company (FFC) has recently announced its results for the third quarter of CY15, posting net profit of R3.68 billion (EPS: Rs2.89) lowered by 23%YoY as compared to profit of Rs4.8 billion (EPS: Rs3.77) during the corresponding period last year.

During 3QCY15 revenue decreased by 21%YoY/20%QoQ due to hike in urea sales price per bag which was made after the government increased the tariff for feedstock & fuel gas. Farmers and distributors were hoping for subsequent reversal in prices owing to pressure on the government which later materialized and thus delayed buying decision for stocking. Gross profit also declined due to the same reason.

Financing costs rose due to increase in long term borrowings which was made in order to finance new projects undertaken by FFC. Net profit decreased by 23%YoY due to fall in revenue however net profit increased on QoQ basis by 56% as company booked heavy tax provision during 2QCY15. Revenue and net profit during 9MCY15 also declined mainly due to bad performance in third quarter.

Fauji Fertilizer Bin Qasim (FFBL) also announced its third quarter results of CY15, reporting net profit of Rs181 million (EPS: Rs0.19) declining by significant 81%YoY compared to Rs961 million (EPS: PKR1.03) during the same period last year.

During 3QCY15 revenue also decreased by 45%YoY/42%QoQ due to plunge in DAP off take and wait for subsidy on DAP bag price. Gross profit also declined by 46%YoY/28%QoQ due to shrinking DAP margins. Therefore, net profit also decreased by 81%YoY/63%QoQ.

Financing costs increased by 38%YoY during 9MCY15 owing to mammoth increase in short term borrowings which were made to finance inventory. Revenue and profit during 9MCY15 also experienced declined due to the plunge in revenue.

Shabbir H. Kazmi

Shabbir H. Kazmi

Shabbir H. Kazmi is an economic analyst from Pakistan. He has been writing for local and foreign publications for about quarter of a century. He maintains the blog ‘Geo Politics in South Asia and MENA’. He can be contacted at [email protected]

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