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KSE-100 Profitability 1
KSE-100 Index ProfitabilityProfitability down by 1% YoY during CY19
AHL Research
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the Year: 2018Best Equity Research
Analyst: 2017
www.jamapunji.pk
REP-300
March 13, 2020
KSE-100 Profitability 2
Earnings of the KSE-100 index depicted a dip of 4% YoY during 4QCY19 which is owed to decline in
earnings from heavy weighted sectors. Based on sectoral weight, this was led by Fertilizer (-19% YoY;
15.4% weight), E&P (-15% YoY; 12.2% weight) and Cement (-92% YoY; 8.2% weight). On the other hand,
sectors that remained top performers were Commercial Banks (+30% YoY; 26.8% weight), Power
Generation (+89% YoY; 6.5% weight), and Chemicals (+16% YoY; 2.5% weight).
Whereas during CY19 earnings dropped by 1% YoY amid fall in profitability of Cements (-74% YoY),
Fertilizers (-17% YoY), and OMC’s (-2% YoY). Surge in profitability was witnessed in Commercial Banks
(+21% YoY), Power (+43% YoY) and E&P (+15% YoY). On sequential basis, KSE-100 Index’s bottom-line
witnessed a minute decline, which was led by Automobile Assemblers (-19% QoQ), Fertilizer (-11% QoQ)
and E&P (-9% QoQ).
Sectors leading the profitability chart during CY19 were Textile Weaving (+103% YoY), Investment Banks
(+100% YoY) and Miscellaneous (+98% YoY). During 4QCY19, Miscellaneous (+278% YoY) and Tobacco
sector (+179% YoY) led the earnings chart of the index.
During 4QCY19, the KSE-100 index climbed up by a massive 8,656 points (+27.0% QoQ) with a bullish
trend led by Commercial Banks (+2,114 points), Fertilizer (+1,209 points), E&P (+1,205 points), Cement
(+646 points) and Power Generation (+583 points). Meanwhile, Tobacco sector (-39 points) contributed
negatively to the KSE-100 index.
During CY19, the KSE-100 index jumped up by 3,669 points (+9.9% YoY) majorly owed to Commercial
Banks (+1,751 points), Fertilizer (+1,541 points), E&P (+909 points) and Automobile Assembler (+117
points). On the other hand, negative contribution to the index came from Cement (-195 points), Tobacco (-
171 points), Refinery (-146 points) and Pharmaceuticals (-93 points).
We have based our analysis on the KSE-100 index companies. We have included the result of 83
companies while the remaining 17 companies have not disclosed their results. The companies which have
been included in our analysis represent almost 92% of the market capitalization of the benchmark bourse.
KSE-100 Index Profitability
Profitability down by 4% YoY during 4QCY19
KSE-100 Profitability 3
KSE-100 Index Profitability
KSE-100 Profitability witnessed a decline of 4% YoY
Exhibit: Sector Wise KSE-100 Index Profitability
Source (s): Company Financials, AHL Research
(PKR mn) Weight CY19 CY18 YoY 4QCY19 4QCY18 YoY 3QCY19 QoQ
600,560 604,206 -1% 147,745 153,733 -4% 148,180 0%
Automobile Assembler 2.6% 16,545 27,522 -40% 2,227 5,280 -58% 2,755 -19%
Automobile Parts 0.9% 3,154 3,874 -19% 747 1,270 -41% 192 289%
Cement 8.2% 11,792 45,592 -74% 948 12,589 -92% (1,297) nm
Chemicals 2.5% 18,638 16,704 12% 4,174 3,597 16% 5,581 -25%
Commercial Banks 26.8% 173,050 143,365 21% 48,848 37,459 30% 44,916 9%
Engineering 0.8% 1,913 5,715 -67% 115 1,098 -90% 228 -50%
Fertilizer 15.4% 50,247 60,243 -17% 12,735 15,732 -19% 14,283 -11%
Food & Personal Care 3.3% 8,280 14,326 -42% 1,966 3,080 -36% 1,093 80%
Glass & Ceramics 0.3% 2,317 3,339 -31% 248 1,214 -80% 641 -61%
Investment Banks 0.3% 157 78 100% 89 60 48% 31 183%
Insurance 1.9% 4,833 4,607 5% 1,981 1,071 85% 1,088 82%
Leasing Companies 0.1% 1,018 1,483 -31% 272 271 1% 231 18%
Miscellaneous 1.8% 740 373 98% 396 105 278% 311 27%
Modarabas 0.1% 345 286 20% 87 83 5% 87 0%
Oil & Gas Exploration 12.2% 215,529 187,653 15% 48,031 56,810 -15% 53,025 -9%
Oil & Gas Marketing 4.8% 14,725 15,035 -2% 2,654 (2,416) nm 5,324 -50%
Pharmaceuticals 2.8% 3,642 5,392 -32% 1,135 1,349 -16% 813 40%
Power Generation 6.5% 39,053 27,226 43% 13,208 6,985 89% 11,669 13%
Real Estate Investment 0.4% 6,546 6,908 -5% 3,224 3,612 -11% 796 305%
Refinery 0.5% (4,855) (923) nm (1,907) (3,213) nm 1,240 nm
Synthetic & Rayon 0.1% 412 2,480 -83% 57 (157) nm 145 -61%
Sugar 0.1% 1,046 (512) nm 139 (353) nm (183) nm
Technology & Comm. 1.6% (430) 3,964 nm (1,132) 1,215 nm (1,509) nm
Textile Composite 2.1% 16,585 18,186 -9% 3,722 6,925 -46% 2,756 35%
Textile Spinning 0.1% 2,276 2,367 -4% 435 298 46% 551 -21%
Textile Weaving 0.0% 199 98 103% 39 52 -25% 24 63%
Tobacco 1.7% 12,889 10,338 25% 2,904 1,042 179% 2,932 -1%
Transport 0.6% (49) (1,788) nm 386 (1,353) nm 479 -20%
Woollen 0.0% (38) 273 nm 19 28 -30% (24) nm
KSE-100 Profitability 4
Exhibit: Sector Wise Profitability Contribution (4QCY19)
Source (s): Company Financials, AHL Research,
KSE-100 Index Profitability
KSE-100 Index Profitability Contributions (Graphs)
Exhibit: Sector Wise Profitability Contribution (CY19)
Source (s): Company Financials, AHL Research
49
48
13
13 4 4 3 3 3 2
8
-
20
40
60
80
100
120
140
160
Banks
E&
P
Pow
er
Fe
rtili
zer
Chem
ical
Te
xtile
Co
mpo
site
RE
IT
To
bacco
OG
MC
s
Auto
s A
ssem
.
Oth
ers
(PKR bn)
216
173
50 39
19 17 17 15 13 12 34
-
100
200
300
400
500
600
700
E&
P
Banks
Fe
rtili
zer
Pow
er
Chem
ical
Te
xtile
Co
mpo
site
Auto
s A
ssem
.
OG
MC
s
To
bacco
Cem
ent
Oth
ers
(PKR bn)
KSE-100 Profitability 5
Exhibit: Sector Wise Index Contribution (4QCY19)
Source (s): PSX, AHL Research
KSE-100 Index Profitability
KSE-100 Index Contributions (Graphs)
Exhibit: Sector Wise Index Contribution (CY19)
Source (s): PSX, AHL Research
2,114
1,209
1,205
646
583
577 313
247 233
230 226
221 191 108 95 459
-
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
10,000
Banks
Fert
ilizer
E&
P
Cem
ent
Pow
er
OG
MC
s
Pharm
a
Textile
Auto
s A
ssem
.
Tele
com
Food
Chem
icals
Insura
nce
Ste
el
Auto
s P
art
s
Oth
ers
1,751
1,541
909
117 89 61 54 31 23 14 9 8 8 7 7 3 2 1 0
966
-
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
5,000
Banks
Fe
rtili
zer
E&
P
Auto
s A
ssem
.
Te
lecom
Lea
ther
Mis
c
Insura
nce
RE
IT
Cable
Gla
ss
Inv. B
anks
Te
xtile
Weavin
g
Paper
Lea
sin
g
Modara
ba
s
Vanaspati
Synth
etic
Fu
nds
Oth
ers
KSE-100 Profitability 6
Exhibit: KSE-100 Profitability and Free-Float Market Capitalization Trend
Source (s): Company Financials, PSX, AHL Research
KSE-100 Index Profitability
KSE-100 Profitability and Free-Float
Exhibit: KSE-100 Profitability and Free-Float Market Capitalization Trend
Source (s): Company Financials, PSX, AHL Research
154
151
146
154
148
157
148 148
1,300
1,400
1,500
1,600
1,700
1,800
1,900
2,000
2,100
2,200
2,300
140
142
144
146
148
150
152
154
156
158
1QCY18 2QCY18 3QCY18 4QCY18 1QCY19 2QCY19 3QCY19 4QCY19
Profit after tax Free-float Market Cap (RHS)
(PKR bn) (PKR bn)
503 527
570
605 601
1,500
1,700
1,900
2,100
2,300
2,500
2,700
-
100
200
300
400
500
600
700
CY15 CY16 CY17 CY18 CY19
Profit after tax Free-float Market Cap (RHS)(PKR bn) (PKR bn)
KSE-100 Profitability 7
Pakistan Economy
Key Indicators
Exhibit: Key Indicators
Source (s): PSX, MoF, SBP, PBS, Bloomberg, AHL Research
Pakistan Macros CY15 CY16 CY17 CY18 CY19
KSE 100 Index KSE 100 Index 32,816 47,807 40,471 37,067 40,735
YoY Change 2.1% 45.7% -15.3% -8.4% 9.9%
Currency and Inflation
PKR/USD
Average 102.8 104.8 105.4 121.9 149.9
PKR Dep. -1.7% -1.9% -0.6% -13.5% -18.7%
Closing 104.8 104.4 111.0 138.9 154.8
PKR Dep. -4.0% 0.4% -5.9% -20.1% -10.3%
CPI Inflation Average 2.5% 3.8% 4.6% 5.3% 9.4%
Change (bps) (468) 121 83 74 403
Discount Rate
Average 7.3% 6.3% 6.3% 7.9% 12.6%
Change (bps) (267) (92) (8) 167 473
Closing 6.5% 6.3% 6.3% 10.5% 13.8%
Change (bps) (300) (25) - 425 325
External Sector
Balance of Payments
Exports of Goods USD bn 22.7 21.8 23.2 24.8 24.8
Imports of Goods USD bn 39.8 42.7 53.7 57.7 46.9
Trade Balance of Goods USD bn (17.1) (20.9) (30.5) (32.8) (22.1)
Trade Balance of Goods YoY Change -4.4% 22.0% 46.2% 7.6% -32.7%
Remittances USD bn 19.2 19.7 19.7 21.1 22.2
Current Account Balance USD bn (2.8) (7.1) (16.9) (19.5) (6.8)
Current Account Balance % of GDP -1.0% -2.3% -5.4% -7.0% -2.4%
Foreign Exchange Reserves USD bn 20.8 23.2 20.2 13.8 17.9
With SBP USD bn 15.9 18.3 14.1 7.2 11.3
With Banks USD bn 4.9 4.9 6.1 6.6 6.6
Foreign Investment
Foreign Direct Investment USD bn 1.6 2.5 3.2 2.4 2.2
Foreign Direct Investment % of GDP 0.6% 0.8% 1.0% 0.8% 0.8%
Debt Profile
External Debt USD bn 68.9 75.9 89.3 99.0 111.0
External Debt % of GDP 24.8% 24.9% 28.5% 35.6% 39.5%
Domestic Debt USD bn 122.9 135.9 139.1 126.3 140.0
External Debt % of GDP 44.3% 44.6% 44.4% 45.5% 49.7%
Total Debt USD bn 191.8 211.9 228.4 225.3 251.0
Total Debt % of GDP 69.2% 69.6% 72.9% 81.1% 89.2%
Fiscal
Total Revenue PKR bn 4,187 4,433 5,331 5,170 5,806
Total Expenditure PKR bn 5,507 6,066 7,192 7,664 9,215
Budget Deficit PKR bn 1,320 1,633 1,861 2,494 3,410
Budget Deficit % of GDP 4.6% 5.2% 5.5% 7.1% 7.6%
Credit Ratings
Standard & Poor's (S&P) Rating B- B B B B
Outlook Positive Stable Stable Stable Stable
Moody's Rating B3 B3 B3 B3 B3
Outlook Stable Stable Stable Negative Stable
KSE-100 Profitability 8
Commercial Banks
Profitability Galore as NIMs Overpower Provisons
Banking profitability is up 21% YoY during CY19. Adjusting for pension costs incurred by large banks during
CY18, earnings portrayed an acceleration of 15% YoY during CY19, while growing 9% QoQ during 4QCY19.
The spike in earnings is primarily attributable to an expansion in NIMs on the back of rate hikes (+575 bps
since Sep’18) and lagged impact on asset re-pricing of previous monetary tightening reflecting on earnings.
Spreads for the sector have increased to 6.1% as at Dec’19 compared to 5.1% SPLY. To recall, banks also
booked an additional super tax charge during 1Q this year leading to a higher effective tax rate of 42% during
CY19 vis-à-vis 38% SPLY. NII posted a surge of 28% YoY during CY19 as lagged impact of re-pricing of
loans comes through and fuels NIMs. On a sequential basis NII registered a jump of 6% QoQ as Markup
earned grew 3.4% QoQ while interest expense increased 2% QoQ.
NFI accelerated 17% on a sequential basis led by 3.4x higher capital gains on the back of a ~25% return in
the equity market during 4Q. On a yearly basis NFI improved by 6% YoY during CY19. Banks posted losses
on sale of securities worth PKR 572mn during 9MCY19 vis-à-vis gain of PKR 13.8bn in 9MCY18. However a
gain was recorded on sale of securities worth PKR 3.5bn during 4QCY19. Volatility in the FX market helped
banks’ income from FX operations (+23% YoY during CY19). Dividend income was down 8% on a yearly
basis owing to liquidity constraints/economic slowdown which forced companies to reduce payout. Fee
income of the sector is up 7% YoY/10% QoQ.
Provisioning of the KSE-100 banking sector posted a 55% YoY surge during CY19 on account of NPL
accretion (credit provisions are up 266% YoY) as well as hefty impairment charges booked by banks on their
respective equity portfolios. On a sequential basis provisioning went up 11% QoQ. Stock market rebound
helped banks to record reversals against impairments on the equity portfolio which clocked in at PKR 1.2bn
in 4QCY19 against impairment charges of PKR 4bn in 3QCY19.
In spite of inflationary pressure in the economy (8MFY20 inflation stands at 11.7% against 6% SPLY), new
initiatives on the technology/financial inclusion front, regulatory costs, and branch expansion mode in some
banks, Cost/Income of the KSE-100 Banking sector settled at 55.5% for CY19 vis-à-vis 57.6% in CY18.
Notable profitability trends during CY19 include MEBL (+74% YoY), AKBL (+59% YoY) and SCBPL (+43%
YoY). Amongst large banks overall HBL has posted the highest profitability jump of 27% YoY/36% QoQ.
Exhibit: Banking Sector Profitability
Source (s): Company Financial, AHL Research
CY19 CY18 YoY 4QCY19 4QCY18 YoY 3QCY19 QoQ
ABL 14,489 13,032 11% 4,852 2,924 66% 3,395 43%
AKBL 7,029 4,429 59% 2,647 811 227% 1,252 111%
BAFL 13,047 10,899 20% 3,312 2,052 61% 3,283 1%
BAHL 11,195 8,458 32% 4,192 2,517 67% 2,557 64%
BOP 8,160 7,537 8% 2,070 2,029 2% 2,132 -3%
FABL 6,004 4,828 24% 1,602 1,246 29% 1,397 15%
HBL 15,333 12,056 27% 6,696 2,424 176% 4,931 36%
HMB 6,646 6,180 8% 1,603 1,637 -2% 1,842 -13%
MCB 23,868 20,353 17% 7,715 6,777 14% 5,732 35%
MEBL 15,584 8,958 74% 4,727 2,542 86% 3,893 21%
NBP 16,583 19,913 -17% (19) 3,773 -101% 5,249 -100%
SCBPL 16,017 11,239 43% 4,585 3,466 32% 4,201 9%
UBL 19,095 15,483 23% 4,867 5,262 -8% 5,052 -4%
Total 173,050 143,364 21% 48,848 37,459 30% 44,916 9%
KSE-100 Profitability 9
Exhibit: Historical Net Interest Income and PAT of Banking Sector
Source (s): Company Financials, AHL Research
Exhibit: Banking Industry IDR and ADR
Source (s): SBP, AHL Research
Commercial Banks
Profitability Galore as NIMs Overpower Provisons
25.0
30.0
35.0
40.0
45.0
50.0
55.0
70
85
100
115
130
145
160
175
Mar-18 Jun-18 Sep-18 Dec-18 Mar-19 Jun-19 Sep-19 Dec-19
Net Interest Income PAT (RHS)
(PKR bn)(PKR bn)
52.5%
55.0%
57.5%
60.0%
40.0%
45.0%
50.0%
55.0%
60.0%
65.0%
Mar-18 Jun-18 Sep-18 Dec-18 Mar-19 Jun-19 Sep-19 Dec-19
IDR (LHS) ADR (RHS)
KSE-100 Profitability 10
Exhibit: Monetary Tightening
Source (s): SBP, AHL Research
Exhibit: Banking Sector Spreads
Source (s): SBP, AHL Research
Commercial Banks
Profitability Galore as NIMs Overpower Provisons
6.5%6.8%
8.3%
9.5%
10.7%
12.3%
13.8% 13.8%
-
100
200
300
400
500
600
6.0%
7.0%
8.0%
9.0%
10.0%
11.0%
12.0%
13.0%
14.0%
15.0%
1QCY18 2QCY18 3QCY18 4QCY18 1QCY19 2QCY19 3QCY19 4QCY19
Average DR bps YoY
4.8%
4.9% 4.9%
5.1%
5.5%
5.6%
6.0%6.1%
(40)
(20)
-
20
40
60
80
100
120
140
4.6%
4.8%
5.0%
5.2%
5.4%
5.6%
5.8%
6.0%
6.2%
1QCY18 2QCY18 3QCY18 4QCY18 1QCY19 2QCY19 3QCY19 4QCY19
Average Spreads bps YoY
KSE-100 Profitability 11
Fertilizer
Earnings Decline by 19% YoY during 4QCY19
Fertilizer sector witnessed a 41% YoY decline in profitability during 4QCY19 to PKR 12,802mn.
Likewise, on a QoQ basis, the sector posted a 17% decline.
Sector topline remained stagnant during 4QCY19 despite 10% YoY growth in urea offtake, the
lower DAP prices tagged with 10% YoY decline in DAP offtake nullified the said impact.
Sector gross margins improved by 1.21ppt YoY to 26.1% during 4QCY19. The increase in gross
margins was primarily on account of higher urea prices and lower DAP offtake.
FFC posted a decline in earnings of 21% YoY in 4QCY19 amid lower urea and DAP offtake by
3% YoY and 56% YoY respectively tagged with higher financial charges.
While EFERT’s profitability during 4QCY19 surged by 23% YoY mainly due to 28% YoY increase
in urea offtake tagged with higher other operating income.
Whereas FFBL unveiled a loss after tax (LAT) of PKR 2.5bn as compared to a PAT of PKR 1.9bn
during same period last year. Major reason for subdued result is lower gross margins (9.9% in
4QCY19 vs. 14.3%) amid lower DAP margins and 13% YoY decline in DAP offtake tagged with
lower other income.
Exhibit: Fertilizer Sector Profitability
Source (s): Company Financial AHL Research, *Ex. FATIMA, **Ex. FATIMA, ENGRO and DAWH
PKR mn CY19 CY18 YoY 4QCY19 4QCY18 YoY 3QCY19 QoQ
DAWH 5,653 14,247 -60% 1,727 256 575% 1,710 1%
EFERT 16,871 17,414 -3% 6,361 5,164 23% 3,326 91%
ENGRO 16,533 12,708 30% 3,507 2,759 27% 6,150 -43%
FFBL (5,921) 1,437 nm (3,503) 1,640 nm (467) nm
FFC 17,110 14,439 19% 4,643 5,913 -21% 3,563 30%
Total* 50,247 60,243 -17% 12,735 15,732 -19% 14,283 -11%
Total** 28,061 33,289 -16% 7,500 12,718 -41% 6,423 17%
KSE-100 Profitability 12
Exhibit: Historical Profitability and GMs of Fertilizer Sector
Source (s): Company Financials, AHL Research
Fertilizer
Earnings Decline by 19% YoY during 4QCY19
Exhibit: Urea and DAP Prices Trend
Source (s): NFDC, AHL Research
5.7 5.2
9.7
12.7
5.8
8.3
6.4
7.5
20.0%
22.0%
24.0%
26.0%
28.0%
30.0%
-
2.5
5.0
7.5
10.0
12.5
15.0
Mar-18 Jun-18 Sep-18 Dec-18 Mar-19 Jun-19 Sep-19 Dec-19
Profit after tax Gross Margins (RHS)
(PKR bn)
1,419 1,491
1,641 1,752
1,813 1,841 1,924
2,006
2,954
3,199
3,362
3,590 3,562 3,557 3,635
3,692
0%
10%
20%
30%
40%
50%
60%
1,250
1,600
1,950
2,300
2,650
3,000
3,350
3,700
4,050
1QCY18 2QCY18 3QCY18 4QCY18 1QCY19 2QCY19 3QCY19 4QCY19
Urea Price DAP Price Change YoY (Urea) Change YoY (DAP)(PKR/bag)
KSE-100 Profitability 13
Exhibit: DAP Off-take went down by 11% YoY during 4QCY19
Source (s): NFDC, AHL Research
Fertilizer
Earnings Decline by 19% YoY during 4QCY19
Exhibit: Urea Off-take registered an increase of 10% YoY during 4QCY19
Source (s): NFDC, AHL Research
121 106
193
325
63
152
172
289
-60%
-40%
-20%
0%
20%
40%
60%
50
85
120
155
190
225
260
295
330
365
1QCY18 2QCY18 3QCY18 4QCY18 1QCY19 2QCY19 3QCY19 4QCY19
DAP Offtake Change YoY(000 tons)
417
492
470
558
453
509 498
615
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
200
250
300
350
400
450
500
550
600
650
1QCY18 2QCY18 3QCY18 4QCY18 1QCY19 2QCY19 3QCY19 4QCY19
Urea Offtake Change YoY(000 tons)
KSE-100 Profitability 14
Exploration and Production
Earnings Decline Amid Fall in Oil Prices
The sector profitability nose-dived by 15% YoY to PKR 48.0bn in 2QFY20 attributable to decline in oil prices
by 6% YoY. Earnings of OGDC and PPL plummeted by 14% and 39% YoY, respectively. Whereas,
profitability of MARI and POL depicted a growth of 23% and 13% YoY, respectively.
OGDC’s profitability portrayed a decline of 14% YoY to PKR 25.9bn (EPS: PKR 6.01) in 2QFY20. Topline
witnessed an uptick of by 3% YoY to PKR 67.2bn amid Pak Rupee devaluation against Greenback by 14%
YoY. Whereas, oil and gas production during 2QFY20 declined by 6% and 8% YoY, respectively followed by
a fall in oil price during the quarter. Whereas, exploration expense surged by a massive 156% YoY, amid
three dry wells in 2QFY20. Moreover, other income plunged by 34% YoY due to absence of exchange gain
on foreign currency account.
PPL’s earnings clocked-in at PKR 10.3bn (EPS: PKR 3.79), significantly declining by 39% YoY compared to
PKR 16.9bn (EPS: PKR 6.19) in SPLY. Meanwhile, the revenue climbed up by 8% YoY owed to PKR
depreciation against USD. Whereas, oil and gas production declined by 5% and 13% YoY, respectively
tagged with oil prices tumbling. Furthermore, exploration expenses significantly jumped up by 85% YoY amid
dry wells (Noah X-1 and Talagang X-1) incurred during the period. Whereas, other income decreased by
68% YoY amid absence of exchange gain on foreign currency account.
POL posted a profit after tax of PKR 4.6bn (EPS: PKR 16.07), up by 13% YoY. Net sales witnessed a 2%
YoY drop in 2QFY20 amid i) fall in oil and gas production by 12% and 3% YoY, respectively and ii) 6% YoY
decline in average realized oil prices. Furthermore, the exploration costs swelled up by 5x YoY in 2QFY20,
clocking-in at PKR 415mn against PKR 79mn, on the back of higher geological and geophysical cost.
Whereas, other income during 2QFY20 showed a massive decline of 69% YoY, setting at PKR 707mn, amid
absence of exchange gain on Pak Rupee depreciation against USD.
MARI’s bottom-line in 2QFY20 settled at PKR 7.3bn, depicting a jump of 23% YoY amid i) entitlement factor
of Mari Gas Field, ii) Pak Rupee Devaluation against USD and iii) oil production 4% YoY. However, gas
production declined by 12% YoY. Meanwhile, finance income witnessed a hefty jump of 3x YoY on account
of interest income from short term investments and bank deposits. Whereas, exploration expense surge by
59% YoY in 2QF20 owed to higher prospecting expenditure reported during the quarter.
Exhibit: Exploration and Production Sector Profitability
Source (s): Company Financial, AHL Research
PKR mn 1HFY20 1HFY19 YoY 2QFY20 2QFY19 YoY 1QFY20 QoQ
MARI 14,748 11,058 33% 7,285 5,916 23% 7,463 -2%
OGDC 53,184 56,756 -6% 25,868 30,021 -14% 27,316 -5%
POL 8,568 7,889 9% 4,560 4,022 13% 4,008 14%
PPL 24,554 31,039 -21% 10,317 16,851 -39% 14,237 -28%
Total 101,055 106,742 -5% 48,031 56,810 -15% 53,025 -9%
KSE-100 Profitability 15
Exhibit: Historical Profitability and GMs of E&P Sector
Source (s): Company Financials, AHL Research
Exploration and Production
Earnings Decline Amid Fall in Oil Prices
Exhibit: Pakistan’s Oil and Gas Production
Source (s): PPIS, AHL Research
38.4
42.5
49.9
56.8
51.8
62.7
53.0
48.0
55.0%
57.0%
59.0%
61.0%
63.0%
65.0%
67.0%
15.0
25.0
35.0
45.0
55.0
65.0
75.0
Mar-18 Jun-18 Sep-18 Dec-18 Mar-19 Jun-19 Sep-19 Dec-19
Profit after tax Gross Margins (RHS)(PKR bn)
3,200
3,300
3,400
3,500
3,600
3,700
3,800
3,900
4,000
4,100
72,000
74,000
76,000
78,000
80,000
82,000
84,000
86,000
88,000
90,000
92,000
94,000
3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20
Oil Prodcution (LHS) Gas Prodcution (RHS)(BOPD)
(MMCFD)
KSE-100 Profitability 16
Exhibit: 14% YoY PKR depreciation during 2QFY20
Source (s): SBP, AHL Research
Exploration and Production
Earnings Decline Amid Fall in Oil Prices
Exhibit: Oil Prices dropped by 6% YoY during 2QFY20
Source (s): Bloomberg, AHL Research
112
117
124
134
139
147
158 156
-25%
-20%
-15%
-10%
-5%
0%
100
110
120
130
140
150
160
170
3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20
PKR/USD PKR Depreciation YoY
66
73
76
69
64
69
63 65
-20%
-10%
0%
10%
20%
30%
40%
50%
60%
35
40
45
50
55
60
65
70
75
80
3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20
Arab Light Arab Light YoY(USD/bbl)
KSE-100 Profitability 17
Cements
Heading Back to Greener Pastures Cumulative bottom-line of the KSE-100 index Cement sector managed to turn green again in 2QFY20 to PKR
948mn compared to earnings of PKR 12,589mn in SPLY, after posting losses in the last quarter. While all
players displayed a drastic decline in profitability, MLCF, CHCC, KOHC and BWCL were the key laggards.
Pertinently, topline of the sector displayed a dip of 9% YoY in the quarter under review attributable to lower
retention prices which offset the impact of a 10% jump in total dispatches to 13.61mn tons (local offtake
depicted a 6% growth YoY to 11.25mn tons while exports augmented by a massive 33% YoY to 2.36mn tons
in 2QFY20).
With that said, gross margins of the sector underwent a massive retraction to 9.1% during the period
(2QFY19: 27.9%) due to weakness in retention prices, PKR depreciation against the US Dollar (14% YoY)
and incremental costs associated with new capacities.
MLCF posted a loss of PKR 785mn vs. PAT of 748mn in 2QFY19 owed to weaker margins (5.5% in 2QFY20
vis-à-vis 28.5% in SPLY) amid pressure on prices, augmented depreciation charge on its new 2.2mn tons
line and higher raw material packaging costs. In addition, a 2x jump in finance costs to PKR 870mn given
higher borrowing and rate hikes by the SBP, further dampened the bottom-line.
Meanwhile earnings of CHCC also remained red in the outgoing quarter (LAT of PKR 222mn vs. PAT of
596mn in 2QFY19). Gross margins were eroded by 10ppts YoY to 9.3% (2QFY19: 19.3%) due to
aforementioned reasons. This, alongside hefty finance costs, which escalated by 5x YoY to PKR 658mn in
the quarter led by higher borrowing as well as interest rate hikes, eroded the profitability of the company.
Whereas DGKC fared better than its peers, depicting a 56% YoY decline in profitability. Gross margins of the
company witnessed attrition of 5% YoY during 2QFY20 to 13.2% owing to lower retention prices and PKR
depreciation which offset the impact of a robust growth in volumes of 23% YoY to 3.89mn tons post COD of
its new line. Pertinently, improvement in prices as well as offtake tagged with lower coal prices on a QoQ
basis translated to an improvement in margins from last quarter (1QFY20: 5.9%).
On a QoQ basis, gross margins of the sector witnessed an improvement of 3ppts (1QFY20: 5.7%) led by a
22% growth in total offtake and lower average coal prices (lagged impact).
Exhibit: Cement Sector Profitability
Source (s): Company Financials, AHL Research
PKR mn 1HFY20 1HFY19 YoY 2QFY20 2QFY19 YoY 1QFY20 QoQ
BWCL 421 6,881 -94% 120 4,623 -97% 301 -60%
CHCC (560) 1,027 nm (222) 596 nm (339) nm
DGKC (847) 1,742 nm 581 1,324 -56% (1,428) nm
FCCL 482 1,824 -74% 189 1,023 -81% 293 -35%
KOHC 98 1,527 -94% 10 998 -99% 88 -89%
LUCK 1,937 5,501 -65% 981 3,008 -67% 956 3%
MLCF (1,767) 1,335 nm (785) 748 nm (982) nm
PIOC (112) 527 nm 74 269 -73% (185) nm
Total (348) 20,363 -102% 948 12,589 -92% (1,297) nm
KSE-100 Profitability 18
Exhibit: Historical Profitability and GMs of Cement Sector
Source (s): Company Financials, AHL Research
Cements
Heading Back to Greener Pastures
Exhibit: Industry Cement Dispatches
Source (s): APCMA, AHL Research
0.0%
4.0%
8.0%
12.0%
16.0%
20.0%
24.0%
28.0%
32.0%
36.0%
(1.5)
0.5
2.5
4.5
6.5
8.5
10.5
12.5
14.5
16.5
Dec-17 Mar-18 Jun-18 Sep-18 Dec-18 Mar-19 Jun-19 Sep-19 Dec-19
Profit after tax Gross Margins (RHS)(PKR bn)
19%
11%
5% 4%
-9%
10%
3%
10%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
-
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20
Local Exports Change
(Mn Tons)
KSE-100 Profitability 19
Exhibit: Average Cement Prices decreased by 4% YoY in 2QFY20
Source (s): PBS, AHL Research
Cements
Heading Back to Greener Pastures
Exhibit: Average Coal Prices decreased by 24% YoY during 2QFY20
Source (s): Bloomberg, AHL Research
529
555
577
602 605
571
586
576
-10%
-5%
0%
5%
10%
15%
20%
520
530
540
550
560
570
580
590
600
610
3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20
Cement Cement YoY(PKR/bag)
94
100 103
97
85
67
62
73
-50%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50
60
70
80
90
100
110
3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20
Coal Coal YoY(USD/ton)
KSE-100 Profitability 20
Power Generation and Distribution
Coal plants and true-up income jacked up the profitability
Profitability of the Power Generation and Distribution sector went up by 89% YoY to PKR 13.2bn during
2QFY20. On a QoQ basis, it went up by 13%. This takes the profitability for 1HFY20 to PKR 24.9bn, up by
83% YoY. The uptick is witnessed due to higher dollar indexation, other income and addition of coal-based
power plants.
Net sales of the sector witnessed a decrease of 24% YoY due to 73% YoY decline in dispatches. Availability
of relatively cheaper sources of power generation (Coal, Hydel and RLNG) was the primary reason behind
the decline in generation of furnace oil based power plants.
KAPCO: During 2QFY20, sales witnessed a decrease of 28% YoY. The decline in sales was driven by lower
dispatches. The load factor of the plant remained very low due to availability of relatively cheaper sources of
power generation (coal and hydel). Gross margins went up by 26pps to 53.6% during 2QFY20. The rise in
gross margins was mainly on account of lower dispatches and 26% YoY higher dollar indexation. Other
income went up by 75% YoY to PKR 6,969mn due to tariff true-up (PKR 4,525mn) along with higher interest
rates compared to same period last year. Finance cost surged by 7% YoY to PKR 2,466mn due to 5% YoY
higher short term borrowings (PKR 54.5bn as of Sep’19).
NCPL: During 2QFY20, net sales witnessed a decline of 29% YoY to PKR 2,356mn due to lower dispatches.
During 1HFY20, the same trend in sales has been witnessed - down 8% YoY. The load factor of FO based
plants remained very low amid lower demand of electricity and availability of relatively cheaper sources of
power generation (coal and hydel). During 2QFY20, gross margins of the company increased by 30pps YoY
to 70% due to 21% PKR depreciation along with lower load factor. Finance costs went up by 91% YoY to
PKR 587mn, due to higher short term borrowings (up by 64% YoY to 13.9bn as of Sep’19) along with higher
interest rates.
Exhibit: Power Sector Profitability
Source (s): Company Financials, AHL Research, *Consolidated
PKR mn 1HFY20 1HFY19 YoY 2QFY20 2QFY19 YoY 1QFY20 QoQ
HUBC* 11,052 5,407 104% 5,484 2,447 124% 5,568 -2%
KAPCO 11,727 6,322 86% 6,694 3,581 87% 5,033 33%
NCPL 2,098 1,854 13% 1,030 957 8% 1,068 -4%
Total 24,877 13,583 83% 13,208 6,985 89% 11,669 13%
KSE-100 Profitability 21
Exhibit: Historical Profitability and GMs of Power Sector
Source (s): Company Financials, AHL Research
Power Generation and Distribution
Coal plants and true-up income jacked up the profitability
Exhibit: Share of KSE 100 companies declined to 1%
Source (s): NEPRA, Company Financials, AHL Research
6,019
7,624
6,598 6,985
7,381 6,795
11,669
13,208
12.0%
22.0%
32.0%
42.0%
52.0%
62.0%
72.0%
-
1,500
3,000
4,500
6,000
7,500
9,000
10,500
12,000
13,500
15,000
Mar-18 Jun-18 Sep-18 Dec-18 Mar-19 Jun-19 Sep-19 Dec-19
Profit after tax Gross Margins (RHS)(PKR mn)
23,702
35,167
40,320
24,838
22,072
35,478
41,904
24,724
3,187 4,452
3,383 1,098 898
2,814 2,925
326
0%
2%
4%
6%
8%
10%
12%
14%
16%
-
7,500
15,000
22,500
30,000
37,500
45,000
3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20
Country's Power Generation KSE100 Index Companies
Share of KSE100 Companies(GWh)
KSE-100 Profitability 22
Exhibit: Receivable and Overdue Receivables of AHL Power Universe
Source (s): Company Financials, AHL Research
Power Generation and Distribution
Coal plants and true-up income jacked up the profitability
Exhibit: Source wise generation break-up
Source (s): NEPRA, AHL Research
198 198
214 208
187 192
213 211
228
238
256
247
217
233
262
244
-20%
-10%
0%
10%
20%
30%
40%
50%
60%
140
160
180
200
220
240
260
280
3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20
Overdue Receivables ReceivablesOverdue Receivables (YoY) Receivables (YoY)
(PKR bn)
29%
12%
9%21%
17%
7%5%
34%
19%4%
21%
12%
7%4%
Hydel Coal FO RLNG Gas Nuclear Others
1HFY191HFY20
KSE-100 Profitability 23
Oil & Gas Marketing Companies
Absence of Outliers Lead to Earnings Normalization
OMC sector’s earnings increased by 423% YoY during 2QFY20 on the back of i) favorable movement of
PKR against USD resulted in exchange gains compared to exchange losses in same period last year, ii)
Lower inventory losses in the period under review, and iii) increase in margins of regulated (MS and HSD)
products. During 1HFY20, bottom-line improved by 26% YoY to PKR 8bn.
PSO’s bottom-line in 2QFY20 upsurge drastically by 43x YoY to PKR 2,906mn. Topline of the company
settled at PKR 313bn for 2QFY20, up by 7% YoY, given higher prices of products along with increase in
overall sales volume by 9% YoY. Gross margins increased due to lower inventory loss compared to higher
exchange loss in same period last year. Along with, company also received PKR 5bn as mark up n delayed
payments. Despite higher finance cost, bottom-line of the company increased by 6,435mn, up by 51% YoY
compared to PKR 4,249mn in SPLY.
APL’s earnings dropped by 36% YoY in 2QFY20 on account of volumetric decline (-5.2% YoY; volumes of
Mogas and HSD dropped by -1.3% and -15.2%) and higher inventory loss dragged overall result of the
company. Gross margins settled at 1.62% in 2QFY20 against 2.50% in SPLY. Decline in gross margins can
be attributable to company recording inventory at lower of cost or net realizable value
Exhibit: Oil and Gas Marketing Sector Profitability
Source (s): Company Financials, AHL Research, *Ex. HASCOL and SHEL, Ex. HASCOL
PKR mn 1HFY20 1HFY19 YoY 2QFY20 2QFY19 YoY 1QFY20 QoQ
APL 1,580 2,103 -25% 355 556 -36% 1,225 -71%
PSO 6,435 4,249 51% 2,906 68 4164% 3,528 -18%
SHEL (38) (2,705) nm (608) (3,040) nm 570 nm
Total* 8,015 6,352 26% 3,261 624 423% 4,754 -31%
Total** 7,976 3,647 119% 2,654 (2,416) nm 5,324 -50%
KSE-100 Profitability 24
Exhibit: Historical Profitability and GMs of Oil and Gas Marketing Sector
Source (s): Company Financials, AHL Research
Oil & Gas Marketing Companies
Absence of Outliers Lead to Earnings Normalization
Exhibit: Monthly Volume and Price Trend
Source (s): OGRA, AHL Research
7,512
3,877
6,063
(2,416)
2,219
4,529
5,324
2,653
1.0%
1.8%
2.6%
3.4%
4.2%
5.0%
5.8%
(3,700)
(2,400)
(1,100)
200
1,500
2,800
4,100
5,400
6,700
8,000
Mar-18 Jun-18 Sep-18 Dec-18 Mar-19 Jun-19 Sep-19 Dec-19
Profit after tax Gross Margins (RHS)
(PKR mn)
0.9
1.0
1.0
1.1
1.1
1.2
1.2
1.3
1.3
1.4
1.4
60
70
80
90
100
110
120
130
140
Jan-1
9
Fe
b-1
9
Mar-
19
Apr-
19
May-1
9
Jun-1
9
Jul-19
Aug-1
9
Sep-1
9
Oct-
19
Nov-1
9
Dec-1
9MoGas HSD Retail Volumes (RHS)
(mn Tons)(PKR/Liter)
KSE-100 Profitability 25
Exhibit: Industry Quarterly Volumes
Source (s): OCAC, AHL Research
Oil & Gas Marketing Companies
Absence of Outliers Lead to Earnings Normalization
Exhibit: MS Price Break up
Source (s): OGRA, AHL Research
1.72 1.9 1.92 1.76 1.87 1.85 1.95 1.90
2.012.25
1.83 1.89 1.7 1.8 1.54 1.82
0.99
1.87
0.850.6 0.72 0.85
0.72 0.46
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20
(mn tons)MS HSD FO
40
50
60
70
80
90
100
110
120
Dec'18 Jan'19 Feb'19 Mar'19 Apr'19 May'19 Jun 19 Jul 19 Aug 19 Sep 19 Oct 19 Nov'19 Dec'19
Sales Tax Petroleum levy Dealer Margin
OMC Margins IFEM Ex-Refinery(PKR/Liter)
KSE-100 Profitability 26
Textile
Exchange Losses Depressed Bottom-line
Topline of the listed textile entities increased by 11% QoQ to PKR 65bn (highest quarterly topline) due to
addition of new plant and machinery and PKR depreciation resulted in higher selling price. Despite demand
for textile products appearing weaker globally, domestic companies managed to increase exports as
currency depreciation and incentives for exporters improved competitiveness. However, local demand
remained weak due to decline in purchasing power parity coupled with higher sales tax of 17%. Meanwhile,
earnings declined by 46% YoY during 2QFY20 due to exchange losses compared to significant exchange
gains in same period last year.
During 1HFY20, NCL profitability nosedived by 74% YoY to PKR 522mn due to substantial increase in cost
of raw material (higher cotton prices), increase in labor cost, energy cost, exchange losses compared to
exchange gains, and lower dividend income from subsidy (NCPL). On the other hand, rise in interest rates
impacted profitability as company has higher reliance on borrowing to meet working capital requirement.
NML posted profit after tax of PKR 1,891mn, down by 40% YoY compared to PKR 2,018mn in same period
last year. The decline in profitability is due to global economy slowdown, higher input cost, decrease in gross
margins, absence of dividend income from NPL, LPL, PKGP and exchange gain.
FML registered jump in sales by 25% YoY, during 1HFY20 to PKR 16.2bn. However, profitability remained
weak due to lower gross margins and higher exchange loss of PKR 550mn compared to exchange gain of
PKR 776mn in same period last year.
Exhibit: Textile Sector Profitability
Source (s): Company Financial, AHL Research
PKR mn 1HFY20 1HFY19 YoY 2QFY20 2QFY19 YoY 1QFY20 QoQ
ANL 313 (13) nm 182 (3) nm 131 39%
FML 1,654 2,258 -27% 910 1,512 -40% 744 22%
GATM 1,069 2,052 -48% 705 1,401 -50% 365 93%
KTML 1,029 1,095 -6% 609 750 -19% 420 45%
NCL 522 2,018 -74% 349 1,166 -70% 173 101%
NML 1,891 3,164 -40% 968 2,100 -54% 924 5%
IDYM 63 53 21% 39 52 -25% 24 63%
STJT 97 40 144% 24 0 11752% 91 -73%
Total 6,639 10,667 -38% 3,785 6,978 -46% 2,871 32%
KSE-100 Profitability 27
Exhibit: Historical Profitability and GMs of Textile Sector (Composite)
Source (s): Company Financials, AHL Research
Textile
Exchange Losses Depressed Bottomline
Exhibit: Textile Exports went up by 5% YoY during 2QFY20
Source (s): PBS, AHL Research
2,838
4,842
3,649
6,925
4,100
6,007
2,756
3,722
12.0%
13.0%
14.0%
15.0%
16.0%
17.0%
18.0%
19.0%
-
1,000
2,000
3,000
4,000
5,000
6,000
7,000
Mar-18 Jun-18 Sep-18 Dec-18 Mar-19 Jun-19 Sep-19 Dec-19
Profit after tax Gross Margins (RHS)(PKR mn)
3.4
3.5
3.3
3.4
3.3 3.3
3.4
3.5
-9%
-6%
-3%
0%
3%
6%
9%
12%
15%
3.2
3.2
3.3
3.3
3.4
3.4
3.5
3.5
3.6
3.6
3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20
Textile Exports YoY Change(USD bn)
KSE-100 Profitability 28
Exhibit: Primary Yarn Margins
Source (s): PBS, AHL Research
Textile
Exchange Losses Depressed Bottomline
Exhibit: 14 % YoY PKR depreciation during 2QFY20
Source (s): PBS, AHL Research
(0.20)
(0.10)
-
0.10
0.20
0.30
0.40
0.50
0.60
-
0.50
1.00
1.50
2.00
2.50
Oct-
18
Nov-1
8
Dec-1
8
Jan-1
9
Fe
b-1
9
Mar-
19
Apr-
19
May-1
9
Jun-1
9
Jul-19
Aug-1
9
Sep-1
9
Oct-
19
Nov-1
9
Dec-1
9
Yarn Price Cotton Price Primary Margins (RHS)
(USD/kg) (USD/kg)
112
117
124
134
139
147
158 156
-25%
-20%
-15%
-10%
-5%
0%
100
110
120
130
140
150
160
170
3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20
PKR/USD PKR Depreciation YoY
KSE-100 Profitability 29
Automobile Assembler
Drop in Demand Resulted in Lower Profitability
Topline of the sector dropped by 33% YoY to PKR 65bn during 2QFY20 compared to PKR 96bn in SPLY.
Despite increase in vehicle prices by an average of 20-25%, topline plunged due to massive volumetric
decline of 47% YoY to 32,875 units compared to 61,886 units in preceding period last year. However, two
wheelers (ATLH) sales volume increased by meager 1% YoY to 280,057 units compared to 277,865 units in
2QFY19.
Albeit, profitability of the Automobile sector (Assemblers & Parts) fell drastically due to receding margins of
all listed players given inability to completely pass on the impact of adverse currency movement together with
change in government policies and imposition of additional custom duties from 2%-7% on imported raw
materials.
INDU remained the worst performing company in the sector with its bottom-line recorded a decline of 71% to
PKR 986mn in 2QFY20 vs PKR 3,404mn in preceding period last year. Pertinently, company margins
dropped drastically to 8.0% (down by 428 bps) due to currency depreciation, higher duties, and change in
sales mix from high margin vehicle to low margin car. In addition, closure of plant during quarter increased
fixed cost per vehicle.
HCAR bottom-line turned negative to PKR 41mn compared to profit of PKR 602mn in 2QFY19. This can be
attributable to i) lower gross margins, ii) escalated finance cost on account of higher interest rate and higher
borrowings, and iii) change in sales mix. During 1HFY20, profitability plunged by 71% YoY due to reason
aforementioned above.
MTL earnings settled at PKR 452mn, down by 36% YoY compared to PKR 702mn in 2QFY19. During the
period under review, volumes slumped by 40% YoY to 3,714 units due to slowdown in tractors’ demand on
account of lower yields for farmers on agriculture products along with higher interest rates.
Exhibit: Auto Sector Profitability
Source (s): Company Financials, AHL Research, *Ex. PSMC
PKR mn 1HFY20 1HFY19 YoY 2QFY20 2QFY19 YoY 1QFY20 QoQ
ATLH 1,401 1,319 6% 830 573 45% 570 45%
HCAR 468 1,632 -71% (41) 602 nm 510 nm
INDU 2,304 6,912 -67% 986 3,404 -71% 1,319 -25%
MTL 808 1,825 -56% 452 702 -36% 356 27%
AGIL (2) 500 nm 1 288 nm (3) nm
THALL 940 1,494 -37% 746 983 -24% 194 284%
Total* 5,920 13,682 -57% 2,973 6,550 -54.6% 2,947 1%
KSE-100 Profitability 30
Exhibit: Historical Profitability and GMs of Auto Sector
Source (s): Company Financials, AHL Research
Automobile Assembler
Drop in Demand Resulted in Lower Profitability
Exhibit: Auto Sales down by 47% YoY during 2QFY20
Source (s): PAMA, AHL Research
9,367
8,346
7,132
6,550
7,415
6,364
2,947 2,973
5.0%
6.5%
8.0%
9.5%
11.0%
12.5%
14.0%
15.5%
-
1,200
2,400
3,600
4,800
6,000
7,200
8,400
9,600
Mar-18 Jun-18 Sep-18 Dec-18 Mar-19 Jun-19 Sep-19 Dec-19
Profit after tax Gross Margins (RHS)(PKR mn)
68,596
65,898
58,556
61,886
65,315
54,889
34,635
32,875
-57%
-47%
-37%
-27%
-17%
-7%
3%
13%
23%
25,000
32,000
39,000
46,000
53,000
60,000
67,000
74,000
3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20
Passenger Cars and LCV YoY Change(Units)
KSE-100 Profitability 31
Exhibit: CRC Prices went down by 7% YoY during 2QFY20
Source (s): Bloomberg, AHL Research,
Automobile Assembler
Drop in Demand Resulted in Lower Profitability
Exhibit: 14% YoY PKR depreciation witnessed in 2QFY20
Source (s): SBP, Bloomberg, AHL Research
747
721 704
659 638 635
612 611
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
35%
350
400
450
500
550
600
650
700
750
800
3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20
CRC CRC YoY(USD/ton)
112
117
124
134
139
147
158 156
108 109 112 113
110 110 107
109
-25%
-20%
-15%
-10%
-5%
0%
95
105
115
125
135
145
155
165
3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20
PKR/USD JPY/USD PKR Depreciation YoY JPY Depreciation YoY
KSE-100 Profitability 32
Chemicals
ICI Leads the Show
Chemical sector’s profitability witnessed an increase of 16% YoY during 4QCY19. The increase is led by ICI
(+267% YoY) followed by COLG (+27% YoY). However, EPCL and LOTCHEM witnessed a decline of 18%
YoY and 21% YoY, respectively.
LOTCHEM: The company posted a profit after tax (PAT) of PKR 809mn (EPS: PKR 0.53) during 4QCY19,
down by 21% YoY compared to PKR 1,023mn (EPS: PKR 0.68) during SPLY. On a QoQ basis, earnings
went down by 52% QoQ. This takes the CY19 earnings to PKR 5,542mn (EPS: PKR 3.66), up by 25% YoY.
During 4QCY19, net sales went down by 15% YoY to PKR 12,922mn, which is majorly owing to lower
volumetric sales and lower PTA prices (-31% YoY). However, PKR witnessed a depreciation of 14% YoY
during the period. Gross profit margins for the company clocked in at 7.9% during 4QCY19, declining by
266bps on the back of 34% YoY decline in international PTA margins. On the other hand, other income
jumped up by 144% YoY to PKR 429mn during 4QCY19 on the back of higher income from short-term
deposits.
ICI: During 4QCY19 (2QFY20), the company posted a profit after tax (PAT) of PKR 1,016mn (EPS: PKR
11.00), jumped up by 3.7x YoY. The rise in earnings is primarily driven by better performance of all
segments. The PSF segment witnessed gross margins of 7% during 4QCY19 (2QFY20) compared with
gross loss during 4QCY18 (2QFY19). The rise in margins is triggered by 4% increase in volumes along with
addition of specialized variants of PSF for domestic and international market. The soda ash segment’s gross
margins went up by 470bps to 30% during 4QCY19 (2QFY20) compared with 26% during 4QCY18
(2QFY19). The rise in margins is witnessed on the back of lower energy cost due to 24% YoY decline in coal
prices. Pharma segment’s gross margins also went up by 14pps to 31% during 4QCY19 (2QFY20) compared
with 17% during 4QCY18 (2QFY19). The rise in margins is witnessed due to manufacturing efficiencies.
Animal health segment’s gross margins also went up by 303bps to 22% during 4QCY19 (2QFY20) compared
with 19% during 4QCY18 (2QFY19). However, the sales of the segment went down by 11% YoY due to
stressed market conditions in the poultry segment. Livestock segment growth slightly offset the decline in
poultry segment. The chemical segment’s gross margins also increased by 331bps to 26%. The margins
increase is triggered by increased sowing of sunflower (high margins product).
Profitability of COLG also went up by 27% YoY led by a 72% YoY rise in other income.
ARPL’s earnings remained stable YoY during 4QCY19.
Exhibit: Chemical Sector Profitability
Source (s): Company Financials, AHL Research
PKR mn CY19 CY18 YoY 4QCY19 4QCY18 YoY 3QCY19 QoQ
ARPL 1,723 1,588 8% 333 333 0% 613 -46%
EPCL 3,704 4,917 -25% 865 1,060 -18% 1,298 -33%
COLG 4,107 3,293 25% 1,149 903 27% 1,151 0%
ICI 3,562 2,474 44% 1,016 277 267% 836 22%
LOTCHEM 5,542 4,431 25% 809 1,023 -21% 1,682 -52%
Total 18,638 16,704 12% 4,174 3,597 16% 5,581 -25%
KSE-100 Profitability 33
Exhibit: Historical Profitability and GMs of Chemical Sector
Source (s): Company Financials, AHL Research
Chemicals
ICI Leads the Show
Exhibit: PKR Depreciated 14% YoY during 4QCY19
Source (s): SBP, AHL Research
4,036 4,088
4,984
3,596
4,692
4,191
5,581
4,174
18.0%
20.0%
22.0%
24.0%
1,500
2,250
3,000
3,750
4,500
5,250
6,000
Mar-18 Jun-18 Sep-18 Dec-18 Mar-19 Jun-19 Sep-19 Dec-19
Profit after Tax Gross Margins(PKR mn)
112
117
124
134
139
147
158 156
-25%
-20%
-15%
-10%
-5%
0%
100
110
120
130
140
150
160
170
1QCY18 2QCY18 3QCY18 4QCY18 1QCY19 2QCY19 3QCY19 4QCY19
PKR/USD PKR Depreciation YoY
KSE-100 Profitability 34
Exhibit: International PVC margins witnessed an increase of 12% YoY in 4QCY19
Source (s): Bloomberg, AHL Research
Chemicals
ICI Leads the Show
Exhibit: International PTA margins witnessed a decline of 39% YoY in 4QCY19
Source (s): Bloomberg, AHL Research
322 312 313
404 405 422
477
452
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
60%
50
100
150
200
250
300
350
400
450
500
1QCY18 2QCY18 3QCY18 4QCY18 1QCY19 2QCY19 3QCY19 4QCY19
International PVC Margins PVC Margins YoY(USD/ton)
141
175 178
169
130
200
169
103
-60%
-40%
-20%
0%
20%
40%
60%
80%
50
70
90
110
130
150
170
190
210
1QCY18 2QCY18 3QCY18 4QCY18 1QCY19 2QCY19 3QCY19 4QCY19
International PTA Margins PTA Margins YoY(USD/ton)
KSE-100 Profitability 35
Engineering
Flat Steel Margins Remain Weak
Cumulative profitability of the KSE-100 index Steel sector (Engineering sector) arrived at PKR 115mn in
2QFY20, undergoing a drastic 90% YoY decline from PKR 1,098mn in SPLY. While negative earnings of INIL
eroded sectoral bottom-line, ISL’s profitability decline (dip of 87% YoY) also remained a culprit for weak
performance in the quarter under review.
INIL posted a loss after tax of PKR 3mn vis-à-vis a PAT of PKR 191mn in 2QFY19. Volumetric sales of the
company remained considerably lower given economic slowdown and its emanating impact on the
automotive, construction, steel and other related capital-intensive industries, together with imposition of anti-
dumping duty by importing countries. This translated in lower gross margins (9.0% vis-à-vis 10.3% in
2QFY19). Moreover, other income shrunk by 69% YoY to PKR 73mn led by lack of dividend payout from
subsidiary – ISL.
Meanwhile ISL demonstrated an 87% decline in PAT to 118mn from PKR 907mn in 2QFY19. Pertinently,
margins recoiled by 3ppts to 7.2% on account of augmenting competition as new capacity of CRC came
online (volumetric decline in domestic offtake) together with Pak Rupee depreciation. Albeit, robust exports
mitigated the impact. In addition, finance costs took off by 2x YoY in 2QFY20 owed to incremental borrowing
and rising interest rate scenario.
Exhibit: Engineering Sector Profitability
Source (s): Company Financials, AHL Research
PKR mn 1HFY20 1HFY19 YoY 2QFY20 2QFY19 YoY 1QFY20 QoQ
INIL (122) 921 nm (3) 191 nm (119) nm
ISL 466 1,748 -73% 118 907 -87% 348 -66%
Total 344 2,669 -87% 115 1,098 -90% 228 -50%
KSE-100 Profitability 36
Exhibit: Historical Profitability and GMs of Engineering Sector
Source (s): Company Financials, AHL Research
Engineering
Flat Steel Margins Remain Weak
Exhibit: Steel Products Production
Source (s): PBS, AHL Research
1,723
1,322
1,572
1,098 1,048
522
228 115
5.0%
7.0%
9.0%
11.0%
13.0%
15.0%
17.0%
-
500
1,000
1,500
2,000
2,500
Mar-18 Jun-18 Sep-18 Dec-18 Mar-19 Jun-19 Sep-19 Dec-19
Profit after tax Gross Margins (RHS)
(PKR mn)
1.3 1.2 1.3
0.9 0.8
0.9 0.8 0.8
1.1 1.1
1.1
1.1
1.1 1.1 1.1
1.1
-30%
-20%
-10%
0%
10%
20%
-
0.5
1.0
1.5
2.0
2.5
3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20
Billets | Ingots H/C.R.Sheets | Strips | Coils YoY Change
(Mn tons)
KSE-100 Profitability 37
Exhibit: Average CRC Prices decreased by 7% YoY in 2QFY20
Source (s): Bloomberg, AHL Research
Engineering
Flat Steel Margins Remain Weak
Exhibit: Average HRC Prices decreased by 8% YoY in 2QFY20
Source (s): Bloomberg, AHL Research
747
721 704
659 638 635
612 611
-23%
-15%
-8%
0%
8%
15%
23%
30%
38%
350
400
450
500
550
600
650
700
750
800
3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20
CRC CRC YoY(USD/ton)
643 652
632
571 563
580
540 528
-20%
-10%
0%
10%
20%
30%
40%
50%
350
400
450
500
550
600
650
700
3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20
HRC HRC YoY(USD/ton)
KSE-100 Profitability 38
Disclaimer
Analyst Certification: The research analyst(s) is (are) principally responsible for preparation of this report. The views expressed in thisresearch report accurately reflect the personal views of the analyst(s) about the subject security (ies) or sector (or economy), and nopart of the compensation of the research analyst(s) was, is, or will be directly or indirectly related to the specific recommendationsand views expressed by research analyst(s) in this report. In addition, we currently do not have any interest (financial or otherwise) inthe subject security (ies). Furthermore, compensation of the Analyst(s) is not determined nor based on any other service(s) that AHLis offering. Analyst(s) are not subject to the supervision or control of any employee of AHL’s non-research departments, and nopersonal engaged in providing non-research services have any influence or control over the compensatory evaluation of theAnalyst(s).
Equity Research RatingsArif Habib Limited (AHL) uses three rating categories, depending upon return form current market price, with Target period as Dec’20for Target Price. In addition, return excludes all type of taxes. For more details kindly refer the following table;
Rating Description
BUY Upside* of subject security(ies) is more than +10% from last closing of market price(s)
HOLD Upside* of subject security(ies) is between -10% and +10% from last closing of market price(s)
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Equity Valuation Methodology
AHL Research uses the following valuation technique(s) to arrive at the period end target prices;
Discounted Cash Flow (DCF)
Dividend Discounted Model (DDM)
Sum of the Parts (SoTP)
Justified Price to Book (JPTB)
Reserved Base Valuation (RBV)
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The following risks may potentially impact our valuations of subject security (ies);
Market risk
Interest Rate Risk
Exchange Rate (Currency) Risk
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