A review of KSE-100 index profitability during 3QFY22

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Profitability of the KSE-100 index continues to soar, posting a jump of 34% YoY during 3QFY22. Albeit, ex-oil, the growth trims down to just 9% YoY. Earnings growth was led by the heavy-weight Commercial Banks sector given the recent interest rate hike. This was followed by the Fertilizer sector, in lieu of augmented urea prices coupled with 17% YoY upturn in urea offtake. The Oil and Gas Exploration sector also posted a noteworthy jump on the back of a significant rise in international oil prices amidst the Russia-Ukraine conflict. Whereas the cement sector posted a muted growth whereby the impact of higher retention prices was partially offset by the surge in coal prices. Oil and Gas Marketing sector also impressed with its bottom-line aided by hefty inventory gains booked during the quarter. Other notable results were displayed by the Textile Composite (given PKR depreciation) and Refinery sector (inventory gains). Pertinently, earnings upturn on a QoQ basis arrived at 28% whereas they were propelled by a massive 155% compared to 3QFY20.

With that said, profitability during 9MFY22 augmented by 23% YoY to PKR 822bn. Earnings of the index also improved by a stunning 93% YoY when compared to the 9MFY20 period.

The jump in profitability has been broad based with only 4 sectors amongst the top 15 heavy weighted sectors posting a loss. During 3QFY22 / 1QCY22, major contributors to the rise in KSE-100 index earnings growth includes: Oil & Gas Marketing Companies, Glass & Ceramics, Miscellaneous, Refinery, Textile Composite, Oil & Gas Exploration, Textile Spinning, Automobile parts and Commercial Banks, generating a bottom-line of PKR 39.3bn (+222% YoY), PKR 1.9bn (+119% YoY), PKR 0.8bn (+97% YoY), PKR 5.1bn (+87% YoY), PKR 9.0bn (+79% YoY), PKR 81.0bn (+77% YoY), PKR 1.5bn (+46% YoY), PKR 1.3bn (+34% YoY), and PKR 79.2bn (+28% YoY), respectively. Notable sectors that posted a muted growth include: Fertilizer (+8% YoY; PKR 27.0bn) and Cement (+2% YoY; PKR 14.5bn). In comparison, earnings of other heavy weighted sectors such as Technology and Power generation contracted by 66% (PAT of PKR 1.7bn) and 36% (PAT of PKR 10.0bn), respectively. While Investment Banks and Engineering sector also showed an earnings decline of 6% (PAT of PKR 3.6bn), and 65% (PAT of PKR 2.6bn), respectively.

On a sequential basis, KSE-100 index earnings posted a 28% growth QoQ, led by Banks (+19%) attributable to higher effective interest rate, Fertilizer (+25%) owed to escalated urea prices, Oil & Gas Exploration (+28%) amid higher average oil prices, Cement (+4%) aided by topline growth following hike in cement prices, Power Generation (+18%) as HUBC recognized a share of loss from associate and joint venture of PKR 1,462mn in the last quarter. While Automobile Assembler and Engineering sector posted a decline in earnings of 9% and 32% QoQ, respectively in lieu of PKR depreciation and inability to pass on impact of augmented input costs.

Earnings jump of 23% YoY during 9MFY22 was fueled by heavy weighted sectors including Commercial Banks which posted profits of PKR 211.9bn (+18% YoY), Oil & gas exploration sector registering earnings of PKR 209.1bn (+52% YoY), Cement displaying a cumulative bottom-line of PKR 40.8bn (+30% YoY), Technology (PAT of PKR 1.7bn compared to loss in 2Q) and Automobile Assembler generating profitability of PKR 21.0bn (+44% YoY). On the flipside, major laggards during 9MFY22 were Fertilizer (earnings dip of 8% YoY), and Technology which posted a loss of PKR 9.3bn.

On a sequential basis, during 3QFY22, the KSE-100 posted positive return of 334 points, up by 0.75%. Fertilizer sector remained the best performer adding 605 points from the index, followed by Auto Assemblers (+196 points), Power (+172 points), Banks (+171 points) and Textile composite (+107 points).

During 9MFY22, the KSE-100 index down by -5.1% (-2,427 points). Cement sector remained the worst performing sector, eroded 1,256 points followed by Technology (-687 points), OMCs (- 444 points), Pharmaceutical (-419 points), Refinery (-346 points) Engineering (-309 points), and Modarabas (-180 points). However, Baking sector added 953 points to the index followed by Fertilizer (+758 points) and Textile Composite (+243 points).

We have based our analysis on KSE-100 index companies. We have included the result of 86 companies while the remaining 14 companies have not disclosed their results yet. The companies which have been included in our analysis represent almost 95.0% of the market capitalization of the benchmark bourse.

Courtesy – AHL Research

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