During 9MCY22, the KSE-100 index went down by -7.8% (-3,467 points).

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Challenges have continued to pile on in the ongoing year, ranging from high international commodity prices amid post-COVID demand supply problems and the Russia-Ukraine war, as well as high domestic inflation, hike in the policy rate augmenting borrowing costs, slowdown in the local economy slashing demand (particularly after the devastating floods in Jul-Aug’22), and restrictions set by the SBP on imports and LC opening. In addition, the government imposed a rather hefty super tax in the year (10% on last year booked in 2QCY22, and 4% going forward). Yet, earnings of the KSE-100 index have managed to not only absorb all pressures, but post a YoY growth of 5.2% in 9MCY22 and 3.7% YoY in 3QCY22. Barring the impact of super tax, growth could have been much higher since PBT jumped up by 32.7% YoY in 9MCY22 and 19.0% YoY in 3QCY22.

Earnings growth of the benchmark bourse in 9MCY22 was led by the heavy-weight Commercial Banks sector, although modest at just 4% to PKR 203bn, was owed to the lagged impact of asset repricing post interest rate hike; PBT growth was 40% YoY but was slashed due to hefty super tax imposition. This was followed by another index heavy, Oil and Gas Exploration sector (+35% YoY to PKR 219bn) given higher oil prices and exchange gains booked amid PKR depreciation. The cement sector also posted an earnings growth of 6% YoY to PKR 41bn in lieu of higher retention prices during the year which offset the impact of volumetric decline (-16% YoY), higher coal prices, hike in energy tariff as well as PKR depreciation. Profitability of the Chemical sector (+5% YoY to PKR 28bn) was aided by higher PTA margins and PKR depreciation. Whereas the massive jump in earnings of the Oil and Gas Marketing sector (+90% YoY to PKR 74bn) was supported by inventory gains, while the Refinery sector displayed an 8x surge in profitability to PKR 18bn due to aforementioned reason as well as higher GRMs.

On the flipside, sectors that observed a decline in earnings during 9MCY22 include the Fertilizer sector (-34% YoY to PKR 54bn) as imposition of super tax axed the bottom-line. In addition, the Technology sector witnessed a 49% contraction in profitability given loss booked by PTC. Finally, earnings of the Power sector shrunk by 40% YoY as KEL posted a loss in 9MCY22. Moreover, the automobile and steel (engineering) sector came under pressure as margins were slashed due to high input (scrap and HRC) prices, PKR depreciation and augmented energy tariff, posting a 53% and 77% decline in PAT to PKR 11bn and PKR 5bn, respectively.

With that said, profitability during 3QCY22 posted a growth of 44% YoY / 32% QoQ to PKR 272bn attributable to jump in earnings of index-heavy sectors which offset the impact of imposition of super tax. It is pertinent to mention, that on a PBT basis the KSE-100 index showed a decline of 13% QoQ which turned to growth in PAT amid large super tax hit in the prior quarter.

§ Impressive results were posted by Commercial Banks (+25% YoY in 3QCY22) given hike in interest rates, Oil and Gas Exploration sector (+56% YoY) amid higher realized oil prices and PKR depreciation, and Technology (+190% YoY) given USD appreciation which aided dollar denominated revenue. Whereas other sectors succumbed to high cost pressures which eroded margins as well as levy of 4% super tax, such as Fertilizer (-13% YoY), Cement (-1% YoY), Automobile (-99.6% YoY), Chemical (-5% YoY) Oil and Gas Marketing sector (-94% YoY), Pharmaceutical (-42% YoY0, and Engineering (-92% YoY).

On a sequential basis, KSE-100 earnings posted a QoQ surge of 32%, led by Banks (+100% QoQ) as 10% super tax on full year earnings booked in the last quarter eroded the impact of higher interest rates, followed by the Fertilizer (+10x QoQ), Oil & Gas Exploration (+3x QoQ), Technology (+2% QoQ) and Cement (+9% QoQ). While the Automobile sector displayed a decline in earnings of 99% QoQ and the Oil and Gas Marketing sector observed a 98% QoQ dip in profitability led by lower margins and inventory losses.

During 9MCY22, the KSE-100 index went down by -7.8% (-3,467 points). Banking sector remained the worst performing sector, eroding 1,563 points followed by Cement (-987 points), Pharmaceuticals (-258 points), Textile Composite (-192 points), Engineering (-184 points), E&P (-179 points), and Food (-119 points). However, Chemical sector added 306 points to the index followed by Fertilizer (+249 points), Autos (+154 points), and Power (+104 points).

On a sequential basis, during 3QCY22 the KSE-100 index went also down by -1.0% (-412 points). Fertilizer sector remained the worst performing sector, eroding 380 points followed by Banks (-260 points), E&P (-250 points), Autos (-158 points) and Pharmaceuticals (-86 points). However, Technology sector added 761 points to the index followed by Cement (+276 points), Power (+65 points), OGMCs (+27 points) and Engineering (+17 points).

We have based our analysis on KSE-100 index companies. We have included the result of 91 companies while the remaining 9 companies have not disclosed their results yet. The companies which have been included in our analysis represent almost 97.3% of the market capitalization of the benchmark bourse.

Courtesy – AHL Research

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