KSE-100 Index profitability – September 26, 2022

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Despite being a tumultuous year in terms of change in economic policy and domestic response to the spate of global demand supply disruptions ensuing from post COVID jitters and Russia Ukraine war, the KSE-100 broke its own record from last year to post all-time high earnings in FY22 to PKR 1,021bn. Profitability posted a sound jump of 17% YoY, which remains noteworthy given the scale of unrest during the year. We also highlight that earnings could have been much higher had the incumbent government not imposed super tax; growth on PBT basis was a stunning 39% YoY during FY22.

Earnings growth of the benchmark bourse in FY22 was led by the heavy-weight Commercial Banks sector, although modest at just 3% to PKR 253bn, was owed to the lagged impact of asset repricing post interest rate hike; PBT growth was 25% YoY but was slashed due to hefty super tax imposition. This was followed by another index heavy, Oil and Gas Exploration sector (+30% YoY to PKR 246bn) given higher oil prices and exchange gains booked amid PKR depreciation. The cement sector also posted an earnings growth of a robust 28% YoY to PKR 55bn in lieu of higher retention prices during the year which offset the impact of volumetric decline (-8% YoY), higher coal prices, hike in energy tariff as well as PKR depreciation. Similarly, the Automobile sector remained another cyclical benefitting from a massive jump in prices to pass on the impact of a steep increase in steel prices as well as depreciation in the Pak Rupee (earnings growth of 5% YoY to PKR 31bn), together with volumetric growth. Profitability of the Chemical sector (+25% YoY to PKR 39bn) was aided by higher international margins coupled with PKR depreciation and volumetric growth (EPLC’s expansion came online). Another sector supported by a stronger USD was the Textile Composite sector (+83% YoY to PKR 27bn). Whereas the Oil and Gas Marketing sector posted a noteworthy 3x escalation in earnings on account of inventory gains to PKR 115bn, while the Refinery sector displayed a 7x surge in profitability to PKR 24bn due to aforementioned reason as well as higher margins given augmented domestic fuel prices.

On the flipside, sectors that observed a decline in earnings during FY22 include the Fertilizer sector (-31% YoY to PKR 80bn) as super tax axed the bottom-line. In addition, the Technology sector witnessed a 74% contraction in profitability given loss booked by PTC. Finally, earnings of the Power sector shrunk by 16% YoY as HUBC posted a loss amid recognition of impairment loss (PKR 1,990mn) on CPHGC’s equipment that was damaged during 1QFY22.

With that said, profitability during 4QFY22 posted a decline of 14% YoY / 39% QoQ to PKR 193bn attributable to imposition of super tax and the impact of deferred tax liability.

Most heavy weight sectors posted an earnings decline in the last quarter, starting with Commercial Banks (-38% YoY), Fertilizer (-92% YoY), Oil and Gas Exploration sector (-28% YoY), and Technology (-69% YoY). Whereas some sectors managed to post a jump in profitability despite super tax levy, such as Cement (+23% YoY) due to significant jump in retention prices, Power (+178% YoY) amid KEL’s robust earnings, Oil and Gas Marketing sector (+177% YoY) owed to inventory gains, and Textile Composite (+40% YoY) given PKR depreciation.

On a sequential basis, KSE-100 index earnings posted a 39% dip QoQ, led by Banks (-48%) as super tax eroded the impact of higher interest rates, Fertilizer (-93%), Oil & Gas Exploration (-55%), and Cement (-18%). While the Power sector displayed a jump in earnings of 56% QoQ and the Refinery sector observed a 211% QoQ escalation in profitability led by higher margins. It is pertinent to mention, that on a PBT basis, bottom-line of the KSE-100 showed a growth of 16% QoQ and it was primarily super tax that eroded the PAT.

During FY22, the KSE-100 index went down by -12.28% (-5,815 points). Cement sector remained the worst performing sector, eroding 2,335 points followed by Technology (-897 points), Banks (-524 points), Food (-439 points), Textile Composite (-400 points), Pharmaceuticals (-386 points), and Engineering (-383 points). However, Fertilizer sector added 660 points to the index followed by Chemical (+460 points), Miscellaneous (+294 points), and Automobile Assemblers (+181 points).

On a sequential basis, during 4QFY22, the KSE-100 posted a negative return of 3,388 points, down by 7.54%. Banking sector remained the worst performer eroded 1,474 points from the index, followed by Cement (-1,040 points), Textile Composite (-215 points), Technology (-180 points) and Engineering (-147 points).

We have based our analysis on KSE-100 index companies. We have included the result of 83 companies while the remaining 17 companies have not disclosed their results yet. The companies which have been included in our analysis represent almost 90.4% of the market capitalization of the benchmark bourse.

Courtesy – AHL Research


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