Pakistan’s Information Technology (IT) exports for Oct 2023 of US$238mn are up by 16% MoM. Segment-wise, Telecom, Computer, and Information Services up 49%, 9%, 50% MoM, respectively.
Oct 2023, IT export inflows are also higher than last 12 month average of US$219mn.
IT exports in Oct 2023 increased on a MoM basis, mainly due to combination of (1) higher number of working days compared to Sep 2023 and (2) higher realization per day.
Our banking channel checks indicate that higher clearing days impacted the realization of proceeds.
IT export realization proceeds per day also increased by 5% MoM in Oct 2023.
Product wise, software Consultancy increased by 35% MoM (+US$19mn to US$74mn) and Telecom Services up 90% MoM (+US$14mn to US$29mn) in Oct 2023.
Services Exports (Excluding IT) of Pakistan have remained flat MoM at US$418mn in Oct 2023.
On a YoY basis, IT export for Oct 2023 increased by 8% due to remarkable performance in the export of Software Consultancy up 11% YoY and other Computer Services up 19% YoY.
In 4MFY24, IT exports have increased by 4.4% YoY to clock in at US$893mn.
The reported IT export number indicates the amount remitted back to Pakistan by tech companies. According to our channel checks, tech companies are retaining a greater portion of their proceeds outside Pakistan due to declining business confidence and volatility in exchange rate.
According to the IT Minister, IT companies have parked around US$1-2bn outside Pakistan.
In order to attract offshore-parked foreign currency from IT firms, SBP announced in Oct 23 an increase in the permissible retention limit from 35% to 50% in the Exporters’ Specialized Foreign Currency Accounts (ESFCAs). Which we believe will contribute to an increase in IT exports in the coming months.
Net IT Exports (Exports-Imports) for Oct 2023 reported an increase of 25% MoM and 21% YoY to US$205mn. In 4MFY24 Net IT Exports recorded a growth of 5% YoY to US$763mn.
Net IT Exports on TTM basis as of Oct 2023 also have grown by 12% YoY to US$2.3bn.
In 4MFY24, gross IT exports as percentage of total exports was reported at 7.4% compared to 7.2% in 4MFY23.
Telecom/Computer Services export mix for Oct 2023 is recorded at 21/79% respectively compared to 22%/78% share in Oct 2022.
In 4MFY24, Telecom/Computer export mix recorded at 19/81% compared to 20/80% in 4MFY23.
As per Gartner forecast for 2024, worldwide spending on software to grow at 13.8% and spending on IT services to increase by 10.4%.
MENA software spending is expected to record double-digit growth of 12.3% in 2024, followed by IT services spending growing at 11.1% next year, to accelerate digitalization and increasing automation, as per Gartner.
This presents an opportunity for companies such as Systems Limited (SYS), which is our preferred pick in the IT sector. Since 53% of the revenue generated by SYS is sourced from MENA region, so robust growth in that region will directly benefit SYS.
SYS currently trades at a 2024F PE of 11x and PS of 1.6x.
Courtesy – Topline Pakistan Research