Pakistan recorded its highest-ever monthly exports of US$303mn, up 17% MoM and 23% YoY in Dec-2023. IT exports in Dec 2023 are also higher than last 12-month average of US$222mn.

As per channel checks, the jump is IT exports is due to (1) relaxation in the permissible retention limit by the State Bank of Pakistan (SBP), increasing it from 35% to 50% in the Exporters’ Specialized Foreign Currency Accounts, and (2) stable PKR currency which encouraged IT companies to repatriate their foreign income and deposit it in local accounts.

The reported IT export number indicates the amount remitted back to Pakistan by technology companies. As per the IT Minister, IT companies have parked an estimated US$1-2bn outside of Pakistan.

1HFY24 IT exports clocked in at US$1.5bn, up 9% YoY compared to US$1.3bn recorded in 1HFY23.

Net IT Exports (Exports-Imports) also recorded an increase of 16% MoM and 13% YoY to US$263mn in Dec-2023. These net IT exports numbers in Dec-2023 are also higher than last 12-month average of US$197mn. In 1HFY24 net IT exports recorded a growth of 7% YoY to US$1.3bn.

The government has recently launched the Pakistan Startup Fund, under which it will invest Rs2bn every year into startups as equity free capital. We believe these efforts by the government will bring a positive momentum to the industry; however, it will take time for a significant transformation to occur.

Although there has been a growth in gross IT exports during 1HFY24, the government’s ambitious target of reaching US$5bn seems challenging. We anticipate that gross IT exports for FY24 will likely fall within the range of US$3-4bn compared to US$2.6bn recorded last year. 

Within the IT sector, Systems Limited (SYS) is our preferred pick. SYS is currently trading at a 2024F PE ratio of 10.5x and a PS ratio of 1.8x.

Courtesy – Topline Pakistan Research