Pakistan Jan-23 IT exports at US$190mn (+2% YoY); 7MFY23 exports almost flat at US$1.5bn

Pakistan’s Information Technology (IT) exports for January 2023 decreased by 23% MoM due to a 20% and 35% MoM decline in Computer and Telecom Services, respectively.

Among Computer Services, the Export of Computer Software and Software Consultancy decreased by 25% and 15% MoM, respectively.

The substantial MoM decline in exports is indicative of 10-15% gap existing between Interbank and Grey Market rates of US Dollar for most of January 2023.

After reduction of the gap between Interbank and Grey market rates at the end of Jan-23, IT export proceeds realization from formal banking channels is expected to recover.

IT export number for January 2023 increased by 2% YoY to US$190mn due to 8% YoY increase in Telecom Services.

Exports for Jan-23 are lowest since May 2022 which was US$184mn. Amount is below the 6-month rolling average of US$221mn.

On a broader level, slowdown is being witnessed after April 2022, with YoY growth averaging 3% in May 22-Jan 23 compared to average 32% YoY growth in prior nine month period of Aug 21-Apr 22.

Slowdown in IT exports are mainly indicative of a global slowdown in IT spending. In its latest report, Gartner (Technology Research and Consulting firm) has revised down its growth forecast of IT spending to 2.4% in 2023 from earlier 5.1%.

IT Ministry of Pakistan has set an export target of US$5bn for FY23. Current fiscal year monthly average run rate of US$218mn indicates that Pakistan will be missing the export target by a big margin.

In 7MFY23, IT exports are up by 2% YoY to US$1.52bn. Slight growth has been due to 3% YoY growth in Computer Services to US$1.22bn.

As a result of MoM decline in Jan-23, IT exports as a % of total exports have declined to 6.8%. This is compared to 6.2% in Jan-22 and 8.1% in Dec-22. In 7MFY23 IT exports as a % of total exports stand at 7.4% compared to 6.9% in 7MFY22.

Segment wise breakdown for the month of January 2023 indicates that Telecom Services declined by 35% MoM and increased by 8% YoY to US$29.7mn and Computer Services decreased by 20% MoM and increased slightly YoY to US$159.9mn.

The total share of Telecom/Computer Services exports for January 2023 stood at 16%/84% respectively compared to 15%/85% share in January 2022.

In 7MFY23 Telecom/Computer share of exports stand at 19%/81% compared to 20/80% share in 7MFY22. This is because Computer Services exports have increased by 3% YoY in 7MFY23 driven by 12% growth in Export of Software and 6% in Software Consultancy.

Net IT Exports (Exports-Imports) during 7MFY23 have increased by 20% YoY to US$1.34bn compared to 2% YoY growth in overall IT exports for the same period.

Net IT Exports on TTM basis as of Jan-23 also have grown by 19% YoY to US$2.2bn. Jan-23 monthly number has increased by 23% YoY to US$178mn.

Going forward, despite the global slowdown, software and IT services spending is expected to remain robust. Besides this inflation driven higher IT labor costs in developed markets is expected to lead to more outsourcing.

This presents an opportunity for companies such as Systems Limited (SYS), which is our top pick in the IT sector. SYS currently trades at a 2023 PE of 14.3x and PS of 3.1x.

Courtesy – Topline Securities

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