Pakistan Technology: IT exports for May-23 jump amid higher working days; Up 24% MoM to US$236mn

Pakistan’s Information Technology (IT) exports for May 2023 increased by 24% MoM. Segment wise Telecom and Computer Services increased by 92% and 11% MoM. Among Computer Services, Export of Software, Other Services and Software Consultancy increased by 14%, 13% and 8% MoM respectively.

IT exports increased on a MoM basis due to higher number of working days in May 2023 compared to April 2023. As per our channel checks, number of clearing days has an impact on realization of proceeds. Services Exports (Excluding IT) of Pakistan have also increased by 18% MoM in May 2023 due to the reason cited above.

IT Export proceeds realization per working day declined to US$10.7mn/day in May 2023 compared to US$11.2mn/day in April 2023. On a YoY basis, IT export number for May 2023 increased by 28% to US$236mn due to 95% YoY increase in Telecom and 16% YoY increase in Computer Services. Increase on a YoY basis is due to low base effect (May 2022: US$184mn) and potentially due to interbank rates reaching Rs298.93 on May 11, 2023.

In 11MFY23, IT exports have marginally declined 1% YoY to record at US$2.37bn. IT export number only indicates the amount remitted back to Pakistan by tech companies and freelancers. It does not include income retained abroad. According to our channel checks, IT players are retaining a greater portion of their proceeds outside the country due to declining business confidence and volatility of exchange rate.

May 2023 exports is the 2nd highest number in FY23 (Dec 2022: US$246mn). This number is also above the FY23 average exports of US$215mn. At current run rate IT exports is expected to clock in at US$2.58bn in FY23, which would be a decline of 1% YoY vs FY22.

Segment wise breakdown for the month of May 2023 indicates that Telecom Services increased by 92% MoM and by 95% YoY to US$55.5mn and Computer Services increased by 11% MoM and by 16% YoY to US$180.3mn. The total share of Telecom/Computer Services exports for May 2023 stood at 24%/76% respectively compared to 15%/85% share in May 2022.

In 11MFY23 Telecom/Computer share of exports stood at 19%/81% compared to a 20/80% share in 11MFY22. This is because Telecom Services exports have declined by 2% YoY in 11MFY23 vs. Computer Services exports remaining flat in the same period. Net IT Exports (Exports-Imports) for May 2023 have increased by 26% MoM and by 46% YoY to US$211mn. 11MFY23 Net exports have increased by 16% YoY to US$2.1bn compared to decline of 1% YoY in gross IT exports number.

Net IT Exports on TTM basis as of May 2023 also have grown by 17% YoY to US$2.29bn.

As a result of MoM increase in IT exports for May 2023, IT exports as % of total exports stood at 7.4% for the month compared to 7.3% in April 2023 and 6.2% in May 2022.

In 11MFY23 IT exports as % of total exports stand at 7.3% compared to 6.7% in 11MFY22. Going forward, despite the global slowdown, software and IT services spending is expected to increase by 12% and 9% respectively in 2023, according to Gartner research against the overall growth estimation of 5.5% for 2023. This presents an opportunity for companies such as Systems Limited (SYS), our top pick in the IT sector. SYS currently trades at a 2023 PE of 12.1x and PS of 2.4x.

Courtesy – Topline Securities

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