Pakistan Technology: IT exports post MoM recovery to US$223mn; 9MFY23 exports flat at US$1.94bn

§ Pakistan’s Information Technology (IT) exports for March 2023 recovered by 14% MoM due to a 51% MoM increase in Telecom and 8% MoM in Computer Services.

§ Among Computer Services, Other Services increased by 11% MoM and Software Consultancy by 10% MoM, Computer Software remained flat.

§ We had earlier reported that Jan-23 exports declined by 23% MoM due to a 10-15% gap between Interbank and Grey Market rates of US Dollar at that time.

§ After reduction of the gap between Interbank and Grey market rates at the end of Jan-23, IT export realization have recovered in subsequent months.

§ IT export number for March 2023 decreased by 14% YoY to US$223mn due to 16% YoY decline in Computer Services.

§ The reported IT export number indicates the amount remitted back to Pakistan by technology companies. According to our channel checks, IT companies are retaining a greater portion of their proceeds outside the country due to declining confidence in the country’s economic fundamentals.

§ In 9MFY23, IT exports are flat YoY to record US$1.94bn.

§ Exports for Mar-23 have recovered above the US$200mn mark for reasons cited above. Amount is above the 6-month rolling average of US$218mn.

§ On a broader level, slowdown is being witnessed after April 2022, with YoY growth averaging 1% in May-22 to Mar-23 compared to average 32% YoY growth in prior eleven month period from Jun-21 to Apr-22.

§ Slowdown in IT exports are mainly indicative of a global slowdown in IT spending. Gartner (Technology Research and Consulting firm) reported that 2022 global IT spending slowed down to 0.5% in 2022 compared to 9.5% growth in 2021.

§ As a result of MoM recovery in Mar-23, IT exports as a % of total exports have increased to 7.3%. This is compared to 6.9% in Mar-22 and 7.0% in Feb-23. In 9MFY23 IT exports as a % of total exports stand at 7.3% compared to 6.7% in 9MFY22.

§ Segment wise breakdown for the month of March 2023 indicates that Telecom Services increased by 51% MoM and decreased by 5% YoY to US$44.6mn and Computer Services increased by 8% MoM and decreased by 16% YoY to US$177.5mn.

§ The total share of Telecom/Computer Services exports for March 2023 stood at 20%/80% respectively compared to 18%/82% share in March 2022. In 3QFY23 share of Telecom/Computer Services stood at 17/83% compared to 18/82% in 3QFY22.

§ In 9MFY23 Telecom/Computer share of exports stood at 19%/81% compared to a similar share in 9MFY22. This is because Computer Services exports have remained flat YoY in 9MFY23, however, Computer Software has increased by 6% YoY.

§ Net IT Exports (Exports-Imports) during 9MFY23 have increased by 17% YoY to US$1.72bn compared to flat YoY overall IT exports number.

§ Net IT Exports on TTM basis as of Mar-23 also have grown by 17% YoY to US$2.25bn. Mar-23 monthly number has decreased by 2% YoY to US$200mn.

§ 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), which is our top pick in the IT sector. SYS currently trades at a 2023 PE of 13.4x and PS of 2.9x.

Courtesy – Topline Securities

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