This month, the stock market reacted to some much-needed confidence, with the IMF’s Director Middle East and Central Asian Department stating that Staff Level Agreement (SLA) with Pakistan will soon be signed. Moreover, the commitment of funds worth USD 2bn from Saudi Arabia and USD 1bn loan commitment from the UAE boosted the bullish sentiment of the equity bourse as bridging the external financing gap remains one of the conditions to complete the ninth review of the IMF program. As a result, the Pak Rupee faced little pressure this month. However, the IMF is still seeking financial assurances from other multilateral organisations for Pakistan to restart the program. Additionally, the country posted a current account surplus of USD 654mn in Mar’23 as against a deficit of USD 36mn in Feb’23, the first monthly surplus since Nov’20. Finally, political clouds have not cleared up completely. Still, it seems the incumbent government and the opposition have finally agreed to discuss potential solutions for the Punjab and KPK elections issue. The benchmark bourse closed at 41,581 level during Apr’23, up by 1,580pts / +3.9% MoM.
Major News
Sales of petroleum products plunge 39% year-on-year in March, OGDC engages Chinese firm to complete Uch-1 gas project, ECC approves $163m additional forex requirement, Rise in FED gives informal cigarette industry a huge boost, Discos allowed to extract additional Rs15bn from power consumers, OCAC seeks 0.25pc cut in minimum tax on OMCs, refineries, Chinese mine operator in Thar halves production, Jul-Feb LSMI output declines 5.56pc YoY, NJHP to resume power generation by July, KE seeks to charge extra Rs4.49 per unit for March, Four oil and gas fields get 5-year lease extension, ADB extends $20.5bn to support recovery, Govt. places single Russian oil cargo order as test case, China’s investment in Pak power sector reaches $21bn, Jul-Mar profit repatriation plunges 82pc to $233.1m YoY, Textile exports plummet 22.6pc in March, Govt borrowing declines 39.18pc to $7.76bn YoY, FDI falls 23pc to $1.048 billion in July-March, PSO defers import of 2 diesel cargoes from Kuwait Petroleum, and IMF slashes Pakistan’s growth outlook to 0.5pc.
Outlook and Recommendation
With commitments received from friendly countries such as UAE and Saudi Arabia, the Govt. is still seeking necessary financial assurances from other multilateral organizations to restart the IMF program. The finance minister recently stated that all the IMF conditions have been met and the government has been arranging commitments for the remaining USD 3bn for external financing gap from international creditors. This will be the only way to secure the ninth review of IMF program.
The recent result season along with heft dividends and buyback announcements once again invigorated activity in the Commercial Banks, E&P, Cement, and Chemical sectors, which have posted robust financial results for the period 3QFY23 / 1QCY23. We expect these sectors to remain in the limelight.
However, we expect inflation to reach historic high levels during Apr’23, settling at 36.5% YoY compared to 35.7% in Feb’23 and 13.4% in Apr’22, respectively.
Going forward though, post Jun’23, we expect inflationary reading to taper off due to high base effect of the prior year. Whereas Pakistan is expected to receive first Russian oil cargo.
Furthermore, the Federal Budget for 2024 is expected within the next two months, whereby we expect the government to impose new taxes and duties so as to continue curtailment of the fiscal deficit.
On the political front, the parties are negotiating and are expected to set a date for federal and provincial elections during the month of May’23.
The KSE-100 is currently trading at a PER of 3.9x (2023) compared to Asia Pac regional average of 12.2x while offering a dividend yield of ~11.2% versus ~3.0% offered by the region. Our preferred stocks are OGDC, PPL, MARI, MCB, FABL, MEBL, BAFL, LUCK, MLCF, FCCL, ENGRO, FFC, HUMNL, HUBC, PSO, and SNGP.
Courtesy- AHL Research