LAHORE – The corporate profitability continued to roar forward, rising by an impressive 24 per cent (or 6 per cent QoQ) in 3QFY12.
According to experts, energy companies, cements and banks were the key contributors. However, investor excitement remained relatively muted to these strong set of results owing to pre result rally, traditional dearth of major payouts in this quarter and also majority of these results (45 per cent) inline with expectations. Yet still, the KSE gained 1.7 per cent MoM in April, outperforming its regional peers by 1.1 per cent.
Earnings yield of 14.1 per cent already trades at 1.2x the one-year Treasury bill suggesting further upside to year end index target of 13,800. Also, the KSE is still trading at a discount of 43 per cent (vs. historical discount 34 per cent) to the region despite an YTD gain of 23 per cent; owing to concurrent rise of 11 per cent on an average in the regional markets. Experts flag oil stocks (POL, PPL, PSO) as potential out-performers in near term due to their largely laggard performance in recent times, while highlight May as a traditional dull month ahead of the announcement of the Federal Budget.
Experts base this analysis on a sample of 39 companies, representing 70 per cent of the KSE-100 market capitalization. According to which, corporate earnings in 3QFY12 were recorded at Rs90.4b (US$998mn) vs. Rs85.6b (US$855mn) in 3QFY11, up 24 per cent YoY.
The cumulative profits of energy companies witnessed an impressive growth of 45 per cent YoY. E&P companies profits soared by 54 per cent YoY on the back of higher realized oil and gas prices, PKR depreciation against US$ and enhanced production profile, while OMCs profits increased by 52 per cent YoY largely owing to PSO booking heavy interest income passed on by the power utilities.
The manufacturing sector’s overall profits plunged by 33 per cent YoY mainly owing to a decline of 63 per cent YoY in the profitability of fertilizer manufacturers. Lower urea offtake due to the availability of GoP’s subsidized imported urea led to their earnings decline. Textile and chemical sector profitability too declined by 60 per cent YoY and 68 per cent YoY, respectively. However, cements and auto profits grew by a respective 367 per cent YoY and 118 per cent YoY, as their strong pricing power led to massive margin expansions.
The growth in the services sector (26 per cent YoY) was led by the banking sector (up 25 per cent YoY) on the back of lower provisioning amid decline in accretion of NPLs. Interestingly, PTCL’s profits increased by 44 per cent YoY owing to improvement in core operations.