Pakistan Banks: Hanging sword of higher taxation – By Insight Research
Dec 13 2024
Insight Securities
- Domestic banks have enjoyed healthy profits over the past two years, supported by record-high interest rates and resilient asset quality, which helped them navigate macroeconomic challenges. However, the faster than expected decline in inflation and subsequent reduction in the policy rate has put pressure on the sector's NIMs. A more pressing issue is the ADR tax, which has become a point of contention for banks and regulators alike. Banks have challenged the tax in courts, securing stay orders as it is levied on their balance sheets. Additionally, they have adopted strategies to artificially boost their ADR ratios, such as shedding high cost deposits and offering loans at below market rate, creating distortions without achieving the intended goal of promoting private sector lending. The recent surge in advances, especially post Sep’24, highlights this trend. While part of the increase could be attributed to lower interest rates and some degree of stability on economic front, a significant portion stems from efforts to meet year end ADR targets. This is further evident by declining deposits during the same period. Such flawed taxation methods fail to generate meaningful revenue for the government or encourage purposeful private sector lending.
- The formation of a committee led by the current Deputy Prime Minister and Foreign Minister, Ishaq Dar, underscores the critical importance of this issue. The committee's mandate includes reviewing the legal framework governing fiscal measures related to the banking sector's ADR, exploring alternative taxation schemes for bank profits derived from government securities, and collaborating with the banking sector and FBR to develop consensus-driven solutions.
Annual Strategy: Market Strategy 2025 Inflation likely to remain in single digits for most of CY2025 – By Chase Research
Dec 20 2024
- Inflation expected to remain in single digits for most of CY2025.
- Central Bank to continue easing. We consider single digit interest rates a high possibility in 2025.
- Current Account should not present a challenge as improved remittances, recovering exports and administrative measures to keep balance in check.
- Pakistan Credit Ratings could improve in 2025 unlocking flows and strengthening PKR.
Tri-Pack Films Limited (TRIPF): 9MCY24 Corporate Briefing Takeaways – By Taurus Research
Dec 20 2024
Taurus Securities
- Tri-Pack Films Limited (TRIPF) is a subsidiary of Packages Limited which holds 69.3% of the Company. TRIPF produces Biaxially Oriented and Cast Polypropylene (BOPP & CPP) packaging films for food and beverage applications such as snacks, confectionery, dairy food, fresh cut vegetables, beverages etc., and non-food applications such as overwrapping, lamination, bag making etc. TRIPF has annual capacities of 78,000 tons for BOPP, 14,400 tons for CPP, and 32,600 tons for Metallizers.
- TRIPF boasts a product portfolio of 19 specialized films, these include: Low Sealing Temperature Film, Ultra Low Temperature Sealable Film, Tobacco Non-Coated Transparent Wrap, Anti-Fog Films, Perforated Film, Matt Film, In Mould Labels, Low Density Label Film, High Gloss Label Film, Broad Seal High Barrier, Ultra High Barrier Metallized Film, Heat Resistive BOPP Film, Cold Seal, BOPE, BOPP Super Barrier Film, CPP High Speed Lamination Film, Paper Bond Film, CPP Metallized Low Temperature Heat Sealable Film, and CPP Metallized High Barrier Film.
- As of 9MCY24, TRIPF’s revenue increased to PKR 21.8Bn compared to PKR 18.5Bn during the SPLY. Gross margin was recorded at 13% compared to 18% during the SPLY. The loss for the period was recorded at PKR 291Mn compared to a net profit of PKR 830Mn in the SPLY. The main reason cited for the loss during the year by the management was finance costs. Finance costs during 9MCY24 were recorded at PKR 1.7Bn compared to only PKR 700Mn in the SPLY. In addition to these, the gas tariff also increased by 110%.
Annual Strategy: Pakistan Market Strategy 2025 Breaking Barriers: KSE-100 Marches Toward 148K – By Sherman Research
Dec 20 2024
Sherman Securities
- Pakistan’s KSE 100 index is all set to generate total return of 40%, breaching 148k level during CY25. Market is expected to reach target PE of 8x in line with last 10-year average PE versus current PE of 6.1x. Target PE of 8x is justified considering Pakistan’s economic outlook as most of the indicators are in line with average of last 10 years.
- After meeting all the key performance indicators specially during last 2 years (maintaining primary budget surplus, tight monetary policy, energy sector reforms and regulating FX market), Pakistan is now looking at raising tax to GDP which is expected to be key performance criterion for timely disbursement under new IMF Program of US$7bn.
- With inflation to remain below historical average and lower risk to external accounts during IMF Program, we expect policy rate to remain around 10% during next 2 years. Considering ample institutional liquidity, we expect diversion of Rs1.2-1.5trn funds (40% of the free float of KSE-100 Index) during CY25 from fixed income to equity market. Not only this, stable currency and cheap valuations will induce Foreigners’ interest in Pakistan market as they have been net sellers so far.
Economy: Recent PSX rally led by local funds buying Thanks to the falling return on fixed income instruments – By Topline Research
Dec 20 2024
Topline Securities
- Pakistan Market since Sep 2024 to-date has returned 35% in both Rs and US$ terms, thanks to the strong net inflows of Rs58bn (US$207mn) of local mutual funds during the same period mainly due to conversion from fixed income to equities. In this note, we have tried to gauge the expected quantum of further liquidity market can receive due to conversion from fixed income to equities.
- The funds/investors are converting from Fixed income to equities as yields on fixed income instruments have fallen by 1253bps-1261bps from peak of 24.73% and 24.51% on 12M and 6M Treasury Bills in Sep 2023 to 12.20% and 11.9% on Dec 19, 2024.
- Equities will remain the preferred choice for investors: Unlike previous years where investors use to buy dollars, real estate, gold, prize bonds etc. for earning higher returns, we believe, in this cycle equities will get some portion of liquidity due to (1) higher restrictions on purchase of dollars, (2) increase in taxations, compliance and FBR valuation rates of properties, and (3) discontinuation of high denomination unregistered prize bonds.
Textiles: Increased imports vital for export growth – By JS Research
Dec 20 2024
JS Global Capital
- The United States Department of Agriculture (USDA) has raised cotton demand forecasts for India, Pakistan, and Vietnam, likely offsetting the projected decline in Chinese demand as Western importers continue diversifying their sourcing away from China and Bangladesh. Consequently, Pakistan's prospects for value-added exports, such as knitwear and ready-made garments, have improved, albeit at the expense of lower yarn exports to China.
- During 5MFY25, exports of knitwear, bedwear, and garments are up ~20% YoY while yarn exports are down 39%. On the other hand, Pakistan’s domestic cotton output is expected to fall to around 6-8mn bales (-36% to -17% YoY) due to 17% decline in cotton sowing area and lower crop yields.
- To meet the cotton requirement for the export demand, Pakistan is expected to import 5mn bales of raw cotton, costing ~US$2bn (at current avg import prices) compared to merely 1.2mn bales or US$0.45bn in FY24.
Morning News: Pakistan’s exports rise 9.06% in five months, imports edge up 1.06%: PBS – By WE Research
Dec 20 2024
- Exports from Pakistan increased by 9.06% in the first five months of FY2024-25, reaching Rs. 3,816,094 million, compared to Rs. 3,499,216 million in the same period last year. In November 2024, exports rose 7.17% year-on-year to Rs. 787,152 million. Key export commodities included knitwear, rice, readymade garments, and bedwear. Imports during July–November FY2024-25 totaled Rs. 6,248,611 million, a 1.06% increase from the previous year. November imports declined by 1.03% to Rs. 1,255,209 million. Key imports included petroleum products, LNG, palm oil, plastic materials, and mobile phones. Month-on-month, both exports and imports showed modest changes.
- Pakistan and China agreed to build an expressway linking Gwadar Port with the new Gwadar International Airport and initiate feasibility studies for new motorways, including the Mirpur-Muzaffarabad and Karachi-Hyderabad routes, under the China-Pakistan Economic Corridor (CPEC). The agreement was made during a meeting between Pakistan’s Federal Minister Ahsan Iqbal and China’s Vice Minister of Transport Li Ying in Beijing. Iqbal emphasized expediting major projects, including the KarachiHyderabad Section and ML-1 railway upgrade. He also proposed the Mashkhel-Panjgur Highway in Balochistan. Iqbal later met the President of the Export-Import Bank of China to discuss economic recovery and space projects. Both sides reaffirmed their commitment to strengthening the CPEC partnership for sustainable development and prosperity.
Technical Outlook: KSE-100; Testing the support range – By JS Research
Dec 20 2024
JS Global Capital
- The KSE-100 index witnessed another negative session, closing at 106,275, down 4,795 points DoD. Volumes stood at 1,167mn shares compared to 1,112mn shares traded in the previous session. The index is expected to test support at 105,937; a fall below this level will extend the decline towards 105,510, followed by 103,048. However, any upside will face resistance in the range of 107,980-110,040 levels. The Stochastic Oscillator and the RSI are heading down, supporting a corrective view. We recommend investors to stay cautious on the higher side and wait for dips. The support and resistance levels currently stand at 104,226 and 110,034, respectively.
Morning News: Pakistan, Türkiye Set Sights on $5 Billion Bilateral Trade Target – By Vector Research
Dec 20 2024
Vector Securities
- Prime Minister Mohammad Shehbaz Sharif held a bilateral meeting with the Turkish President Recep Tayyip Erdogan on the sidelines of 11th D-8 Summit in Cairo today
- The World Bank’s Board of Executive Directors is likely to approve “Sindh Flood Emergency Housing Reconstruction Project” worth $450 million on Friday (Dec 20), aimed at delivering beneficiary-driven, multi-hazard resilient reconstruction of core housing units affected by the 2022 floods in select districts of Sindh.
- Bangladesh’s interim leader Muhammad Yunus said Thursday he had “agreed to strengthen relations” with Pakistan, a move likely to further test his country’s frosty relations with India.
Morning News: Pakistan, Türkiye Set Sights on $5 Billion Bilateral Trade Target – By Darson Research
Dec 20 2024
Darson Securities
- Prime Minister Mohammad Shehbaz Sharif held a bilateral meeting with the Turkish President Recep Tayyip Erdogan on the sidelines of 11th D-8 Summit in Cairo today
- The World Bank’s Board of Executive Directors is likely to approve “Sindh Flood Emergency Housing Reconstruction Project” worth $450 million on Friday (Dec 20), aimed at delivering beneficiary-driven, multi-hazard resilient reconstruction of core housing units affected by the 2022 floods in select districts of Sindh.
- Bangladesh’s interim leader Muhammad Yunus said Thursday he had “agreed to strengthen relations” with Pakistan, a move likely to further test his country’s frosty relations with India.
Pakistan Petroleum Limited (PPL): Deriving value from improved cash positions –By Alpha - Akseer Research
Dec 19 2024
Alpha Capital
- We revise our stance to “Buy” on Pakistan Petroleum Limited (PPL) with our Dec-25 price target (PT) of PKR 278/sh, which projects a capital upside of 44% along with a dividend yield of 3.3%. The stock is currently trading at a discounted P/B of 0.7x along with a FY26 P/E of 5.6x against its historical 10-year average of 1.5x and 6.8x, respectively.
- Improved cashflow amid structural reforms: Under the IMF agreement, the Government of Pakistan implemented multiple price hikes to eradicate the longstanding issue of circular debt. Consequently, the gas system went from an OGRA estimated shortfall of PKR 171.2bn in FY24 to a projected surplus of PKR 78.9bn in FY25.
- Reko Diq – A tier-one asset ready to be realized: Reko Diq’s enormous copper and gold reserves yield a project NPV of USD 18.5bn, which may improve both PPL and Pakistan’s future prospects. Utilizing Barrick’s projections and timelines regarding the project, our base case for Reko Diq estimates a valuation impact around PKR 191bn (PKR71/sh) for PPL.
Pakistan Fertilizer: Offtakes to regain lost ground – By Insight Research
Dec 19 2024
Insight Securities
- The fertilizer sector has been grappling with decline in offtakes. Several factors have contributed to this scenario, including high fertilizer prices, shift in weather pattern, and weak agronomics faced by farmers. Additionally, the recent wheat crisis in the country has compounded these challenges, further altering the dynamics of the sector.
- The contraction in offtakes coupled with improved production has resulted in pile up of urea inventory which has reached 4 year high of ~800KT. Similarly, closing inventory of NP & CAN has reached 215KT and 236KT in Nov’24 respectively. However, we anticipate that these high inventory levels would normalize in coming months. The improvement in farmer income, increased focus on corporate farming, and targeted government initiatives are expected to support volumetric offtakes in the near term, bringing inventory back to normalized level.
Hub Power Company Ltd. (HUBCO): From heights to hurdles – By Insight Research
Dec 19 2024
Insight Securities
- HUBC recently witnessed a rally, rising by 41% from its 52- week low of PKR93/sh. The rally began following a notice regarding a shareholder agreement with Mega Conglomerate Pvt. Ltd. to acquire a 50% stake in Mega Motor Company. This move will reduce HUBC's exposure to BYD, potentially increasing its dividend payout capacity, and secure a stake in a long-term value-generating business. The company’s focus on electric vehicles (EVs) and batteries is well-aligned with the government’s target to convert 30% of new vehicles to EVs, which will be supported by the upcoming New Energy Vehicle (NEV) policy.
- While this development offer growth prospects, significant risk remains for HUBC. As per newsflows, the government has reached settlements with 17 IPPs established under the 1994 and 2002 policies, transitioning them to a hybrid take-and-pay framework. We believe that HUBC’s Narowal (RFO) and Laraib Energy (Hydel) plants are also part of these discussions, with settlements expected to align with the terms agreed upon with other IPPs.
- Following these developments and recent run in stock price, we have a ‘HOLD’ stance on HUBC, with a SOTP based target price of PKR138/sh. However, risks persist for HUBC’s CPECrelated plants as well, as the government task force may also consider revising their PPAs, which could pose further challenges.
Mari Petroleum Company Limited (MARI): Trading at a premium – By Insight Research
Dec 18 2024
Insight Securities
- MARI has rallied significantly, reaching a high of ~PKR899 on closing basis . Amid recent price performance, we have SELL call on MARI with a Dec’25 DCF -based target price of PKR476 /sh , using an asset -based valuation approach . We believe that the potential of E&P business is well priced -in and current valuation of the stock doesn't align with ground realities . Our valuation does not incorporate the company’s new diversification projects, such as mining and cloud storage, as these project are still in early stages . Additionally, MARI continues to expand its portfolio through new drilling activities and exploration in uncharted areas . While company has remained aggressive in its exploration efforts, no significant developments has materialized yet . Currently, stock is trading at a forward PE of 13 . 3 x for FY26 earnings, compared to OGDC/PPL/POL forward PE of 5 . 1x/ 5 . 6x/ 7 . 5 x respectively.
- Our FY25 & FY26 EPS stands at ~PKR51 & PKR55 /sh , respectively . This decline is primarily due to an additional royalty of 15 % imposed on the MARI field . We have assumed saleable gas production of 804mmcfd in FY25 due to SNGPL gas curtailment . While for FY26 , we have taken gas production of 843mmcfd as we expect gas from Shewa (70mmcfd) and Jhim east (14mmcfd) to come online in 1QFY26.
Automobile Assembler: Revival in sight – By Insight Research
Dec 18 2024
Insight Securities
- Improving macro indicators has started to positively influence the auto sector, with signs of recovery appearing after months of sluggish activity. The 12-month moving average of auto sales has reached at 9.8k units, returning to the level last seen in Sep’23. The improvement is primarily attributable to broader recovery in overall macros along with stable exchange rate and lower borrowing cost. Interest rates have already been reduced by ~900bps, dropping from 22% in to 13%. This is also evident by improving auto financing number, which recorded uptick in last 2 consecutive month.
- Previously, challenging economic environment, higher car prices, and elevated interest rates had significantly affected car sales (passenger cars, jeeps & pickups), which dropped to 103.8K units in FY24, well below the 5-year average of 188.0K units & highest ever sales of 258.7K units in FY18. However in 5MFY25, car sales rebounded and depicted growth of 51% YoY to reach 50.9K units, compared to 33.6K units during the SPLY. This growth can be attributed to banks offering cheaper financing options, promotional incentives from manufacturers and supply side issues in SPLY. Historically, declining interest rates have spurred growth in auto financing, leading to higher vehicle sales. However, unfavorable conditions imposed on auto financing continue to limit growth. Many experts believe that improvement in auto financing limits can induce demand and as per media reports SBP is considering to raise the auto financing limit.
Pakistan Banks: Hanging sword of higher taxation – By Insight Research
Dec 13 2024
Insight Securities
- Domestic banks have enjoyed healthy profits over the past two years, supported by record-high interest rates and resilient asset quality, which helped them navigate macroeconomic challenges. However, the faster than expected decline in inflation and subsequent reduction in the policy rate has put pressure on the sector's NIMs. A more pressing issue is the ADR tax, which has become a point of contention for banks and regulators alike. Banks have challenged the tax in courts, securing stay orders as it is levied on their balance sheets. Additionally, they have adopted strategies to artificially boost their ADR ratios, such as shedding high cost deposits and offering loans at below market rate, creating distortions without achieving the intended goal of promoting private sector lending. The recent surge in advances, especially post Sep’24, highlights this trend. While part of the increase could be attributed to lower interest rates and some degree of stability on economic front, a significant portion stems from efforts to meet year end ADR targets. This is further evident by declining deposits during the same period. Such flawed taxation methods fail to generate meaningful revenue for the government or encourage purposeful private sector lending.
- The formation of a committee led by the current Deputy Prime Minister and Foreign Minister, Ishaq Dar, underscores the critical importance of this issue. The committee's mandate includes reviewing the legal framework governing fiscal measures related to the banking sector's ADR, exploring alternative taxation schemes for bank profits derived from government securities, and collaborating with the banking sector and FBR to develop consensus-driven solutions.
Pakistan Textile: Value-Added Segment Keeping Textile Exports Afloat – By Insight Research
Dec 10 2024
Insight Securities
- Pakistan's cotton production and textile sector are facing setbacks, driven by a combination of adverse weather conditions, delayed harvesting and economic hurdles. To note, cotton arrivals clocked in at ~5.19mn bales in Nov’24, compared to ~7.75mn bales recorded in SPLY, down by ~33%. Initially, these numbers were at much lower and the decline could have been more significant if the Oct’24 arrivals had not shown a modest recovery, surpassing the figures recorded in SPLY. The recovery was largely driven by delayed harvesting resulting from heavy rains in Aug’24, along with government measures to regulate informal trade. Yet, with growers shifting towards seasonal wheat cultivation, cotton arrivals are expected to slowdown.
- Meanwhile, the textile sector reflects a mixed trend, where cotton yarn exports plummet to US$0.22bn in 4MFY25, a sharp ~55% drop from US$0.49bn in 4MFY24, due to weak demand, poor cotton quality, reduced cotton production, and decline in prices. On a positive note, overall textile exports grew by ~10.4% YoY, reaching US$6.1bn in 4MFY25, up from US$5.5bn in the SPLY. This growth is largely driven by the value-added segment, which now accounts for ~74% of textile exports. Exports of value-added textiles surged to US$4.5bn in 4MFY25, up from US$3.9bn in the SPLY, highlighting sector’s resilience and capability for growth.
Economy: Nov’24 CPI likely to clock in at 5.25% - By Insight Research
Nov 29 2024
Insight Securities
- Headline inflation is expected to clock in at ~5.25% in Nov’24 compared to ~29.23% & 7.17% in Nov’23 & Oct’24, respectively. On MoM basis, inflation is expected to inch up by ~0.9% compared to 1.2% in preceding month. The increase is mainly attributable to higher prices in food basket, primarily driven by egg & tomato prices. The housing index is expected to rise by ~0.4% MoM, driven by an increase in LPG prices. However, this effect is likely to be offset by a decline in the monthly FCA
- Within the SPI basket, items that recorded significant increase in prices during the period are as follows, Tomatoes (32.2↑%), Fresh vegetables (16.7↑%), Pulse moong (14.0%↑), Eggs (13.0%↑) & Mustard oil (8.1%↑). On the flip side, prices of following items eased off during the month, Chicken (13.4%↓), Fresh fruits (11.2%↓), Pulse mash (8.1%↓), Sugar (7.1%↓) & Gur (4.2%↓).
- Headline inflation continues to decline, supported by a high base effect and stable exchange rate. We anticipate that inflation will continue to decline in the coming months, reaching a low of ~3%-4% between Jan’25 and Mar’25, before rising again post 1QCY25 due to low base effect. The impact of the electricity subsidy for lower slabs was not fully reflected in last month’s CPI data. Any adjustment to this poses a risk to our inflation trajectory. We project headline inflation to average ~7% in FY25, inline with SBP’s target, and foresee the policy rate settling at 13% by Jun’25. On economic front, while broader stability has been achieved, maintaining fiscal discipline and implementing structural reforms are crucial to placing the economy on a sustainable growth trajectory.
Nishat Chunian Limited (NCL): Corporate Briefing Session – By Insight Research
Nov 28 2024
Insight Securities
- Nishat Chunian Limited has conducted its corporate briefing session to discuss its financial performance. We have summarized following key takeaways from the briefing:
- NCL’s unconsolidated revenue clockedin at PKR88.8bninFY24 vs.PKR67.6bninSPLY, up by 31%YoY
- Company’s sales mix comprises of 57% local and 43% exports. On segment basis, company’s sales mix consists of spinning (62%), processing and home textile (25%)and weaving (13%).
Pakistan Pharmaceuticals: FEROZ & BFBIO: Analyst briefing takeaways – By Insight Research
Nov 27 2024
Insight Securities
- Ferozsons Laboratories Limited & BF Biosciences held its analyst briefing to comment on their financial result and to shed light on future outlook. Highlights of the session are given below:
- Production from BFBIO’s Line 2 which is dedicated to prefilled syringes has commenced. From the next quarter, depreciation would be realized for this line. The combo line and lyophilization line are currently in the validation phase.
- The company emphasized that semaglutide is a highly profitable product, boasting a margin of 40-50%. To highlight, Semaglutide is not a perfect substitute for type 1 diabetes but can effectively be used for type 2 diabetes.
Pioneer Cement Limited (PIOC): Analyst briefing takeaways – By Insight Research
Nov 26 2024
Insight Securities
- Pioneer Cement Limited has conducted its analyst briefing to discuss financial results and future outlook of the company. We have highlighted key takeaways from the briefing:
- PIOC has posted topline of PKR35.5bn in FY24 vs. PKR36.1bn SPLY. Whereas PAT stood at PKR5.1bn (EPS: PKR22.8) vs. PKR2.6bn (EPS: PKR11.5) in SPLY. The increase in profitably is attributable to increase in gross margins and declining in finance cost.
- As per management, company’s current retention price stands at PKR16,800/ton.