AKD Quotidian about — Corporate Comeback!

Karachi, November 05, 2013 (PPI-OT): Buoyed by the Oil and Gas and Fertilizer sectors, AKD Securities sample of 40 top- tier companies posted combined profits of PkR111.4bn (+33%YoY/+36%QoQ) in 1QFY14, making this the best ever quarter for corporate profitability in Pakistan! However, there are caveats – ex Oil and Gas universe earnings growth slows down to a more modest 7%YoY after normalizing for PTC’s VSS in 3QCY12.

According to AKD Securities Nevertheless, this does not take away from what has been a robust rebound for corporate sector profitability, underpinned by +ve earnings surprises in the Oil and Gas, Fertilizer and Banking (ex-NBP) spaces. On the flipside, the Power, Telecom and Consumer sectors have disappointed.

Going forward, AKD Securities projects full-year FY14F growth for the AKD Universe at ~20%YoY which should serve to provide support to the market in an increasing interest rate environment. At current levels, AKD Securities preferred plays include NML, PSO, LUCK, PTC and UBL.

The true pace of growth: AKD Securities samples of 40 top-tier companies posted combined profits of PkR111.4bn (+33%YoY/36%QoQ) in 1QFY14 which is the highest ever quarterly profit on record. There is a need for normalizing raw data however – adjusting for PTC’s VSS in 1QFY13, universe growth comes off to 18%YoY. Excluding the heavyweight Oil and Gas sector as well reduces corporate profitability growth to 7%YoY/5%QoQ with Banks facing margin compression and the Consumer sector experiencing challenges pushing products.

Hits and Misses: Aggregate 1QFY14 earnings for AKD Securities samples companies exceeded consensus as well as AKD Securities expectations by 9% on average even as inline results were posted by Cements, Textiles and Autos. In this regard, sectors posting above-line earnings included Oil and Gas (OGDC and PSO in particular), Banks (ex-NBP) and Fertilizers. On the flipside, the Power, Telecom and Consumer sectors missed earnings estimates in the quarter under review.

Investment perspective: Recent market performance has pushed the AKD Universe Valuations market P/E to 7.7x, a discount of 34% to the MSCI Asia Pacific Index. While fundamentals remain intact, AKD Securities expects the market to remain jittery in the Earnings Growth near term on account of expected discount rate hike as well as a weaker Price to Earnings PkR.

In this regard, AKD Securities maintains stance of at least a 50bps increase in the upcoming MPS. Considering corporate results are expected to be strong across FY14 (AKD Universe growth ~20%), AKD Securities believes any market correction following the upcoming MPS should be viewed as an entry point.

The post AKD Quotidian about — Corporate Comeback! appeared first on AsiaNet-Pakistan.

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