May 04, 2021 (MLN): In 1QCY21, Oil Marketing Companies (OMCs) contributed the most to KSE-100 profitability on a year-on-year basis. Fertilizers, Cement, Banks and Chemicals rounded out the top five spots in the ranking of most profitable sectors.
Broadly speaking, the aggregate demand-led economic turnaround has helped cyclical sectors post a sharp rebound in profitability, with some sectors swinging into healthy profits during the start of the third wave of COVID-19 compared to losses last year.
The top 94 Pakistani companies listed in KSE-100 Index posted the highest quarterly net income of PKR 243bn, surging by 82% YoY in the 1QCY21/3QFY21 ended March 31, 2021, a brokerage house, Topline Securities reported.
On a sequential basis, KSE-100 index earnings reported a 12% increase, led by Banks (32%), OMCs (94%), E&Ps (12%), Cements (29%), and Textiles (28%).
Of these, government companies witnessed a 15% YoY and a 33% QoQ rise in profits during 1QCY21. However, privately managed companies’ net income improved by 119% YoY and 5% QoQ, beating state-owned companies on a YoY basis during the outgoing quarter as last year in Mar-2020, OMCs, refineries and cement companies posted losses.
Due to exceptional corporate results posted by Bank of Punjab (BOP), Oil & Gas Development Company (OGDC), Pakistan State Oil (PSO), and National Bank of Punjab (NBP) government companies outperformed private companies on a sequential basis.
Further, another research house, Arif Habib Limited (AHL) reported that earnings during 9MFY21 augmented by 55% YoY that was fueled by cyclical sectors with Cement posting profits of PKR 32.6bn against losses of PKR 1.6bn SPLY and OMC’s posting earnings of PKR 26.9bn against losses of PKR 492mn SPLY. Meanwhile, Fertilizer, Banks, Power, Chemicals, Textile Composite and Auto Assemblers posted a jump in earnings of 118%, 27%, 27%, 96%, 89% and 190% respectively. On the flipside, E&P earnings during 9MFY21 declined by 14% YoY.
Speaking of OMCs that emerged as star performers in 1QCY21 contributed an additional PKR 21bn in profits on a yearly basis.
On a quarterly basis, the bottom-line witnessed the highest ever quarterly profits during 3QFY21 to PKR 12.2bn led by PSO with PKR 8.72bn.
The significant jump in the profitability of a sector by 94% is attributable to a significant increase in international oil prices resulting in massive inventory gains.
Moreover, the surge in trade activity and better agricultural yields resulting in higher sales of HSD, preference for private transport over public transport to reduce chances of contracting Covid-19 and strict surveillance on borders and various parts of the country in order to control the supply of illegal or dumped fuel from Iran also contributed to improved earnings, AHL report said.
The fertilizer sector contributed additional profits of PKR 17bn YoY in 1Q2021 mainly led by Engro Fertilizer (EFERT) and Engro Corporation (ENGRO). EFERT profits improved in 1Q2021 as last year in 1Q2020 the company had low sales due to pricing discrepancy, said Deputy Head of Research, Shankar Talreja at Topline Securities. ENGRO profits increased due to the rise in profit of EFERT and Engro Polymers and Chemicals (EPCL).
On a QoQ basis, Fertilizers posted a decline of 16% given the absence of a gain on provision for GIDC followed by a drop in DAP offtake.
With regards to the Cement sector, strong demand, increase in retention prices, lower finance costs along lower coal prices helped in turnaround in earnings that arrived at PKR 15bn in 1Q2021 compared to a loss of PKR 2bn in 1Q2020, resulting in an additional contribution of PKR 17bn.
On QoQ, cement sector profitability increased by 29% QoQ due to an increase in retention prices by 10-12%. Additionally, Lucky Cement (LUCK) profits increased due to exceptional performance by its auto and chemical business, said Talreja.
Banks, the heavy sector, contributed PKR 14.5bn YoY to profits of KSE100 in 1Q2021. The jump in earnings primarily stemmed from reduced provisioning expenses. During 1QCY20, provisioning for the sector was high primarily owing to substantial charges booked by UBL and NBP. A yearly jump in earnings was also led by strong Net Interest Income and Non-Funded Income.
Going by the report of AHL, the notable profitability trends during 1QCY21 included HMB which posted a massive 109% YoY jump followed by HBL (+104% YoY) and NBP (+90% YoY). The quarterly jump during 1QCY21 was led by SCBPL (163%) and FABL (83%) while the sequential contraction in earnings was led by ABL (28%) and HMB (13%).
Meanwhile, Chemical sector profits increased by PKR 7bn in 1Q2021 as recovery/growth was witnessed in all five chemical companies in KSE100 due to the low base effect of lockdown. LOTCHEM posted a 28.3x increase in profits followed by EPCL 24.7x, ICI 2.6x, ARPL 1.4x and COLG 1.2x, topline research added.
The rise in profitability was triggered by higher margins coupled with lower finance costs amid a decline in interest rates, in view of AHL research.
On a QoQ basis, chemical companies’ profits climbed by 18% with an improvement in the performance of all companies.
E&P companies’ earnings plunged by 22% YoY to PKR 46bn in 1QCY21 as they bore the brunt of a drop in oil and gas production by 2% and 6% YoY, respectively. In addition to this, an increase in exploration costs and hefty exchange losses due to currency appreciation by PKR 7/US$ also affected the sector’s profitability. Whereas overall country’s oil and gas production portrayed a fall of 7% YoY, each in 3QFY21. Meanwhile, oil prices jumped by 12% YoY in 3QFY21. Earnings of MARI, PPL, OGDC and POL witnessed a decline of 18%, 19%, 20% and 46% YoY, respectively in the quarter, AHL highlighted.
On a QoQ basis, E&Ps profits increased by 12% on the back of improved result of OGDC which was lower last quarter due to a one-off adjustment of the UCH field. Furthermore, in1Q2021, hydrocarbon production of OGDC was also up by 7%, Talreja added.
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