Based on a sample of 41 companies representing 76 percent of KSE-100 market capitalisation, corporate earnings during the first quarter of 2011 were recorded at Rs 72.7 billion against Rs 61.3 billion in the corresponding period last year, showing an impressive increase of 19 percent.
Energy companies posted profits which were 16 percent higher on a year-on-year basis and the manufacturing sector bottom-line grew by 80 percent in annual terms.
The services sector’s profit remained flat relative to last year as the banking sector recorded a below par growth of eight percent annually while PTCL’s profits declined by 62 percent since last year.
Corporate earnings registered an impressive growth of 19 percent annually in 1Q2011. However, the market failed to respond in the same manner as it gained only 2.1 percent in April and underperformed in comparison to regional peers by an average of 0.4 percent. Additionally, average daily volumes declined by 25 percent month-on-month to 76 million shares, a report issued by JS Research indicated.
Interestingly, strong buying interest on the part of foreigners ($9.0 million adjusted for one-off outflow of $16.5 million for proceeds of Atlas Bank) and mutual funds ($20mn) helped the index recover marginally as banks, individuals and companies (cumulative market share of 85 percent) were net sellers.
The manufacturing sector profits witnessed a sharp jump of 80 percent since the same time last year during the first quarter of 2011; however, growth was led by higher prices and not volumetric growth. The fertiliser sector remained at the forefront with 42 percent in annual growth in profitability aided by an average increase of 51 percent and 32 percent in urea and DAP prices, respectively.
At the same time, offtake witnessed a respective decline of 13 percent and 23 percent, annually.
Similarly, the cement sector also benefited from an average rise of 37 percent in its product prices in annual terms (sales volumes were down eight percent annually), while textile companies made hay on rising yarn and cotton prices.
Energy companies reported an increase of 16 percent annually led by a 20 percent growth in the profits of these companies which benefited from better production flows and a rise in wellhead gas prices. Moreover, higher GRMs resulted in 34 percent annual growth in earnings of the refiners, while power utility earnings were boosted by 17 percent in the same timeframe.
However, the profits of oil and gas marketing companies saw a plunge of 10 percent owing to higher tax incidence for PSO and rising UFG losses in the case of gas marketing companies. In the case of the services sector, while the banking sector witnessed a growth of eight percent since last year on account of higher net interest income and non interest income, the services sector’s profits remained flat in contrast to last year. PTCL profits fell by 62 percent owing to lower revenues and higher operating costs.
The growth in corporate earnings was largely in line with 2011 earnings growth estimate of 22 percent. It is believed that the market still offers strong investment opportunities and blue chips like POL, PPL, PSO, NRL, HUBCO, Engro, Lucky Cement, UBL and PTC can be good performers at the stock market.
