Corporate profits during 1QFY12 soared by 43 per cent YoY and 15 per cent QoQ led by growth in the heavy-weights E&P and Banks, along with Fertilizer and Cement sectors. However, KSE-100 failed to respond in a likewise manner, gaining a mere 0.9 per cent in Oct’11 (underperforming regional markets by an average 5 per cent), while registering a fall of 5.2 per cent in FY12 to date. We believe domestic political uncertainty and tensions with the US together with the global economic woes overshadowed the impressive corporate results, said Atif Zafar at JS. Absence of any significant payouts tamed the excitement as well.
Looking ahead, we expect earnings growth to settle in the vicinity of 17 per cent YoY in FY12, translating into an impressive earnings yield of 16 per cent (a spread of 420bps over 1 year T-bill), he added. Hence, we maintain our positive stance at the KSE (discount of 48 per cent to the regional market’s earnings multiple), with POL, PPL, PSO, LUCK, ENGRO, FFC and MCB being our top picks, he added.
Key takeaways from 1QFY12
corporate results: While basing their analysis on a sample of 40 companies, representing 75 per cent of the KSE-100 market cap, cumulative corporate profits were recorded at Rs86.5 billion ($997mn) in 1QFY12 versus Rs60.4 billion ($705mn) in 1QFY11, up 43 per cent YoY. Profits of Exploration and Productions and Oil marketing companies increased by 32 per cent YoY and 69 per cent YoY, respectively during 1QFY12, while refiners and power utilities respective earnings declined by 11 per cent YoY and 26 per cent YoY. Hence, energy companies cumulatively posted earnings growth of 27 per cent YoY led by enhanced production profile of E&Ps, higher international oil prices and lower turnover tax rate. The manufacturing concerns profits (+ 128 per cent YoY) were boosted by higher domestic demand and price hikes. To recall demand received a battering last year following heavy floods. All fertiliser off-take, local cement demand and auto sales increased by 30 per cent YoY, 12.2 per cent YoY and 30 per cent YoY, respectively while a respective average price increase of 42 per cent YoY, 40 per cent YoY and 9 per cent YoY were witnessed. The banks led the growth in the services sector (up 38 per cent YoY) on the back of increased spreads owing to higher KIBOR (average 6M up 81bps). PTCL’s profits declined by 32 per cent YoY owing to higher operating costs and lower other income.
