The corporate sector profitability continued to register an upward trend, rising by an impressive 34 percent in the second quarter of 2010, compared to the corresponding period last year.
According to a research report of a team of analysts at JS Global Capital Limited the total profitability of the sample companies of the corporate sector has increased to Rs 60.132 billion in the second quarter (April-June) of 2010, as compared to Rs 44.741 billion recorded in the corresponding period last year.
The analysts including Umer Bin Ayaz, Syed Atif Zafar and Angela Yousuf said though corporate profits were encouraging overall, the market failed to respond positively (up only 3 percent in the third quarter of 2010) as, imposition of the CGT along with uncertainty surrounding the re-introduction of Margin Trading System, one of the worst floods in the history of Pakistan and political disturbances weighed in on the investors' minds. "Though, we expect corporate profits to take a hit in the upcoming quarters owing to the floods, we still expect an earnings growth of 19 percent for 2011", they added.
OIL AND GAS EXPLORATION The E&P sector earnings headed north in the second quarter of 2010, primarily owing to recovery in wellhead prices and increased production flows from various fields. OGDC led the sector's earnings growth with a higher than expected growth of 49 percent on yearly basis in its profitability. It, however, announced a lower cash dividend than anticipated by many. PPL and POL results were largely inline with the market consensus.
AUTO ASSEMBLERS The auto sector's positive momentum continued in the second quarter of 2010, as its profits jumped 76 percent on yearly basis. Growth in revenues driven by higher unit sales and product prices coupled with lower steel costs were key reasons behind improved margins. INDU and PSMC both posted slightly better than expected earnings.
TEXTILE Our analysis indicates notable earnings growth in the second quarter of 2010 for the textile sector at large. This was owing to an aberration, where the textile companies had procured cotton at Rs 3,500/maund in the first half of FY10, and later in the second half when both cotton and yarn prices nearly doubled, the manufacturers booked hefty margins in the spinning segment. Consequently, NML posted an earnings growth of 559 percent in the second quarter of 2010, which was above street expectations.
FERTILIZER The fertiliser sector performed admirably during the second quarter of 2010 on the back of higher urea and DAP prices. The result announcements of the heavy weights were higher than what the market expected. FFBL positively surprised with its dividend announcement of Rs 1.3 per share for the second quarter of 2010. However, the recent flood situation in the country has posed a great future challenge for the fertiliser manufacturers.
BANKS "Analysing the banking sector's profitability based on our sample of 9 banks and excluding NIB's case, we arrive at a 24 percent year-on-year growth in the second quarter of the current year", analysts said. Lower provisions, stable Net Interest Income and a better performance in the Non Interest income category (primarily owing to higher Fee income) were growth proponents for the banks at large. "NIB was an exception booking abnormally high provisions in the period consequently skewing our sample's performance to reflect a sectoral profit growth of a mere 7 percent", they added. NBP was on the other end of the spectrum registering earnings growth of 74 percent over its 2Q2009 results, reason being; unusually high provisions made against NPLs in 2Q2009. Given the scale of destruction caused by the floods, a rise in NPLs, especially from the agricultural sector, can be expected in the coming months.
REFINERY Refinery sector profits experienced a slight breather as GRMs during the second quarter of 2010 recovered slightly. NRL announcement was largely inline whereas ATRL result was below expectations. PRL too announced a lower than expected result, mainly due to a one time tax adjustment.
POWER Despite the fact that KAPCO's profitability fell 8 percent in the second quarter of 2010, the power sector considering our sample, which includes KAPCO and HUBCO, registered a year-on-year growth of 14 percent. The net sectoral earnings growth was courtesy HUBCO's improved performance in the second quarter of the current year relative to 2Q2009, which was a result of an up-tick in the company's tariff profile and Pak Rupee depreciation.
OIL MARKETING Despite robust furnace oil sales, inventory losses and higher tax expense negatively affected oil marketing companies' performance, recording a negative earnings growth of 24 percent during the second quarter of 2010. PSO posted a major surprise, as its earnings announcement was much below market expectations due to a reversal of a deferred tax asset of Rs 2.8 billion (Rs 16.3 per share). The company's mere payout of Rs 5 per share too disappointed investors, who were expecting a bonus issue to accompany as well. On the other hand, APL earning growth of 47 percent was much higher than the street estimates along with a strong payout of Rs 20 per share and a 20 percent bonus issue.
TELECOM PTCL's performance during the second quarter of 2010 deteriorated mainly owing to exceptionally high marketing expenses incurred. Operating expenses following a seasonal trend were exorbitant in the period as well, and together, the expenses burdened profitability, which fell 26 percent in comparison to 2Q2009.
CEMENT Lower cement prices due to disagreement in on pricing amongst manufacturers led to the downfall of the cement companies during the second quarter of 2010. As a result, cumulative profits of our sample companies' turned red, while being below market expectations as well. Though in the short-term, local demand is likely to suffer slightly due to the floods; we expect takeoff to pick up post first half of FY11, which in turn should continue to provide impetus to prices in the local market.