Five-year high profit growth estimated at stock

Karachi, March 20, 2019: The market experts estimated a healthy 12.8 percent profitability growth for KSE-100 Index companies in 2019.  The estimates profit growth at at Pakistan Stock Exchange (PSX) will be 5-year high.

Arif Habib Limited (AHL) in its research report forecasted strong profitability growth in the KSE-100. It estimates of 12.8 percent during 2019 compared to 8.1 percent in 2018, showing an impressive out-performance of the last 5-Yr average earnings growth of 7.6 percent.  

The earnings uptick during 2019 is expected to be led by the heavy weighted Banking (26 percent), Oil and Gas Exploration & Production (14.8 percent), and Fertilizer (15.7 percent) sectors.

AHL expects the banking sector to show a strong rebound in earnings growth of 20.8 percent (pension costs adjusted for CY18) compared to last 5-Yr average of 7.1 percent.

The profitability surge is expected to be led primarily by higher net interest income (NII) growth of banks owing to full impact of increase in interest rates, which witnessed 425 bps hike in CY18.

Moreover, lower OPEX charges and provisioning expenses for HBL and UBL respectively are likely to fuel earnings of these two highest weighted banking scrips.  

On the back of stable oil prices and possible further weakening of the PKR against the greenback (AHL assumption is PKR 147 Jun 2019 end), the Energy and Power (E&P) sector is expected to show an earnings uptick of a staggering 36 percent during FY19.

This compares very favorably with the last 5-Yr average earnings growth of 5.5 percent for the sector. It also forecasted that the Fertilizer sector to post an earnings growth of 18.8 percent during CY19, outperforming last 5-yr average of 15.3 percent.

Surge in earnings during the year is expected on the heels of stable offtakes and higher margins amid better pricing power.  AHL top picks for CY19 include Bank of Punjab, United Bank, Bank Alfalah, Oil & Gas Development, Pakistan Petroleum, Fauji Fertilizer, Engro, Engro Fertilizers, Lucky Cement, Hub Power, Sui Northern, Engro Polymer and Nishat Mills.

Earnings of the KSE -100 index depicted a healthy 8.8 percent YoY jump during CY18. Based on sectoral weight, this was led primarily by Fertilizer (+68.6 pc YoY), Oil & Gas Exploration Companies (+36.5 pc YoY), Power Generation & Distribution (+24.8 pc YoY), Tobacco (+11.4 pc YoY) and Textile Composite (+50.1 pc YoY).

Whereas sectors that remained top underperformers were Commercial Banks, Cement, Oil & Gas Marketing Companies, Automobile Assembler and Pharmaceuticals.

AHL analysis based on the KSE-100 index companies. Some 85 companies have announced their results and have been included in this analysis while the remaining 15 companies have not yet disclosed their results. The companies which have been included in analysis represent almost 93 percent of the market capitalization of the benchmark bourse.

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