Profit of corporate sector registers 24pc increase on YoY basis

RECORDER REPORT

KARACHI: The profit of corporate sector registered an impressive increase of 24 percent on year-on-year basis to Rs 90.379 billion in the third quarter of current fiscal year (FY12) as compared to Rs 73.154 billion in the same quarter in FY11.

On quarter to quarter basis, the profitability of corporate sector has increased by 6 percent to Rs 85.639 billion.

"The energy companies, cements and banks were the key contributors", Atif Zafar, an analyst at JS Global Capital said.

However, investor excitement remained relatively muted to these strong set of results owing to pre result rally, traditional dearth of major payouts in this quarter and also majority of these results (45 percent) inline with expectations, he added.

"Yet still, the KSE gained 1.7 percent on month-on-month basis in April, outperforming its regional peers by 1.1 percent", he said.

"We highlight potential upgrade in our earnings growth target of 13 percent for FY12E", he said. "The earnings yield of 14.1 percent, suggesting further upside to our year end index target of 13,800", he added.

Also, the KSE is still trading at a discount of 43 percent (vs. historical discount 34 percent) to the region despite an year-to-date gain of 23 percent; owing to concurrent rise of 11 percent on an average in the regional markets. "We flag oil stocks (POL, PPL, PSO) as potential outperformers in near term due to their largely laggard performance in recent times, while highlight May as a traditional dull month ahead of the announcement of the Federal Budget", he said.

This analysis is based on a sample of 39 companies, representing 70 percent of the KSE-100 market capitalization. According to which, corporate earnings in the third quarter of FY12 were recorded at Rs 90.4 billion ($998 million) against Rs 85.6 billion ($855 million) in the third quarter of FY11, up 24 percent on year-on-year basis.

He said the cumulative profits of energy companies witnessed an impressive growth of 45 percent. E&P companies' profits soared by 54 percent on the back of higher realized oil and gas prices, PKR depreciation against US$ and enhanced production profile, while OMCs profits increased by 52 percent largely owing to PSO booking heavy interest income passed on by the power utilities.

The manufacturing sector's overall profits plunged by 33 percent mainly owing to a decline of 63 percent in the profitability of fertilizer manufacturers. Lower urea offtake due to the availability of government of Pakistan's subsidized imported urea led to their earnings decline. Textile and chemical sector profitability too declined by 60 percent and 68 percent, respectively.

However, cements and auto profits grew by a respective 367 percent and 118 percent, as their strong pricing power led to massive margin expansions.

The growth in the services sector (26 percent) was led by the banking sector (up 25 percent) on the back of lower provisioning amid decline in accretion of NPLs. Interestingly, PTCL's profits increased by 44 percent owing to improvement in core operations, he added.