Profits of KSE-100 companies fall 11pc in December quarter

KARACHI: Cumulative profits of companies listed on the benchmark Karachi Stock Exchange (KSE) 100-share Index fell 4.0 percent quarter on quarter and 11 percent year on year in the quarter ended December 2014, reflecting the underperforming heavyweight oil and gas sector, revealed a brokerage house report on Friday.
Minus oil and gas sector, however, the profitability of the scrips grew an impressive 28 percent QoQ and 22.8 percent YoY, to Rs92.6 billion for the same quarter, the report by Arif Habib Ltd found.
“Results season for December 2014 has passed its climax point with over 95 percent of the KSE-100 companies’ financial results announced. Excluding the heavyweight oil and gas sector, KSE-100 index companies have performed well,” Rao Amir Ali at Arif Habib Ltd said.
The oil and gas sector’s profits were down 47 percent QoQ and 53 percent YoY, mainly due to steep fall in exploration and production sector’s profits, which dropped 37 percent QoQ and 43 percent YoY, which did not come as a surprise.
“The fall in the oil price has affected different companies in different ways. In certain cases, higher costs of production resulted in more immediate financial challenges,” said an official at an exploration company. “Emerging economies are heavily affected by energy market volatility.
Many growth markets are both massive oil and gas producers and consumers, making the drop in prices a complicated issue.”
Ali said the profitability of oil and gas sector was cut due to 28 percent QoQ decline in oil prices, improvement and stability in Pakistan rupee against US Dollar (1.4 percent QoQ) as opposed to sharp depreciation earlier, and higher exploration cost on account of dry well costs.
Since June 2011, the KSE-100 ex-oil and gas profitability has grown by an average 4.3 percent QoQ.
Chemical and fertiliser sector with a profit growth of 64 percent QoQ and 29 percent YoY made the largest contribution to the KSE-100’s ex-oil and gas sector earnings surge.
It was followed by construction and material and cement sectors, posting a profit growth of 43 percent QoQ and 22 percent YoY.
Electricity sector’s profit grew 28 percent QoQ and 69 percent YoY, followed by banking sector, up 6.0 percent QoQ and 30 percent YoY.
Automobile sector’s profit grew 59 percent QoQ and 179 percent YoY. Cumulatively, these sectors accounted for 100 percent of all profit rises.
The report said solid growth in cement sector’s net profits, during the quarter under review, can be attributed to 10.7 percent QoQ and 7.0 percent YoY growth in dispatches along with steady product prices.
Additionally, declining fuel and power cost on account of decline in international oil and coal prices, coupled with lower transportation costs played a pivotal role in determining the impressive profitability of the sector, it added.
The report further said fertiliser sector’s better profitability owing to 5.0 percent increase in urea prices and decrease in finance cost drove the chemical sector’s performance.
Banks drew earnings on improved margins because of hefty investment in high-yielding Pakistan Investment Bonds, lower cost of funding and modest growth in advances, it added.
“Electricity sector profits were premised mainly on decline of repair and maintenance and better load factors. Auto assemblers’ growth stemmed from margin expansion, volumetric growth and rise in other income.”
“We see fresh rally in the wake of policy rate cut of at least 50bps, which is expected in the monetary policy statement that is due this month,” Ali said. “Further, the market expects current quarter’s (Jan-Mar 2015) corporate results to be even better.”
The analysis said cements will benefit from the rate cut and improved seasonal dispatches.
It added that the ease in interest rate will make dividend yields more attractive, while better liquidity amid weak/stable oil prices will improve performance of independent power producers and fertiliser manufacturers.
As far as energy sector is concerned slight recovery in oil prices should support few companies’ profitability in immediate terms, said the report.