Earnings review: Corporate profits soar 18%

KARACHI:

Corporate profits soared 18 per cent led by the banking and oil and gas exploration sectors in financial year 2011.

JS Global Online conducted an analysis, on a sample of 35 companies, representing 75% of the Karachi Stock Exchange benchmark 100-share index.

Most of the major corporate results have been announced in the prolonged final quarter season that started on July 25 finally and came almost to an end after two and a half month.

Interestingly, the fourth quarter contributed the most to both fiscal 2010 and 2011 earnings while the least came from the first quarter.

Earnings were recorded at Rs72.1 billion compared with Rs57.4 billion in the same period of the preceding year, according to a research note.

However, market response to this impressive growth in corporate earnings remained muted as the Karachi Stock Exchange benchmark 100-share index fell by 9% despite the fact that 40% of the companies reporting higher than expected earnings.

Energy companies posted below than average growth of 14% in their profits during the final quarter owing to a one-time downward revision in revenues of Rs15.3 billion for the largest oil and gas explorer Oil and Gas Development Company, adds the note.

The largest oil marketing company Pakistan State Oil also incurred a one-time downward deferred tax asset (DTA) write-off of Rs2.6 billion that hampered its earnings.

The growth in the services sector was primarily on account of improved banking sector profits amid higher net interest income.

Positive momentum is expected to continue in fiscal 2012 with an estimate of 15% on a yearly basis.

Juggernaut profits soar 18%

Higher global crude oil prices, slightly better hydrocarbon production and restricted exploration expense reflected positive profitability in the sector during financial year 2011. During the period under-review, the oil and gas exploration industry’s profitability increased by 18% to Rs105.8 billion compared with the preceding year’s Rs90 billion, according to Topline Securities.

However, earning growth could have been even higher at 29% if one-time retrorespective adjustment of Kunnar crude oil prices is excluded.

The sample analysed includes three listed exploration and production companies Oil and Gas Development Company, Pakistan Oilfields and Pakistan Petroleum Limited, representing 99% of the entire capitalisation.

The sector’s sales rose by a noteworthy 17% to Rs258.5 billion on account of better price as well as volumetric variance. International crude oil prices (Arab Light) rose by a 35% to average $93 per barrel in the outgoing financial year while sector’s oil and gas production rose by 2.8% and 2.2% respectively.

Pakistan Oilfields was the star performer with a growth of 45% on followed by 35% growth in PPL’s bottomline while Oil and Gas Development Company’s earnings growth remained muted to a mere 7% as adverse impact of Kunnar crude oil prices issue diluted the impact of favourable pricing scenario. Big five profits surge 24%

The big five banks have posted above the industry’ growth of 24% in the first six month of 2011 to reach Rs40 billion.

The big five banks based on bank deposits and branches include National Bank of Pakistan, Habib Bank, United Bank , MCB Bank and Allied Bank which contribute more than 57% share of the total banking sector deposits and represent approximately 80% of the market capitalisation, according to a Topline Securities research note. National Bank of Pakistan was the laggard from the lot as it incurred huge provisioning during the period under review, adds the note.

Allied Bank led the growth with its core profits rising 39% followed by MCB Bank with 35% and United Bank with 29%.



Published in The Express Tribune, September 16^th, 2011.