Pakistan Textile_Spinners turning it on!, (AKD Daily, Jul 30, 2021)
AKD Daily
Pakistan Textile: Spinners turning it on!
- Pakistan’s textile industry is in a macro sweet spot amid rampant demand in domestic market and internationally as global economies experience ‘return to normal’ phenomenon pushing up orders for apparels (US apparel imports +26.8%YoY in 5MCY21, Europe yet to pick pace).
- Shift in demand fundamentals has turned the table in favor of spinning players where lack of investment in infrastructure in yesteryears resulted in utilization levels of existing players closing in at full capacity, while low cotton output (7.0mn bales in FY21—the lowest in history) pulled up domestic cotton prices +54.4% YoY in FY21 and yarn prices.
- Spinning sector posted earnings of PkR2.8bn in 3QFY21 compared to loss of PkR60.3mn in 3QFY20 and PAT of PKR 269.1mn in 3QFY19. Earnings outlook still remains promising where strong local yarn demand by downstream players will buttress earnings in near term while in medium run, potential shift in material sourcing by Western textile manufacturers from China’s Xinjiang province would bolster profits (India’s share in US yarn imports +1.7ppt in 5MCY21).
- Recent duty relaxations are unlikely to materially alter renewed fundamentals for spinning players, being mostly related to filament yarn as opposed to cotton yarn (major produce), where NCL stands as our preferred play. Overall, the sector is currently trading at a P/E of 3.02x where price discovery going forward cannot be ruled out.
- With regards to the above, in today’s daily, we identify Spinning players (based on specific FF and GP criteria) where valuation remains undemanding and potential alpha can be generated.
AKD Research
Nishat (Chunian) Limited. Nishat (Chunian) Limited is a Pakistan-based textile company. The Company is principally engaged in the business of spinning, weaving, dyeing, printing, stitching, processing, doubling, sizing, buying, selling and otherwise dealing in yarn, fabrics and made-ups made from raw cotton, synthetic fiber and cloth and to generate, accumulate, distribute, supply and sell electricity. The Company operates in four business segments, which include Spinning, which produces a range of yarn using natural and artificial fibers; Weaving, which produces a range of greige fabric using yarn; Processing and Home Textile, which is engaged in processing greige fabric for production of printed and dyed fabric and manufacturing of home textile articles, and Power Generation, which is engaged in generating and distributing power. The Company has a spinning production of approximately 75,000 tons of yarn, three million meters of greige fabric in weaving and four million meters of finished fabric per annum.
AKD Securities Ltd. is one of the leading securities firm in Pakistan, providing a comprehensive range of investor focused services, including equity brokerage, economic and securities research, investment banking and financial advisory services. AKD Securities accounts for more than 6% of the average daily value of the Karachi Stock Exchange. AKD Securities was the first brokerage house to launch an online trading platform in Pakistan in November 2002 and now has the largest market share with over 6000 customers. This has helped diversify and expand the retail investor base in the country and ushered in a whole new universe of investors to the stock market.
AKD Securities Ltd. caters to a diversified group of domestic and international institutional investors, high net worth individuals and upscale retail clients, including expatriate Pakistanis. With high quality research, unparalleled execution and distribution capability for both regular and large block trades, AKD Securities Ltd. has earned an outstanding reputation in the Pakistani securities industry.Outside of commercial banks, AKD Securities Ltd. is one of the biggest capital market firms in the country. AKD Securities is the leader in raising and providing risk capital in underwriting, market making and mergers and acquisitions in Pakistan. Good corporate governance and professionalism are emphasized throughout the firm and AKD Securities Ltd. is amongst the very few companies to have introduced a firm-wide comprehensive CODE of ETHICS, overseen by an independent compliance manager.Ultimately, our success is based on the quality of service we provide to our customers and the trust and confidence reposed in us by them. Our focus, therefore, remains on customer satisfaction at all levels in the company.
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