Pakistan Textiles_Sector update Dec'17
Pakistan's total exports during Dec'17 fell 7%MoM to stand at US$1.99bn, where downward trend was witnessed in all major categories except food exports (up 5%MoM). Holding substantial ~60% share in total exports, textile exports contributed most to the overall decline, falling 6.4%MoM, with Dec'17 exports of US$1.03bn. Segment wise, both value and low value added exports declined 6.8%MoM/5.3%MoM to reach at US$764mn and US$274mn, respectively. On a cumulative basis, textile exports registered broad based recovery in the first half, with 1HFY18 exports standing 7.8%YoY higher at US$6.57bn. Value added sector has been key growth driver during the first half, where all key segments (i.e. Knitwear, bed-wear and garments) posted double digit growth, while low value added sector failed to impress, posting a marginal growth of 2%YoY. Going forward, we see continuation of first half trend with a relatively fast paced recovery, as the confluence of recent rupee depreciation and the export package should stoke up export momentum. Moreover, further upside could emerge from likely announcement of new incentives for the export sector.
Export recovery loses momentum in Dec'17: As per recent data released by SBP, textile exports during Dec'17 fell 6.4%MoM to reach at US$1.03bn (though remaining 3%YoY higher), where both value and low value added segment witnessed sequential decline of 6.8%/5.3%MoM. Category wise, value added exports tapered off to US$764mn (-6.8%MoM), where major categories namely knitwear and bed-wear exports went down by 9.4%MoM and 8.2%MoM, respectively. In the value added segment, garment was the only exception which posted growth of 10.2%MoM. Low value added segment continued to remain an underperformer, with segment exports declining 5.3%MoM to US$274mn. The decline was led by segment heavy weight cotton cloth exports, which plunged 8.3%MoM to US$164mn, whereas cotton yarn exports moved up 7.3%MoM.
Export outlook: Registering broad based recovery in 1HFY18, textile exports are expected to continue their upward trajectory, as the confluence of recent rupee depreciation and the export package should stoke up first half momentum. That said, news flows suggest likely announcement of yet another export package, where GoP intends to offer further incentives in the form of electricity tariff reduction by PkR3.53/KwH. Enhancing competitiveness, approval of said package should address some of the structural issues faced by the domestic industry, leading to higher exports going forward.
Investment perspective: Amongst our textile cluster, we continue to favor NML, as the conglomerate offers unique exposure to various sectors with textile/power (likely to gain from rupee devaluation), cement (expected to gain from ongoing infrastructural activity) and Bank (anticipated to recover from expected monetary tightening in CY18). Being key beneficiary from PkR depreciation, NML has gained 21% since Dec 08'17, hovering close to our TP of PkR169.5/sh. Having said that, further price performance cannot be ruled out following announcement of new package and developments over the NML's auto venture (not incorporated currently).
Nishat Mills is engaged in the business of textile manufacturing and of spinning, combing, weaving, bleaching, dyeing, printing, stitching, buying, selling and otherwise dealing in yarn, linen, cloth and other goods and fabrics made from raw cotton, synthetic fiber and cloth, and to generate, accumulated, distribute and supply electricity.
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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