Report

Pakistan Chemicals: Margins showed a mixed trend in 2Q; LOTCHEM to outshine

  • Petrochemical margins have exhibited a mixed trend in 2Q18 where PVC and PSF margins went down by 16/21% YoY respectively, while PTA margins have bolstered by whopping 65.5% YoY to USD176/ton.
  • We expect drop in PVC margins (down 2.3% QoQ to USD320/ton) along with extension of super tax and absence of one-off seen in 1Q18 to drag EPCL’s earnings by 56% QoQ (EPS of PKR0.67/sh based on new number of shares).
  • On the other hand, 19.2% QoQ rally in PTA margins (led by higher downstream demand and improved buying from China) may lead to 38% QoQ jump in LOTCHEM’s bottom-line (2Q earnings expected to clock-in at PKR0.56/sh).
  • Recent round of PKR devaluation may bring good fortunes for chemical stocks where our sensitivity analysis suggests a positive impact of 10-17% on BMA chemical universe’s bottom line for every 5% deval above our base-case.
  • We maintain our Buy call on LOTCHEM with TP of PKR13.5 while an Underperform stance on EPCL with TP of PKR29.4.
Provider
BMA Capital Management Limited
BMA Capital Management Limited

​BMA is amongst the leading financial groups in Pakistan. BMA Capital’s core areas of business include Capital Markets, Corporate Finance & Advisory, Asset Management, and Financial Products Distribution. BMA Capital is the leader in privatisation advisory in Pakistan, having successfully advised on over 50% of all privatisations in Pakistan, by value, in transactions valued in excess of US$4 billion. Recent transactions include joint lead managing the $813 million GDR Offering of 10% of OGDCL on the London Stock Exchange in 2006-07, and advising Etisalat on their successful acquisition of a 26% strategic stake in Pakistan Telecommunications Company Limited (PTCL) for US$2.6 billion, the largest M&A transaction and foreign direct investment in Pakistan’s history. The firm is among the top brokers in the Pakistan equity and treasury markets, and is among a handful of firms that comprehensively cover all segments of the capital markets. This is supported by a very strong and independent research capability, which is quoted regularly in both local and international media. BMA Capital’s retail brokerage brand, BMA Trade, has launched a nationwide network of branches as well as a comprehensive online trading platform, enabling investors across Pakistan to take part in the capital markets.

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