By: BMA Capital Management Limited
Pakistan Textiles: The Pakistan Bureau of Statistics (PBS) released the textile exports data for the month of Oct’15 wherein the country’s total textile exports posted a decline of 4%MoM/11%YoY to clock in at USD1.05bn on account of notable declines in both the non‐value added (down 4%MoM/16%YoY) and value added exports (4%MoM/8%YoY). In volumetric terms, the non‐value added segment reported a decline of 63%MoM/43%YoY in the raw cotton category in Oct’15, whereas, other categories including cotton yarn and cotton cloth posted an increase of 2%MoM each. The value added segment also witnessed a weak trend in volumetric terms where exports were down by 4%MoM‐16%MoM and 14%YoY‐36%YoY primarily on account of depressed knitwear, bed‐wear and towel exports. However, ready‐made garment export volumes bounced back, posting an increase of 13%MoM, hence containing the decline in total value added exports.
Going forward, i) economic health of the trading partners, ii) energy supply situation and iii) PKR/EUR parity will remain critical to the fundamental outlook of the sector. With textile sector’s outlook a bit hazy, we continue our preference for NCL due to i) 46MW coal fired power plant coming online, ii) 10% duty imposition on yarn and grey fabric and iii) improving trend in non‐value added export volumes. At our TP of PKR54/sh, rolled forward to Dec’16, the stock offers an upside of 42% on the last day closing price.
Oct’15 showing bleak export trend: The declining textile export trend continued in Oct’15 where country’s total textile exports posted a decline of 4%MoM/11%YoY to clock in at USD1.05bn. Non‐value added exports were down by 4%MoM/16%YoY primarily on account of 64%MoM/53%YoY decline in raw cotton exports due to tepid demand from China, bleak local cotton production and lower prices amid slowdown in global demand. The value added segment exports witnessed a decline of 4%MoM/8%YoY while in volumetric terms exports were down by 4%MoM‐16%MoM and 14%YoY‐36%YoY primarily on account of depressed knitwear, bed‐wear and towel export sales.