JS Securities Limited – Morning Briefing

Karachi, December 22, 2017 (PPI-OT): Textile exports up 7% YoY in Nov-17, NML our favoured pick with TP of Rs178

Textile exports during Nov-2017 stood at US$1.12bn, up 7% YoY from US$1.04bn in Nov-2016, where major value added segments recorded double-digit growths during the month.

Sequentially, textile exports dipped marginally by 1% MoM which was mainly due to reduction in exports of Cotton Yarn (down 8% MoM) and Cotton Cloth (down 7% MoM).

Cumulatively, textile exports for 5MFY18 grew by 8% YoY to US$5.51bn.

Nishat Mills Limited (NML) is our top pick (Target Price: Rs178) due to its high percentage of exports and focus on value addition.

Textile exports up 7% YoY in Nov-17

Textile exports for the month of Nov-2017 – as revealed by the Pakistan Bureau of Statistics (PBS) – moved upwards by 7% YoY to US$1.12bn, compared to US$1.04bn in Nov-2016. Growth in textile exports was led by value added sub- segments – as has been the case over the previous months – with Knitwear (up 18% YoY), Readymade Garments (up 14% YoY) and Bed-wear (up 12% YoY) all recording double digit growth during the month, while Cotton Yarn exports (down 14% YoY) declined during the month. Sequentially, textile exports dropped by 1% MoM owing to decline in Cotton Yarn (down 8% MoM) and Cotton Cloth (down 7% MoM) exports. Cumulatively, textile exports stood at US$5.51bn during 5MFY18, up 8% YoY from last year’s textile exports of US$5.12bn. We believe the improvement in textile exports during the cumulative period is likely due to the government’s export package, which provides incentives to exporters in order to lift exports and stem the declining external account scenario.

NML our favoured pick in JS Textile Universe

We favour Nishat Mills Limited (NML) among JS Textile Universe, with our Dec-2018 Target Price of Rs178, presenting upside of 27% from last closing price. Our preference for the stock is based on an increasing focus on exports and on its value added segments, which we anticipate will benefit the company due to aforementioned export package and rupee devaluation. Considering exports constituted ~76% of the company’s exports in FY17, and 63% of exports that are US$-based, we estimate an impact of Rs3.23/share (+27% on FY17 EPS) for NML for every 5% Pak Rupee depreciation against the US$. We flag that our above estimations do not include negative impacts of Pak Rupee depreciation, which include (1) costlier imported raw materials, and (2) higher cost of imported fuel. Key risks to our investment thesis include (1) lower-than-expected Pak rupee depreciation against the US$, and (2) higher-than-expected cotton prices going forward.

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