Karachi, January 18, 2019 (PPI-OT): Pakistan Textile: Value addition is the ‘name of the game’
Textile exports for the month of Dec’18 were recorded at US$1.14bn (+3.6%MoM/0.6%YoY), pulling up 1HFY19 exports to US$6.65mn, relatively flattish YoY.
Value-added exports continued their up-trend seen since Jul’17 on the back of export incentives, taking 1HFY19 export sales under the header to US$5.02bn (+3.7%YoY), while non-value added segment pulled down overall growth, (-9.3%YoY in 1HFY19 vs. +3.3%YoY in the same period last year).
Local cotton prices have inched up recently on the back of strong demand and crop shortage, however, prices are expected to come under pressure due to the abolition of customs duty and sales tax on import of cotton, expected to encourage imports.
i) Extension in export incentives for 3yrs, ii) tariff rationalization of utilities, and iii) reduction in import duties on certain raw materials, all indicate the favourable GoP policies for the sector to enhance exports.
With exports averaging 58% of our textile universe’s topline and every 1% devaluation in domestic currency in-turn raises our Textile Universe earnings by 0.85%, the sector is poised to continue exhibiting outperformance. We have an overweight stance on the sector with NML (TP: PkR158/sh) being the value added, diversified income play as our top pick.