Dear Clients,

As per the latest data disclosed by PBS, textile exports for Jan2021 depicted a growth of 11% Y/Y clocking in at USD1.3bn. This is attributed to shift in orders to Pakistan as a result of US-China trade war and supply chain disruptions in Bangladesh and Vietnam. Consequently, the order book for textile companies is filled for FY21. Sequentially, textile exports decreased by 6% M/M because of high base effect in Dec2020 that recorded the highest textile exports worth USD1.4bn. This takes the cumulative number to USD8.8bn as opposed to USD8.1bn in corresponding period last year, up 8% Y/Y.

Value added segment drives textile exports

Segment wise data reveals that value added segment registered a growth of 17%YoY led the increase in textile exports in Jan2021. Product wise, knitwear, bed wear and towels posted a double digit growth of 33% Y/Y, 13% Y/Y and 35% Y/Y, respectively because of high demand of home textiles. However, readymade garments posted a sluggish growth of 5% Y/Y due to weak demand in international market. Non-value added segment declined by 12%YoY in the period under review as a result of 14% Y/Y reduction in cotton cloth amid demand slowdown in China.

We maintain our preference for the Textile Sector

We maintain our liking for the Textile sector on account of recent fundamental developments including i) upcoming textile policy 2020-2025, ii) market share gain from regional peers, iii) competitive cost advantage and iv) shift to market based exchange rate regime. We have an Outperform stance on NML, NCL and ILP as our target prices stand at PkR157/sh, PkR64/sh and PkR94/sh, respectively. To highlight, NML and NCL would also benefit from the potential revival of dividend stream of their power subsidiaries.

KASB Research