The KSE-100 index fell 2% WoW to close at 33,885pts, amid the onset of Ramadan and politics Becoming noisy. ADTO fell 22% WoW to 358mn shares, and average daily value traded dropped 36.5% WoW to US$83.3mn. FIPI recorded an outflow of US$16.1mn this week vs outflow of US$5.7mn last week.
Major highlight of the week was politics taking the wrong turn. In a BBC report, MQM has been Accused of having taken funds from India. This came in the backdrop of the onset of Ramadan, which is characteristic of a lackluster market and thin volumes. News on imminent gas tariff hike of 15% for all consumers from July 1st surfaced again, dampening the market's mood. Profit booking before close of year was also evident among institutions; mutual funds were major sellers. On a more positive note, the Finance Bill was approved in the parliament paving way for the release of the eighth IMF tranche. In the latest T-bill auction, cut-off yields have inched up further by 13-15bp to 6.93%/6.95%/6.97% for 3M/6M/12M T-bill. Pak Elektron issued notice of EOGM to approve conversion of loans from NBP into 40mn common shares, which may come at a discount of 30% to market price; this may stir a negative spell in the stock price.
The government cancelled its privatization deal for Heavy Electrical Complex (HEC) after the PRs225mn cheque deposited by Cargill Holdings Limited was dishonored. On the macro front, news flow was mixed. Forex reserves crossed the US$18bn mark upon receipt of loans from the World Bank. Large scale manufacturing (LSM) in May-15 declined by 8.8% MoM due to decline in sugar, paper, and engineering goods production.
For near term, political noise is likely to remain high on account of proceedings of Judicial Commission against rigging allegations and political developments around the allegations Against MQM. End of roll over week bodes well for the increase in overall trading activity/volume from next week. The expected approval by the IMF board for the release of eight installment under Extended Fund Facility will likely improve sentiment. Meanwhile details on amendment made in the initial proposals under Budget 2015-16 are keenly awaited may have impact on select sectors. Our top picks are POL, PPL, ENGRO, EFERT, Fatima, UBL, HUBC, Lucky, KOHC, ICI, KAPCO and DGKC.
NEWS THIS WEEK
LSM PRODUCTION INCREASES 5% YOY IN APR-15
As per latest data, large scale manufacturing (LSM) sector production decline by 8.8% MoM due to decline in sugar, paper, and engineering goods production. However on YoY basis, output is up 5%. Cumulatively in 10MFY15, LSM growth recorded 2.9% YoY, where the run-rate is relatively slower compared to 4.2% and 4.0% recorded in FY13 and FY14 respectively mainly due to gas shortages, and industry-specific issues
DISHONOURED CHEQUE: HEAVY ELECTRICAL COMPLEX'S PRIVATIZATION CANCELLED
The government has cancelled its privatisation deal for Heavy Electrical Complex (HEC) after the Rs225-million cheque deposited by Cargill Holdings Limited was dishonored. Reportedly, transparency issues had emerged from this deal since Cargill Holdings was cleared in the due diligence process despite the fact the company was registered just a day after the government re-initiated the HEC privatization process.
RETURNS ON TREASURY BILLS KEEP MOVING UP
In the latest T-bill auction, cut-off yields have inched up further by 13-15bp to 6.93%/6.95%/6.97% for 3M/6M/12M T-bill. The government raised PRs89.6bn, against the target of PRs50bn with participation exceeding PRs105bn.
CCP BEGINS INQUIRY AGAINST TWO DOMINANT CAR MANUFACTURERS
Reportedly, the Competition Commission of Pakistan (CCP) has initiated an inquiry into possible anticompetitive behavior of the two dominant car manufacturers in the automobile sector. The key concerns raised by CCP include (1) the upward trend in the prices of cars with significant upgradation of technology; (2) hefty advance payments for booking a vehicle; (3) delay in delivery of vehicles; and (4) charging of premiums by authorized dealers.
FOREIGN EXCHANGE RESERVES NEAR ALL-TIME HIGH
Reportedly, FX reserves have touched US$18.2bn (4.4-months of import cover) this week following receipt of two loans from World Bank. Firstly, US$500mn were received on account of fiscal sustainability and growth, and secondly US$188mn were received for the rehabilitation of Guddu Barrage.
THIS WEEK'S TOP STORIES
MONDAY, JUNE 22, 2015 POL - NEAR-TERM TRIGGERS ABOUND TO SUSTAIN STOCK PRICE MOMENTUM
- We believe 3-mth out performance in POL stock price of 9% vs KSE-100 index does not fully reflect the improved earnings outlook post recovery in oil prices and largely positive progress on company's exploration and development program.
- POL's valuation remains attractive with the stock providing 23% return to our DCF-based PO, at an undemanding P/E of 9.7x on FY16E earnings. POL's FY16E D/Y of about 11% is quite attractive, in our view, and will likely gain more traction among investors.
- We play down the importance of two often-cited concerns on potential oil price volatility or negative results on ongoing drilling at MGN and believe near-term triggers can sustain the stock price momentum. Reiterate Buy!.
MOHAMMAD FAWAD KHAN (Fawad.email@example.com)
TUESDAY, JUNE 23, 2015 ENGRO - BUDGETARY INCENTIVES STRENGTHEN OUTLOOK; REITERATE BUY
- Owing to strong fundamentals of EFERT and EFOODS coupled with favorable FY16 budgetary incentives, we reiterate our positive stance with a PO of PRs391.
- EFERT is likely to remain unaffected by the fee imposed on new plants under the GIDC Act with the Fertilizer Policy 2001 providing a shield.
- Exemption in the minimum tax for rice mills and a decrease in the duty on ethylene will provide some relief to the Rice and Polymer businesses, which have somewhat held back the profitability growth of the holding company..
AMEET DAULAT (Ameet.firstname.lastname@example.org)
WEDNESDAY, JUNE 24, 2015 SPREADS HEADED SOUTH; PREFER UBL ON SUPERIOR REWARD PROFILE
- SBP reported spreads of 5.59% for May-15, flat on MoM basis. Substantial pressure on banking spreads - as a result of changes in Interest Rate Corridor structure implemented in late May - is yet to reflect in reported headline spreads. Anticipate pressure on NIMs going into 3Q15.
- Persistently higher duration spread (currently 90-300bp for 3-10yr bonds) vs our models presents one material upside risk to our earnings estimates.
- With unique bottomline CAGR of 6% in the sector over 2014-17E and offering forward tier-I ROE of 22% at an undemanding 1.3x 2016E P/B, UBL is our sole Buy recommendation in KASB Banks Universe (PO: PRs195)..
FARID ALIANI (Farid.email@example.com)
THURSDAY, JUNE 25, 2015 ALL SET FOR YET ANOTHER HAPPENING YEAR
- Stable to rising oil prices and likely drop in correlation of EandP stocks, increased exploration activity coupled with focus on lifting domestic production and lack of major drag from circular debt provides an encouraging backdrop.
- Our estimates build in FY16 average of oil prices of US$58/bbl (Arablight). Moreover, we highlight POL (Tal) and PPL (Tal, Nashpa) as relatively leveraged to near-field/established drilling areas. Thus, POL and PPL are our preferred picks.
- We believe valuation of listed companies is undemanding, trading at F16E P/E of8.6x and EV/EBITDA of 4.5x, considering encouraging backdrop and three key upside areas (conversion, exploration and appraisal/development)..
MOHAMMAD FAWAD KHAN (Fawad.firstname.lastname@example.org)
FRIDAY, JUNE 26, 2015 SEASONAL DIP DRAGS MOMENTUM; FAVOR EFERT AND FATIMA
- Seasonal dip in demand has slowed down the momentum in in Urea offtake during May-15 (up 3% YoY) taking 5M15 offtake levels to 2.3mn tons (up 12% YoY).
- While International prices have risen to US$315/ton, increasing the discount between domestic and international prices and providing significant pricing power to the local manufacturers, a complete pass on of the gas price hike is unlikely, in our view.
- We reiterate our liking for EFERT (PO: PRs104) and FATIMA (PO: PRs45) amid the concessionary gas rate agreements.
AMEET DAULAT (Ameet.email@example.com)
STOCK MARKET SYNOPSIS
LAST WEEK THIS WEEK % CHANGE
Mkt. Cap (US$bn) 73.2 71.9 -1.8%
Avg. Dly T/O (mn. shares) 458.1 357.6 -21.9%
Avg. Dly T/O (US$ mn.) 131.3 83.3 -36.5%
No. of Trading Sessions 5.0 5.0 -
KSE 100 Index 34,526.7 33,885.1 -1.9%
KSE ALL Share Index 24,215.1 23,712.2 -2.1%
© Pakistan Press International, source Asianet-Pakistan