Weekly Review. Outlook. Pakistan Weekly Update StockSmart. AKD Equity Research / Pakistan. 3 August AKD Research. Index & Volume Chart

Transcription

1 AKD Equity Research / Pakistan AKD Research research@akdsecurities.net Indices KSE-100 KSE-30 This w eek 42,505 21,012 Last w eek 42,786 21,336 Indices KMI-30 Allshare This w eek 72,584 30,875 Last w eek 72,172 30,713 Mkt Cap. PkRbn US$bn This w eek 8, Last w eek 8, Avg. Daily Turnover ('mn shares) This w eek Last w eek Change 20.76% Top- 5 V olume Le a de rs S ymbol V olume (mn) DSIL : EPCL : WTL : PIBTL : PAEL : (share mn) (Index) 47,000 Weekly Review Continuing with it s last week positive momentum KSE-100 index gained another 770pts on first trading session of the week. However, US State Secretary Mike Pompeo's statement raising concerns regarding IMF program and dismal banking sector results overshadowed the election relief rally, with KSE-100 index closing at 42,505pts (down 0.7%WoW). Average daily traded volume during the week jumped 20.8%WoW to 283.7mn shares, where stocks leading the board included: 1) DSIL (92.9mn), 2) EPCL (86.8mn), 3) WTL (68.1mn), 4) PIBTL (58.1mn) & 5) PAEL (57.6mn). Wider news flows during the week included: 1) Chinese influx of ~US$2.0bn and extension of US$4.5bn oil financing facility by IDA, helped ease off pressure on the currency parity where currency appreciated 3.6% during the week in the interbank market with the parity settling at PkR124/US$, 2) owing to ~US$2.0bn inflow from China, FX reserves held by the central bank surged to US$10.3bn (up 14.9%WoW) while reserves held by the commercial bank remained stable at US$6.7bn (marginally up by US$12mn), 3) headline inflation surged to forty-five months high at 5.8%YoY, primarily driven by higher oil prices accompanied by elevated food index (3.5%YoY) and housing rent index (5.95%YoY), 4) during Multi-party conference, leaders of various political parties expressed grievances over the election results while voiced their intention to form the government with their own representatives, 5) NEPRA determined Rs1.172/kWh reduction in power rates for consumers of K-Electric under its profit claw back mechanism for FY15. Performance leaders during the week were: 1) ASTL (9.7%WoW), 2) KAPCO (8.1%WoW), 3) NBP (7.5%WoW), 3) MLCF (6.7%WoW), 4) FFBL (5.2%WoW). On the flipside, laggards were: 1) UBL (-11.2%WoW), 2) HBL (-9.8%WoW), 3) CHCC (-4.8%WoW), 4) MCB (-4.5%WoW) and PIOC (-3.7%WoW). Additionally, foreigners remained net seller with outflow US$14.62mn compared to net outflow of US$0.36mn in the previous week. (Shrs'000) 350, , , , , ,000 50,000 Index & Volume Chart - 43,557 42,712 42,810 42,330 42, Jul 31-Jul 1-Aug 2-Aug 3-Aug Ready Volume (LHS) KSE100 Index (RHS) (Index) 43,800 43,600 43,400 43,200 43,000 42,800 42,600 42,400 42,200 42,000 41,800 41,600 Universe Gainers & Losers 11.0% 8.0% 5.0% 2.0% -1.0% -4.0% -7.0% ASTL KAPCO NBP MLCF FFBL PIOC MCB CHCC HBL UBL ,000 43,000 41,000 Source: PSX & AKD Research Outlook Jul-18 Volume (LHS) KSE-100 Index 39,000 37,000 Source: PSX & AKD Research Developments on the political front are likely to remain a focal point, as formalities of General Election wrap up (appointment of reserved members and issuance of notifications) providing clarity regarding the formation of government. Moreover, market will continue to take direction from the ongoing results season where major companies scheduled to announce their financial results include EFERT, ABL, GSKCH and LOTCHEM. Important disclosures Important disclosures including investment banking relationships and analyst certification at end of this report. AKD Securities does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of the report. Investors should consider this report as only a single factor in making their investment decision. AKD Securities TREC Holder & Registered Broker Pakistan Stock Exchange REP-108 Find AKD research on Bloomberg (AKDS<GO>), firstcall.com and Reuters Knowledge Copyright 2018 AKD Securities Limited. All rights reserved. The information provided on this document is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation or which would subject AKD Securities or its affiliates to any registration requirement within such jurisdiction or country. Neither the information, nor any opinion contained in this document constitutes a solicitation or offer by AKD Securities or its affiliates to buy or sell any securities or provide any investment advice or service. AKD Securities does not warrant the accuracy of the information provided herein.

2 This Week s Daily Reports Aug 03, ,616 42,539 42,462 42,385 42,308 42,231 9:30 9:55 10:20 10:45 11:10 11:34 11:59 12:24 12:49 13:13 13:38 14:03 14:28 14:52 15:17 9:30 9:55 10:20 10:44 11:09 11:34 11:59 12:23 12:48 13:13 13:37 14:02 14:27 14:51 15:16 42,154 42,077 42,000 Aug 02, ,000 42,900 42,800 42,700 42,600 42,500 42,400 42,300 42,200 Aug 01, ,950 42,900 42,850 42,800 42,750 42,700 42,650 42,600 42,550 42,500 42,450 Jul 31, ,650 43,500 43,350 43,200 43,050 42,900 42,750 42,600 42,450 Jul 30, ,560 43,480 43,400 43,320 43,240 43,160 43,080 43,000 9:15 9:38 10:02 10:25 10:49 11:12 11:36 12:00 12:23 12:46 13:10 13:33 13:57 14:20 14:44 15:07 15:31 15:54 16:18 9:31 9:54 10:18 10:41 11:05 11:28 11:52 12:15 12:39 13:02 13:26 13:49 14:13 14:36 15:00 15:24 9:30 9:54 10:19 10:44 11:09 11:33 11:58 12:23 12:47 13:12 13:37 14:01 14:26 14:51 15:16 Source: PSX & AKD Research Power: Same old story, different cover, (AKD Daily, Aug 03, 2018) Citing various structural issues and policy impediments, NEPRA's state of industry report for FY17 paints a not-so-good picture of Pakistan's current power supply structure. Low efficiency levels of GENCOs (<28% on avg.), poor recovery rates (~92.65%), high transmission & distribution losses (~ 17.95%), use of imported fuels and inadequate dispatches (resulting in high capacity payments) are some of the major issues prevalent in the sector. Additionally, policy inaction by the relevant Ministry and slow processing by other stakeholders have aggravated the problems. Moreover, the report explicitly blames KEL for under-utilizing its generation facilities and failing to add sufficient transformation capacity. That said, the regulator targets a shift in power mix to alternates including coal, gas and hydro though uncertainties exist with regards to hydropower projects. Even so, our back of the envelope calculation suggests that shift of power mix can reduce average cost of generation by ~PkR0.9/ unit by FY21. Going by NEPRA's statement, while furnace oil based generation will soon be phased out, coal (both indigenous and imported) will form a major part of the generation slate, and hence we believe HUBC is perfectly placed to reap the benefits of oil (base/ Narowal plants), coal (CPHGC, TEL) and Hydro (Laraib) based facilities. The scrip provides a capital upside of 47%%, and its D/Y for FY19F stands at 9.2%. OMCs: Falling volumes turn the 'heat on', (AKD Daily, Aug 02, 2018) Crossing the high watermark for (significantly deflated) FO sales to IPPs, and retail led seasonal fuel demand, total industry OMC sales for July'17 receded -14%MoM/-30%YoY to settle at 1.64mn tonnes. Major dampeners remained the secular decline in FO offtake, amounting to 351k tonnes, falling -60%YoY/-46%MoM, followed by tepid HSD sales (-20% YoY/+4%MoM). Cumulative 7MCY18 industry sales stood at 12.89mn tonnes down 14%YoY, while ex-fo (segment sales down 39%YoY) industry sales inched higher by 0.7%YoY. Evident from individual OMC performances, the operating environment has become rather bleak, with growth in volumetric offtake a tough trick to pull-off, which only HASCOL has pulled off successfully. We re-iterate the growth based investment case for the OMC, where resilience to industry pricing pressure (OPEC crude basket price sustaining at US$70-75/bbl) and competition from foreign entrants (completing acquisitions, improving retail footprints) are strengthened by projects reaching completion (lubricant blending plant, storage additions of ~94k tons till CY19F). Where our TP of 318/sh for HASCOL currently implies a Neutral stance, which we intend on upgrading as details of lubricant margins (post launch of blending plant), LPG business size and Hascol terminals crystalize.. Pakistan Market: July s Bumpy Ride to Election 18, (AKD Daily, Aug 01, 2018) Rejoicing over smooth general elections (held on Jul 25 18) and perceived improvements in the macro environment (i.e. financial assistance from China & Saudi Arabia and consequent PkR appreciation), the market pared back 801pts over the previous month, closing at 42,712.43pts. The ride, however, was not smooth as participants factored in political upheavals including court s decision against former PM Nawaz Sharif and his subsequent imprisonment earlier during the month with the index once again hovering close to 39k levels before rebounding to over 43.5k, a level last seen in Jun 18. Market activity witnessed substantial improvement particularly towards the end of the month on emerging clarity following General Elections 2018, with avg. volumes for KSE-100 index clocking in at mn shares (up 34%MoM). Amongst mainboards, cements (+6.7%MoM) and banks (+4.7%MoM) were major outperformers, while laggards include Automobiles & Parts (-5.8%MoM), Oil and Gas (-1.4%MoM), and Textiles (-0.1%MoM). Looking ahead, smooth transition of power including the formation of the cabinet, key appointments (ala Chief Ministers et al) will strengthen sentiments, potentially translating into a brief rally, tempered by a precarious external account position. 2

3 This Week s Daily Reports Pakistan Cements: 4QFY18E Result Previews, (AKD Daily, Jul 31, 2018) Commencing today, the AKD Cement Universe begins release of 4QFY18E results; first up being LUCK (Jul 31'18). As a group, we expect the AKD Cement Universe to post combined NPAT of PkR8.90bn in 4QFY18E as compared to PkR7.64bn in 4QFY17 - earnings increase of 16%YoY. This growth however is specious, being a function of lower effective tax rate of 10% vs. 30% in 4QFY17 (booking of tax credits on DGKC & CHCC new plants), as on a pre-tax basis profits are expected to go down by 10%YoY. In full year FY18E, our AKD Cement Universe pre-tax earnings are expected to decline by 20%YoY owing to significant 8.2pptsYoY fall in Gross margins to 30.4% (avg. coal prices up 20%YoY coupled with 4%YoY decline in local cement prices FED adjusted), despite 14%YoY increase in total cement dispatches to 45.89mn tons during FY18. While short term outlook for sector seems positive in response to recent currency recovery, staggered build-up in selected names is recommended, where we have already incorporated much of these adverse development with regards to currency depreciation (currency parity stands at avg. PkR131.75/US$ for FY19F) and higher coal prices. Pakistan Economy: Jul'18 CPI inflation expected at 6.0%YoY, (AKD Daily, Jul 30, 2018) With base effect kicking in, headline inflation in Jul'18 is expected to reach 6.0%YoY vs. 2.9% YoY/5.2%YoY in Jul'17/Jun'18. On MoM basis inflation is expected to rise 1.09%MoM vs. 0.57%MoM in the previous month, primarily on account of: 1) enhanced FED on cigarettes to take effect, 2) uptick in perishable food items (food index up 0.9%MoM), 3) seasonal uptick in house rent and 4) rise in fuel prices (MOGAS/HSD increased by 9.4%/14.9%). Additionally, NFNE inflation is likely to clock in at 7.2%YoY vs. 5.6%YoY/7.1%YoY in Jul'17/Jun'18. With inflation on an upward trajectory, we revise upward our inflation estimates while incorporating recent CPI readings and currency volatility. In this regard, we estimate inflation to average out at 6.8%YoY in FY19F (previously 6.2%YoY). Subsequently, SBP is likely to continue maintaining its aggressive stance (100bps hike in Jul'18) in setting the interest rates, where in our view another +175bps hike remains on the table in FY19F with TR/DR ending at 9.25%/

4 Aug-18 Aug-18 AKD Securities Limited Regional Valuations (2018) EPS Growth PE(x) Pakistan 17.04% 7.48 Indonesia 9.97% Malaysia 12.54% Philippines 7.53% Vitenam 12.51% India 18.98% China 13.61% 9.63 % ROE Divd Yld Pakistan 16.3% 6.71 Indonesia Malaysia Philippines Vitenam India China PkR/US$ Trend TRJ-CRB Index Major World Indices Performance Country Bloomberg Code 3-Aug Jul-18 WoW CYTD Pakistan KSE100 Index 42,505 42, % 5.0% Srilanka CSEALL Index 6,144 6, % -3.5% Thailand SET Index 1,712 1, % -2.4% Indonesia JCI Index 6,008 5, % -5.5% Malaysia FBMKLCI Index 1,780 1, % -0.9% Philippines PCOMP Index 7,819 7, % -8.6% Vietnam VNINDEX Index % -2.5% Hong Kong HSI Index 27,676 28, % -7.5% Singapore FSSTI Index 3,266 3, % -4.0% Brazil IBX Index 32,786 32, % 3.7% Russia RTSSTD Index 15,223 15, % 11.3% India SENSEX Index 37,556 37, % 10.3% S&P SPX Index 2,827 2, % 5.7% DJIA INDU Index 25,326 25, % 2.5% UK UKX Index 7,634 7, % -0.7% Germany DAX Index 12,610 12, % -2.4% Qatar DSM Index 9,981 9, % 17.1% Abu Dhabi ADSMI Index 4,811 4, % 9.4% Dubai DFMGI Index 2,974 2, % -11.8% Kuwait KWSEIDX Index 6,633 6, % 3.5% Oman MSM30 Index 4,327 4, % -14.3% Saudi Arabia SASEIDX Index 8,254 8, % 14.1% MSCI EM MXEF Index 1,067 1, % -7.9% MSCI FM MXFM Index % -10.4% International Major Currencies Commodities SPOT 3-Aug Jul-18 Chg +/- WoW CYTD Dollar Index % 3.16% USD/PkR % 12.32% USD/JPY % -1.13% EUR/USD % -3.37% GBP/USD % -3.63% AUD/USD % -5.28% NZD/USD % -4.83% CHF/USD % 2.01% CAD/USD % 3.33% USD/KRW 1,128 1, % 5.33% CNY/USD % 4.89% SPOT Units 3-Aug Jul-18 WoW CYTD TRJ-CRB Points % -0.59% Nymex (WTI) US$/bbl % 13.92% ICE Brent US$/bbl % 9.08% N. Gas Henry Hub US$/Mmbtu % % Cotton USd/Pound % 9.65% Gold US$/Tr.Oz % -6.80% Sliver US$/Tr.Oz % -8.70% Copper US$/MT % % Platinum US$/Oz % % Coal US$/MT % 8.56% 4

5 Aug-18 Jul-18 AKD Securities Limited Chart Bank Earnings Yield vs. T-Bill (12M) Differential Advance to Decline Ratio (%) Jul-18 Jul-18 Aug-18 FIPI Flows for the week LIPI Flows for the week (US$'000) - (500) Ind., (1,000) (1,500) (2,000) (1,926) (2,500) 5.00 Ins, 3.35 Others, 2.47 (3,000) (3,500) (4,000) (2,821) (3,047) (3,109) (3,719) 30-Jul Jul-18 1-Aug-18 2-Aug-18 3-Aug-18 - (5.00) (10.00) Co., (1.11) Bank/DFI, (5.98) NBFC, (1.57) M.Funds, (7.09) Prop. Trading, (1.81) AKD Universe vs. KSE-100 Index KSE-100 vs. MSCI-EM & MSCI-FM 8% 3% -2% -7% -12% -17% -22% -27% -32% -37% 25% 20% 15% 10% 5% 0% -5% -10% -15% -20% KSE100 MSCI FM MSCI EM -25% KSE-All Share Index AKD Universe 5

6 Market PER Chart 2018 Jul-07 Mar-08 Dec-08 Sep-09 Jun-10 Mar-11 Nov-11 Aug-12 May-13 Feb-14 Nov-14 Jul-15 Apr-16 Jan-17 Jul-18 Jul-07 Apr-08 Jan-09 Nov-09 Aug-10 May-11 Mar-12 Dec-12 Sep-13 Jul-14 Apr-15 Jan-16 Nov-16 (x) Source: AKD Research Market P/BVS Chart 2018 (x) Source: AKD Research 6

7 AKD Universe Active Coverage Cluster s Valuations Stock Symbol Price TP Stance EPS(PkR) PE(x) PB(x) DY(%) UR Under Review (PkR) (PkR) 17 18F 19F 17 18F 19F 17 18F 19F 17 18F 19F Automobile and Parts Indus Motors INDU 1, , Buy Pak Suzuki Motors PSMC Buy Cements DG Khan Cement DGKC Neutral Lucky Cement LUCK Buy Maple Leaf Cement Factory MLCF Accumulate Fauji Cement Company Ltd. FCCL Accumulate Pioneer Cement Limited PIOC Buy Cherat Cement Co Limited CHCC Neutral Gharibwal Cement Ltd GWLC Buy Cable & Electrical Goods Pak Elektron Ltd PAEL Buy Engineering Amreli Steels Ltd. ASTL Buy Fertilizers Engro Corporation ENGRO Accumulate Engro Fertilizers Limited EFERT Accumulate Fauji Fert. Bin Qasim Ltd. FFBL Buy Fauji Fertilizer Company FFC Neutral Fatima Fertilizer FATIMA Buy Food Producers Engro Foods Limited EFOODS Reduce Oil & Gas Oil & Gas Development Co. OGDC Buy Pak Oilfields POL Neutral Pakistan Petroleum PPL Buy Hascol Petroleum HASCOL Neutral Attock Petroleum APL Buy Pakistan State Oil PSO Accumulate Power Hub Power Co. HUBC Accumulate K-Electric Co. KEL 5.52 UR UR UR UR UR UR UR UR UR UR UR UR UR UR Kot Addu Power Company KAPCO Accumulate Personal Goods Nishat Mills NML Buy Nishat Chunian Ltd. NCL Accumulate Banks Allied Bank Limited ABL Reduce Bank AlFalah BAFL Neutral Habib Bank Limited HBL Buy MCB Bank Limited MCB Buy National Bank of Pakistan NBP Buy United Bank Ltd UBL Buy Source: AKD Research 7

8 AKD Universe Coverage Cluster s Performance S toc ks S ymbol P ric e Absolute P e rforma nc e (%) 1 Y e a r 1 Y e a r 3 - Aug- 18 1M 3M 6M 12 M CYTD High Low KS E Inde x 4 2, , , Automobile a nd P a rts Indus Motors INDU Pak Suzuki Motors PSMC Ce me nts DG Khan Cement DGKC Lucky Cement LUCK Maple Leaf Cement Factory MLCF Fauji Cement Company Ltd. FCCL Pioneer Cement Limited PIOC Cherat Cement Limited CHCC Gharibwal Cement Limited GWLC Engine e ring Amreli Steel Ltd ASTL Fe rtilize rs Dawood Hercules DAWH Engro Fertilizers Ltd. EFERT Engro Chemical ENGRO Fatima Fertilizer FATIMA Fauji Fert. Bin Qasim Ltd. FFBL Fauji Fertilizer Company FFC Food P roduc e rs Engro Foods Limited EFOODS Ca ble & Ele c tric a l Goods Pak Elektron Limited PAEL Oil & Ga s Oil & Gas Development Co. OGDC Pak Oilfields POL Pakistan Petroleum Ltd. PPL Pakistan State Oil PSO Attock Petroleum Ltd. APL Hascol Petroleum HASCOL P owe r Hub Power Co. HUBC K- Electric Limited KEL Kot Addu Power Company KAPCO Fixe d Line Te le c ommunic a tion Pakistan Telecommunication PTC P e rsona l Goods Nisaht (Chunian) Ltd. NCL Nishat Mills NML Ba nks Allied Bank Limited ABL Bank AlFalah BAFL Habib Bank Limited HBL MCB Bank Limited MCB National Bank of Pakistan NBP United Bank Ltd UBL Source: PSX & AKD Research 8

9 Economic Snapshot End Month Data Units Monetary Rates T-Bills - 3M % T-Bills - 6M % n.a n.a n.a T-Bills - 12M % n.a n.a n.a n.a n.a n.a PIB 10Y % n.a n.a n.a n.a n.a n.a n.a n.a n.a KIBOR 6M % Discount rate % Policy rate % Inflation Headline inflation % Core inflation % Food inflation % (0.20) External Indicators Export (PBS) US$ (mn) 1,888 1,974 1,977 1,971 1,902 2,231 2,133 2,144 n.a Import (PBS) US$ (mn) 4,929 4,898 4,910 5,607 4,797 5,280 5,066 5,814 n.a Trade Deficit (PBS) US$ (mn) (3,041) (2,924) (2,933) (3,636) -2,895-3, n.a Export (SBP) 2,380 2,546 2,464 2,111 2,059 2,305 2,246 2,266 n.a Import (SBP) 5,258 5,346 5, ,334 4,943 4,949 5,149 n.a Trade Deficit (SBP) (2,878) (2,800) (2,676) (2,763) (2,275) (2,638) (2,703) (2,883) n.a Home Remittances US$ (mn) 1,654 1,577 1,724 1,639 1,672 n.a 1,651 1,771 n.a Current Account US$ (mn) (1,315) (1,441) (1,256) -1,617-1,241 1, n.a Banking Sector Deposits PkR (bn) 11,777 11,969 12,362 12,002 11,933 12,571 12,277 12,258 13,063 Advances PkR (bn) 6,151 6,280 6,530 6,556 6,629 6,812 6,839 7,046 7,362 Investments PkR (bn) 8,342 8,475 8,542 7,637 8,127 6,853 7,784 6,733 8,179 W. A. lending rate % n.a W. A. deposit rate % n.a Spread rate % n.a Public Finance Tax collection PkR (mn) 541, , , , , ,486 n.a n.a n.a Direct taxes PkR (mn) 270, , , , , ,243 n.a n.a n.a Indirect Taxes PkR (mn) 270, , , , , ,243 n.a n.a n.a Currency Fx Reserves US$ (mn) 19,584 18,774 20,154 18,957 18,317 17,796 17,540 15,977 16,386 USDPkR - Interbank PkR/USD Source: SBP, PBS & AKD Research 9

10 Analyst Certification We, the AKD Research Team, hereby individually & jointly certify that the views expressed in this research report accurately reflect our personal views about the subject securities and issuers. We also certify that no part of our compensation was, is,or will be, directly or indirectly, related to the specific recommendations or views expressed in this research report. We further certify that we do not have any beneficial holding of the specific securities that we have recommendations on in this report. AKD Research Team Analyst Tel no. Coverage Usman Zahid (693) Executive Director Research & Business Development Zoya Ahmed (603) Banks, Telecoms & Consumers Haris Imtiaz (639) Economy Ali Asghar Poonawala (646) OMCs & Automobiles Waqas Imdad Ali (634) Cements & Fertilizer M.Daniyal Kanani (602) Oil & Gas & Power Umer Farooq (637) Textiles & Steel Qasim Anwar (680) Technical Analysis Nasir Khan (639) Research Production Tariq Mehmood (643) Library Operations DISCLOSURES & DISCLAIMERS This publication/communication or any portion hereof may not be reprinted, sold or redistributed without the written consent of AKD Securities Limited. AKD Securities Limited has produced this report for private circulation to professional and institutional clients only. The information, opinions and estimates herein are not directed at, or intended for distribution to or use by, any person or entity in any jurisdiction where doing so would be contrary to law or regulation or which would subject AKD Securities Limited to any additional registration or licensing requirement within such jurisdiction. The information and statistical data herein have been obtained from sources we believe to be reliable and complied by our research department in good faith. Such information has not been independently verified and we make no representation or warranty as to its accuracy, completeness or correctness. Any opinions or estimates herein reflect the judgment of AKD Securities Limited at the date of this publication/ communication and are subject to change at any time without notice. This report is not a solicitation or any offer to buy or sell any of the securities mentioned herein. 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