Weekly Review. Outlook. Pakistan Weekly Update StockSmart. AKD Equity Research / Pakistan. 21 July 2017

Transcription

1 AKD Equity Research / Pakistan AKD Research research@akdsecurities.net Indices KSE-100 KSE-30 This w eek 45,294 23,640 Last w eek 44,337 23,102 Change 2.16% 2.33% Indices KMI-30 Allshare This w eek 77,089 31,779 Last w eek 75,084 31,097 Change 2.67% 2.19% Mkt Cap. PkRbn US$bn This w eek 9, Last w eek 9, Change 2.19% 2.23% Avg. Daily Turnover ('mn shares) This w eek Last w eek Change % Top-5 Volume Leaders Symbol Volume (mn) TRG : EPCL : DFML : ASL : KEL : (share mn) Jul 16 Aug 16 Sep 16 Oct 16 Nov 16 Jan 17 Feb 17 Feb 17 Mar 17 Apr 17 May 17 Jun 17 Jul 17 Volume (LHS) KSE 100 Index (Index) 53,000 51,000 49,000 47,000 45,000 43,000 41,000 39,000 37,000 35,000 33,000 Weekly Review The benchmark KSE 100 index gained 957pts /2.16%WoW closing the week at 45,294 pts. Vola lity remained high with news flows emana ng from Panama case hearing guiding market accordingly. In tandem, the prevailing poli cal noise kept investors at bay with average daily turnover during the week going down by 23%WoW to mn shares (trading volume on Jul plunged to 35month low). Key news flows during the week included: 1) FBR started paying back pending sales tax refunds, 2) GoP extending addi onal sugar export quota of 300k tons, 3) FY17 CAD touching all me high of US$12.098bn (+148% YoY) amidst falling exports/remi ances ( 1.6%YoY / 3.08%YoY), 4) LSM registering 6.3%YoY growth in May 17, while 11MFY17 LSM growth of 5.7%YoY remaining close to targeted 5.9% YoY for FY17, 5) GoP signing loan agreement of 165mn with French Development Agency for power sector up grada on, and 6) Retail prices of package milk reportedly rising by PkR10/ltr to PkR130/ltr.Scrips leading the bourse during the week were: 1) APL (+9.06% WoW), 2) HASCOL (+7.39%WoW), 3) OGDC (+5.45%WoW), 4) POL (+5.02%WoW) and 5) CHCC (+4.50%WoW), while laggards included: 1) PIOC ( 3.80%WoW), 2) MLCF ( 3.65% WoW), 3) KEL ( 2.58%WoW), 4) FFBL ( 1.50%WoW) and 5) ENGRO ( 1.21%WoW). Foreign par cipa on remained lackluster with net ou low of US$2.0mn against net inflow of US$0.989mn in the previous week. (Shrs'000) 180, , ,000 90,000 60,000 30,000 Index & Volume Chart 44,523 Source: KSE & AKD Research Outlook 45,636 45,419 45,060 45, Jul 18 Jul 19 Jul 20 Jul 21 Jul Ready Volume (LHS) KSE100 Index (RHS) (Index) 45,800 45,600 45,400 45,200 45,000 44,800 44,600 44,400 44,200 44,000 Universe Gainers & Losers With Supreme Court reserving verdict on Panama leaks case, we expect investors to adopt a cau ous stance un l the final judgment. Result season, commencing next week, is likely to guide market sen ments with scrips in key sectors (Power, Cements and Autos) to remain in limelight on an cipated full year payouts. The monetary policy announcement this Saturday (Jul 22 17) is likely to remain a non event with the market consensus largely poin ng towards a status quo. 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% 2.0% 4.0% 6.0% APL HASCOL OGDC POL CHCC ENGRO FFBL KEL MLCF PIOC 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 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 Jul 21, ,420 45,305 45,190 45,075 44,960 44,845 44,730 44,615 44,500 Jul 20, ,150 44,035 43,920 43,805 43,690 43,575 43,460 43,345 43,230 43,115 43,000 Jul 19, ,250 44,125 44,000 43,875 43,750 43,625 43,500 43,375 43,250 43,125 43,000 45,350 45,200 45,050 44,900 44,750 44,600 44,450 44,300 44,150 44,000 Jul 17, ,150 45,900 45,650 45,400 45,150 44,900 44,650 44,400 9:15 9:41 10:07 10:33 10:59 11:25 11:51 12:17 12:43 13:09 13:34 14:00 14:26 14:52 15:19 15:45 16:11 9:30 9:54 10:18 10:41 11:05 11:29 11:52 12:16 12:39 13:03 13:27 13:50 14:14 14:38 15:01 15:25 9:30 10:03 10:35 11:08 11:40 12:13 12:45 13:17 13:50 14:22 14:54 15:27 Jul 18, :30 10:03 10:36 11:08 11:40 12:12 12:45 13:17 13:49 14:21 14:53 15:25 9:30 10:03 10:36 11:08 11:40 12:13 12:45 13:17 13:49 14:22 14:55 15:28 LLUCK & KAPCO: 4QFY17 earnings previews, (AKD Daily, Jul 21, 2017) LUCK is scheduled to announce its 4QFY17 results on Jul 31'17 where we expect the company to post net profit of PkR2.97bn (EPS: PkR9.19) during 4QFY17 against PkR3.33bn/ PkR3.38bn (EPS: PkR10.30/PkR10.47) in 4QFY16/3QFY17. Earnings are expected to fall 11% YoY/12%QoQ due to: 1) expected dip in topline ( 7%YoY/ 7%QoQ) likely attributable to lower dispatches ( 9%YoY/ 8%QoQ) and 2) tighter GM ( 7.5%YoY/ 1.9%QoQ) due to recent rally in energy prices (average coal price: +60%YoY; average FO price: +51%YoY). On a full year basis, earnings are expected to rise (+3%YoY) at PkR13.39bn (EPS: PkR41.41) in FY17 compared with PkR12.94bn (EPS: PkR40.03) in FY16 on account of 2%YoY growth in topline (owing to 3.6%YoY growth in total dispatches). While, 1.3% dip in GM resulting from higher energy costs, expected to keep the bottom line under pressure during FY17. Along with the result LUCK is expected to announce a dividend of PkR12/sh. LUCK is currently trading at a relatively high FY17F/FY18F PE of 18.3x/16.9x owing to earnings growth from its upcoming projects (5 year forward earnings CAGR: +14%), where our Jun'18 TP of PkR1,180/sh offers 36% upside. BUY The BoD of KAPCO is scheduled to meet on 22nd August'17 to disclose its FY17 financial results, where we expect the company to publish earnings of PkR2.79bn (EPS:PkR3.16) in 4QFY17, a downtick of 26%YoY but a meager 8% up on quarterly basis. This takes annual profitability to PkR9.55bn (EPS:PkR10.84), lower by 4% YoY. Significant drop in quarterly earnings is likely to be underpinned by 1) high load factor (86.8%) on inefficient plants reflecting excessive demand during summer peak load, 2) suppressed gross margins with cost of inputs rising markedly (FO/RLNG prices up 33.4%/21.3%YoY), and 3) worsening liquidity scenario where Days Receivables Outstanding at 425 days, the highest ever number, in turn burdening the bottom line with PkR1.3bn of finance cost, notably up by 53%YoY. Keeping these factors in view, we trim our payout ratio forecast to 80% (DPS: PkR8.5) vs. 87% for FY16. Despite the liquidity crunch, upside to our estimates exist in the form of penal income payments by the government received during 4QFY17E. Our DDM based TP of PkR83.8/sh affirms an Accumulate stance on the scrip with 14.8% upside potential. INDU: Pricing power is key, (AKD Daily, Jul 20, 2017) Having a complete picture of sales, updated prices (July'17 price bump of ~6.8% over Dec'16 prices) with softer indicators for demand, we tweak our earnings estimates for INDU lowering our TP by ~7%. While we believe the ability of the OEM to pass on prices to consumers remains largely unhindered, sales forecasts for the Corolla are encumbered by competing offerings in the form of CBUs and aging of the current variant making incremental growth a tough task. Conversely, looking at the timeline of key events and model launched for INDU, we emphasize the regular upgradation of variants between every 3 4yrs, where the trend has to accelerate to fend off impending competition from new entrants. While reducing our earnings estimates from FY17 20F by ~8% lowering our FCFE based TP to PkR2,069/sh (down 6.6%), we retain an Accumulate stance on the stock. EFOODS: Lacking growth triggers, (AKD Daily, Jul 19, 2017) Having lost 41%CYTD, EFOODS dismal price performance is reflective of wary investor confidence. Fundamental weakness has gained prominence where apart from continuous volumetric regression; the recent recovery in international milk prices is an added pressure. In this regard, FAO dairy index is up 8.7%YoY since Jan'17 bringing CYTD average to points (highest since 2015). This holds negative implication for the company's margin profile which is already under stress from the stiffening competition in the dairy space. Incorporating higher input costs, our EPS estimates for CY17F/CY18F now stand at PkR2.55/3.05 (revised down by 18%/17%), dragging our TP down to PkR138.7/sh (previously at PkR162.1/sh). Going forward, while expecting the new management to prioritize product enhancement, the period in transition is likely to witness slower earnings growth (5yr forward earnings CAGR of 9%) especially with pressure on volumes intact. That said, plans to diversify/extend current product lines are factors that can turn us bullish on the stock. Source: KSE & AKD Research 2

3 This Week s Daily Reports Power: IMF's prescrip on for power sector remains unused, (AKD Daily, Jul 18, 2017) The IMF in its latest country report continued to drive home the need for structural reforms around the power chain, particularly highlighting: 1) the persistence of circular debt accretion through 1HFY17, 2) IPOs of DISCOs and privatizations of public entities to curtail losses with private sector induced corporate governance and, 3) the need for improving the mechanism for passing on input cost adjustments to end consumers. Building on the said measures, the Fund foresees direct improvement in the short run (elimination of power deficit of 6GW and a boost in construction) with long run impacts to flow in the form of lower costs, better linkages and broader economic rebound. All this is possible with sufficient steps on the GoP's part in the form of better corporate governance and provision of an adequate platform for the development of private sector, with a tilt to raising export competitiveness. In light of the said investment outlook, HUBC remains our best pick with strong foothold in a variety of power projects. We arrive at a TP of PkR142.7/sh, which offers an upside of 23.2% with FY18F D/Y of 9.5%, BUY! Pakistan Cement: Jun'17 Dispatches Review, (AKD Daily, Jul 17, 2017) As per latest numbers released by APCMA, total dispatches during Jun'17 plunged by 27.8% MoM/20.1%YoY, primarily led by significant decline in domestic dispatches to 2.33mn tons ( 21.2%YoY/ 31.3%MoM). Local dispatches growth came into the red for the first time after Jul'14 (lowest level since Jul'16) owing to i) seasonal slowdown due to Ramadan, ii) extended Eid holidays and iii) price rationalization following budgetary measures (up 10% YoY). Exports continue to falter, going down 11.1%YoY to just 0.344mn tons in Jun'17. On a cumulative basis, total dispatches growth reached 3.6%YoY in FY17, significantly lower than the 9.8%YoY growth witnessed in FY16 primarily on slower domestic demand growth (7.9% YoY in FY17 vs.17.0%yoy in FY16). Going forward, we anticipate continuation of double digit growth in domestic dispatches, based on: 1) increasing construction activity on higher PSDP spending in 2HCY17 particularly in the backdrop of election year and 2) impressive growth in private sector credit related to construction activity (+35.5%YoY in May'17). With the cement sector correcting 18%CYTD, we feel current price levels offer attractive entry points especially when fundamentals remain strong (AKD Universe 5yr earnings CAGR of 16%). Maintaining an Overweight stance on the sector, our top picks include LUCK (TP: PkR1,180/ sh, upside: 61%), MLCF (TP: PkR169/sh, upside: 50%) and FCCL (TP: PkR56/sh, upside: 39%). 3

4 Regional Valuations (2017) EPS Growth PE(x) Pakistan 14% 8.20 Indonesia 11% Malaysia 15% Philippines 6% Vitenam 12% India 22% China 12% % ROE Divd Yld Pakistan 18.6% 6.39 Indonesia Malaysia Philippines Vitenam India China Source: Bloomberg & AKD Universe PkR/US$ Trend TRJ-CRB Index Jul-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-16 Oct-16 Dec-16 Source: Bloomberg Jan-17 Mar-17 May-17 Jul-17 Source: Bloomberg Major World Indices Performance Country Bloomberg Code 21 Jul Jul 17 WoW CYTD Pakistan KSE100 Index 45,294 44, % 5.3% Srilanka CSEALL Index 6,670 6, % 7.1% Thailand SET Index 1,574 1, % 2.0% Indonesia JCI Index 5,765 5, % 8.8% Malaysia FBMKLCI Index 1,759 1, % 7.2% Philippines PCOMP Index 7,990 7, % 16.8% Vietnam VNINDEX Index % 14.6% Hong Kong HSI Index 26,706 26, % 21.4% Singapore FSSTI Index 3,314 3, % 15.0% Brazil IBX Index 27,094 27, % 9.3% Russia RTSSTD Index 12,425 12, % 15.7% India SENSEX Index 32,029 32, % 20.3% S&P SPX Index 2,473 2, % 10.5% DJIA INDU Index 21,532 21, % 9.0% NASDAQ Composite CCMP Index 6,378 6, % 18.5% UK UKX Index 7,470 7, % 4.6% Germany DAX Index 12,271 12, % 6.9% Qatar DSM Index 9,542 9, % 8.6% Abu Dhabi ADSMI Index 4,552 4, % 0.1% Dubai DFMGI Index 3,574 3, % 1.2% Kuwait KWSEIDX Index 6,781 6, % 18.0% Oman MSM30 Index 4,999 5, % 13.5% Saudi Arabia SASEIDX Index 7,261 7, % 0.7% MSCI EM MXEF Index 1,059 1, % 22.9% MSCI FM MXFM Index % 13.8% International Major Currencies Source: Bloomberg SPOT 21 Jul Jul 17 Chg +/ WoW CYTD Dollar Index % 8.34% USD/PkR % 0.48% USD/JPY % 4.51% EUR/USD % 10.98% GBP/USD % 5.86% AUD/USD % 9.81% NZD/USD % 6.83% CHF/USD % 7.35% CAD/USD % 6.98% USD/KRW 1,118 1, % 7.41% CNY/USD % 2.71% Source: Bloomberg Commodities SPOT Units 21 Jul Jul 17 WoW CYTD TRJ CRB Points % 7.57% Nymex (WTI) US$/bbl % 13.07% ICE Brent US$/bbl % 12.65% N. Gas Henry Hub US$/Mmbtu % 15.76% Cotton USd/Pound % 6.05% Gold US$/Tr.Oz % 8.58% Sliver US$/Tr.Oz % 3.38% Copper US$/MT % 7.28% Platinum US$/Oz % 3.65% Coal US$/MT % 0.42% Source: Bloomberg 4

5 Chart Bank Earnings Yield vs. T-Bill (12M) Differential Advance to Decline Ratio (%) Jul 16 Aug 16 Aug 16 Sep 16 Oct 16 Nov 16 Jan 17 Feb 17 Mar 17 Apr 17 May 17 Jun 17 Jul Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 FIPI Flows for the week LIPI Flows for the week (US$'000) 4,000 3,000 3, Ins, ,000 1, Bank/DFI, 0.67 Others, 1.81 Prop. Trading, 0.91 (1,000) (2,000) (3,000) (140) (1,254) (1,726) (2,206) 17 Jul Jul Jul Jul Jul 17 (2.00) (4.00) (6.00) (8.00) Ind., (5.66) Co., (1.79) NBFC, (0.11) M.Funds, (2.81) AKD Universe vs. KSE-100 Index KSE-100 vs. MSCI-EM & MSCI-FM 39% 34% 29% 24% 19% 14% 9% 4% 1% Jul 16 Aug 16 Sep 16 Oct 16 Nov 16 Jan 17 KSE All Share Index Feb 17 Mar 17 Apr 17 May 17 Jun 17 AKD Universe 40% 35% 30% 25% 20% 15% 10% 5% 0% 5% 10% Jul 16 Aug 16 KSE100 MSCI FM Sep 16 Oct 16 Nov 16 Jan 17 MSCI EM Feb 17 Mar 17 Mar 17 Apr 17 May 17 Jun 17 Jul 17 5

6 Market PER Chart 2017 (x) Jul 07 Jan 08 Aug 08 Mar 09 Sep 09 Apr 10 Nov 10 May 11 Dec 11 Jul 12 Jan 13 Aug 13 Mar 14 Sep 14 Apr 15 Nov 15 May 16 Jul 17 Source: AKD Research Market P/BVS Chart 2017 (x) Jul 07 Jan 08 Aug 08 Mar 09 Sep 09 Apr 10 Nov 10 May 11 Dec 11 Jul 12 Jan 13 Aug 13 Mar 14 Sep 14 Apr 15 Nov 15 May 16 Jul 17 Source: AKD Research 6

7 AKD Universe Active Coverage Cluster s Valuations Stock Symbol Price TP EPS(PkR) PE(x) PB(x) DY(%) (PkR) (PkR) 16 17F 18F 16 17F 18F 16 17F 18F 16 17F 18F Automobile and Parts Indus Motors INDU 1, , Pak Suzuki Motors PSMC Cements DG Khan Cement DGKC Lucky Cement LUCK , Maple Leaf Cement Factory MLCF Fauji Cement Company Ltd. FCCL Pioneer Cement Limited PIOC Cherat Cement Co Limited CHCC Gharibwal Cement Ltd GWLC Engineering Amreli Steels Ltd. ASTL Fertilizers Engro Corporation ENGRO Engro Fertilizers Limited EFERT Fauji Fert. Bin Qasim Ltd. FFBL n.a n.a n.a Fauji Fertilizer Company FFC Fatima Fertilizer FATIMA Food Producers Engro Foods Limited EFOODS Oil & Gas Oil & Gas Development Co. OGDC Pak Oilfields POL Pakistan Petroleum PPL Hascol Petroleum HASCOL Attock Petroleum APL Pakistan State Oil PSO Power Hub Power Co. HUBC K Electric Co. KEL UR UR UR UR UR UR UR UR UR UR UR UR UR UR Kot Addu Power Company KAPCO Fixed Line Telecommunication Pakistan Telecommunication PTC Personal Goods Nishat Mills NML Banks Allied Bank Limited ABL Bank AlFalah BAFL Habib Bank Limited HBL MCB Bank Limited MCB National Bank of Pakistan NBP United Bank Ltd UBL UR Under Review Source: AKD Research 7

8 AKD Universe Coverage Cluster s Performance Stocks Sym bol Price Absolute Performance (%) 1 Year 1 Year 21-Jul-17 1M 3M 6M 12M CYTD High Low KSE-100 Index 45, , ,017.3 Automobile and Parts Indus Motors INDU Pak Suzuki Motors PSMC Cements 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 Gharibw al Cement Limited GWLC Engineering Amreli Steel Ltd ASTL n.a. n.a Fertilizers Daw ood Hercules DAWH Engro Fertilizers Ltd. EFERT Engro Chemical ENGRO Fatima Fertilizer FATIMA Fauji Fert. Bin Qasim Ltd. FFBL Fauji Fertilizer Company FFC Food Producers Engro Foods Limited EFOODS Oil & Gas Oil & Gas Development Co. OGDC Pak Oilfields POL Pakistan Petroleum Ltd. PPL Pakistan State Oil PSO Attock Petroleum Ltd. APL Hascol Petroleum HASCOL Pow er Hub Pow er Co. HUBC K-Electric Limited KEL Kot Addu Pow er Company KAPCO Fixed Line Telecommunication Pakistan Telecommunication PTC Personal Goods Nishat Mills NML Banks 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: KSE & AKD Research 8

9 Economic Snapshot End Month Data Units Oct 16 Nov 16 Jan 17 Feb 17 Mar 17 Apr 17 May 17 T bill 3M % M % M % PIB 10Y % KIBOR 6M % Discount rate % Policy rate % Inflation Headline inflation % Core inflation % Food inflation % External Indicators Export (PBS) US$ (mn) 1,756 1,762 1,727 1,780 1,638 1,801 1,805 n.a Import (PBS) US$ (mn) 4,013 4,230 4,488 4,724 4,419 5,009 4,998 n.a Trade Deficit (PBS) US$ (mn) (2,257) (2,468) (2,761) (2,944) (2,781) (3,208) (3,193) n.a Home Remittances US$ (mn) 1,560 1,616 1,584 1,488 1,417 1,694 1,539 1,867 Current Account US$ (mn) (378) (836) (1,037) (1,202) (822) (562) (1,337) (1,625) Banking Sector Deposits PkR (bn) 10,447 10,472 11,203 10,704 10,730 11,170 11,214 10,993 Advances PkR (bn) 5,165 5,251 5,572 5,468 5,477 5,697 5,777 5,936 Investments PkR (bn) 7,191 7,053 7,233 7,374 7,467 7,670 7,794 7,849 W. A. lending rate % W. A. deposit rate % Spread rate % Public Finance Tax collection PkR (mn) 241, , , , , ,829 n.a n.a Direct taxes PkR (mn) 88,636 81, ,988 81,741 80, ,036 n.a n.a Indirect Taxes PkR (mn) 152, , , , , ,793 n.a n.a Currency Fx Reserves US$ (mn) 24,026 23,383 23,200 22,242 22,072 21,572 21,005 21,190 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 Umer Pervez (693) es.net Execu ve Director Research & Business Development Zoya Zaidi (603) es.net Banks, Telecoms & Consumers Muneeba Shoaib (634) es.net Economist Ali Asghar Poonawala (646) es.net Power & Automobiles Waqas Imdad Ali (637) es.net Fer lizer & Tex le Qasim Anwar (680) es.net Technical Analysis Nasir Khan (639) es.net Research Produc on Tariq Mehmood (643) es.net Library Opera ons DISCLOSURES & DISCLAIMERS This publication/communication or any portion hereof may not be reprinted, sold or redistributed without the written consent of 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 to any additional registration or licensing requirement within such jurisdiction. 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