Weekly Review. Outlook. Pakistan Weekly Update StockSmart. AKD Equity Research / Pakistan. 1 February AKD Research. Index & Volume Chart

Transcription

1 AKD Equity Research / Pakistan AKD Research research@akdsecurities.net Indices KSE-100 KSE-30 This week 41,113 19,738 Last week 40,265 19,347 Change 2.11% 2.02% Indices KMI-30 Allshare This week 68,600 19,738 Last week 66,988 19,347 Mkt Cap. PkRbn bn This week 8, Last week 8, Avg. Daily Turnover ('mn shares) This week Last week Change 3.8% Weekly Review KSE-100 index witnessed dull sessions in the last week of Jan 19, with monetary announcement of 25bps hike pulling-up KSE-100 index (+0.8% on Friday) to close at 41,112.7pts (+2.1%WoW). Budget developments continue to favorably impact the auto sector, where PSMC/INDU gained 27.6%/3.1%WoW on abolishment of ban on non-filers in the below 1300CC segment. Other major news flow during the week were, i) IMF related developments where Finance Minister hinted on the fund softening stance, ii) Cabinet approving issuance of Pakistan Banao Certificate to raise 500mn and iii) Power division allowed to raise PkR200bn to reduce circular debt. Foreigners continue to find market attractive with weekly inflow of 12.3mn, with activity concentrated in Banks (7.68mn), E&P (1.65mn), and Cements (1.28mn). On the flipside, mutual funds opted for profit taking disposing off 5.33mn, followed by Banks, 2.99mn. Average volumes for the week stood at mn vs mn in the previous week. Major upward movers in AKD universe are, i) PSMC (+27.6%), ii) HASCOL (+11.4%), iii) ASTL (+8.36%), iv) EFOODS (+7.43%), and v) PSO (+5.77%), whereas laggards are, i) FFBL (-5.65%), ii) FATIMA (-1.42%), iii) POL (-0.46%), iv) FFC (-0.38%), and v) NBP (-0.25%). Index & Volume Chart Universe Gainers & Losers Top-5 Volume Leaders (Shrs'000) 300,000 41,113 (Index) 41, % 25.0% Symbol Volume (mn) PIBTL : BOP : PIAA : PAEL : DCL : (share mn) (Index) , , , ,000 50,000-40,800 40,624 40,420 40, Jan 29-Jan 30-Jan 31-Jan 1-Feb Ready Volume (LHS) KSE100 Index (RHS) 41,000 40,800 40,600 40,400 40,200 40, % 15.0% 10.0% 5.0% 0.0% -5.0% -10.0% PSMC HASCOL ASTL EFOODS APL NBP FFC POL FATIMA FFBL ,000 Source: PSX & AKD Research , Volume (LHS) KSE-100 Index 42,000 40,000 38,000 36,000 Source: PSX & AKD Research Outlook The recent monetary policy announcement indicates continuation of monetary tightening but in a gradual pace. Further, we do not rule out another round of exchange rate adjustment. In this backdrop, we advise investors to take positions in thematic exposure in Banks, E&P, selected power and textile plays. We expect volatility to be the central theme in the short run in the market until clarity emerges on the IMF and advice investors to take longer investment horizon and build positions on dip. 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-019 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 Feb 01, ,300 41,200 41,100 41,000 40,900 40,800 40,700 Jan 31, ,920 40,870 40,820 40,770 40,720 40,670 40,620 Jan 30, 2019 Jan 29, :15 9:38 10:02 10:25 10:49 11:12 11:36 11:59 12:23 12:46 13:10 13:33 13:56 14:20 14:43 15:07 15:30 15:54 16:17 9:30 9:54 10:19 10:44 11:08 11:33 11:58 12:22 12:47 13:12 13:36 14:01 14:25 14:50 15:15 40,800 40,750 40,700 40,650 40,600 40,550 40,500 40,490 40,450 40,410 40,370 40,330 40,290 40,250 9:45 10:09 10:32 10:56 11:19 11:43 12:06 12:30 12:53 13:17 13:40 14:04 14:27 14:51 15:14 9:30 9:55 10:20 10:44 11:09 11:34 11:58 12:23 12:48 13:12 13:37 14:02 14:26 14:51 15:16 9:30 9:54 10:17 10:41 11:04 11:27 11:51 12:14 12:38 13:01 13:25 13:48 14:12 14:35 14:59 15:22 Jan 28, ,700 40,650 40,600 40,550 40,500 40,450 40,400 40,350 40,300 Source: PSX & AKD Research This Week s Daily Reports Pakistan Economy: 25bps hike speaks volume, (AKD Daily, Feb 01, 2019) Against the consensus expectations of the status quo, the Monetary Policy Committee (MPC) has raised the policy rate by 25bps to 10.25%. The token rate hike of 25bps marks a more calibrated policy response from the Central Bank, striking a balance between growth and macro-imbalances. Also, the rate hike signifies a continuation of ongoing monetary tightening but in a more staggered manner, and in line with our earlier expectations of calibrated tightening. Considering the creeping up inflationary pressures amidst elevated macro-imbalances, we expect tightening to continue, with a further 125bps hike in CY19. A more measured policy response from the Central Bank is likely to be undertaken going forward, dispensing relatively moderate 25-50bps hikes. From market vantage, this hike is not a deal-breaker in terms of raised cost of borrowing (0.32% dip in AKD Universe ex Banks annual earnings), mostly in Cements (dip of 1.1%) Fertillizers (0.9%) and OMCs (0.8%), whereas index heavy Banks (interest rate sensitivity of 1.1x) and E&Ps (other income gains from PIBs) stand to gain. Pakistan Cement: Dark clouds emerging,(akd Daily, Jan 31, 2019) Commissioning of expansion by CHCC spells an oversupply situation for the local market with a bleak demand outlook in backdrop, pointing towards significant pressure on prices (we expect prices to drop by PkR30-40/bag in 2HFY19). Though our base case assumes a conservative FY19 average price of PkR585/bag (vs. 7MFY19 average of PkR595/bag) for North, should pricing stand its ground even after commencement of CHCC s expansion, this would result in upward revision in our estimates with CHCC itself being the biggest beneficiary. We maintain our underweight stance on the sector with FCCL as our top sell and advise caution to investors as historically, stock prices have been very expressive towards variation (particularly downwards) in local cement prices. Pakistan Economy: The tight rope to tightening, (AKD Daily, Jan 30, 2018) AIn the upcoming monetary policy announcement (tomorrow, 31st Jan), we expect the MPC to keep the policy rate unchanged at 10%, as the relatively benign inflationary backdrop and aggression in the previous year allow the committee to Pause the rate hikes. However, a Pause in Jan 19 does not mean the end of a monetary tightening cycle, where we expect the central bank to follow a more calibrated tightening path rather than preemptive tightening, adjusting the monetary policy in response to inflationary expectations and macro-imbalances. Headline inflation is once again likely to pick up, with expected Jan 19 reading of 7.15%YoY compared to 6.17%YoY in Dec 18 and 4.42%YoY in Jan 18. Several idiosyncratic factors (i.e. utility and drug price hike) coupled with quarterly revision in housing rent are at play, pushing monthly inflation higher. However, the reduction in fuel prices (transport index: -1.1%MoM) would keep a lid on the monthly inflation reading. Sequentially, CPI index is likely to jump 0.95%MoM. Core inflation measured through NFNE index and better reflective of long-run inflationary trends continues to steadily rise, with Jan 19 reading expected to reach 8.71%YoY (a level last seen in mid-2014). EFERT: CY18 Result Previews, (AKD Daily, Jan 29, 2019) EFERT to recorded an EPS of PkR12.96 in CY18, +55.1%YoY: Engro Fertilizer (EFERT) is likely to announce CY18 results on Feb 8, We expect the company to record an NPAT of PkR17.3bn (EPS: PkR12.96) in CY18 vs. PkR11.16bn (EPS: PkR8.35) in the corresponding period last year. The results could be accompanied by a dividend of PkR3.5/sh, taking cumulative payout for the year to PkR11.5/sh. For 4QCY18, we expect the company to post an EPS of PkR3.79, +19.5/-0.8% YoY/QoQ driven by 27.7%YoY increase in topline on the back of 25.2%YoY increase in DAP volumes and higher retention urea prices reducing impact of low- 2

3 This Week s Daily Reports er urea volumes (-2.4%YoY). We expect GMs to remain flat YoY. We expect the company to post tax reversal of PkR500mn in 4QCY18, taking full year tax credit to ~PkR2.0bn. Pakistan Auto: 1,300CC Ban removal is the talk of the town', (AKD Daily, Jan 28, 2019) Following on from persistent industry criticism, translating into appeals for removal, the GoP has somewhat lessened the impact of the non-filer sales ban last week, whereby the Amended Supplementary Finance Bill 2019, removed restriction on sales of vehicles up to the 1,300CC mark. Continuation of the ban on higher displacement variants would discourage local production, or new variant launches where the first test would be the launch of the Vios (slated for 3QCY19) where any delays would be negatively received by investors and consumers. For PSMC, the ban allows for some clarity on the demand front for its newly launched and older passenger vehicles, while endowing room for strong new-model effect related sales bump (launch of Alto by March 19). 3

4 Jan-18 Regional Valuations (2019) EPS Growth PE(x) Pakistan 19.46% 8.79 Indonesia 8.33% Malaysia 12.12% Philippines 6.58% Vitenam 12.60% India 23.62% China 12.63% 8.75 % ROE Divd Yld Pakistan 15.9% 7.29 Indonesia Malaysia Philippines Vitenam India China Source: AKD Research & Bloomberg PkR/ Trend TRJ-CRB Index Source: Bloomberg Source: Bloomberg Major World Indices Performance Country Bloomberg Code 1-Feb WoW CYTD Pakistan KSE100 Index 41,113 39, % 10.9% Srilanka CSEALL Index 5,982 5, % -1.2% Thailand SET Index 1,651 1, % 5.6% Indonesia JCI Index 6,539 6, % 5.6% Malaysia FBMKLCI Index 1,684 1, % -0.4% Philippines PCOMP Index 8,144 8, % 9.1% Vietnam VNINDEX Index % 1.8% Hong Kong HSI Index 27,931 27, % 8.1% Singapore FSSTI Index 3,189 3, % 3.9% Brazil IBX Index 40,545 39, % 11.1% India SENSEX Index 36,469 36, % 1.1% S&P SPX Index 2,704 2, % 7.9% DJIA INDU Index 25,000 24, % 7.2% UK UKX Index 6,978 6, % 3.7% Germany DAX Index 11,148 11, % 5.6% Qatar DSM Index 10,720 10, % 4.1% Abu Dhabi ADSMI Index 5,045 4, % 2.6% Dubai DFMGI Index 2,568 2, % 1.5% Kuwait KWSEIDX Index 6,633 6, % 0.0% Oman MSM30 Index 4,166 4, % -3.6% Saudi Arabia SASEIDX Index 8,560 8, % 9.4% MSCI EM MXEF Index 1,050 1, % 8.7% MSCI FM MXFM Index % 4.8% International Major Currencies Commodities Source: Bloomberg SPOT 1-Feb Chg +/- WoW CYTD Dollar Index % -0.69% USD/PkR % -0.44% USD/JPY % -0.69% EUR/USD % 0.00% GBP/USD % 2.36% AUD/USD % 2.96% NZD/USD % 2.98% CHF/USD % 1.15% CAD/USD % -3.64% USD/KRW 1,119 1, % 0.29% CNY/USD % -2.08% Source: Bloomberg SPOT Units 1-Feb WoW CYTD TRJ-CRB Points % 5.81% Nymex (WTI) /bbl % 18.28% ICE Brent /bbl % 13.64% N. Gas Henry Hub /Mmbtu % % Cotton USd/Pound % 3.59% Gold /Tr.Oz % 3.01% Sliver /Tr.Oz % 3.13% Copper /MT % 3.40% Platinum /Oz % 3.29% Coal /MT % -7.63% Source: Bloomberg 4

5 Jan-18 Chart Bank Earnings Yield vs. T-Bill (12M) Differential (%) Advance to Decline Ratio Jan-18 FIPI Flows for the week LIPI Flows for the week ('000) 4,000 3,500 3,369 3,472 3,000 2,787 2,500 2,000 1,500 1,474 1,180 1, Feb (1.00) (2.00) (3.00) (4.00) (5.00) (6.00) Ind., 1.47 Co., (4.02) Bank/DFI, (3.00) NBFC, (0.16) M.Funds, (5.34) Ins, (2.11) Others, (1.24) Prop. Trading, 2.11 AKD Universe vs. KSE-100 Index KSE-100 vs. MSCI-EM & MSCI-FM 17% 12% 7% 2% -3% -8% -13% -18% -23% 10% 5% 0% -5% -10% -15% -20% -25% -30% KSE100 MSCI FM MSCI EM KSE-All Share Index AKD Universe 5

6 Jul-07 Jun-08 Jun-09 May-10 May-11 Apr-12 Apr-13 Mar-14 Mar-15 Feb-16 Feb-17 Jan-18 Jul-07 Jun-08 Jun-09 May-10 May-11 Apr-12 Apr-13 Mar-14 Mar-15 Feb-16 Feb-17 Jan-18 AKD Universe Valuations 1-Feb F 2019F 2020F EPS (PkR) EPS chg (%) 1.10 (12.04) EPS chg (%) ex-e&p (21.82) (3.74) Book Value per Share (PkR) Payout (%) Valuations Price to Earnings (x) PER (Ex-Banks & E&Ps) (x) Price to Book (x) Price to CF (x) Earnings Yield (%) Dividend Yield (%) EV / EBITDA (x) Profitability Return on Equity (%) Return on Assets (%) Chg in Sales (%) (16.05) Gross Margin (%) Source: AKD Research Market PER Chart 2019 (x) Market P/BVS Chart 2019 (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 Sell Cements DG Khan Cement DGKC Buy Lucky Cement LUCK Buy Maple Leaf Cement Factory MLCF Buy Fauji Cement Company Ltd. FCCL Sell Pioneer Cement Limited PIOC Sell Cherat Cement Co Limited CHCC Sell Gharibwal Cement Ltd GWLC Buy Engineering Amreli Steels Ltd. ASTL Buy Fertilizers Engro Corporation ENGRO Sell Engro Fertilizers Limited EFERT Sell Fauji Fert. Bin Qasim Ltd. FFBL Sell Fauji Fertilizer Company FFC Sell Fatima Fertilizer FATIMA Sell Food Producers Engro Foods Limited EFOODS Sell Oil & Gas Oil & Gas Development Co. OGDC Buy Pak Oilfields POL Sell Pakistan Petroleum PPL Neutral Hascol Petroleum HASCOL Buy Attock Petroleum APL Neutral Pakistan State Oil PSO Buy Power Hub Power Co. HUBC Buy K-Electric Co. KEL 6.47 UR UR UR UR UR UR UR UR UR UR UR UR UR UR Kot Addu Power Company KAPCO Sell Cable & Electrical Goods Pak Elektron Ltd PAEL Sell Personal Goods Nishat Mills NML Neutral Nishat Chunian Ltd. NCL Sell Banks Allied Bank Limited ABL Neutral Bank AlFalah BAFL Sell Habib Bank Limited HBL Sell MCB Bank Limited MCB Neutral National Bank of Pakistan NBP Buy United Bank Ltd UBL Sell 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 1- Fe b- 19 1M 3M 6M 12 M CYTD High Low KS E Inde x 4 1, , , 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 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 Dec-17 Jan-18 Monetary Rates T-Bills - 3M % T-Bills - 6M % T-Bills - 12M % PIB 10Y % KIBOR 6M % Discount rate % Policy rate % Inflation Headline inflation % Core inflation % Food inflation % (0.20) External Indicators Export (PBS) Import (PBS) Trade Deficit (PBS) Export (SBP) 2,464 Import (SBP) 5,140 (mn) 1,977 1,971 1,902 2,231 2,133 2, ,646 2,017 1,728 1,903 1,843 (mn) 4,910 5,607 4,797 5,280 5,066 5, ,838 4,992 4,430 4,841 4,626 (mn) (2,933) (3,636) (2,895) (3,049) (2,933) (3,670) (3,807) (3,192) (2,975) (2,702) (2,938) (2,783) 2,111 2, ,334 2,305 2,246 2,266 2,012 4,943 4,949 5,166 2, n.a 5,133 5,493 4,460 3,792 4,717 n.a Trade Deficit (SBP) (2,676) (2,763) (2,275) (2,638) (2,703) (2,900) (3,121) (3,484) (2,373) (1,991) (2,654) n.a 1,639 1,672 1,773 1,651 1,771 1,594 1,929 2,037 1, , ,609 Home Remittances (mn) 1,724 n.a Current Account (mn) (1,256) (1,617) (1,241) (1,237) (1,947) (2,011) (1,976) (2,200) (600) (909) (1,218) Banking Sector Deposits Advances Investments PkR (bn) PkR (bn) PkR (bn) W. A. lending rate % W. A. deposit rate % 12,362 12,002 11,933 12,571 12,277 12,258 13,063 12,551 12,692 13,032 n.a n.a 6,530 6,556 6,629 6,812 6,839 7,046 7,362 7,336 7,426 7,492 n.a n.a 8,542 7,637 8,127 6,853 7,784 6,733 8,179 7,785 6,893 6,677 n.a n.a Spread rate % n.a n.a n.a Public Finance Tax collection Direct taxes Indirect Taxes PkR (mn) 416, , , , , , , , , , PkR (mn) 188,476 95,706 89, ,524 95, , ,441 94,017 71, ,023 n.a n.a PkR (mn) 227, , , , , , , , , ,781 n.a n.a Currency Fx Reserves (mn) 20,154 18,957 18,317 17,796 17,540 15,977 16,407 16,891 16,370 14,921 14,016 13,996 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 Hamza Kamal (603) Banking Ali Asghar Poonawala (646) Cable & Electrical, OMCs & Automobiles Umer Farooq (602) Textiles & Steel Shahrukh Saleem (685) Cement Sector 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. 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. 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 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. It is for information purposes only and is not intended to provide professional, investment or any other type of advice or recommendation and does not take into account the particular investment objectives, financial situation or needs of individual recipients. Before acting on any information in this publication/communication, you should consider whether it is suitable for your particular circumstances and, if appropriate, seek professional advice. Neither AKD Securities Limited nor any of its affiliates or any other person connected with the company accepts any liability whatsoever for any direct or consequential loss arising from any use of this report or the information contained therein. Subject to any applicable laws and regulations,, its affiliates or group companies or individuals connected with AKD Securities Limited may have used the information contained herein before publication and may have positions in, may from time to time purchase or sell or have a material interest in any of the securities mentioned or related securities or may currently or in future have or have had a relationship with, or may provide or have provided investment banking, capital markets and/or other services to, the entities referred to herein, their advisors and/or any other connected parties. (the company) or persons connected with it may from time to time have an investment banking or other relationship, including but not limited to, the participation or investment in commercial banking transaction (including loans) with some or all of the issuers mentioned therein, either for their own account or the account of their customers. Persons connected with the company may provide corporate finance and other services to the issuer of the securities mentioned herein, including the issuance of options on securities mentioned herein or any related investment and may make a purchase and/or sale of the securities or any related investment from time to time in the open market or otherwise, in each case either as principal or agent. This document is being distributed in the United State solely to "major institutional investors" as defined in Rule 15a-6 under the U.S. Securities Exchange Act of 1934, and may not be furnished to any other person in the United States. Each U.S. person that receives this document by its acceptance hereof represents and agrees that it: is a "major institutional investor", as so defined; and understands the whole document. Any such person wishing to follow-up any of the information should do so by contacting a registered representative of. The securities discussed in this report may not be eligible for sale in some states in the U.S. or in some countries. Any recipient, other than a U.S. recipient that wishes further information should contact the company. This report may not be reproduced, distributed or published, in whole or in part, by any recipient hereof for any purpose. 10