Weekly Review. Outlook. Pakistan Weekly Update StockSmart. AKD Equity Research / Pakistan. 31 March AKD Research. Index & Volume Chart

Transcription

1 Mar-17 AKD Equity Research / Pakistan AKD Research research@akdsecurities.net Indices KSE-100 KSE-30 This w eek 45,560 22,801 Last w eek 45,030 22,570 Change 1.18% 1.03% Indices KMI-30 Allshare This w eek 76,988 32,727 Last w eek 76,057 32,343 Change 1.22% 1.19% Mkt Cap. PkRbn US$bn This w eek 9, Last w eek 9, Change 1.18% -3.13% Avg. Daily Turnover ('mn shares) This w eek Last w eek Change 24.31% Top- 5 V olume Le a de rs S ymbol V olume (mn) KEL : EPCL : JSBL : PAEL : 8.68 LOTCHEM : 8.67 (share mn) 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 Source: PSX & AKD Research Weekly Review Continuing to climb over last week's rise, aided by end-of-quarter spur in volumes (average daily turnover up 24.3%WoW), positive sectoral (cement pricing, auto investments, PkR depreciation-led export pickup) and stock related developments (approvals for KEL sponsor handover) the KSE-100 index rose by 1.2%WoW, closing at 45,560pts. Key news flow impacting markets encompass: 1) bi-monthly MPS announcement set for the end of the week (Friday, 30th) with market expectation of a 0.25bps rate hike contrary to AKD Research expectation of status quo, 2) pre-budget recommendations from the PSX Stockbrokers association proposing reduction in capital gains tax, levy on bonus shares and other measures to encourage public market investors, 3) rising public sector spending on law and order by the federal and provincial governments led to a decline in government spending on infrastructure, highways, roads and bridges, while the option of cutting PkR100bn in discretionary spending was also pushed, 4) news reports indicated that industrial activity may be hampered by a dispute over payment arrears between Sui Southern Gas Company Ltd (SSGCL) and K-Electric Ltd (KEL), and 5) as part of Nissan Motor Corp's re-entry in the domestic automotive assembling sector with Ghandhara Industries both companies laid out CAPEX plans for launching the Datsun variant in Pakistan by Dec'18. Stocks leading gains at the bourse included: 1) KEL (+11.1%WoW), 2) UBL (+7.5%WoW) and 3) FFC (+6.6%WoW), whereas laggards comprised of: 1) CHCC (-4.2%WoW), 2) ASTL (-2.1%WoW) and 3) NML (-1.9%WoW). Average daily turnover amounted to 239.7mn shares (+24.3%WoW) rising on the back of retail favourites (KEL/EPCL/JSBL with average daily traded volumes of 23.8/21.8/11.9mn shares). While foreign investor flows were in the green (inflow of US$1.9mn), individuals contributed the most to last weeks gains (inflow of US$8.5mn), whereas mutual funds continued to be sellers (US$10.5mn outflow over the week). (Shrs'000) 310, , , , ,000 60,000 10,000 (40,000) Index & Volume Chart 45,084 Source: PSX & AKD Research Outlook 45,004 45,173 45,490 45, Mar 27-Mar 28-Mar 29-Mar 30-Mar Ready Volume (LHS) KSE100 Index (RHS) (Index) 45,600 45,500 45,400 45,300 45,200 45,100 45,000 44,900 44,800 44,700 Universe Gainers & Losers Relative political stability, mid-trial judicial proceedings for the PML-N seemingly favouring the preceding PM's case and the armed forces affirming commitments to planned elections later in the year, the present phase of market consolidation has stamina. Additionally, enhancers in the form of incentives for industry or public market investors in the upcoming budget (expected to be announced by end-april) could prolong positive sentiments. 12.0% 9.0% 6.0% 3.0% 0.0% -3.0% -6.0% KEL UBL FFC NCL EFOODS MLCF MCB NML ASTL CHCC 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 Mar 30, ,598 45,576 45,554 45,532 45,510 45,488 45,466 45,444 45,422 45,400 Mar 29, ,500 45,450 45,400 45,350 45,300 45,250 45,200 45,150 45,100 Mar 28, ,250 45,200 45,150 45,100 45,050 45,000 44,950 44,900 44,850 9:14 9:43 10:12 10:40 11:08 11:37 12:05 12:33 13:01 13:29 13:57 14:26 14:54 15:23 15:51 16:20 Mar 27, ,300 45,250 45,200 45,150 45,100 45,050 45,000 44,950 44,900 9:29 9:53 10:17 10:41 11:05 11:28 11:52 12:16 12:39 13:03 13:27 13:50 14:14 14:37 15:01 15:25 9:29 9:54 10:19 10:44 11:09 11:34 11:59 12:24 12:48 13:13 13:38 14:03 14:28 14:53 15:18 9:29 9:55 10:20 10:45 11:10 11:34 11:59 12:24 12:49 13:14 13:38 14:03 14:28 14:53 15:18 9:29 9:55 10:20 10:45 11:10 11:35 11:59 12:24 12:49 13:14 13:39 14:03 14:28 14:53 15:18 Mar 26, ,150 45,100 45,050 45,000 44,950 44,900 44,850 44,800 44,750 Source: PSX & AKD Research This Week s Daily Reports Power: Devaluation benefits spoiled by sectoral issues, (AKD Daily, Mar 30, 2018) Providing a hedge against devaluation, IPPs possess the inherent ability to amplify the escalable component of their tariff structure directly impacting their bottom-lines. In this purview, the case of ~4.5% weighted average PkR devaluation against the US$ in FY18F is slightly more than what we had incorporated in our models. Adjusting for currency depreciation, our earnings forecast for HUBC and KAPCO goes up slightly by PkR0.22/0.08/sh for FY18 and PkR0.45/0.08/sh for FY19. However, given the disorderly condition of power sector with regards to overdue receivables and mounting payables, we believe this upward movement in earnings will not be tracked by dividends in the short run. That said, any possibility of cash injection by GoP will only ease up things temporarily, as structural issues persist, while a TFC issue will be unable to address the liquidity issues at hand. With this in mind, we continue to push for KAPCO with FY18/19 D/Y standing at 14.3/13.9% despite the recent run by the stock. MCB: The right mix of growth and value, (AKD Daily, Mar 29, 2018) Asset quality deterioration and increase in expenses characterized MCB's earnings performance in CY17. This, we believe was more a consequence of NIB acquisition with the bank inheriting PkR29bn additional infected loans while cost inefficiencies were a function of the bank's small size. Impairment charge during the year was another drag on earnings with the bank booking provisions worth PkR3.5bn - highest ever as the benchmark index lost 15% during the year. That being said, the bank is encouragingly focusing on: 1) building its loan book (17%YoY growth in advances ex-nib) particularly in the consumer space, 2) targeting CA growth to support NIMs alongwith concentration towards the shorter end of maturity profile to benefit from DR upcycle and 3) increasing its fee income base (+22%YoY). While earnings will rebound from CY18F, improvements on the cost front (C/I ratio to go down to 44% by CY19F from 51% in CY17) and provision (NPL ratio to gradually come down to 6% by CY19F) should become more visible by CY19F. MCB has gained 6% CYTD to trade at a forward PB/PER of 1.5x/11.0x where superior earnings growth (3yr NPAT CAGR of 13%) and strong management credentials justify premium valuations. Additionally, price performance can continue particularly in the backdrop of the upcoming MPS with market participants eyeing another rate hike. Our revised TP of PkR249/sh offers 12% upside. Pakistan Economy: MPS outlook, (AKD Daily, Mar 28, 2018) Despite rising oil prices (MOGAS/HSD up 4.1%/2.7%MoM) inflation for the month of March is expected to remain low primarily on the back of high base effect kicking in along with downtick in perishable food items. In this regard, we estimate CPI inflation to clock in at 3.03%YoY (vs 3.8%/4.95%YoY recorded in Feb'18/Mar'17), while NFNE core inflation is likely to remain stable at 5.2%YoY. That said, we believe inflationary pressures should start to build up towards end FY18 with CPI expected to average out at 4.1%YoY - well below the SBP target of 6%. Moreover, real interest rates stand at comfortable levels (+220bps for FY18F against 10year avg. of +210bps) along with promising growth in LSM (+6.5%YoY in 7MFY18). Additionally, the impact of interest rate differential in the backdrop of an increasing Fed rate has been somewhat countered by local currency depreciating ~8.7% FYTD. Taking these factors into consideration, we expect status quo in the upcoming MPC meeting on Mar 30'18. That said, case for a 25bps hike can be made as a preemptive measure in response to risk of an overheating economy (even though inflation stands at manageable levels) as well as to finance widening fiscal imbalance (fiscal deficit at 6.2% of GDP in FY18F). Pakistan Fertilizers: Sector dynamics continue to improve, (AKD Daily, Mar 27, 2018) After an impressive start to CY18 (fertilizer/urea offtake posted growth of 30%/33%YoY in Jan'18), country's fertilizer offtake growth continued to remain robust in Feb'18 as well, where not only urea but cumulative fertilizer sales remained promising. According to the latest figures released by NFDC, total fertilizer sales in Feb'18 clocked in at 619k tons, up 28%YoY. In tandem, urea sales have also jumped by 44%YoY to 370k tons. Furthermore, DAP sales also registered growth of 25%YoY/33%MoM to 122k tons during the month. However, on a monthly basis, total fertilizer/urea off-take expectedly came down by 20%/31% 2

3 This Week s Daily Reports on account of seasonal slowdown (end of Rabi season). After correcting sharply in 1HCY17, the fertilizer sector has posted a strong recovery (+19% since Aug'17 and +7%CYTD) on improving fundamentals. Going forward, we anticipate further betterment on the back of: 1) continuous lowering of inventory levels, 2) higher international prices and 3) upward trend in local product prices (discount levels reduce to PkR10-25/bag). Maintaining our Marketweight stance on the sector, EFERT (TP of PkR79.9/sh) remains our top pick on the basis of attractive dividend yield of ~11% at current levels, followed by FATIMA (TP of PkR45.1/sh) with its diversified product mix and impressive dividend yield of above 10%. INDU: Catalysts under the hood demand buy! (AKD Daily, Mar 26, 2018) Updating assumptions for foreign exchange, inflation, below the line items and selling prices in light of increases (with reports indicating escalations to follow), we raise out FY18-20F NPAT estimates by ~8.5% on the back of: 1) higher than expected price increases, passing on the complete impact of external shocks while preserving margins, 2) de-bottleneck activity lifting production constraints accompanied by a beneficial product mix tilting in favor of premium SUVs while the Corolla's 'minor-major' facelift sustains demand, and 3) margin accretion through introduction of upgraded variants (Fortuner Diesel variant launched March'18) where elevated margins have been observed historically, a trend we expect to continue till FY20F. Based on the same, we raise our FCFE based Dec'18 TP for the OEM to PkR /sh (a hike of ~5.9% over our previous TP), where a hefty payout policy allows for FY18E/19F D/Y of 6.8/7.2% revealing high quality earnings (FY18-20F FCFE per share/eps of 0.83x). Our Dec 18 FCFE based TP of PkR /sh offers 26.7% returns from current price levels. BUY! 3

4 Mar-17 Apr-17 Mar-17 AKD Securities Limited Regional Valuations (2018) EPS Growth PE(x) Pakistan 14% 8.81 Indonesia 10% Malaysia 11% Philippines 7% Vitenam 13% India 27% China 15% % ROE Divd Yld Pakistan 15.8% 6.06 Indonesia Malaysia Philippines Vitenam India China Source: Bloomberg & AKD Universe PkR/US$ Trend TRJ-CRB Index Source: Bloomberg Source: Bloomberg Major World Indices Performance Country Bloomberg Code WoW CYTD Pakistan KSE100 Index 45,560 45, % 12.6% Srilanka CSEALL Index 6,477 6, % 1.7% Thailand SET Index 1,776 1, % 1.3% Indonesia JCI Index 6,189 6, % -2.6% Malaysia FBMKLCI Index 1,863 1, % 3.7% Philippines PCOMP Index 7,980 8, % -6.8% Vietnam VNINDEX Index 1,174 1, % 19.3% Hong Kong HSI Index 30,093 31, % 0.6% Singapore FSSTI Index 3,428 3, % 0.7% Brazil IBX Index 35,186 34, % 11.3% Russia RTSSTD Index 14,912 15, % 9.1% India SENSEX Index 32,969 33, % -3.2% S&P SPX Index 2,641 2, % -1.2% DJIA INDU Index 24,103 23, % -2.5% UK UKX Index 7,057 6, % -8.2% Germany DAX Index 12,097 12, % -6.4% Qatar DSM Index 8,574 8, % 0.6% Abu Dhabi ADSMI Index 4,585 4, % 4.3% Dubai DFMGI Index 3,109 3, % -7.8% Kuwait KWSEIDX Index 6,633 6, % 3.5% Oman MSM30 Index 4,774 4, % -5.4% Saudi Arabia SASEIDX Index 7,871 7, % 8.9% MSCI EM MXEF Index 1,171 1, % 1.1% MSCI FM MXFM Index % 4.4% International Major Currencies Commodities Source: Bloomberg SPOT Chg +/- WoW CYTD Dollar Index % -2.33% USD/PkR % 4.53% USD/JPY % -5.69% EUR/USD % 2.66% GBP/USD % 3.71% AUD/USD % -1.66% NZD/USD % 1.96% CHF/USD % -2.08% CAD/USD % 2.62% USD/KRW 1,064 1, % -0.35% CNY/USD % -3.55% Source: Bloomberg SPOT Units WoW CYTD TRJ-CRB Points % 0.77% Nymex (WTI) US$/bbl % 7.48% ICE Brent US$/bbl % 3.46% N. Gas Henry Hub US$/Mmbtu % % Cotton USd/Pound % 0.39% Gold US$/Tr.Oz % 1.68% Sliver US$/Tr.Oz % -3.36% Copper US$/MT % -7.32% Platinum US$/Oz % 0.13% Coal US$/MT % -3.83% Source: Bloomberg 4

5 Mar-17 Mar-17 Mar-17 Apr-17 AKD Securities Limited Chart Bank Earnings Yield vs. T-Bill (12M) Differential (%) Advance to Decline Ratio Mar-17 Apr-17 Mar-17 FIPI Flows for the week LIPI Flows for the week (US$'000) 10,000 9, Ind., ,000 6,000 4, Bank/DFI, 0.73 Ins, 5.17 Prop. Trading, ,000 1, (2,000) (1,823) (1,387) (5.00) Co., (3.73) NBFC, (1.85) Others, (2.56) (4,000) (6,000) (8,000) (5,422) (10.00) (15.00) M.Funds, (10.46) AKD Universe vs. KSE-100 Index KSE-100 vs. MSCI-EM & MSCI-FM 8% 3% -2% -7% 40% 30% 20% KSE100 MSCI FM MSCI EM -12% -17% -22% -27% -32% 10% 0% -10% -20% -30% KSE-All Share Index AKD Universe 5

6 Market PER Chart 2018 (x) Jul-07 Apr-08 Feb-09 Dec-09 Oct-10 Aug-11 Jun-12 Apr-13 Feb-14 Dec-14 Sep-15 Jul-16 Source: AKD Research Market P/BVS Chart 2018 (x) Jul-07 Apr-08 Feb-09 Dec-09 Oct-10 Aug-11 Jun-12 Apr-13 Feb-14 Dec-14 Sep-15 Jul-16 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 Accumulate Lucky Cement LUCK Buy Maple Leaf Cement Factory MLCF Buy Fauji Cement Company Ltd. FCCL Buy Pioneer Cement Limited PIOC Buy Cherat Cement Co Limited CHCC Accumulate Gharibwal Cement Ltd GWLC Buy Engineering Amreli Steels Ltd. ASTL Buy Fertilizers Engro Corporation ENGRO Accumulate Engro Fertilizers Limited EFERT Accumulate Fauji Fert. Bin Qasim Ltd. FFBL Accumulate Fauji Fertilizer Company FFC Neutral Fatima Fertilizer FATIMA Buy Food Producers Engro Foods Limited EFOODS Reduce Oil & Gas Oil & Gas Development Co. OGDC Accumulate Pak Oilfields POL Accumulate Pakistan Petroleum PPL Accumulate Hascol Petroleum HASCOL Accumulate Attock Petroleum APL Buy Pakistan State Oil PSO Buy Power Hub Power Co. HUBC Buy K-Electric Co. KEL 7.01 UR UR UR UR UR UR UR UR UR UR UR UR UR UR Kot Addu Power Company KAPCO Neutral Fixed Line Telecommunication Pakistan Telecommunication PTC UR UR UR UR UR UR UR UR UR UR UR UR UR UR Personal Goods Nishat Mills NML Accumulate Nishat Chunian Ltd. NCL Buy Banks Allied Bank Limited ABL Neutral Bank AlFalah BAFL Reduce Habib Bank Limited HBL Accumulate MCB Bank Limited MCB Accumulate National Bank of Pakistan NBP Buy United Bank Ltd UBL Accumulate 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 Ma r- 18 1M 3M 6M 12 M CY TD High Low KS E Inde x 4 5, , , 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 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 T-bill 3M % M % n.a n.a 12M % n.a n.a PIB 10Y % n.a n.a n.a n.a n.a KIBOR 6M % Discount rate % Policy rate % Inflation Headline inflation % Core inflation % Food inflation % 2.4 (0.10) External Indicators Export (PBS) US$ (mn) 1,912 1,631 1,866 1,675 1,888 1,974 1,977 1,971 1,902 Import (PBS) US$ (mn) 4,534 4,835 4,952 4,473 4,929 4,898 4,910 5,607 4,797 Trade Deficit (PBS) US$ (mn) (2,622) (3,204) (3,086) (2,798) (3,041) (2,924) (2,933) (3,636) -2,895 Export (SBP) 1,865 1,828 2,104 2,194 2,380 2,546 2,464 2,111 n.a Import (SBP) 5,054 4,720 4,262 4,712 5,258 5,346 5, n.a Trade Deficit (SBP) (3,189) (2,892) (2,158) (2,518) (2,878) (2,800) (2,676) (2,763) n.a Home Remittances US$ (mn) 1,840 1,542 1,955 1,294 1,654 1,577 1,724 1,639 1,450 Current Account US$ (mn) (1,431) (2,051) (550) (1,097) (1,315) (1,441) (1,256) -1,617 n.a Banking Sector Deposits PkR (bn) 11,981 11,702 11,651 11,980 11,777 11,969 12,362 12,002 11,933 Advances PkR (bn) 6,176 6,028 6,035 6,137 6,151 6,280 6,530 6,556 6,629 Investments PkR (bn) 8,166 7,989 8,145 8,338 8,342 8,475 8,542 7,637 8,127 W. A. lending rate % n.a W. A. deposit rate % n.a Spread rate % n.a Public Finance Tax collection PkR (mn) 511, , , , , , ,472 n.a n.a Direct taxes PkR (mn) 247, , , , , , ,736 n.a n.a Indirect Taxes PkR (mn) 264, , , , , , ,736 n.a n.a Currency Fx Reserves US$ (mn) 21,402 20,223 20,401 19,775 19,584 18,774 20,154 18,957 18,413 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) 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 Bilal Ahsan Elahi (685) Automobiles 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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