PAKISTAN WEEKLY REVIEW.
Avg. Volume (mn sh)###216###200###7.8%
Avg. Investment (PkR mn)###5,367###5,606###-4.3%
MARKET PERFORMERS (KSE-30)
Millat Tractors Ltd.###636.96###599.65###6.2%
Bank Alfalah Ltd.###18.72###17.63###6.2%
United Bank Ltd###91.88###87.89###4.5%
MCB Bank Ltd###212.25###205.18###3.4%
SOURCE: KSE Website, Alfalah Securities Research
OUTLOOK FOR NEXT WEEK:
The market is expected to remain range bound during the next week ahead of monetary policy (MPS) announcement. The Central Bank is reported to reveal MPS on February 08, 2012 where we expect the discount rate may remain unchanged in the upcoming monetary policy announcement at 9.5%. The January CPI inflation, although higher than the previous month, it is still below the discount rate of 9.5% while keeping the real rates positive which may let the Central Bank maintain the discount rate at current levels. The CPI inflation has been reported at 8.07% YoY in January by Pakistan Bureau of Statistics, inline with our expectations while inflation in December was 7.93% YoY.
The market may also witness buying activity on selective fundamentally strong stocks that are likely to post healthy results and payouts for the period ended December 31, 2013. We recommend a buy on PPL, Fatima, KAPCO and NPL.
MARKET TRIGGERS FOR NEXT WEEK:
Monetary Policy Statement is to be announced on February 08, 2013.
Board meeting of PPL and EPCL are scheduled to be held on February 4, 2013. Likewise, MCB, and WTCL to announce results on February 7, 2013 while Engro Fertilizer Ltd. to announce results on February 8, 2013.
MARKET UPDATE (LAST WEEK I.E. ENDING FEBRUARY 01, 2013):
The index closed higher by 209.87 points to 17,266.23 (up by 1.23%WoW) with average daily volumes also increasing by 7.8%WoW to 215.82 mn shares in the outgoing week. Likewise, the average daily value traded witnessed a drop of 4.3% WoW to PkR 5.367 bn (~USD54.76 mn). JSCL, PTC, LOTPTA, NIB, BYCO, ENGRO, KESC, TRG, DGKC and PACE remained volume leaders in the outgoing week.
ECONOMY and POLITICS:
MONETARY POLICY TO BE ANNOUNCED ON FEB 08:
State Bank of Pakistan (SBP) is due to announce the monetary policy statement on February 08, 2013. The January CPI inflation, although higher than the previous month, it is still below the discount rate
of 9.5% while keeping the real rates positive which may let the Central Bank maintain the discount rate at current levels. Therefore, we expect the discount rate may remain unchanged in the upcoming monetary policy announcement at 9.5%. Consumer Price Index (CPI) inflation YoY is reported to be at 8.07% in January 2013 as against 7.93% in December 2012 and 10.1% in January 2012. The inflation has inched higher as compared to the preceding month as a result of increased money supply amid low interest rates and steep devaluation of Pak Rupee against Dollar in the month of January. Overall, CPI inflation increased by 8.28% during July-January FY13 as compared to the same period of last year, as reported by Pakistan Bureau of Statistics (PBS).
INVESTMENT POLICY 2013-17 ON CARDS:
The Board of Investment (BoI) has proposed draft Investment Policy 2013 under which the condition of minimum foreign equity in services, social and agriculture sectors will be excluded along with allowing foreign investors to access domestic borrowing. In Investment Policy1997, the minimum foreign equity requirement was USD 0.15 mn for services and USD 0.3 million for social and agriculture sectors. Moreover, the foreign investors would have the right to exchange local currency into any other freely convertible foreign currency, subject to Foreign Exchange Regulations of State Bank of Pakistan. The new policy will permit Pakistani missions abroad to grant five-year validity (multiple entry) visa within 24 hours to businessmen of 66 countries. In addition to this, two-year work visas will be granted to foreign technical and managerial personnel.
The policy 2013 places no restrictions on the use of foreign private loans. In the existing policy, the facility for contracting foreign private loans are limited to financing the cost of imported plant and machinery required for setting up the project. Furthermore, foreign investors would be allowed to access domestic borrowing subject to prevailing rules, regulations of SECP and the State Bank of Pakistan and observance of debt-equity ratio. The policy is aimed at incentivizing foreign investors to further invest in Pakistan thereby providing cushion to the sharply depleting foreign exchange reserves and infuse economic growth.
FOREX RESERVES DECLINE BY USD 156.2 MN:
Pakistan's foreign exchange reserves are reported to have declined by USD 156.2 mn in a week to USD 13.549 bn as on January 25, 2013 as against USD 13.705 bn as on January 18, 2013. Reserves held by SBP dropped by USD 154.6 mn to USD 8.654 bn from USD 8.809 bn while reserves held by banks decreased by USD 1.6 mn to USD 4.894 bn. The decline in forex reserves is mainly attributed to payment of import proceeds and repayment of foreign debt obligations. It would also exert pressure on the Pak Rupee parity leading to further devaluation of Pak Rupee against US Dollar.
SBP CUTS REFINANCE RATE:
State Bank of Pakistan (SBP) has cut the rate of refinance under the Export Finance Scheme (EFS) by 0.1% from February 1, 2013 to 8.20% p.a. The commercial banks charge their maximum margin/spread not exceeding 1% p.a. and the revised reduced markup rate would also be applicable on outstanding loans granted under EFS. The decline in refinance rate bodes well for promoting exports which in turn would strengthen the balance of payment situation of the country's economy.
SBP RELEASED ANNUAL REPORT FY12:
State Bank of Pakistan has released the annual report for FY12 wherein the real Gross Domestic Product (GDP) grew by 3.7% in FY12, less than the target of 4.2%. The GDP growth target for FY13 of 4.3% may also not be met where it is expected to remain at 3.7% as believed by SBP. Likewise, the fiscal deficit target of 4.7% of GDP is also to likely be breached ranging between 6-7%. The economic situation seems to remain bleak in FY13 where the economic targets would not achieve leaving the country in more precarious situation in FY13.
BANKING SPREADS FALL TO 6.54% IN DEC:
Banking spreads declined to a low of 6.54% during December 2012 depicting a drop of 83 bps as against 7.37% in January 2012, mainly contributed by decline in discount rate by the Central Bank of Pakistan. The average spreads during 2012 declined by 59bps to 7.04% as compared to 7.63% in 2011. The policy rate has significantly dropped by 250 bps to 9.5% due to which the banks are likely to face pressure on margins and profitability.
STOCKS and STOCK EXCHANGE:
BANK ALFALAH AND WARID TO DEVELOP BRANCHLESS BANKING:
Bank Alfalah Ltd. (BAFL), and Warid Telecom have decided to work together for setting up branchless banking services in Pakistan. The technological support for this purpose would be provided by Monet and the pilot testing launch is currently underway which is approved by State Bank of Pakistan. The two companies intends to develop a branchless ecosystem, which will offer a range of customized products and services to suit the needs of consumers, institutions, small and medium enterprises (SMEs) and government.
ABU DHABI GROUP TO BUY SINGTEL'S STAKE OF WARID:
Singapore Telecommunications (SingTel) has announced its intention to sell its entire 30% in Pakistan's Warid Telecom to the Abu Dhabi Group for USD 150 mn. The excluding the value of any future transaction interest, the estimated loss on disposal will be around USD 186 mn, including the foreign currency translation losses and transaction costs. The Abu Dhabi Group has announced that it has reacquired SingTel's shares in Warid Telecom that it had sold back in 2007. This shows Abu Dhabi Group's continued interest in Pakistan and is likely to be positive for Warid with more focused management.
FATIMA TO PARTICIPATE IN THE SET UP OF FERTILIZER PLANT IN USA:
Fatima Fertilizer Co. Ltd. has notified the stock exchange about its intention to participate in a global consortium to set up a nitrogen fertilizer plant in the State Indiana, USA. The State has sanctioned USD 1.26 bn worth of Tax Exempt Municipal Bonds to support the project which is since been marketed in US Bond Market. The plant's production capacity will be 1.5 mn tons annually which will cater for the domestic as well as future international demand. Fatima is expected to make good profit on its 31% equity stake worth of USD 150 mn which would be positive for the company.
GIDC ON CONSUMERS TERMED UNCONSTITUTIONAL:
Islamabad High Court (IHC) has declared Gas Infrastructure Development Cess (GIDC) illegal and unconstitutional and termed it in violation of fundamental rights. The government had imposed the cess on the pretext of mobilising funds for infrastructure development work for the Iran-Pakistan gas pipeline project. The government had approved GDIC through an Act of parliament in 2011 under which government was receiving PkR 50 per MMBTU from industrial units while PkR 263 and PkR 200 per MMBTU on CNG in Zone I and II respectively. In case GIDC is waived from fertilizer sector also, it would provide a considerable respite in profit margins of the fertilizer companies.
PAK OILFIELDS REPORTED 1HFY13 RESULTS:
Pakistan Oilfields Ltd. (POL) has reported profit after tax of PkR 5.7 bn (EPS: PkR 23.94) in 1HFY13 as compared to PkR 6.2 bn during the same period last year, depicting a decline of 8.2%YoY. Net sales declined by 5%YoY to PkR 7.1 bn in 1HFY13 where the decline in profitability is mainly attributed to decline in production of oil and gas, higher exploration charges and lower dividend income from APL and NRL. POL has also announced interim DPS of PkR 20.0 for the half year ended December 31, 2012. In the second quarter of FY13, POL reported profit after tax of PkR 3.1 bn (EPS: PkR 13.10) which is higher by 14% YoY. We recommend a Hold on POL as it trades at FY13E P/E of 9.5x.
LUCKY CEMENT POSTS HEALTHY 1HFY13 RESULTS:
Lucky Cement (LUCK) has announced 1H FY13 results revealing a profit after tax of PkR 4.3 bn (EPS: PkR13.27) as against PkR 3 bn during the same period of last year depicting an increase of 42%YoY. The company's revenues increased by 14% during 1HFY13 to PkR 17.5 bn where the local cement dispatches of the company increased by 5.5%YoY to 1.77 mn tons while the exports sales declined by 14.6% YoY to 1.01 mn tons. Total dispatches stood at 2.78 million tons lower by 2.8%YoY in 1HFY13. LUCK reported a gross margin of 44% in 1HFY13 as against 38% in the same period last year which further improved the bottom line profitability of the company. LUCK posted profit after tax of PkR 2.28 bn (EPS: PkR 7.04) in 2QFY13 which is higher by 50.0% YoY. We recommend a buy on LUCK as it trades at attractive FY13E P/E of 5.78x.
CHANGES IN GAS LOAD MANAGEMENT ORDER APPROVED:
Economic Coordination Committee (ECC) of the Cabinet has approved changes in gas load management order in which domestic and commercial sectors are at the top most priority for gas supply. Cement and then CNG have been assigned the lowest priority while power sector has been assigned higher priority than domestic and commercial sector while general industrial, fertilizer and captive power was assigned third priority. Resultantly, cement and fertilizer sector companies are likely to be more affected from gas outages which may be aggravated further as gas shortfall rises.
ECC also approved marginal and standard gas field pricing criteria and guidelines of 2013, submitted by the Ministry of Petroleum and Natural Resources. ECC approved the proposal of the Ministry to set the Marginal Fields gas prices in accordance with Petroleum Exploration and Production Policy 2012 with an additional premium of USD 0.25 per MMBTU for three zones. The government shall have the first right to purchase pipeline specification gas from Marginal Gas Fields at a price to be determined in accordance with the above mentioned formula.