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STOCK MARKET AT A GLANCE.

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MARKET REVIEW

The bullish trend continued to prevail in the market with another +1.6% WoW uptick, triggered primarily by the China-Pakistan Economic Corridor and the strong corporate results. The index closed at 33,775 points. ADTO and average daily value traded rose by an impressive 11%/18%WoW to 329mn shares and US$128mn, respectively. FIPI continued to clock in an inflow clocking in at US$7.7mn vs US$7.5mn, up 2.5% WoW.

Market continued its bullish momentum from last week with China-Pakistan economic corridor creating fresh air of optimism with over 50 MoUs signed for a cumulative investment of US$45bn in the energy and infrastructure fields. Moreover, strong corporate results triggered a rally in selective sectors. Cement sector posted strong earnings during 3QFY15 with 2-5pp growth ingross margins. LUCK (+2.5% WoW) witnessed a much-awaited rally with results above consensus expectations. EFERT results announced this week commenced what we believe an impressive earnings season for fertilizer sector Banking results impressed across the board driven by solid interest income on the back of shift in investment mix and relief on cost of funds side. This ignited a long overdue rally with UBL (+8.7% WoW) and BAFL (+11.9% WoW) being the out performers. Moreover, IFC confirmed its US$75mn investment in HBL's divestment transaction, increasing confidence on the bank's outlook.

Likewise, Auto sector results skyrocketed with PSMC and GHNL results up 2.1x and 3.0x YoY. On the macro front, Current account recorded a third monthly surplus of US$0.2bn on the back of strong remittances of US$1.58bn (+13% MoM). FX reserves have touched 3-yr high at US$17.49bn as of April 17th, depicting an increase of US$673mn during the week.

OUTLOOK

The continuation of result season is likely to drive interest in specific stocks, where we expect robust fertilizer sector results to keep the sector in the limelight. Banks should continue the bull-run experienced this week as strong corporate results despite falling DR scenario has provided comfort to investors, reigniting interest in the sector. With oil prices seemingly recovering from a steep fall over the past few months, EandPs are expected to keep attracting investors. Though majority of cement sector results have already been released, the sector is still anticipated to remain upbeat on expectations of further earnings growth due to seasonal volume uptick in 4Q. Pertinently, investors will now likely shift focus to FY15-16 budget related news-flow with just over a month left for the budget announcement. Our recommended ideas include HBL, UBL, ENGRO, EFERT, LUCK, DGKC, POL, PPL, HUBC, ICI, APL and NRL.

NEWS THIS WEEK

REVENUE COLLECTION RISES 12% IN 9MFY15

The Federal Board of Revenue's (FBR) tax collection rose 12.2% to PRs1,766.8bn during 9MFY15 compared to PRs1,574.7bn in the corresponding period last year.

ENGRO CEO HAS STEPPED DOWN

Muhammad Aliuddin Ansari, President and Chief Executive Officer of Engro Corporation Limited, has announced to step down from his post effective May 11, 2015. The company is expected to announce Mr. Ansari's successor in the near future.

GOVT MAY ALLOCATE PRS575BN FOR DEVELOPMENT IN NEXT BUDGET

As per news reports, the govt has finalized budget strategy paper and intends to submit it to federal cabinet for approval next week. The budget strategy papers entails (1) 10% higher salaries and pensions for civil servants, (2) 8.6% YoY higher defence expenditure, and (3) PRs575bn-600bn under Federal PSDP (23-28% YoY from revised PSDP budget of FY15).

PIB YIELDS FALL IN AUCTION

In the latest PIB auction, the govt accepted only PRs36bn bids out of the total bids of PRs151.7bn, against target of PRs50bn. Cut-off yields fell by 44/51/16bp for 3/5/10yr PIB to 7.85%/8.24%/9.34% respectively compared to the auction held on March 25th. The decline in yields reflects market expectation of further cut in policy rate in our view.

FX RESERVES TOUCHES 3-YEAR HIGH

Latest FX reserves position stands at US$17.49bn (over 4-month import cover) as of April 17th, a 3-year high, depicting an increase of US$673mn during the week. The SBP reserves increased by US$605mn to US$12.364bn (June-15 target is US$15.4bn). The increase in reserves is mainly attributed to privatization proceeds of Habib Bank Ltd.

THIS WEEK'S TOP STORIES

MONDAY, APR 20, 2015 GENEROUS CONVERSION OPTION OF PRICING TERMS MAY DELIVER EARNINGS UPSIDE

- The latest details on terms of conversion option for exploration licenses (EL) and finds made since Nov-2007 are encouraging for EandP companies.

- We believe potential conversion of high-profile finds can create significant excitement. We estimate one-off impact of PRs12.0/5.2/7.7/sh and recurring future earnings upside of PRs3.0/0.98/1.17/sh (5-8% of 15E EPS) respectively on POL, PPL and OGDC.

- While we expect to see swift progress on the preparation and implementation of new conversion terms, we see at least four key challenges ahead.

FAWAD KHAN (Fawad.khan@kasb.com)

TUESDAY, APR 21, 2015 STRONG EARNINGS MOMENTUM TO SUPPORT CONVICTION; FAVOR UBL and HBL

- KASB Banks Universe is expected to post 1Q15E PAT growth of 18% YoY on NIM enhancement, fee income. We favor HBL (PO: PRs213) and UBL (PO: PRs215) for their superior risk/reward balance.

- Most pronounced growth seen in BAFL (PO: PRs35) with 44% YoY higher PAT growth (PRs1.02/sh) led by 42% YoY higher NII. NBP will also impress with 36% YoY bottom-line growth (EPS: PRs2.01).

- Pakistan banks are trading at attractive valuations - 2015/16E P/B and P/E of 1.4x/1.3x and 8.0x/7.8xdespite very competitive ROE/yield of 18%/7%. Solid 1Q15E performance should support long overdue relief rally.

FARID ALIANI (Farid.aliani@kasb.com)

WEDNESDAY, APR 22, 2015 CPEC: A BIG IMPETUS FOR GROWTH AND INVESTMENT

- The CPEC, with US$45bn investment in energy (US$37bn) and infrastructure (US$8bn), may (1) address energy deficit and (2) remove fiscal constraints through concessionary loans.

- We highlight Power (rationalization of fuel mix), Cements (demand uptick) and Banks (credit growth) to be the major beneficiaries. Top picks: HUBC, LUCK, DGKC, HBL, UBL, APL and ENGRO

- Potential risks: (1) delay in completion of projects, (2) political bottlenecks and (3) security and geopolitical concerns.

KASB RESEARCH (Research@kasb.com)

THURSDAY, APR 23, 2015 MARGIN ACCRETION IS SHORT-LIVED; REITERATE NEUTRAL

- On the back of strong near-term margins amid declining global milk prices, and energy cost savings, we raise our earnings estimates for EFOODS by 72%/64% for 2015/16 to PRs5.28/7.42 per share.

- However, we maintain our Neutral rating for the scrip with a revised PO of PRs150/sh given the long-term margin outlook and company's heavy reliance on the dairy segment.

- Owing to global milk price stance, domestic price competition and proposed duty imposition on imported raw milk; long-term sustainability of margins is unlikely, in our view.

AMEET DAULAT (Ameet.daulat@kasb.com)

FRIDAY, APR 24, 2015 STRONG EARNINGS DELIVERY LIKELY; FFBL TO BE THE EXCEPTION

- EFERT (PRs2.10/sh), FFC (PRs4.22/sh), and FATIMA (PRs1.12/sh) are expected to post stellar 1Q15 earnings on the back of strong volume growth and higher dividend income in 1Q15. FFBL, however, is expected to post earnings of merely PRs0.02/sh on the back of production halts during the period.

- ENGRO (PRs7.08/sh) is also expected to post strong YoY growth as a result of an earnings surprise in EFoods which is expected to complement the fertilizer wing's profitability.

- EFERT (PO: PRs99) and ENGRO (PO: PRs366) are our top picks amid strong earnings growth potential. However, we have a U/P stance on FFC (PO: PRs113) and FFBL (PO: PRs49) due to earnings risks from potential gas hike.

AMEET DAULAT (Ameet.daulat@kasb.com)

STOCK MARKET SYNOPSIS

###LAST WEEK###THIS WEEK###% CHANGE

###Mkt. Cap (US$bn)###71.3###71.9###0.9%

Avg. Dly T/O (mn. shares)###296.0###328.7###11.0%

###Avg. Dly T/O (US$ mn.)###140.2###164.9###17.6%

###No. of Trading Sessions###5.0###5.0###-

###KSE 100 Index###33,234.7###33,775.1###1.6%

###KSE ALL Share Index###23,333.8###23,605.6###1.2%
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Publication:Pakistan & Gulf Economist
Date:May 3, 2015
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