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STOCK MARKET AT A GLANCE.

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MARKET REVIEW

The KSE-100 index was largely flat during the shortened trading week after the Eid holidays. The index closed at 35,815. ADTO rose by a hefty 38% WoW to clock in at 660mn shares, while the average daily value traded rose 11% to US$160mn. The index hit a 10yr high daily volume of 783mn shares on the last trading session of the week. FIPI clocked in an outflow of US$8mn this week.

Overall, market sentiment was subdued amid falling oil prices and a looming gas price hike. There was plenty of good news during the week, but investors took to profit taking regardless. Foreign selling and lackluster institutional interest contributed to sluggish performance of the index. The central bank will announce the next Monetary Policy on 25th July (tomorrow), wherein the market at large expects the status quo, with few tilting towards rate cut. Thus banking stocks remained under pressure despite an above-expected result announcement from UBL. Politics took a favorable turn, as the Judicial Commission announced its verdict on the 2013 elections free and fair which was a big blow to the opposition party PTI. Market reaction to this, however, was unimpressive. SSGC and SNGP have sought a 45% raise in gas tariff, which prompted negative market reaction.

On the macro front, positive news continued to pour in. Pakistan's current account deficit shrank by 28% to US$2.28bn in fiscal year ending Jun-15. The US government declared its intention to release CSF payments worth US$337mn to Pakistan, by this weekend. The Privatization Commission halted the submission of draft auto policy to the ECC, which will further delay its finalization.

OUTLOOK

Result season has begun and is expected to drive the market going forward with final payouts. Since we expect status quo in the upcoming MPS tomorrow, it will not be a major trigger, in our view. However, in the upcoming IMF review, Pakistan may request for biannual reviews; which, if approved will be a big positive for the market. We have initiated coverage of Pak Elektron, with a Buy rating (PO: PRs108/sh) and have included the stock in our top picks. Our top picks are POL, PPL, ENGRO, EFERT, Fatima, UBL, HUBC, Lucky, KOHC, ICI, PAEL and DGKC.

NEWS THIS WEEK

EIGHT REVIEW OF EXTENDED FUND FACILITY; PAKISTAN, IMF TO MEET NEXT WEEK

The eight review of Pakistan's economic performance under the IMF's Extended Fund Facility will be held from 29th July-6th Aug. The successful completion of the review will enable Pakistan to receive the 9th tranche, amounting to US$500mn out of total program of US$6.6bn.

FIRST SHIP-TO-SHIP LNG CONSIGNMENT ARRIVES

Reportedly, Engro Elengy Terminal received its first shipment of 130,000 cubic metres of liquefied natural gas (LNG) last week. Upon successful tendering by Pakistan State Oil, this is the first of the six cargoes which will now deliver a continuous flow of gas in to the gas grid.

2014-15: CURRENT ACCOUNT DEFICIT SHRINKS BY US$850M

Reportedly, Pakistan's current account deficit has shrunk by 28% to US$2.28bn in fiscal year ending Jun-15. All the important heads in the current account shows improvement except for trade deficit.

MILITARY AID: US TO MAKE US$337MN PAYMENT TO PAKISTAN UNDER CSF

The US government has declared its intention to release CSF payments worth US$337mn to Pakistan, by this weekend. Pakistan was initially expecting the release to be in Jun- 15, which would let it achieve its fiscal deficit target of 4.9%.

UBL 2Q15 RESULT REVIEW

UBL released its 2Q results yesterday, whereby the company posted above-expected earnings print of PRs4.46/sh (consolidated), down 28% QoQ. 1H15 EPS clocked in at PRs10.63/sh, up 8% YoY. The earnings surprise failed to translate into dividend surprise whereby the DPS of PRs3/sh was in line with our expectation. The surprise in earnings is mainly driven by below-expected tax rate of 50% (vs our forecast of 58%) as the bank has apparently booked the impact of Super Tax, and higher tax provisioning required due to change in tax rate on dividend income and capital gains.

THIS WEEK'S TOP STORIES

WEDNESDAY, JULY 22, 2015 SBP 3QFY15 REVIEW FOCUSES ON MEDIUM-TERM SUSTAINABILITY

- In its 3Q report, SBP exhibits a positive tone on the overall progress of the economy amid historically low interest rates, stable exchange rate, Moody's rating upgrade, landmark China-Pak agreement and notable HBL transaction during the period.

- Structural upgrade in areas of energy, privatization, non-debt inflows remains a focal point for the medium term. The government's plans to address these structural issues remain fairly aligned, in our view.

- However, for other issues like export diversification and low tax to GDP ratio; a visible, comprehensive strategy with national consensus remains to be seen.

SARAH MAZHAR (Sarah.kamran@kasbsec.com)

THURSDAY, JULY 23, 2015 WELL-GROUNDED EARNINGS GROWTH; INITIATE AT BUY (PO: PRS108)

- We initiate coverage on PEL, a leading supplier of transformers and home appliances, with a Buy rating and DCF-based PO of PRs108 (24% upside).

- We expect 3-year earnings CAGR of 27%, based on (1) surging sales of transformers/refrigerators; (2) rising margins and (3) aggressive deleveraging.

- Premium vals are justified backed by multifaceted earnings growth and improving risk profile. We target 2015E P/E of 12x and EV/EBITDA of 8x.

MUHAMMAD SAAD ALI (Saad.ali@kasbsec.com)

FRIDAY, JULY 24, 2015 FY16 TO SEE STRONG FINANCIAL A/C; ANOTHER +VE FOR EXTERNAL STABILITY

- The latest details on Balance of Payment for June-15 highlight a financial account surplus of US$1.6bn, thanks to US$1.3bn worth loans.

- Potential strong financial account surplus in FY16E (~US$2.9bn) vs US$4.5bn in FY15, and more positive news on ratings front going forward, substantiate our view on external account stability.

- That said, we do not rule out the possibility of normalized 4% currency weakness in FY16 as the authorities are grappled with already overvalued REER (8.6% in Jul-Apr FY15) and adverse currency movement.

SARAH MAZHAR (Sarah.kamran@kasbsec.com)

STOCK MARKET SYNOPSIS

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

###Mkt. Cap (US$bn)###75.5###75.8###0.3%

Avg. Dly T/O (mn. shares)###479.2###660.1###37.8%

###Avg. Dly T/O (US$ mn.)###143.7###159.8###11.2%

###No. of Trading Sessions###4.0###3.0###-

###KSE 100 Index###35,887.7###35,815.2###-0.2%

###KSE ALL Share Index###24,889.6###24,957.6###0.3%
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Publication:Pakistan & Gulf Economist
Date:Aug 2, 2015
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