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Market Review

The KSE-100 index fell 2.7% WoW, closing at of 32,761. ADTO slid by 34% WoW to 135mn shares. The average daily value traded also decreased 31% to US$61mn. Foreign institution flows remained negative this week clocking in at US$4.7mn vs outflow of US$7.6mn last week. The index extended the long spell of high volatility and dwindling volumes. The surprise 50bp cut in the policy rate by SBP over the weekend did not manage to cheer up the market, as the overhang from possible crackdown on large brokers and potential rout in global markets had US Fed raised rates. Even though the former remain a speculation and the latter did not materialize, lack of new triggers will extend sluggish activity, in our view. Government's efforts to reform the energy were clouded by many uncertainties; some of which, however, were reportedly resolved by the end of the week.

This included the political finger-pointing in the Nandipur power plant which has yet to come fully online; ECC expressed reservations of how LNG is being imported in the country, without a concrete system and pricing mechanism is place; and power tariff were slashed by PRs2.19/KWh. As per Minister of Petroleum and Natural Resources, the government has finalized terms with Qatar for import of LNG. Fitch Ratings assigned Pakistan a long-term foreign and local currency issuer default rating of B' with a stable outlook. MCB Bank Limited finally received a nod from SBP to formally start its Islamic banking operation through its wholly owned subsidiary, MCB Islamic Bank Ltd. Mari made a significant hydrocarbon discovery at exploration well Kalabagh-1 A in the Karak Block, with three formations flowing ~8mmcfd of gas and 840bpd of oil/condensate in total.

Cement company results during the week were largely in line with market expectations. Pakistan has named three banks for a potential offering of Eurobond end of this month. Citigroup, Deutsche Bank and Standard Chartered have been appointed joint lead managers and will arrange meetings with fixed-income investors. Forex reserves increased to US$18.726bn.


With the result season over and MPS already out of way, the market will remain in search of triggers for a clear direction. Both the much-rumors crackdown on local brokers and selling by foreign institutions will continue to weigh in on the market's sentiment in the upcoming week. We maintain preference for high earnings quality and growth plays, where our top picks include LUCK, DGKC, ENGRO, EFERT, UBL, POL, PPL, PAEL, OGDC, and ICI.


PKR, gas tariff, GIDC: exporters' demands rejected by government

In an unsurprising move, the government has turned down demands of exporters to depreciate rupee lower gas price and withdraw GIDC. As an only assurance, the government assured exporters that the issue of delays in refunds would be dealt with in one week.

LNG import marred by controversy

Recently, there has been a lot of controversy surrounding the 9 LNG cargoes imported from Qatar according to the Master Sale and Purchase Agreement (MSPA) signed between PSO and Qatargas no details of the MSPA have been released yet.

IMF tranche: LoI to be submitted today

The government is all set to submit a Letter of Intent (LoI) today to International Monetary Fund (IMF) for the release of next tranche under the Extended Fund Facility (EFF). The LoI describes the policies that Pakistan intends to implement in the context of its request for financial support from the IMF. The IMF board is likely to meet later this month to approve release of ninth tranche.

OGDC Hydrocarbon Discovery

As per KSE notice, Oil and Gas Development Company (OGDC) has made a hydrocarbon discovery from Aradin Well-I in the Khewari Block, which has flowed 5.10mmcfd of gas..

SBP sells MTBs worth Rs142.53bln; yields down

In the latest T-bill auction, the cut-off yields fell by upto 47bp to 6.48%/6.48% for 3-month and 6-month T-bills, while 12- month T0bills were rejected. The sharp decline in yields was expected following the recent 50bp cut in discount rate (Sep-15 MPS).

LNG price deal with Qatar finalized

Reportedly, Pakistan has finalized terms with Qatar on LNG deal which sets LNG prices at 13.7% discount to three months' average price of Brent in a slope form for 14 years with price opener clause after 10 years. Minister of Petroleum and Natural Resources is said to have confirmed this arrangement.


Monday, Sep 14, 2015 SBP adopts pro-growth stance, cuts policy rate by 50bp

- SBP cut the policy rate by 50bp to 6%, while making concurrent adjustment in the discount rate and associated banks' Minimum Deposit rate to 4.0%. While the decision carried a surprise for the consensus, the capital markets' reaction is likely to be more limited.

- Our new KIBOR estimates are lower by 50-150bp for FY16E/17E, as we expect a hike in policy rate by 50bp in 4QFY16 vs earlier 100-150bp.

- Lowering of borrowing costs further is positive for cement, textile, select fertilizer. Positioning of banks' balance sheet, points to limited negative impact on banks' CY16E earnings estimates.



Tuesday, Sep 15, 2015 KOHC - Strong growth ahead despite project delay

- KOHC delivered a positive surprise with better-than-expected earnings of PRs7.06/sh in 4QFY15, bringing FY15 EPS to PRs21.50 up 5.3% YoY. The company also announced above-expected DPS of PRs4.0 bringing total payout to PRs9.0/sh.

- We trim KOHC's FY16E EPS by 7% to PRs28.55 amid delay in expected delivery of energy-efficiency project but we reiterate our liking on KOHC, on the back of (1) company's strong earnings growth despite our latest revision; (2) impressive balance sheet position (~PRs5bn in cash) and (3) undemanding valuations (27% upside to our PO of PRs260).

- We believe that KOHC might be looking for expansion in this phase, probably eyeing the Punjab region which we believe will be the hub of infrastructure activity and thus cement demand in the future.


Wednesday, Sep 16, 2015 Farmer relief package: Populous tinge with growth consideration

- The government has announced a PRs341bn (1.1% GDP) relief package for the agriculture sector, focusing on four areas: prices support, input cost, loans and productivity.

- We believe the recent development poses upside to our GDP growth forecast of 4.5%, given potential demand accretion for consumer goods.

- The measures announced in the package will prove to be negative for fertilizer margins due to reversal of rise in urea prices. It will likely have positive implications for auto and cement sectors and macros at large; though it will likely be neutral for banks and power.


Thursday, Sep 17, 2015 Positive trend in NIMs to support earnings ahead

- We believe banks' latest asset and liabilities positioning, coupled with trend in T-bill/OMO auctions, points to sustainability of robust margins in 2H despite downward revision in policy rate of 50bp (to 6%).

- NIMs for our covered banks jumped 20bp QoQ to 4.81% in 2Q15. The strong NIMs can prove to be source of earnings surprise for the 3Q and pose upside risk to consensus estimates.

- Our analysis suggests BAFL, HBL and MCB are suitably placed to deliver potential surprises though UBL may not lag behind far.


Friday, Sep 18, 2015 PIOC - Growth well on-course; reiterate Buy

- PIOC posted a FY15 EPS of PRs10.99, up 41% YoY, which was in line with market expectations, along with a final DPS of PRs4.40 (FY15: PRs6.25). We leave our estimates unchanged, but have calibrated future payout.

- We eye strong earnings CAGR of 18% over FY15-17E, based on energy efficiency project, impressive ability to churn out robust cash flows, and strong balance sheet position.

- We reiterate Buy on PIOC (PO: PRs106, 20% upside); the stock is trading at undemanding P/E of 7.62x on FY16E earnings and offers 7% D/Y.






Mkt. Cap (US$bn)###69.4###67.4###-2.8%

Avg. Dly T/O (mn. shares) 205.5###135.2###-34.2%

Avg. Dly T/O (US$ mn.)###87.9###60.5###-31.1%

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

KSE 100 Index###33,672.7###32,761.0###-2.7%

KSE ALL Share Index###23,561.6###22,981.4###-2.5%
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Publication:Pakistan & Gulf Economist
Date:Sep 27, 2015
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