KSE Market Weekly

For straight fifth week, market ended in bearish zone losing almost 1800 points with comparatively improved participation volumes. News affecting market were persistent outflow from foreigners and selling from mutual funds on account of trimming exposure in Capital Preservation Fund. However cut of 50 bps interest rate in MPS, uplifting of Pakistan credit rating to Caa1 by Moody's, improving international oil prices, development of new oil reserve in Palli Sindh, falling cut of yields for PIB, increasing banking spreads in Feb 2015, rising textile exports by 0.5% YOY in 8MFY15, chances of withdrawal of tax exemption worth Pk180bn in FY16 Budget fail to inspire market participants.

The benchmark KSE-100 index was down by 1,842.43 points to close at 29,957.83 points. KSE All Share Index decreased by 1,108.31 points to end at 21,550.09, KSE 30-Index decline by 1,158.27 points to conclude at 19,069.19.

The ready market average volume improved by 23.69 to 174.72 million shares compared to 141.25 million shares traded on last week. The market capitalization of KSE down by Rs 343.88 billion to Rs 6.713 trillion against Rs 7.057 trillion observed last week.

Bank of Punjab remained overall volume leader during the week at 64.42 million shares, down by Rs 2.15 to close at Rs 7.81. Second on the volume leader was, Pakistan Elektron Limited decreased by Rs 6.13 to close at Rs 44.55 by trading nearly 62.70 million shares. KElectric limited remained as the third volume leader of the week by trading well over 52.23 million shares declined by Rs 0.65 to close at Rs 6.76. 

In the past week 361 scrips traded in which 41 scrips advanced, 307 declined while the value of 13 scrips remained intact.
Pakistan Tobacco and Philip Morris Pakistan remained the top gainer by Rs 75.50 and Rs 45 to close at Rs 850.50 and Rs 1,145 respectively, while Bata Pakistan and Unilever Foods were among the major loser which lost Rs 460 and Rs 299 to close at Rs 3,150 and Rs 8,501.



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SBP further eases the Monetary Policy - DR Down to 8%

In line with our expectations, State Bank of Pakistan has decided 50bps cut in the discount rate to 8% which is nearly ten year low.

Better Economic Indicator Leads to DR Cut:

Owing to better and increasing number of economic indicator, SBP has cut discount rate. Improving economic indicators include lower inflation readings, higher GDP projections, rise in foreign exchange reserves and controllable fiscal deficit.

CPI - A Core Factor:

CPI inflation continuously moving in downward trajectory and is expected to be well below the annual target of 8%. As per the latest data of Feb'15, CPI further eased to 3.20% YoY to 11-year low as compared to 3.9% in the previous month. Sharp dropped in inflation mainly contributed by 1) decline in transport fares, 2) overall stable food prizes, and 3) fall in petroleum product prices. We expect inflation to further ease at 2.7% in Mar'15.

GDP Likely to Improve:

We expect economy growth to continue with a growth of 4.8% in FY15. The main factor likely responsible for higher economic growth would be servicing sector as the sector is expected to post growth of 4.1% due to growth from finance & insurance sector, general government services and transport sector. Similarly, agriculture sector would also perform well due to better output expected from cotton and rice crops. Furthermore, large-scale manufacturing is likely to gain momentum owing to recent cut in policy rate and low prices of raw materials.

Current Account in Comfort Zone:

Current account is expected to remain in control during FY15 due to strong workers' remittances and declining import growth. Current account in Pakistan register surplus of $877 million during Feb'15 from deficit of $74 million in Jan'15. The current account surplus was made possible mainly due to receiving of Coalition support fund, reduction in trade deficit, income deficit along with higher workers remittance. 

Cements, Power, Textiles to be the Major Beneficiaries:

Decline in discount rate is enormously fruitful for companies that rely on borrowing. Cement sector to remain our top ranking sector and among them DGKC, MLCF, FCCL would provide decent opportunity to invest. Power is also leveraged sector as their need huge working capital which would reduce borrowing cost. On top of that power sector still providing double digit growth which hardly to find else where. Fertilizer sector players to enjoy the cut as well and we expect 5% increase in their earnings/valuations for CY15 but ENGRO and FATIMA are highly leveraged thus their earnings to
improve by 7% for CY15. On the other hands, banking sector earnings to marginally decline due to heavy investment in long term papers. 

Equity Market decline by 8% Provide Opportunity:

KSE-100 Index has drop 7.7% since 1 Feb'15 due to selling from foreign investors and conflict between SECP and brokers. We suggest investors should focus on dividend paying stocks and leverage companies while offshore investors and corporate result would be trigger for the market.

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Power Sector Gigantic Growth in 1H - FY15

Today we would discuss the performance of the Power sector during the 1HFY15.

Earnings Momentum Continues:

With continuation of gigantic growth of earning in power sector companies during 1QFY15,  2QFY15 too remain impressive for the sector as cumulative earnings of four companies i.e. (HUBC, KAPCO, NCPL, NPL) in our sample size hike by 91% to Rs 7.10 billion as against Rs 3.72 billion. The primary reason that resulted in higher earrings remains lower maintenance cost, efficiency gains, higher production bonus on account of better load factor and rise in other income.

Top Line Modestly Up:

Despite lower furnace oil prices, net sales of the sector remained marginally higher during the period mainly due to hike in load factor as revenue stood at Rs 163.61 billion against Rs 162.27 billion in 1HFY14 depicting increase by 1%. However, operating cost decrease by 3.5% due to lower fuel cost at Rs 142.91 billion compared to Rs 148.06 billon in 1HFY14. Gross profit hike by 46% to Rs 20.70 billion in 1HFY15 versus Rs 14.20 billion in 1HFY14.

Impressive Dividend Payout:

All the four companies have announced cash dividends for its shareholders along with corporate results. During the 2QFY15, Hub Power announced a cash dividend of Rs 4/share and Kot Adu Power Company by Rs 4/share. Similarly, Nishat Power announce first and second interim dividend of Rs1/share, Rs1.75/share totaling Rs 2.75/share in 1HFY15 against Rs 2/share in 1HFY14. Furthermore, Nishat Chunian Power announced Rs 2/share in 2QFY15 and Rs 1.5/share in 1QFY15 adding to Rs 3.5/share against previous year same period of Rs 3/share in 1HFY14.

KAPCO & HUBCO on Top Position:

Kapco and Hubco posted gigantic growth in earnings by 70% & 61.5% with PAT of Rs 4.83 billion (EPS: Rs 5.49) and Rs 4.74 billion (EPS: Rs 4.10) respectively. Similarly, NPL and NCPL too showed decent growth of 42.5% and 36% respectively in 1H-FY15. 

Recommendation:

We have a positive stance on the sector with our Dec'15 target price of HUBC and KAPCO is Rs 97/share and Rs 92/share respectively. 

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KSE-100 WEEKLY: Another Bearish Spell

Ongoing rift among regulators and brokers kept market in bearish zone. Raid at MQM 90 by rangers and its aftermaths seemed a reason for shrinkage of volume. KSE-100 index nearly lost 334 point in current week. Market took in account trigger like visit of SECP chairman to KSE, IMF appreciating Pakistan for boosting economic triggers, increasing Forex reserves, suspension of drug price freeze law by Sindh high court, chances of increasing gas tariff for April 1st, inaugural of KHI-HYD motorway, increasing remittances by 2% YOY, projection of record consumption of by petrol for march 15 by ministry of petroleum and HBL entering in agreement to acquire Barclay's Pakistan.

The benchmark KSE-100 index was down by 334.57 points to close at 32,929.09 points. KSE All Share Index decreased by 296.44 points to end at 23,418.05, KSE 30-Index decline by 495.47 points to conclude at 21,199.50. 

The ready market average volume reduced by 18.01% to 141.56 million  shares compared to 172.66 million shares traded on last week. The market capitalization of KSE down by Rs 121.56 billion to Rs 7.356 trillion against Rs 7.478 trillion observed last week. 

Pak Elektron remained overall volume leader during the week at 62.97 million shares, down by Rs 1.43 to close at Rs 54.47. Second on the volume leader was Jahangir Siddiqui Company, increased by Rs 0.06 to close at Rs 18.05 by trading nearly 52.35 million shares. Fauji Fertilizer Bin Qasim remained as the third volume leader of the week by trading well over 47.17 million shares declined by Rs 4.94 to close at Rs 51.72.  In the past week 366 scrips traded in which 134 scrips advanced, 218 declined while the value of 14 scrips remained intact. 

Shezan International and Rafhan Maize remained the top gainer by Rs 114.12 and Rs 65 to close at Rs 1,096.50 and Rs 10,450 respectively, while Unilever Food and Bata Pak were among the major loser which lost Rs 875.90 and Rs 150.18 to close at Rs 9,024.10 and Rs 3,749.99 respectively.

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HBL: Ends Well in CY14

MARKET REVIEW: 

Market witnessed volatile day, witnessing a low of 32,199 before closing near yesterday day closure. The benchmark KSE-100 index closed down by 26.98 point to close at 32,539.61 points. Weak law & order state as a result of MQM s 90 raid being carried out by rangers ignited market decline. Some Positivity was seen in fertilizer sector on anticipation that gas fares increase would hit only EFERT. Cement and other leveraged sector also ended high on chances of discount rate cut. Stocks led the bearish rally at KSE despite strong Economic outlook on expected approval of IMF $522 tranche this month on improving economic performance. 

Volume was 132m shares as compared to last 3 months average daily volume of 250m shares. Likewise, value traded also stood low at Rs7.5b/US$76mn versus last 3 month average of Rs14b/$140mn.

HBL: Ends well in CY14

Habib Bank Limited announced their result which was mind-boggling as company record highest ever profit with astonishing dividend payout. Earning of bank shows gigantic growth of 42% to Rs 31.11 billion against Rs 21.91 billion in CY13 which translates into earning per share of Rs 21.21 against Rs 14.94 during the same period last year. Remarkable performance mainly driven by 25% higher net interest income, 30% lower provisions and 33% rise in non-interest income. In 4QCY14 alone, bank reported after tax profit of Rs 10.61 billion (EPS: Rs 7.24) in 4QCY14 against Rs 6.95 billion (EPS: Rs 4.74) in 3QCY14, up by 15% YoY. Better earnings were witnessed due to 41% QoQ rise in non interest income, decline in provisions by 66% QoQ and 12% swell in net interest income. Moreover, company also announced cash payout of Rs 5.5/share, taking the total cash dividend of Rs 12/share for CY14.

Net Interest Income climbs 25%:

Net interest income surge by 25% to Rs 67.43 billion against Rs 53.81 billion in CY13 due to growth in the loan book, improvement in CASA ratio and repositioned towards longer tenors i.e. PIBs. Interest income surge by 15% to Rs 135.92 compared to Rs 118.56 billion in CY13 mainly due to investments in PIBs. However, Interest expense relatively tad up by 6% to Rs 68.49 billion in CY14 against Rs 64.74 billion in CY13 owing to increase in saving rate.

Good Support by Non-Interest Income:

Non-funded income increase by 33% to Rs 19.67 billion against Rs 14.74 billion in CY13 mainly driven by higher fees & commissions which surge by 20% to Rs 12.11 billion. Dividend Income rises by 49% to Rs 1,132 million in CY14 versus Rs 759 million in CY13 primarily due to better equity portfolio holdings. Provisions drop by 30% to Rs 734 million in CY14 against Rs 1,044 million in CY13. Net NPLs remained relatively stable at around Rs 13 billion while the coverage was maintained at over 83%.

Balance Sheet Strengthening:

The bank's total deposits increased by 8.8% to Rs 1,525 billion in Y14 against Rs 1,401 billion witnessed at year ended December 31, 2013 due to increasing  Domestic deposits by 6.6% to Rs 1.26 trillion. This was underpinned by a strong growth of 25% in current accounts which now stand at 31.5% of the domestic deposit mix, compared to 27% as at December 2013. Similarly, investments surge by 12% to Rs 924 billion versus Rs 826 billion witnessed December 31, 2013. Advances registered a growth of 6% to Rs. 595 billion due to more focus on investments. The Capital Adequacy Ratio (CAR) improved from 15.4% to 16.2% as at December 31, 2014. 

Recommendations:

We have a neutral stance on the scrip at present as it is trading at Rs 197.69/share providing upside potential of 13.3% from Dec'15 target price of Rs 224/share owing to expectation of lower spread and earnings in CY15.

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AUTO Sales Growth On The Rise

MARKET OVERVIEW:

Ongoing rift between regulators and local brokers related their trading capacity seems foremost reason for market’s bearish trend and lower participation volumes.  The benchmark KSE-100 index closed down by 293.98 point to close at 32,566.59 points. Anticipation regarding increasing gas fares for fertilizer kept this sector under selling pressure. Furthermore outflows from foreigners also triggered market decline.

Auto Sales Growth Continues

In our today's morning report we will discuss the latest data released on the automobile industry by the Pakistan Automotive Manufacturing Association (PAMA).

Cumulative Sales Up By 17%:

As per data available, overall auto sales (Car, LCV & Pickup) reached 102,491 units in 8MFY15 compared to auto sales of 87,951 units in 8MFY14, depicting surge of 17%. The higher sale was mainly attributed to robust sales volume of Indus after introduction of new model and better farmer income. In February'15 alone the auto sales stood at 17,356 units surge by 36% YoY from 12,789 units sold in Feb'14.

Production Levels Too Moved Up:

Likewise sales, the auto production too remained higher during the period as the cumulative production of Car, LCV & Pickup reached 102,661 units in 8MFY15 growing by 19% against production of 86,322 units during the similar period in FY14. In February'15 alone, the auto production increase by 23% totaled to 14,644 units against 11,893 units produced in February'14.

ACPL: Higher Cement Prices Boosts Earnings

Market Overview:

Market nosedived in current trading session, closing near the previous two month low.
SECP's probing brokers and mutual funds against inside trading. The benchmark KSE-
100 index down by 270 point at 32,591.57 points.

ACPL: Higher cement prices boost earnings: 

Attock Cement Company limited (ACPL) witnessed decent growth of 18% growth in
bottom-line as company posted earnings of Rs 1,025 million (EPS Rs 8.95) in 1HFY15
against Rs 871 million (EPS Rs 7.61) in 1HFY14. Surge in earning mainly attributed to
higher retention prices, better sales mix and surge in other income. Likewise, earnings
rise by 18% QoQ to Rs 554 million (EPS: Rs 4.84) against Rs 470 million (EPS: Rs 4.11)
during 1QFY15 owing to 2% rise in volumetric sales and lower coal prices along with
higher other income.

Strong prices propel revenue

Net sales of the company surge by 7% to Rs 6.36 billion in 1HFY15 compared to Rs 5.96
billion owing to the higher cement price which on average increased by 11% at Rs
522/bag versus Rs 469/bag in 1HFY14. Volumetric sales hike marginally by 1% to 925k
million tons in 1HFY15 against 920k million tons witnessed in 1HFY14. Local dispatches
witnessed decline of 14% to 511k tons in 1HFY15 versus 593k tons in 1HFY14. While
exports increased by 26% owing to higher demand in East Africa, South Africa and Sri
Lanka.

Gross margin getting stronger

Gross profit of the company showed growth of 18% at Rs 1.99 billion versus Rs 1.69 billion
in 1HFY14 mainly due to higher cement prices and lower cost of sales. Cost of good
sold marginally rise by 2% to Rs 4.37 billion against Rs 4.27 billion in 1HFY14 due to
lower coal prices. Gross margin considerably increased to 31.4% from 28.3% in 1HFY14.
Retention prices up by 8% to Rs 6,865/ton versus Rs 6,363/ton in 1HFY14. Similarly,
EBITDA per ton increased to Rs 1,666/ton against Rs 1,400/ton in same period last year.

Rs in million                        1HFY15    1HFY14    YoY    2QFY15   1QFY15   QoQ
Net Sales                               6,369         5,967        7%        3,193       3,176        1%
Cost of Goods Sold               4,372         4,276        2%        2,138       2,234       -4%
Gross Profit                           1,997         1,691        18%      1,055        942         12%
Distribution Cost                    544            435          25%        273         271          1%
Administrative Expense         174            151          15%         87            88         -1%
Other Expenses                      102              83           23%        56            47          19%
Other Operating Income        214            117            83%     122            93          31%
Operating Profit                    1,391         1,139          22%     761         630           21%
Finance Cost                           15              12             29%        6              8           -25%
Profit before Taxation          1,376          1,127         22%      755          621          21%
Taxation                                 352             256           37%      201         151          33%
Profit after Taxation            1,025            871           18%      554         470          18%
EPS (Rs)                                8.95           7.61                          4.84      4.11

Recommendation:

At the current price of Rs 187.04/share, the scrip has an upside potential of 19.4% based on our December 2015 target price of Rs 223/share.

Source: Company Report & AZEE Research.

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