Pakistan Stock Exchange (PSX) continued its upward move during the week ended 16th December 2016. This bullish performance was led by calming political uncertainty over Panama paper and strong oil prices post Saudi Arab led deal, resulting in higher crude oil prices. This propelled gains in the index heavy Oil & Gas sector. However, activity at the bourse tapered 9%WoW with average daily volume at 357.6 million shares and volume leaders being second tier scrips like PIBTL, ASL, BOP, TRG and EPCL.
Key news flows during the week included: 1) US Fed increased interest by 25bps to and also hinted towards further increase in next calendar year, 2) a Chinese firm showed interest in participating Nishat Energy Limited (NEL) plan of setting up a 660MW power plant on imported coal, 3) ECC of the cabinet reversed its earlier decision to reduce the gas sale price for industrial sector to Rs400/mmbtu. However, it approved reduction in price for power stations and IPPs from Rs613/mmbtu to Rs400/mmbtu, 4) PSMC linked its US$460 million investment in a new Greenfield project with a steep cut in import duties and 5) Fecto cement decided to participate in bidding for Dewan Cement.
Performance leaders during the week were: POL, PPL, MEBL and SNGP; while laggards included: AGTL, FATIMA, FFBL and LUCK. Foreigners remained net sellers for the week, where outflows stood higher at US$46.8 million as compared to US$24.8 million last week.
Oil stocks will likely remain in limelight, following the OPEC and Non‐OPEC members’ decision to cut output and manage supply. Moreover, expected announcement of the textile policy next week will keep the sector in focus. On the political front, easing noise after Supreme Courts adjournment of Panama Leaks case hearing till January’16 is likely to remain positive for the market.
Beating expectations of analysts, Habib Bank (HBL) posted hefty increase in 3QCY16 earnings of 40%QoQ took 9MCY16 earnings to Rs17.47/share. The focal point was improvement in asset quality that came under considerable stress following the slowdown in GCC economies in CY15 raising concerns on further infection of its international exposure. However, with provisions going down by a substantial 67%YoY in 9MCY16 on the back of Rs336 million reversal in 3QCY16 (first after 2QCY14), analysts are now more optimistic on the bank's asset quality metrics. HBL's price performance has been driven by a confluence of factors such as: 1) Pakistan's inclusion into MSCI EM space, 2) interest rate cycle reversal drawing close and 3) a resilient earnings profile.
Recently released data by Pakistan Automotive Manufacturers Association (PAMA), Pakistan's total industry sales for November'16 grew by almost 12%MoM to 17,858 units, still below 19,029 units sold in November'15 – thanks to unchecked import of used cars. Car and LCV sales rose to 16,018 and 1,840 units respectively, up 10.8/19.9%MoM but down 2.9%/36%YoY pointing to the continued influence of the Rozgar scheme on industry sales growth. Taken as a whole, 11MCY16 sales showed a tepid decline of 9% YoY to 187,591 units sold under all segments. Cars/Tractors posted minor falls of 2.9/3.0%YoY to 163,339/39,170 units sold over 11MCY16, while LCV sales dipped 36%YoY to 24,252units. Three major OEMs remained within their seasonal trends, where HCAR was an outlier, with sales growth of 3.2%MoM/103.3%YoY (unit sales of 3,096units during November'16) driven by the new Civic. Additionally segment‐wise growth showcases a burgeoning demand side scenario for the 1000CC segment where cumulative sales for 11MCY16 were 26,128units up 28%YoY, while the 1,300CC and above segment sales of 84,769units experienced a slowdown, recording growth of 3%YoY as against 40%YoY growth experienced in the same period last year. 800 and below 1000cc segment experienced a decline of 20%YoY selling 52,442units during the period. Citing the launch of Revo/Fortuner variants, followed by resilience of the Corolla, superior operations and hedging of currency risk (60% localization, active hedging of order book).
In line with the broader textile sector that has been in limelight on account of the 1) upcoming textile policy, 2) inclusion in the zero‐rated tax regime and 3) implementation of new efficient refund mechanism, Nishat Mills (NML) remained in focus. Pakistan’s leading brokerage house, AKD Securities has lowered the portfolio discount to 40% (from 50%) on the back of improved trading volumes and betas of portfolio companies that face lower volatility, while improving the liquidity of NML's portfolio. The earnings profile remains encouraging with earnings growth of 26%YoY in FY16. Going forward, brokerage house expect profitability to remain strong that includes 22%YoY growth in FY17 underpinned by: 1) marked improvement in core operations on expected improvement in gross margin on account of improved production efficiencies and grant of zero‐rated regime, along with 2% growth in topline and 2) substantial growth in dividend income (up 12%YoY) on expectation of continuation of strong dividend payouts by associate companies.