The benchmark index of Pakistan Stock Exchange remained
volatile during the week owing to political developments related to Panama
case. With changing tone of the Supreme Court bench in favor of Prime Minister,
the market reversed its earlier losses and closed at 49,365 levels, up
0.31%WoW. Textiles, Autos and Steels were the major driving sectors owing to
announcement of textile package, early models launch/robust sales, and
imposition of anti‐dumping duty on CRC imports,
respectively. As against this, E&Ps and Banks provided major drag on Index
due to foreign selling as Privatization Commission approved divestment of OGDC,
and expectations of delay in interest rate liftoff, respectively. Average daily
traded volumes fell by 20%WoW to 489 million shares where volume rankings
continued to be occupied by second tier scrips such as: TELE, FABL, KEL, SSGC
and BOP. Volume leaders during the outgoing week included: MTL, SNGP, HCAR,
PSMC and ICI, while laggards included: OGDC, ASTL, HBL, UBL and PSO. Key
developments during the week included: Prime Minister restored subsidy on fertilizer
which was earlier withdrawn by the Ministry of Food, 2) SECP proposed setting
requirement all equity funds and funds of funds would have to maintain at least
5% of net assets in cash and cash equivalents, 3) NTC imposed anti‐dumping
duty of 13.17%‐19.04%
on imports of cold rolled coils/sheets from China and Ukraine for a period of 5
years, 4) Privatization Commission approved initiation of capital market
transaction of OGDC’s with divestment of up to 5% stake, and 5) The cut‐off
yield declined slightly at the latest Treasury Bills auction with heavy
participation of Rs1.071 trillion, while bids valued Rs538 billion were
accepted. The market is expected to remain volatile in near term due to political
risk associated with ongoing Panama case hearings. Possible selling spree of
mutual funds to meet proposed SECP requirement can create additional pressures.
Expectations of delay in interest rate liftoff may continue to keep banking
sector under pressure. While analysts expect status quo in upcoming Monetary Policy
announcement later this month, it can shed further light on interest rate outlook.
However, analysts also believe that Textiles, Autos and Steels to remain in
limelight due to aforementioned developments. Telecom/IT sector may also garner
investors’ interest as the government plans to announce tax relief package for
Telecom/IT sector.
With a sharp rise in December'16 (US$1.08 billion),
current account deficit in 1HFY17 has accumulated to US$3.58 billion, higher
than the deficit recorded for the last fiscal year. The deterioration in 1HFY17
reflects weak trade dynamics (trade deficit up 15.6%YoY) on declining exports
and tepid remittances. Going forward, analysts expect the trend to continue
with FY17 current account deficit at 1.85% of GDP on account of anticipated
increase in imports as crude oil prices stabilize at higher levels and remittances
failing to provide support. Concerns also remain on foreign investments as FDI
from China has remained lower this year (down 54%YoY in 1HFY17) with the 10%YoY
increase in 1HFY17 reflecting US$462 million flows under EFOODS's acquisition.
Within this backdrop, analysts highlight mounting risks on foreign exchange
reserve with upcoming external repayments (cumulative US$1.5 billion‐ US$1.75
billion under Eurobond, Paris Club and China SAFE debt retirement) largely
funded through debt flows.
Lucky Cement (LUCK) is scheduled to announce its 2QFY17
result on 26th of this month and expected to post
consolidated/unconsolidated earnings of Rs4.27 billion/Rs3.48 billion (EPS: Rs13.21/Rs10.78),
up 10%YoY/6%YoY from Rs3.87 billion/Rs3.29 billion (EPS: Rs11.97/Rs10.16) for
2QFY16. The growth in earnings is expected to be led by growth in topline owing
to 11.3%YoY growth in dispatches as domestic dispatches are expected to go up
23.3%YoY backed by stronger domestic demand and additional sales of clinker to
FCCL. However, increase in average coal price by 68%YoY is expected to shrink gross
margin (GM) to 43% limiting gross profit growth to +1%YoY. Inter alia, 17%YoY
decline in distribution cost due to fall in export dispatches by 28.5%YoY, and
76%YoY higher other income due to higher cash base is expected to result in
further earnings growth. Consolidated earnings are expected to get a further
boost from operations of 50MW wind farm and 1.18 million tpa cement plant in
Congo.
AKD Securities has revisited its investment case for ASTL
owing to recent increase in re‐bar prices by Rs3,000/ton.
The increase in re‐bar prices is attributable to the rise
in imported scrap prices and Chinese re‐bars prices. In this
backdrop, ASTL has rallied 44% during January’16 so far, while further increase
in domestic re‐bars
prices is anticipated. In this regard, analysts estimate Rs1,000/ton increase
in re‐bars
prices to potentially raise earnings. However, they highlight that the local re‐bars
prices are being raised to pass on cost of scrap where US$10/ton increase in
scrap price is expected to dampen earnings by Rs0.88/share while it will
require Rs1,300/ton increase in re‐bars price to
completely pass on this cost. They also believe that ASTL's price rally has
been overdone.
