Due to political uncertainty and regulatory pressures the
benchmark of Pakistan Stock Exchange index remained unexciting. The week ending
17th March 2017 closed at 48,409 points, down 1.6% WoW. Soft global
oil prices, SECP’s action to curtail in-house badla financing and political
uncertainty kept the market under pressure. Key news flows during the week were:
1) SBP raised Rs284 billion through short‐ term government
papers, 2) in line with expectations, the US Fed raised interest rates, 3) in
addition to independent power producers’ claims of over Rs414 billion, non‐payments
to oil companies were reported at more than Rs300 billion, 4) Ministry of Finance
approved payment of Rs6 billion on Thursday for the state owned PSO to avoid an
international default, and 5) HUBC and FFC announced in separate notices the
offer and receipt of an equity divestment plan relating to Thar Energy Limited.
(TEL), a 330MW mine mouth coal fired project in Thar Block II. Stocks leading
the bourse were: MEBL, ASTL, FATIMA, and ICI. On the other hand, laggards were:
HMB, PPL, and FFBL. Volume leaders were: KEL, BOP, TRG and ASL. Subdued global
oil prices, strengthening US$ and global trade related developments over the
upcoming G‐
20 summit may impact the domestic markets. At home, any clarity on the political
front could trigger bullish sentiment, while policies and budgetary
developments for the Finance Bill FY18 can be expected to sway markets.
The PRK has remained stable over the last year,
weathering the worsening external account position. While current account deficit
is up 90%YoY during 7MFY17 and reserve position (down US$1.75 billion from its
peak) has deteriorated, PkR/US$ has remained stable at PKR104.8/US$, which is
reflective of GoP's resolve to keep exchange rate stable. Going forward,
analysts see little pressure on the PRK over the short term, primarily
supported by an expected recovery in forex reserve position. In this regard,
analysts see support from expected inflows including: 1) up to US$1.0 billion
from planned Eurobond/Sukuk issue, 2) US$550 million under CSF disbursement and
3) likely US$4.0 billion from project lending and commercial loans budgeted for
the year along with room for greater accretion from CPEC related inflows.
Incorporating this,
AKD Securities has recently revisited its investment case
for PIOC, incorporating recent cement price increase and expected continuation
of clinker sales. While rally in coal price is expected to shrink gross margins
(GM) and dampen earnings, recently installed 12MW WHR is expected to partially
make up for the above. In this regard, the brokerage house expects an after‐tax
operational savings of PKR1.11/PKR1.82 in 2HFY17/FY18. Besides, the company
revealed its plans of: 1) revising up its cement expansion capacity from 2.21 million
tpa to 2.52 million tpa, 2) installing separate line of 12MW WHR for the
expansion and (3) setting up 24MW coal CPP. The total capex associated with the
projects is expected to be around PKR25 billion. Though, the brokerage house
has not incorporated the aforementioned projects due to awaited details, it expects
the expansion to result in increase in FY20‐23 average earnings.
Moreover, the new line of WHR and coal CPP are together expected to result in
incremental earnings.
