Pakistan Stock Exchange witnesses 30 percent decline in daily traded volume

The benchmark index of Pakistan Stock Exchange (PSX) once again failed in crossing 50,000 barrier but managed to close at 49,556, ending its last 10-week bullish run. This slow down could be attributed to rumors of action by SECP against brokers that were warned recently over compliance issues primarily related to financing. Activity at the bourse tapered almost 30%WoW with average daily traded volume declining to slightly less than 370 million shares. The volume leaders were: KEL, TRG, DSL, LOTCHEM and ASL. Key news flows during the week included: 1) GoP initiated the process for sale of its 18.39% shareholding in MARI at 7.5% discount to the closing market price of MPCL shares of 27^th January this year of Rs1,402.9/share, 2) Sindh Bank Limited and Summit Bank begun due diligence process for merger, 3) Cabinet Committee on Privatization (CCoP) deferred the divestment of GoP's 5% stake in OGDC on the stock exchange until its share price touches Rs200/share, 4) SBP sold Rs589.7 billion worth of papers at the MTB auction held on 1^st February, where cut off yields on 3, 6 and 12 months increased and 5) GoP raised prices of petroleum products. Performance leaders for the week were: LOTCHEM, PSO, EPCL, ENGRO and MTL; while laggards included: APL, FFBL, INDU, MCB and FATIMA. Foreign participation continued its negative trend with US$15.31 million outflows compared to US$13.67 million a week ago. Going forward, the market is likely to take its direction from the ongoing results season where strong earnings growth by Banks, Cements and Autos is likely to provide impetus to market performance. Major results announcement next week includes MCB, ABL, PRL, PTC, CHCC, LOTCHEM and EPCL.  

Engro Fertilizer (EFERT) is scheduled to announce its CY16 financial results on Wednesday 8^th February. Analysts expect the Company to profit after tax of Rs10.79 billion (EPS: Rs8.11) for CY16 as compared to net profit of Rs15.03 billion (EPS: Rs11.29) for CY15, a fall of 28%YoY. The decline in earnings is expected on the back of: 1) gross margin (GM) sliding to 33.2% (including subsidy) on account of reduction in urea prices (down 9%YoY) due to depressed farm economics and low international price down 28%YoY to an average US$213/ton during the year under review, 2) 73%YoY decline in other income on account of reduction on term deposits and 3) 28%YoY decrease in finance cost on account of swift  deleveraging and low interest rate environment. However sequentially, analysts expect an increase of 79%QoQ in profit to Rs5.13 billion (EPS: Rs3.86) for 4QCY16 on the back of 61%QoQ growth in topline to Rs30 billion due to the increase in urea/imported DAP offatke to 630,000/292,000 tons due to Rabi season. Along with the result analysts expect a cash dividend of Rs2.50/share that could take full year payout to Rs6.9/share.

Pakistan’s largest oil marketing company, Pakistan State Oil (PSO) is scheduled to announce its 1HFY17 result on 6^th February where analysts expect it to post earnings of Rs9.67 billion (EPS: Rs35.61) marking an increase of 44%YoY led by 1) inventory gains of Rs1.2 billion (Rs4.42/share) as against inventory losses of Rs0.91 billion (Rs3.39/share) for 1HFY16, and 2) a 20%YoY growth in overall volumes.

A rather smaller company, HASCOL is also scheduled to announce CY16 earnings of Rs1.31 billion (EPS: Rs10.84) up 15%YoY, where the normalization of taxes is likely to erode profitability significantly. Staggered rise in global oil prices and increase in HSD/Mogas retail prices, with a 13% fall in additional levies translate into higher prescribed price pass through (increasing 6.5%). On quarterly basis, 4QCY16 earnings are expected to grow by 6%YoY to Rs404 million led by 46%YoY growth in total volumes. Full year earnings are likely to be accompanied by a final dividend of Rs3.00/share that could take full year payout to Rs6.5/share.

Pakistan Stock Exchange closes January 2017 almost flat

While the benchmark index of Pakistan Stock Exchange mostly remained on upward trajectory during January 2017, various factors also plunged it down. However, the month posted a nominal increase of slightly less than 2 percent. Though, the index breached 50,000 barrier it failed in sustaining this level and the month closed at 48,758 points.

The factors keeping the market under pressure included: 1) political volatility due to Panama case, 2) deteriorating economic indicators, 3) apex regulator enforcing rules more stringently and 4) foreign investors offloading their holdings. While foreigners remained net seller, local investors bought at dips.

Barring Automobiles and Chemical, all other major sectors posted flat returns. On top of that Oil & Gas and Commercial Banks ended in the red. The performance of market was mainly led by second tier scrips. As stated earlier, local participation remained robust, with average daily trading rising to 443 million shares, a hike of 26 percent.

Foreigners continued to trim their holding as part of the global strategy, with a net outflow of almost US$111 million during the month under review, taking net outflow to a whopping US$409 million. Positions were offloaded in Power Generation, Banks and Chemicals.

Going forward, the market is likely to take direction from the ongoing results season where strong earnings growth by Banks, Cements and Autos is likely to provide impetus to the market performance.

Attock Petroleum profit up by 92 percent

One of Pakistan’s leading oil marketing companies, Attock Petroleum Limited (APL) has reported better than expected financial results, mainly because of reversal of WWF expenses amounting to Rs621 million in 2QFY17. APL has posted profit after tax of Rs3.16 billion (EPS: Rs38.06) for the six-month period ended 31st December 2016 (1HFY16), up by 92%YoY, where ex-reversal earnings were Rs2.72 billion (EPS: Rs32.83) up by 66%YoY due to: 1) increase in gross margins to 6.4% as compared to 3.9% for 1HFY16 but lower sequentially as input costs rose, 2) profit from other associates recording a strong uptick (Rs68 million as compared to Rs14 million for the corresponding period last year and 3) finance costs rising 58%YoY as the company embarks on ambitious CAPEX plans.

Pakistan Oilfield earnings up by 3 percent

Pakistan Oilfield Limited (POL) has announced its second quarter, ended 31st December 2016 (2QFY17) financial results It has posted profit after tax of Rs2.34 billion (EPS: Rs9.88), up 3%YoY/1%QoQ. The earnings came slightly higher than expectation primarily due to better topline resulting from improved hydrocarbon flows. This took 1HFY17 earnings to Rs4.66 billion (EPS: Rs19.68), up 27%YoY. POL also announced an interim dividend of Rs15/share. Result highlights include: 1) topline up by 9%YoY to Rs7.08 billion in 2QFY17 owing to 19%YoY increase in average oil price to US$48/bbl and relatively improved hydrocarbon flows, 2) gross profit grew by 18%YoY to Rs3.48 billion during the quarter owing to growth in topline together with 10%YoY decline in operating costs, 3) exploration costs jumped to Rs126 million due to higher exploration activity during the period, and 4) pre-tax earnings grew by 16%YoY to Rs3.15 billion. However, 76%YoY higher tax expense at Rs806 million due to higher effective tax rate of 26% as compared to 17% in 2QFY16 kept earnings growth in check at 3%YoY.

                               

Pakistan Stock Exchange fails to sustain 50,000 levels

During the week ended 27^th January 2017, benchmark index of Pakistan Stock Exchange managed to cross 50,000 levels. It failed to sustain the level due to due to profit taking and closed the week at 49,964 points, up 1.21%WoW. Earnings and corporate announcements remained at the center of investor interest with major highlights including: 1) CHCC announcing capacity expansion of 2.1 million tons per annum, 2) PSMC’s plan to enter in to a JV to manufacture automobile glass and 3) ISL disclosing plans to enhance capacity. Volumes improved considerably during the week with daily average rising to 523.4 million shares, up 34.7%WoW with foreign outflows also tapering to US$13.7 million as compared to US$46.6 million a week ago. Top gainers were: EPCL, KEL, HUBC and BAFL, while laggards were: ASTL, SSGC, NCL and MTL.

Major news flows for the week were: 1) SECP constituted a committee to review matters of in‐house financing, 2) the ECC extended cash subsidy on domestic fertilizer sales and approved 0.3 million tons of urea till 28^th April, 3) CCP imposed fines of Rs62.3 million on EFOODS, Rs2 million on FFL and Rs0.5 million on Shakarganj Foods for deceptive marketing of dairy products as milk with EFOODS denying these allegations later, 4) FBR exempted sales tax on machinery imports by textile units and customs duty on import of 13 items for textiles till 30^th June 2018, 5) SBP raised Rs39.39 billion through PIB auction and 6) GoP signed implementation and power‐purchase agreements with two Chinese companies and HUBCO for setting up 1320MW coal plant at Hub and 330MW coal plant in Thar. With no excitement expected in the monetary policy review over the weekend, the market is likely to retain its focus on results announcements with major names in Sugar, Fertilizer, Foods and Autos reporting earnings. January CPI data due next week can prove a key in setting expectations for future interest rate trajectory. On the global front, the US FOMC is also scheduled to announce its interest rate policy, with broader anticipations of no change in the Fed rate.

Fauji Fertilizer Bin Qasim (FFBL) is scheduled to announce its full year financial results for CY16 on Monday 30^th January. The companies is forecast to post profit after tax of Rs678 million (EPS: Rs0.73) in CY16F as compared to net profit of Rs4.06 billion (EPS: Rs4.35) in CY15, down 83%YoY). This decline in earnings is expected on the back of: 1) gross margin (GM) coming off by 15.7% (including subsidy) on account of significant reduction in DAP prices (down 14%YoY) due to depressed international price trends, 2) a 39%YoY lower other income (excluding subsidy) on account of lower dividend payout from associated companies and reduction in term deposit placements, and 3) 19%YoY higher finance cost owing to increased borrowing to manage working capital requirements. Sequentially, analysts expect earnings to post a turnaround recording profit of Rs1.73 billion (EPS: R1.15) in 4QCY16 against net loss of Rs159 million (LPS: Rs0.17) in 3QCY16 on the back of 1.3xQoQ growth in topline to PkR23.7bn on account of increase in DAP offtake to 483,000 tons, courtesy the Rabi season. Along with the result we also expect a cash dividend of Rs0.60/ share. While earnings turnaround in 4QCY16 is expected to be led by strong volumetric growth, we feel an improvement in international pricing dynamics would be necessary for sustainability of the earnings trend, going forward.

Lucky Cement (LUCK) announced its 2QFY17 result posting consolidated/unconsolidated earnings of R4.34 billion/ Rss3.80 billion (EPS: Rs13.43/Rs11.75) in 2QFY17, up 16%YoY/12%YoY. The consolidated earnings came in line with the expectation of Rs4.27 billion (EPS: Rs13.21) where unconsolidated earnings of AKD Securities higher than our expectation owing to better than expected GM during the period. This was in spite of 68%YoY/30%QoQ surge in average coal price to US$85/ton suggesting LUCK utilized cheaper coal inventory during the period. On a cumulative basis, consolidated/unconsolidated earnings grew by 13%YoY/13%YoY to in 1HFY17. Growth in earnings was led by 1) Topline grew by 12%YoY/22%QoQ led by 16%YoY/19%QoQ growth in dispatches to 2.03 million tons in 2QFY17 as compared to 1.753 million tons/1.703 million tons in 2QFY16/1QFY17, (2) Gross Profit increased by 16%YoY/18%QoQ led by improved topline and 1.61ppt YoY GM expansion to 49.05% in 2QFY17, and (3) Other income growth  by 64%YoY/10%QoQ to Rs498 million in 2QFY17 owing to relatively higher cash and STI of Rs32.1 billion (Rs99.28/share).

                                                                 

                

United States: Boon or busted after Trump

As a student of Geopolitics in South Asia and MENA, I have repeatedly held the United States responsible for the turmoil in the region. I had even gone to the extent of saying that United States is the biggest warmonger. The super power loves to initiate a conflict that goes to the extent of anarchy and civil war.

This also invites other contenders to take part in proxy wars. While the sole purpose of United States is to sell its arms, it wants to keep others countries busy in fighting wars, rather than focusing on the welfare of their people. This also gives it a chance to keep the countries dependent on the World Bank and the IMF.

After having gone through what has been happening in the United States, after Donald Trump taking oath as new President, I am obliged to say that till recently the United States has been fanning hatred in the world, but now it is facing the same. Demonstration on the inaugural day and subsequent events clearly shows ‘Emergence of anarchy in the United States’. There are growing fears within the United States these demonstrations may turn violent.

Over the years the United States has been breading militants and using them in various countries to promote its agenda of keeping the countries in constant state of war. The worst examples are Syria, Iraq and Afghanistan. The blood thirsty mercenaries from around the world have landed in these countries. It may also be said that these militants have been moved from one country to another only to promote sale of arms.

One often wonders how the rebel groups get money. Even a cursory look at Afghanistan and MENA shows that poppy and petrodollars are used for purchasing arms. Various oil fields have been taken over by rebels, who are selling oil to the developed nations. The center of drug has shifted from golden triangle to Afghanistan.

Spy agencies of the United States have been alleging Russia for rigging election. This on one hand proves the failure of these agencies and on the other hand breakout of anarchy in the country that has been creating turmoil around the world.

Over the years, United States has been ringing alarm of nuclear assets going into the control of militants in various countries. One may ask the same question, will nuclear assets of United States be in safe hands, if the present demonstrations turn violent?

Pakistan stock market remains under pressure

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 26^th 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.