AKD Securities Limited Equity Research – Daily Report

Karachi, January 02, 2019 (PPI-OT): Pakistan Strategy: Patience wins the Game

Lacking in direction, Pakistan’s story was rightfully mirrored by the PSX in CY18 where economic conditions imposed on market sentiment. The end game, however, is likely to be played out in CY19 in our view as Pakistan finally tackles its vulnerabilities – both external and local. With the KSE-100 offering a limited 17% upside to our Index target of 43,500, we believe the journey will once again mirror economic re-building, as characterized in CY18. Investors will continue eyeing developments on the political and economic arenas where materialization of IMF inflows will be a key check point.

Any announcement to this end may result in a de-coupling of the market from economic variables, at least in the short run. On the flip side, delays in an IMF package could trigger fresh waves of skepticism where we may potentially see the market de-rate to 33,800. Pace of currency and interest rate adjustment will remain contained in CY19 in our view, however, current interest profile has ramifications for the broader economy (GDP growth: 3.8%YoY), with particular emphasis on leveraged plays. Market valuations (P/E: 7.2x, D/Y: 7.6%; Earnings Growth: 14%), while conducive for long term investing, remain insipid on an interest adjusted basis. Preferred plays include a mix of growth and dividend where top picks include MCB, BAFL, HUBC, OGDC, LUCK, NML and INDU. Alpha plays we like include BAHL, APL, SYS and GATM.

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