FLASHNEWS:

AKD Securities Limited – Stock Smart (09-07-2021)

Karachi, July 09, 2021 (PPI-OT): Weekly Review

Weak sentiment from last week coupled with geopolitical tensions in the region and uncertainty over talks with IMF continued to derail investor confidence during the week apart from Thursday’s session which saw massive buying from Mutual Funds in tune of US$12.7mn, helping the benchmark index to break the losing streak.

The index, however, could not sustain that level and closed in red in the following session by cumulatively losing 123pts (-0.26%WoW) to close at 47,563pts. First, the political uncertainty at the border post US-withdrawal from Afghanistan is creating a vacuum in a high foreign stake region while uncertainty over IMF stance on structural reforms regarding tax and energy sector continues to play on investors’ mind. In light of increase in COVID-19 delta variant and poor compliance of SOPs, NCOC has hinted towards a possible partial lockdown in the cities, further putting the investors on their toes.

Participation during the week remained dull with average daily traded volume standing at 485.9mn shares against 621.9mn shares witnessed during last week. Sector-wise, both cement and steel manufacturer increased local prices of cement bags and rebars amid soaring coal and scrap prices.

Major news flow during the week included i) NYSE-listed ETF offers exposure to Pakistani stocks which includes four firms Systems Ltd, Meezan Bank, Lucky Cement and The Searle Company, ii) Overseas Pakistanis remit US$1.6bn through RDAs, iii) Pakistan’s public debt rose (+8.23%) to PKR2.89tn in 11MFY21, iv) Pakistan sold US$1bn on Tuesday in a reopening of existing three-tranche bonds launched in Mar’21, a deal that raised $2.5bn, v) Govt raised PKR146.4 bin via fixed rate PIBs’ auction, and vi) The power division informed Senate panel that the circular debt had increased by PKR260bn this year.

Top performers of the market included i) AGP (+9.8%WoW), ii) SCBPL (+9.0%WoW), iii) GATI (+7.0%WoW), iv) HBL (+4.1%WoW), and v) HCAR (+4.0%WoW). Meanwhile laggards included: i) PAKT (-13.5%WoW), ii) HMM (-11.7%WoW), iii) KAPCO (-10.4%WoW), iv) STJT (-7.1%WoW), and v) ANL (-7.0%WoW). Flow wise, Companies remained the major buyers with (net buy of USD4.14mn) followed by Mutual Funds (net buy of USD3.91mn) while Broker Proprietary Trading stood on the other side with (net sell of USD4.01mn) followed by Insurance Companies (net sell of USD2.79mn).

Outlook

The market will look to pounce on the upcoming result season where we expect margin suppression for cyclical plays on the back of increased raw material costs. However, surprises could arise from players maintaining large (i.e. low cost) inventory. Auto assemblers and Auto part manufacturers are also expected to continue garnering investors’ interest with the recently announced incentives in auto policy. Construction and allied sectors, select Oil and Marketing Companies and Textiles are likely to perform well in anticipation of result season

MCB: Gaining prominence as a dividend play, (AKD Daily, Jul 09, 2021)

Updating our macro assumptions post budget FY22, we revise up our CY21-23F estimate for MCB Bank Limited (MCB) by 5.2% on avg., whereas LT earnings remains largely stable. Recalibrated TP stands at PkR239.6/sh (Previously: PkR223.4/sh) — an upside of 50.4% from last close while CY22 DY stands at an attractive 12.6%.

The catalyst for stock performance could be the beginning of monetary tightening possibly by 4QCY21/1QCY22. That said, concerns on potential exclusion of Pakistan from MSCI EM to MSCI FM could keep near term performance in check, providing attractive entry points in the stock.

MCB features robust earnings quality relative to its peers with CY21-23F ROE avg. at 15.7% vs. 12.8% of peers — a product of, i) bank refining its deposit mix in favour of CAs (1QCY21: 39.0% vs. 35.7% in the same period last year), ii) recoveries from NIB portfolio amid limited risks of credit fallout from existing portfolio and unwinding of COVID-related provisioning (cumulative provisioning of PkR4.5bn), and iii) strong value creation through cost containment (C/I: 44.4% avg. CY21-23F, lowest amongst peers).

Previewing 2QCY21 results, we expect MCB to post an NPAT of PkR6.9bn (EPS: PkR5.75), flat QoQ/YoY while dividend payout should stand at PkR5/sh taking cumulative payout to PkR9.5/ sh in 1HCY21.

Pakistan Fertilizer: Faujis on a march ahead! (AKD Daily, Jul 08, 2021)

We revisit our investment case on Fauji Fertilizer Bin Qasim Ltd (FFBL) and Fauji Fertilizer Company Ltd (FFC) on the back of continued uptrend in international fertilizer prices. DAP/urea prices in international markets are currently at US$650/420 per MT, translating into local price of PkR6, 400/4,200 per bag, respectively.

Based on the aforementioned bull cycle, we incorporate DAP primary margins for FFBL at US$190/MT for CY21, which are expected to normalize to US$150/120 per MT CY22/23F onwards (earlier assumptions: US$150/120/120 per MT for CY21/22/23F). Our revised urea prices are at PkR1, 675/bag for our investment horizon.

Our revised standalone earnings for FFBL and FFC for CY21/22F stand at PkR5.09/3.84 per share and PKR17.78/18.03 per share, respectively. We re-iterate our Buy stance on both FFBL (TP: PkR37/sh, upside: 34% at last close) and FFC (TP: PkR145/sh, upside: 37% at last close).
Pakistan Autos_PSMC lands in a macro sweet spot, (AKD Daily, Jul 07, 2021)
Primary beneficiary of the announced budgetary measures — Pak Suzuki Motors Company
(PSMC) is likely to witness strong uptick in volumes with avg. passenger car retail price to be potentially reduced by PkR0.1mn. Resultantly, we expect 2HCY21 sales registering a growth of 13.0% over 1HCY21, with further carry over the medium run (CY21-23 CAGR: +9.3%YoY).

Commodity Bull Run and reversal in PkRUS$ trend is expected to keep margins in check in CY21. However, normalization in commodity prices in the medium run should expand margins in our view (CY22-23 avg.: 6.9% vs. 5.9% in CY21E).

Hence, we expect earnings to register a CY21-23F CAGR of 24.1%. Upside to our estimates could come from limited pass-through of price benefits to end consumers (companies are yet to announce revised retail prices). In our base case, we have incorporated new model of Swift from CY22 with related-Capex reflecting in 1QCY21 financial statements (CWIP: +PkR2.3bn).

We have a BUY stance on PSMC with a Dec ’22TP of PkR396/sh, implying an upside of 17% on last close. The stock is currently trading at CY22/23F P/E multiple of 7.1x/7.2x. Key risks to our thesis comes from potential reduction in duties on imported CBUs under consideration in the upcoming Auto policy 2021-26.

Pakistan Steel: Scrap at 7yr high – rebar prices to increase further, (AKD Daily, Jul 06, 2021)

International scrap prices have increased by 21% CYTD to currently stand at US$517/mt compared to CY20 avg. of US$287/mt as global demand recovers with economic activity picking up while supply remains restricted

Additional stimulus to scrap prices has been provided by China lifting restrictions on import of scrap as local Chinese scrap prices made multi year highs on account of robust demand.

Due to robust demand (derived steel demand increased by 18% in FY21), local players were able to manage increase in input costs (scrap prices up by 90.5% for FY21) through swift pass on (local rebar prices up by PKR36-40K/ton or up by 36.4% FYTD).

ASTL has posted performance of 92% against 75.1% of KSE-100, an outperformance of 16.9% since Mar’20 while moving forward, with earnings growth of 17.0% for FY21-24 and PEG of 0.48x, we expect the stock to continue performing with our TP of PkR64/sh providing an upside of 45.1%.

Pakistan Cement: Highest ever sales for FY21, (AKD Daily, Jul 05, 2021)

Local cement sales had another bumper month, increasing by 22%YoY for Jun’21 as incentives provided to the construction sector continue to bear fruit with most of the increase being contributed by private sector.

Overall, total cement dispatches for FY21 stood at 57mn tons – highest ever — increasing by 19%YoY where local dispatches increased by 20%YoY to 48mn tons buoyed by construction sector package while growth was amplified by low base due to COVID-19 related restrictions placed in 4QFY20.

Coal prices continue to cause trouble, increasing by 35% since Dec’20 however local manufacturers have increased prices by PkR25-35/bag during last one month and we expect another increase of PkR20 25/bag to fully pass on the increase in coal prices.

Even though sector has remained under pressure recently due to increasing coal prices, we expect the sector to come back into limelight in 1QFY22 where we continue our preference for LUCK (TP: PkR1289/sh, 44% upside) and MLCF (TP: PkR80/sh, 72% upside).