Elixir Securities Limited – Pakistan Equity Market: Weekly Review

Karachi, April 13, 2018 (PPI-OT): Market Takes a Breather

After hitting new highs for 2018 last week, Pakistan Equities took a breather as KSE100 Index declined 1.2%WoW to close at 46,072pts. While trading activity remained flat at an average of 247mn shares/day, average daily traded value declined 30%WoW to USD80mn – indicating increased interest in small caps over the week.

With the dust settling on Amnesty Scheme announcement, market focus once again shifted towards deteriorating macro-economic environment. The latest blow in this regard came from Asian Development Bank (ADB) which now projects Balance of Payment constraints to slow down Pakistan’s GDP growth to 5.1% in FY19, from their projected growth of 5.6% in FY18. On the other hand, Moody’s Investor Services showed optimism on the recently announced Amnesty Scheme which can pave the way to partially alleviate Fiscal and External Account pressures for the country.

Banking stocks stood out as the largest contributors to market decline during the week. Having posted a strong rally on expectations of Amnesty Scheme, the stocks were undoubtedly due for a correction. Moreover, we expect 1Q2018 bottom-line for the sector to register a decline of 15%YoY due to lower capital gains.

Pakistan Petroleum (PPL), Fauji Fertilizer (FFC), Dawood Hercules (DAWH), Honda Atlas Cars (HCAR) and K-Electric Limited (KEL) were the top contributors to the index upside during the week. The two fertilizer stocks (FFC and DAWH) rallied on rumours of favourable regulatory decisions on Government Infrastructure Development Cess (GIDC – cess/surcharge on gas), subsidy and urea prices. PPL stood out as it caught up to the recent rally in global crude oil prices (+8%WoW) and market expectations of potential inclusion in MSCI EM Index via the upcoming Semi-annual Review (in May-18).

On the other hand, HCAR paired part of the losses it has been posting over the past few months as the company registered a phenomenal growth of 19%MoM / 41%YoY in its volumetric sales for Mar-18. KEL rallied 3%WoW as the Federal Cabinet ratified the decision of Cabinet Committee on Privatization (CCoP) for issuance of National Security Certificate (NSC) for sale of KES’ 66.4% shares of KEL to Shanghai Electric Power. Note that the deal is still in limbo due to disagreement on Multi-year Tariff for the company.

Foreign Portfolio Investment was recorded at USD17.5mn for the week, taking 2018TD net inflows to USD52.2mn. On domestic front, Individuals and Mutual Funds mopped up shares worth USD11.9mn and 6.6mn, respectively while Companies resorted to selling of USD22.0mn.

Key news this week

Gas supply: Fertiliser industry demands cut in tax on feedstock

March 2018: exports increase by 24 percent, highest in four years

Sale of cars soars to 16 percent YoY

CJP Sale of KES stake in KE: Cabinet ratifies CCoP decision (Power) – Positive for KEL

Budget 2018-19: Rs 219 billion subsidy on the cards (Economy) – Positive

Cement prices start rising again in North (Cement) – Positive

This week’s top stories

Faysal Bank Limited – Recent Price Performance Remains Unjustified

Pakistan Fertilizer Sector – Earnings to Rise on Higher Urea Sales

International Steels Limited – 3QFY18E EPS Expected at PKR2.83

Equity Market Outlook and Perspective

Crude oil gained 8% during the outgoing week owing to tension in Middle East, while E and P stocks failed to catch up to the rally owing to overall trend of profit taking. We thus expect the sector to come in the limelight in the coming week, particularly as the companies start to announce their financial results, starting with Pakistan Oilfields (POL) and Mari Petroleum (MARI) on Monday, 16th April. Other stock specific activity will also be observed as Financial Result Announcement Season enters into full swing from next week.