Pakistan Market Statistics (Jun 13, 2012)

KSE-100 Index	13,368.89
Previous KSE-100 Index	13,429.56
Change from last closing - Negative	-60.67
Change from last closing (%)	-0.45%
KSE Market Capitalization (Rs. bn)	3,415.09
KSE Market Capitalization (US$ bn)	36.21
Total Volume (Shares mn)	77.66
Total Ready Market Value (Rs. bn)	3.46
Total Ready Market Value (US$ mn)	36.74
KSE-30 Index	11,499.50
Change from last closing - Negative	-58.72
Change from last closing (%)	-0.51%
KSE Future Volume (Shares mn)	9.67
KSE Future Value (Rs. mn)	756.68
KSE Future Spread	7.83%

Pakistan Market Statistics (Jun 13, 2012)

Oil & Gas Dev. Company: Getting attractive again

 

Event

·         Apart from the ongoing judicial, political and U.S relations crisis, the recent decline in the global commodities and equities has also affected Pakistan’s market. OGDC has fallen by 12.1% since touching its 16 months high of PKR170.7 last month, compared with market decline of 8.1%. Owing to the recent decline in OGDC’s stock price, recent exploratory success, and aggressive E&D program, we upgrade OGDC to ‘Outperform.

 

·         We have rolled forward our discounting period to June-13 from June-12, and slightly adjusted our earnings to incorporate higher production from Tal. Our revised target price for OGDC comes to PKR168.5/share.

 

Price catalyst

·         Jun-13 price target: PKR168.5/share.

 

·         Catalyst: Success on exploration and development front (especially in Zin), increase in Qadirpur pricing in dollar terms, and resolution of circular debt.

Oil & Gas Dev. Company: Getting attractive again

NCPL: Lifting estimates; low risk to 2H payout seen

 

We raise our FY13E/14E earnings estimates by 13%/4% to PRs6.16/PRs6.89 after factoring in recent exchange rate weakness and lower O&M costs.

 

However, we lower our FY12E estimate to PRs5.84/sh (-1%) owing to lower plant generation in 4Q. We reiterate Buy with a new PO of PRs18.0/sh (+2.2%).

 

Possible inking of side agreements with GoP remains a possibility in the near-term which would enable the company to remain insulated from imposition of LDs for non-availability of capacity.

 

We assign low risk to NCPL skipping 2HFY12 cash payout despite ongoing liquidity strain. We have based our expectation on likely future cash injection in the energy sector.

 

Our conviction on NCPL remains intact, with the stock offering highest in-peers FY13E D/Y (20%) along with implicit PRs/US$ IRR of 23%/19% at current levels.

NCPL: Lifting estimates; low risk to 2H payout seen

MF Industry: Maintaining positive trend

                                    Written as on June 13, 2012

Highlights

            •         Budget measures to bode well for Mutual Fund Industry

            •         Mutual funds AUM up by 4% MoM in May-12 to stand at Rs390bn

            •         Equity funds avg. returns improved, outperforming the benchmarks

           

 In today's Value Seeker, we present FY13 budget measures’ impact on Mutual Fund Industry along with recent performance for the month of May-12 as well as 11MFY12 period.

Budget measures to bode well for Mutual Fund Industry

In order to discourage the practice of tax arbitrage by banks through dividend income form subsidiaries, the Gov't has proposed to enhance tax rate on dividend received by banks from income and money market funds to 25% in 2013 and 35% from 2014 onward in Budget FY13. We expect this development will result in withdrawal of investments from AMCs due to which the AUM of the AMCs may shrink. However the banks can opt for bonus option (instead of cash dividends) thus avoiding proposed measure. While, in FY13 budget, the limit of investment for tax credit is being enhanced from 15% to 20% of the taxable income. The limit of maximum tax credit is also enhanced to Rs1mn of yearly taxable income. This would be favorable for mutual funds investors to claim higher tax shield. On the other hand, the holding period of investments in funds is reduced to 24 months from 36 months earlier. Furthermore, tax relief has been proposed in this year budget for provident funds if investments are made through pension and retirement funds scheme.

Mutual funds AUM up by 4% MoM in May-12 to stand at Rs390bn

Mutual funds industry posted the growth of ~4% in May-12 to reach at Rs390bn compared to Rs377bn last month. With lackluster activity witnessed in bourses during the month amid uncertainties regarding FY13 budget, investments of mutual funds remained skewed towards money markets funds as AUM for money market funds increased by 10%MoM to Rs161bn. Meanwhile, activity in other segments of the mutual funds industry remained glum. On category-wise basis, open-ended funds grew by 3.6% MoM while closed end funds declined by a meager 0.7% during same period to reach at Rs367bn and Rs24bn respectively. During 11MFY12 (Jul-May), the mutual funds appreciated by 63% compared to an appreciation of 33% witnessed during same period last year.

MM funds remain front runner in fixed income category

In fixed income category, income funds category remained subdued as just 0.3%MoM appreciation to Rs88bn was witnessed in AUM compared to performance of Money market funds discussed earlier.  The income funds category posted average annualized return of 11.6%MoM in May-12, 690bps more than previous month's return of 4.7%MoM. However, money market funds category posted average annualized return of 10.6%MoM in May-12, 20bps less than previous month's return of 10.8%MoM.

Equity funds avg. returns improved, outperforming the benchmarks

The equity funds category decreased by 2.1%, to reach at Rs50bn. However, during 11MFY12, the equity funds category remained in negative trajectory and declined by 3.6%. Against the KSE100 index decline of 1.5%MoM, the equity funds category posted average loss of 0.1%MoM in May-12 returns, while during 11MFY12; equity funds category outperformed the benchmark KSE100 Index and KSE30 index by 410bps and 1120bps respectively generating returns of 14.4%, as against the KSE100 index return of 10.3% and KSE30 Index of 3.2%.

MF Industry: Maintaining positive trend

HUBC: Narowal & US$ parity to keep earnings intact

 

June 14, 2012 (JS Research)

 

 

FY12 has proven to be an eventful year for HUBC during which the two co-founders (Xenel Industries and National Power International Holding) took an exit from the company and the withholding tax matter on the issuance of shares to sponsors re-emerged. However, post COD Narowal tariff that is expected to be notified by NEPRA before the end of FY12 and the sliding PKR against USD (down 4.6% in 2012YTD) are to mitigate the negativity related to tax payment of Rs1,615mn, which translates into a cash outflow of Rs1.4/share. The Withholding Tax issue with the FBR may hamper its dividend paying ability for FY12. However, HUBC remains one of our top defensive picks in KSE due to its dividend yielding nature amid high earnings certainty. We currently have a ‘Buy’ call on the stock with the target price of Rs48.

 

Withholding tax issue and dividend payout

The issuance of shares to the sponsors against project development costs has been in the limelight lately due to non deduction of withholding tax on it. HUBC has recently decided to avail the scheme offered by FBR and pay Rs1,615mn which will waive off the penalties and any other charges related to late payment of withholding tax. The likely impact will be a cash outflow of Rs1.4/share which may hamper its dividend paying ability in its final year announcement of FY12. Previously, we were expecting a final dividend of Rs3/share in addition to Rs3/share paid as an interim dividend. However, with this development we may see a drop in final dividend payout to Rs2/share.

 

Impact on earnings

As per the management, this cash outflow may not impact the earnings until the final decision of Supreme Court in this regard. To recall, HUBC has filed an appeal in Supreme Court against the decision of Islamabad High Court after its dismissal by the later. The company may continue to report the cash outflow as receivable from FBR until the case is in progress.

 

Narowal tariff to be notified by NEPRA

The post Commercial Operation Date (COD) tariff is expected to be notified soon by NEPRA. The finalization of tariff for Narowal project is expected to result in enhanced earnings of ~Rs1/share in FY12 that will somewhat offset the negative impact of withholding tax issue on the earnings in case the Supreme Court decision comes against the company.

 

PKR depreciation against USD

As HUBC’s tariff payments are dollar based, its earnings are sensitive to exchange rate movements. Therefore, it is likely to benefit in the depreciating PKR environment as the PKR has depreciated 4.6% in 2012YTD.

 

 

Outlook

We believe the pending withholding tax issue may end up hampering the dividend paying ability of the company for FY12. Nevertheless, we remain positive on the stock, as it is still one of our top defensive picks owing to its dividend yielding nature amid high earnings certainty. Moreover, based on its rising Project Company Equity (PCE) component of the Capacity Purchase Price (CPP) and generation bonuses (in the midst of power supply shortfall in the country) the earnings stream also has a growth element attached to it. We currently have a ‘Buy’ call on the stock with the target price of Rs48.

naveed.tehsin@js.com

92 (21) 111-574-111 (ext. 3100)

 

 

 

Also in focus

WB expects Pak. GDP to grow by 3.8% in FY13

World Bank (WB) forecasts a firm recovery in Pakistan ’s economic growth over the next couple of years. WB estimates GDP growth at 3.8% for FY13 and 4.1% for FY14. However, cites lower foreign investments and IMF debt repayments to exacerbate Balance of Payment situation in the coming year.

HUBC: Narowal & US$ parity to keep earnings intact

Cement: Seasonal dip witnessed in May volumes!

 

June 13, 2012 (JS Research)

 

As per All Pakistan Cement Manufacturer Association (APCMA), cement volumes in 11MFY12 stood at 29.5mn tons as against 28.5mn tons recorded in the same period last year, up by 3%YoY. The modest growth is largely driven by improved local sales (up by 8%YoY). In May-12, local dispatches surged by 10%YoY while exports were down 6%YoY. On a MoM basis, trend in local sales was weaker on account of limited availability of labour due to the wheat harvesting season. Local sales fell sharply by 7%MoM to 2.1mn tons. Encouragingly, like last month, exports showed an improving trend (increasing by 6%MoM) mainly due to robust demand from Afghanistan . We maintain a ‘Market-Weight’ outlook on the sector with DGKC as our top pick.

 

Local sales remain solid

Sufficient utilization of PSDP abetted the local volumes to grow by 8%YoY to 21.6mn tons in 11MFY12. The growth remained impressive in May-12 as well with local volumes augmenting by 10%YoY. However on a MoM basis, domestic volumes plunged by 7% as shortage of labour in the construction industry restricted volumes. The shortage was due to the wheat harvesting season as labour was diverted away from the construction industry during the first half of the month.

 

 

Exports showing signs of partial resurgence

Export volumes continued its rising trend surging for the fourth consecutive month in May-12. Export sales increased by 6%MoM to 0.8mn tons due to a seasonal uptick in cement demand from Afghanistan . Dispatches in Afghanistan grew by 3%YoY and 11%MoM. Another encouraging aspect is the stable trend in exports via sea as demand from East Africa and South Africa remains firm. The growth in African markets has countered the dwindling exports in Iraq as excess capacity in the Gulf Cooperation Council (GCC) region led to shrinkage of market share for Pakistani cement manufacturers.

 

 

Outlook

High PSDP allocations for FY13 coupled with robust remittances are likely to support domestic cement demand. Additional impetus is expected from the construction of Diamer-Bhasha Dam as the project is expected to create additional demand of 8-9mn tons over a period of 7-8 years. The project is expected to commence some time in 1QFY13 as residential colonies for workers of the project have already been constructed. Hence for local sales we expect a growth of 8%YoY in FY13. On the export front, consolidating trend is a positive sign and we believe demand from established export markets (i.e. Afghanistan , South Africa and East Africa ) in FY13 is likely to remain steady.

 

Overall though, the key to profitability remains the pricing power of the industry which has grown stronger in recent times. In addition, low coal prices and steady volumes are likely to keep the sector profitability intact, in our view. At current levels, we have a ‘Buy’ call on both DGKC and LUCK offering an upside of 36% and 15% to our respective target prices of Rs53.6 and Rs135. Currently, DGKC trades at a FY13F PE of 5.2x while LUCK trades at an FY13F PE of 5.5x.

 

furqan.ayub@js.com

92 (21) 111-574-111 (ext. 3103)

 

Also in focus

Cotton sowing target for FY13 missed by 15%

As per news reports Pakistan has missed its cotton sowing target for next year by 15%. The target has been missed mainly on account of water shortage in the country and farmers shifting to other cash crops as cotton prices have tumbled in recent times. Ministry of Textile and Industry has set a production target to surpass 14mn bales for FY13. With sowing now coming in lower than expected, the 14mn bales target seems a bit difficult to achieve.

Cement: Seasonal dip witnessed in May volumes!

Closing Note,Wednesday – June 13, 2012

 

The KSE 100 index opened on a positive note with 41 points. The KSE 100 index lost 60 points to close at 13,368 level.

The KSE 100 Index generated a volume of 62.25 million shares and The All Index generated a volume of 77.66 million shares. The KSE 100 index reached a high of 102 positive points (13,531) and low of 91 negative points (13,337).Trading volume was slightly high at KSE 100 index today. KSE 100 index volume increased 62.25 million shares as compared to 54.59 million shares on Tuesday.

Out of the 323 active scripts, 110 closed in Positive and 132 in negative, while the values of 81 stocks remained unchanged.
Chemicals, Banks and Construction and Materials were the sector leaders of today with ENGRO, BAFL and DGKC as the top movers of these sectors.

Today ENGRO was the volume leader with 10.02 million shares.
2nd volume leader was BAFL with 6.07 million shares.
3rd volume leader was PTC with 5.93 million shares.
Trading volume at Future counter in ENGRO-JUNE reached a top volume of 3.50 million shares

Unilever Pakistan Limited and Unilever Pakistan Food Limited was highest gainers by Rs. 217.50 and Rs. 36.49 respectively Indus Dyeing and Manufacturing and Bata Pakistan Limited was worst losers by Rs. 19.74 and Rs. 14.55 respectively.

Closing Note,Wednesday – June 13, 2012