Showing posts with label Rising crude oil prices. Show all posts
Showing posts with label Rising crude oil prices. Show all posts

Friday 16 December 2016

Pakistan stock market witnesses bullish trend despite selling by foreigners

Pakistan Stock Exchange (PSX) continued its upward move during the week ended 16th December 2016. This bullish performance was led by calming political uncertainty over Panama paper and strong oil prices post Saudi Arab led deal, resulting in higher crude oil prices. This propelled gains in the index heavy Oil & Gas sector. However, activity at the bourse tapered 9%WoW with average daily volume at 357.6 million shares and volume leaders being second tier scrips like PIBTL, ASL, BOP, TRG and EPCL.
Key news flows during the week included: 1) US Fed increased interest by 25bps to and also hinted towards further increase in next calendar year, 2) a Chinese firm showed interest in participating Nishat Energy Limited (NEL) plan of setting up a 660MW power plant on imported coal, 3) ECC of the cabinet reversed its earlier decision to reduce the gas sale price for industrial sector to Rs400/mmbtu. However, it approved reduction in price for power stations and IPPs from Rs613/mmbtu to Rs400/mmbtu, 4) PSMC linked its US$460 million investment in a new Greenfield project with a steep cut in import duties and 5) Fecto cement decided to participate in bidding for Dewan Cement.
Performance leaders during the week were: POL, PPL, MEBL and SNGP; while laggards included:  AGTL, FATIMA, FFBL and LUCK. Foreigners remained net sellers for the week, where outflows stood higher at US$46.8 million as compared to US$24.8 million last week.
Oil stocks will likely remain in limelight, following the OPEC and NonOPEC members’ decision to cut output and manage supply. Moreover, expected announcement of the textile policy next week will keep the sector in focus. On the political front, easing noise after Supreme Courts adjournment of Panama Leaks case hearing till January’16 is likely to remain positive for the market.
Beating expectations of analysts, Habib Bank (HBL) posted hefty increase in 3QCY16 earnings of 40%QoQ took 9MCY16 earnings to Rs17.47/share. The focal point was improvement in asset quality that came under considerable stress following the slowdown in GCC economies in CY15 raising concerns on further infection of its international exposure. However, with provisions going down by a substantial 67%YoY in 9MCY16 on the back of Rs336 million reversal in 3QCY16 (first after 2QCY14), analysts are now more optimistic on the bank's asset quality metrics. HBL's price performance has been driven by a confluence of factors such as: 1) Pakistan's inclusion into MSCI EM space, 2) interest rate cycle reversal drawing close and 3) a resilient earnings profile.
Recently released data by Pakistan Automotive Manufacturers Association (PAMA), Pakistan's total industry sales for November'16 grew by almost 12%MoM to 17,858 units, still below 19,029 units sold in November'15 – thanks to unchecked import of used cars. Car and LCV sales rose to 16,018 and 1,840 units respectively, up 10.8/19.9%MoM but down 2.9%/36%YoY pointing to the continued influence of the Rozgar scheme on industry sales growth. Taken as a whole, 11MCY16 sales showed a tepid decline of 9% YoY to 187,591 units sold under all segments. Cars/Tractors posted minor falls of 2.9/3.0%YoY to 163,339/39,170 units sold over 11MCY16, while LCV sales dipped 36%YoY to 24,252units. Three major OEMs remained within their seasonal trends, where HCAR was an outlier, with sales growth of 3.2%MoM/103.3%YoY (unit sales of 3,096units during November'16) driven by the new Civic. Additionally segmentwise growth showcases a burgeoning demand side scenario for the 1000CC segment where cumulative sales for 11MCY16 were 26,128units up 28%YoY, while the 1,300CC and above segment sales of 84,769units experienced a slowdown, recording growth of 3%YoY as against 40%YoY growth experienced in the same period last year. 800 and below 1000cc segment experienced a decline of 20%YoY selling 52,442units during the period. Citing the launch of Revo/Fortuner variants, followed by resilience of the Corolla, superior operations and hedging of currency risk (60% localization, active hedging of order book).
In line with the broader textile sector that has been in limelight on account of the 1) upcoming textile policy, 2) inclusion in the zerorated tax regime and 3) implementation of new efficient refund mechanism, Nishat Mills (NML) remained in focus. Pakistan’s leading brokerage house, AKD Securities has lowered the portfolio discount to 40% (from 50%) on the back of improved trading volumes and betas of portfolio companies that face lower volatility, while improving the liquidity of NML's portfolio. The earnings profile remains encouraging with earnings growth of 26%YoY in FY16. Going forward, brokerage house expect profitability to remain strong that includes 22%YoY growth in FY17 underpinned by: 1) marked improvement in core operations on expected improvement in gross margin on account of improved production efficiencies and grant of zerorated regime, along with 2% growth in topline and 2) substantial growth in dividend income (up 12%YoY) on expectation of continuation of strong dividend payouts by associate companies.


Saturday 28 May 2016

Pakistan stock market closes the week almost flat

The benchmark of Pakistan Stock Exchange PSX‐100 Index closed flat for the week ended 27th May at 36,694. The index returns underperformed the region by 2.40% due to heavy‐weight sector banking’ disappointing run amidst unexpected 25bps cut in policy rate by the State Bank of Pakistan (SBP). This also caused average daily traded volumes to plunge by 23%WoW to 249 million shares as compared to 325 million shares exchanging hands a week ago.
Though, foreign selling continued, it stood at US$3.81 million as compared to US$6.98 million a week ago. Leaders during the outgoing week included: HASCOL, PSMC, DAWH, SNGPL and ENGRO, while laggards included: MCB, MEBL, EPCL, HBL and SSGC.
Key developments during the week included: 1) MCB said to be in preliminary non‐binding discussion with Fullerton Financial Holdings for a possible merger with NIB, 2) GoP decided to increase PSDP outlay by 11% for FY17 to Rs1.675 trillion from current year’s allocation of Rs1.514 trillion, 3) GoP likely to increase the tax on dividend income to 20% for non‐filers while 15% tax on dividend income for return filers and it may also start charging advance tax on the alternate corporate tax, 4) SBP slashed the policy interest rate by 25bps to 5.75% in view of its assessment that inflation would remain below the target set for the FY16 and 5) the current subsidy on DAP to the tune of Rs20 billion (Rs500/bag) shared on a 50‐50 basis by the federal and provincial governments is likely to continue in the next fiscal year with Ministry of Food proposing to remove the GST on DAP and other fertilizers.
Anticipations about next fiscal year’s budget, due to be presented next week, continue to build up and will keep the index range bound. Analysts expect the budget to remain neutral for most sectors, with chances for some negativity in foods and other import‐based sectors, amidst proposals for customs duty hikes. Additionally, increased spending on infrastructure, farmer subsidies (proposal to remove GIDC, continuation of DAP subsidy) and provincial schemes would keep cements, fertilizers and steel sectors in lime light. However, with Ramadan around the corner, the theme of lackluster volumes and listless trading is expected to prevail.
I posted a blog ‘too little too late’ after SBP announced 25 basis points reduction in interest rate. However, Pakistan leading brokerage house AKD Securities has a different stance. In its report it has said that contrary to market's consensus of interest rates having bottomed out, the SBP in its latest announcement cut the policy rate by 25bps to 5.75% (DR: 6.25%). The surprise move came with little justifications where the statement highlighted: 1) higher inflation projections for FY17 on expectations of global commodity price recovery and higher domestic tariff and tax incidence, 2) limited credit uptick (8.4%YoY as of Mar'16) despite prior 400bps rate cut, 3) BoP risks in the form of higher trade deficit, decelerating remittance growth and weak capital inflows ‐ all key macro trends warranting a prudent stance. With tighter fiscal targets, the 25bps reduction is unlikely to serve as a growth catalyst, where analysts view GoP to emerge as the key beneficiary with nearly Rs1.6 trillion PIB maturities due July'16. With macro risks in place, a quick reversal in the monetary policy remains a possibility, though key determining factors from here onwards are likely to SBP's target for real interest rates and PIB roll‐over.
With Budget FY17 less than two weeks away, market expectations regarding are running high. Targeting GDP growth rate of 6.2% (4.71% in FY16), news flow is shaping budget FY17 to be unpopular in nature, where additional taxes will be imposed, to boost up FBR related up revenues, are already under consideration. In this regard, super tax extension, withdrawal of remaining SROs, increase in Withholding tax on banking transactions to 0.6% for non‐filers, are some of the important ones. While continuation of Super Tax undermines profitability growth of the  bluechip companies, positives for Fertilizer is removal of GST/GIDC on urea, subsidy extension on DAP to aid offtake growth) and Autos (lowering of import duties in order to incentivize incumbents) whereas negativity could come in Foods Producers (imposition of 10% sales tax on milk). That said, market level developments (such as increased taxation on dividend income, removal of tax exemption on pension funds) are not very encouraging either. While initial market reaction could depict volatility, investors' sentiment and attention are most likely to soon turn towards the MSCI reclassification (EM status) announcement on 14th June.

Friday 29 April 2016

Pakistan Stock Market closes the week at 8-month high


The benchmark of Pakistan Stock Exchange, PSX-100 Index finally came out of its consolidation phase and closed at an 8-months high (also CY16’s high) of 34,719 level. During the week ended 29th April, the Index rallied on the back of oil prices and stronger corporate profitability reported in the ongoing result season.
After an extended period of risk-off sentiment, investor’s confidence recovered in spite of heavy foreign selling (US$12.40 million during the week) resulting in higher volumes touching 242 million shares compared to 239 million shares during a week ago. Leaders during the outgoing week included: NML, OGDC, HBL, FFBL and SNGP while laggards included: PSMC, PTC, KAPCO, AKBL and PSO.

Key developments during the week included: 1) fertilizer companies turned down the GoP’s proposal to bring down prices of urea by Rs200/bag, however they agreed to reduce the price by Rs60/bag, 2) ECC is likely to direct an additional 60mmcfd to Engro Fertilizers (EFERT) from Mari gas field, 3) he federal cabinet approved Budget Strategy Paper for FY17 with a target to spend Rs1.497 trillion on development, reduce fiscal deficit to 4% of GDP, increase economic growth rate to 6.5% and limit inflation to 6%, 4) according to Finance Minister the circular debt is to be cleared by July this year and 5) Super Tax to be imposed on rich individuals, association of persons and companies having over Rs500 million for another year.

The continuation of market’s bull‐run, up 13.6% from CY16 low is hinged upon a number of events including 1) movement in crude oil prices which is widely expected to run out of steam due to oversupply, 2) heightened political risks associated with burgeoning pressure from the opposition with regards to Panama Leaks investigation (though that seems highly unlikely due to lack of proper legislation pertaining to this investigation), 3) upcoming budget proposals and 4) possible inclusion of Pakistan in MSCI Emerging Markets. However, analysts believe that current rally may extend in the upcoming week as bulls continue to outweigh bears in spite of the persisting risks.

AKD Securities in its project has forecast the CPI to rise 1.4%MoM, implying inflation at 4.03%YoY in April’16 as compared to 3.94%YoY recorded in the previous month. This is expected to be an outcome of recent uptick in both Food and Fuel prices coupled with periodical rise in the Housing, Education and Clothing Indices. This implies 10MFY16/4MCY16 CPI average of 2.78%YoY/3.83%YoY. NFNE Core inflation is also projected to rise to 4.8%YoY during April'16 taking 10MFY16/4MCY16 average to 4.13%YoY/4.56%YoY. Going forward, CPI is likely to tread up as Ramadan effect propels food prices and rising crude oil prices translate into higher domestic energy costs. Consequently, FY16/CY16 CPI inflation is expected to average at 3.05%YoY/4.5%YoY. Expectations for any further easing have faded with secondary market yields ascending sharply post April'16 monetary policy announcement where bond yields have risen 34bps on average since. Within this backdrop analysts reiterate a nominal hike in 4QCY16 on higher inflation expectations and potential currency weakness if crude oil prices continue to escalate.

National Bank of Pakistan (NBP) has posted below expectations consolidated profit after tax of Rs4.02 billion (EPS: Rs1.89) for 1QCY16 as compared to net profit of Rs3.89 billion (EPS: Rs1.83) for 1QCY15, up by a nominal 3%YoY. The deviation from the projections came from higher than expected expenses of Rs11.7 billion against an estimate of Rs10.1 billion. Sequentially, there a sizable 48%QoQ decline in earnings  primarily on the 50%QoQ/30%QoQ drop in capital gains/fee income alongwith 24%QoQ decline in net interest income. The 1QCY16 result highlights included: 1) a 7%YoY increase in NII, 2) provisions going down to Rs917 million during the quarter from Rs3.1 billion for the corresponding period last year, 3) a 23%YoY/29%QoQ drop in non-interest income amid lower capital gains, utilizing Rs1.46 billion in the quarter under review against Rs3.49 billion in same period last year, 4) a 4%YoY increase in expenses. While NII came down by 24%QoQ, a key positive feature of NBP’s 1QCY16 earnings performance is the improvement in asset quality. However, a sustainable improvement, in this regard, is necessary to ascertain quality earnings.

Maple Leaf Cement Factory (MLCF) announced its 3QFY16 results posting profit after tax of Rs1.16 billion (EPS: Rs2.20), up 28%YoY from net profit of Rs911 million (EPS: Rs1.73) for 3QFY15. Pre-tax earnings grew significantly by 54%YoY due to a strong domestic demand and lower energy costs. However, significant increase in effective tax rate kept the earnings on a lower side.  As a result, the earnings were lower than the forecast of Rs2.35/share in spite of higher than expected topline and gross margins (GMs). This took 9MFY16 earnings to Rs3.51 billion (EPS: Rs6.64), 49%YoY higher than Rs2.35 billion (EPS: Rs4.44) for 9MFY15. Result Highlights included: 1) topline grew by 13%YoY due to stronger domestic demand, 2) GMs improved by 709bps YoY to 42.81% led by lower coal price, 3) finance cost declined by 57%YoY due to early debt repayments and lower interest rates and 4) increase in tax liability due to greater profits and relatively higher effective tax rate of 38% as compared to 25% in 3QFY15.

Luck cement (LUCK) announced its 3QFY16 results posting profit after tax of Rs3.36 billion (EPS: Rs10.39), down 9%YoY from net profit of Rs3.70 billion (EPS: Rs11.45) for 3QFY15. Apart from higher tax expense denting the bottomline, profitability improved during the period where PBT grew by 13%YoY for 3QFY16. Nonetheless, the earnings were in line with analysts’ forecast of Rs10.61/share. As a result, 9MFY16 earnings rose by a meager 3%YoY to Rs9.61 billion (EPS: Rs29.73) from Rs9.30 billion (EPS: Rs28.77) for 9MFY15. Result highlights included: 1) topline dropping by one percent YoY due to flatter dispatches and 1%YoY/7%YoY lower local/export retention prices, 2) GMs expanding by 282bps YoY to 48.81% led by lower coal and  furnace oil price, recent addition of 5MW WHR and shift of lost exports to premium priced domestic market, 3) distribution cost reducing by 39%YoY due to 47%YoY decline in exports and 4) tax expense jumping due to higher effective tax rate of 31% compared to 14% in 3QFY15. The other factor attracting attention of investors included: 1) land acquisition for Greenfield cement plant in Punjab and contract with equipment supplier expected to be finalized by the end of June this year, 2) financial close of 660MW LEPCL is expected to be achieved by August this year and 3) a 50MW Wind Farm likely to commence commercial operations by the end of June 2016.