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Stock Smart Weekly (May 30, 2014)

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   AKD Research research@akdsecurities.net 009221 111 253 111 Weekly Review After   a   dull   start   to   the   week,   the   KSE ‐ 100   managed   to   climb   2.6%   or   750pts   during   the   last   two   sessions   to   conclude   the   week   with   3.4%WoW   gains   with   the   Index   closing   at   an   all ‐ time   high   of    29,737.69pts.   Despite   the   Budget   being   right   around   the   corner,   impressive   participation   was   seen   at   the   bourse   as   average   daily   traded   volumes   rose   to   235mn   shares,   up   57%WoW   while   average   traded   value   increase   by   stellar   96%WoW   to   US$144.48mn.   With   changes   proposed   in   the   MSCI   FM   Index   in   the   Semi ‐ annual   review   on   May   14’14   coming   into   effect   from   tomorrow,   impressive   foreign   activity   was   seen   during   the   week.   Specifically,   foreigners   remained   net   buy ‐ ers   of    US$29.6mn   worth   of    equities   in   the   week   with   majority   of    the   inflows   concentrated   in   the   Oil   &   Gas   sector.   Besides   this,   key   news ‐ flow   included:   1)   Ministry   of    Water   &   Power   along   with   Ministry   of    Finance   deciding   to   address   the   inter ‐ corporate   circular   debt   in   two   weeks’   time,   2)   GoP   deciding   in   principle   to   increase   gas   prices   for   CNG,   industrial   and   commercial   us ‐ ers   and   3)   Pakistan   armed   forces   continuing   to   be   on   the   offensive   against   TTP.   Major   gainers   during   the   week   under   review   included:   SHEL   (+13.2%WoW   ahead   of    inclusion   in   MSCI   FM   Small   Cap   Index),   KEL   (+10.8%WoW   due   to   inclusion   in   MSCI   FM   Index),   UBL   (+9.9%WoW   ahead   of    book ‐ building   for   privatization   transaction)   and   ENGRO   (+8.8%WoW)   while   MTL   ( ‐ 3.8%WoW),   SSGC   ( ‐ 1.4%WoW)   and   HUBC   ( ‐ 1.0%WoW)   remained   laggards.   The   top   five   volume   leaders   dur ‐ ing   the   week   included:   KEL,   LPCL,   TRG,   BYCO   and   MLCF.   Stock Smart    AKD Equity Research / Pakistan Pakistan Weekly Update Important disclosures including investment banking relationships and analyst certification at end of this report. AKD Securities does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of the report. Investors should consider this report as only a single factor in making their investment decision. Important disclosures Copyright©2014 AKD Securities Limited. All rights reserved. The information provided on this document is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation or which would subject AKD Securities or its affiliates to any registration requirement within such jurisdiction or country. Neither the information, nor any opinion contained in this document constitutes a solicitation or offer by AKD Securities or its affiliates to buy or sell any securities or provide any investment advice or service. AKD Securities does not warrant the accuracy of the information provided herein. www.akdsecurities.net  AKD SECURITIES Member: Karachi Stock Exchange Find AKD research on Bloomberg (AKDS<GO>), firstcall.com and Reuters Knowledge Following   being   the   budget   week   and   with   CGT   being   the   biggest   concern   amongst   investors,   we   be ‐ lieve   the   market   will   trade   in   a   narrow   band.   That   said,   as   clarity   increases   post   budget   the   market   is   expected   to   rope   in   investors,   especially   those   who   have   been   on   the   sidelines   and   waiting   for   things   to   unfold.   With   UBL’s   book ‐ building   for   privatization   to   take   place   in   the   coming   week,   we   feel   banking   sector   is   likely   to   be   in   the   limelight.   Therefore,   investors   should   look   at   the   banking   sector   scrips   for   short   term   investment.   Outlook 30 May 2014 Top-5 Volume LeadersSymbolVolume (mn) KEL :221.64 LPCL :73.79 TRG :43.85 BYCO :43.48 MLCF :40.72  IndicesKSE-100KSE-30 This week29,737.6920,352.35Last week28,756.0019,688.35Change3.41%3.37% IndicesKMI-30Allshare This week46,986.2421,960.78Last week45,598.7521,324.42Change3.04%2.98% Mkt Cap.PkRbnUS$bn This week7,042.82 71.31 Last week6,839.92 69.20 Change2.97%3.05%  Avg. Daily Turnover ('mn shares) This week235.39 Last week149.62 Change57.33% 0100200300400500600700       M     a     y   -      1      3      J     u      l   -      1      3      S     e     p   -      1      3      N     o     v   -      1      3      D     e     c   -      1      3      F     e      b   -      1      4      A     p     r   -      1      4      M     a     y   -      1      4 (mn)(Index)18,00019,50021,00022,50024,00025,50027,00028,50030,000 Volume (LHS)KSE-100 Index Index & Volume Chart Source: KSE & AKD Research Universe Gainers & Losers ‐ 4.0% ‐ 2.0%0.0%2.0%4.0%6.0%8.0%10.0%12.0%14.0%      S    H    E    L    K    E    L    U    B    L    E    N     G    R     O    E    F    E    R    T    A     G    T    L    A    K    B    L    H    U    B    C     S     S     G    C    M    T    L 29,02029,04828,98729,54429,738 ‐ 50,000100,000150,000200,000250,000300,000350,000400,000      2     6       ‐     M   a   y     2    7       ‐     M   a   y     2     8       ‐     M   a   y     2     9       ‐     M   a   y     3     0       ‐     M   a   y (Shrs'000)28,60028,80029,00029,20029,40029,60029,800(Index) Ready   Volume   (LHS) KSE100   Index   (RHS)  AKD Securities Limited 30 May 2014 StockSmart Pakistan Weekly Update This Week’s Daily Reports 2 May 30, 2014 May 29, 2014 May 28, 2014 Pakistan   Market_MSCI    stocks   drive   the   rally,   (AKD   Daily,   May    30,   2014)   The   month   of    May   has   historically   been   a   dull   period   for   Pakistani   equities   as   over   the   past   10yr   average   return   during   the   month   has   been   at  ‐ 2.5%   vs   10yr   average   annual   return   of    26%.   Dullness   in   the   market   persists   during   May   mainly   because   of    Budget   being   right   around   the   corner,   which   forces   many   investors   wait   for   clarity   before   dip ‐ ping   their   feet   in   the   market   A   similar   story   has   unfolded   this   year,   with   investors   facing   confusion   regarding   the   upcoming   changes   in   the   CGT   (Capital   Gains   Tax)   rate   and   hold ‐ ing   period.   However,   these   dynamics   changed   yesterday.   With   recently   made   changes   to   MSCI   FM   Index   coming   into   effect   at   the   end   of    May   30’14,   foreigners   flocked   to   the   bourse   to   get   their   portfolios   recalibrated   in   accordance   with   the   upcoming   changes   to   the   index.   This   led   to   brisk   activity   at   the   bourse   yesterday,   which   saw   benchmark   KSE ‐ 100   Index   gaining   stellar   556.26pts   (1.92%).   Following   a   251   session   high   net   foreign   buy   of    ~US$16mn,   the   KSE ‐ 100   Index   closed   on   its   all   time   high   of    29,543.58pts   with   both   volumes   and   value   reaching   30   sessions   high   of    351.3mn   and   US$158.9mn,   re ‐ spectively.   Though   sentiments   are   seemingly   restored   unanswered   questions   regarding   future   of    CGT,   remain   high   on   investors’   mind.   In   today’s   report   we   make   an   effort   to   deduce   what   happened   yesterday,   how   it   will   affect   the   market’s   performance   in   the   long   term,   how   much   foreigners   actually   bought   and   what   they   bought.   Pakistan   Economy_Eyeing   softer    inflation   in   May’14,   (AKD   Daily,   May    29,   2014)   While   CPI   has   been   depicting   an   accelerating   trend   over   the   last   3m   to   register   at   9.2%YoY   in   Apr’14,   we   expect   price   pressure   to   be   moderate   in   May’14   with   CPI   for   the   month   under   review   projected   to   clock   in   at   8.4%YoY   largely   due   to   lower   food   infla ‐ tion.   As   a   result,   we   see   11MFY14   CPI   standing   at   8.66%YoY.   Going   forward,   increasing   CPI   by   0.7%MoM   (similar   to   FY14   levels)   results   in   FY15   CPI   inflation   averaging   7.6%YoY.   Within   the   external   side   depicting   increasing   comfort,   we   believe   the   central   bank   will   not   sit   on   the   fence   for   too   long   and   will   likely   initiate   monetary   easing   in   1HFY15   where   we   see   the   DR   coming   off    by   100bps   across   the   course   of    the   next   fiscal   year.   From   an   investment   perspective,   Banks   have   positioned   themselves   for   lower   interest   rates   while   we   also   flag   cyclical   industries   (Cements   &   Allied,   Autos,   Household   Elec ‐ tronics)   as   likely   outperformers   as   the   economy’s   mode   gradually   tilts   towards   growth   (GoP   targeting   5%+   GDP   growth   in   FY15).   Fertilizer    Offtake:   Don't    worry,   its    just    seasonal!    (AKD   Daily,   May    28,   2014)   Kharif    season   got   off    to   a   sluggish   start   as   not    just   urea   but   cumulative   fertilizer   sales   remained   depressed   during   Apr’14.   According   to   latest   figures   released   by   NFDC   (National   Fertilizer   Development   Center),   urea   sales   during   the   aforementioned   month   fell   to   a   17   month   low   and   were   recorded   at   ~258k   tons   vs.   384k   tons   in   Mar'14,   down   by   18%YoY/33%MoM.   This   has   taken   urea   offtake   for   4MCY14   to   1.64mn   tons,   which   is   slightly   lower   compared   to   1.66mn   tons   sold   during   the   same   period   last   year.   Similarly,   DAP   offtake   during   Apr'14   remained   lackluster   as   sales   declined   by   48%MoM   and   27%YoY   to   38k   tons.   That   said,   DAP   sales   are   up   an   impressive   24%YoY   to   239k   tons   in   4MCY14   vs.   193k   tons   in   the   same   period   last   year.   Coming   back   to   urea,   Apr'14   offtake   figures   also   look   less   than   impressive   when   pitted   against   Ministry   of    National   Food   Security   and   Research   estimated   urea   demand   average   of    500k   tons   per   month   during   the   current   Kharif    season.   With   diversion   of    gas   to   power   sector   from   fertilizer   sector,   rumors   of    further   rationalization   of    gas   price   circulating   and   to   top   it   all,   absence   of    any   positive   triggers   in   the   near   future,   we   have   Market   Weight   stance   on   the   Fertilizer   sector.   Accordingly,   in   CY14TD,   the   Fertilizer   sector   (Ex ‐ EFERT)   has   underperformed   the   market   by   3.6%.   29,59029,62329,65629,68929,72229,75529,78829,82129,854         9      :        1        5        1        0      :        0        4        1        0      :        5        2        1        1      :        4        1        1        2      :        2        9        1        3      :        1        5        1        4      :        0        2        1        4      :        5        0        1        5      :        3        9        1        6      :        2        8 Source:   KSE   &   AKD   Research   29,00029,07529,15029,22529,30029,37529,45029,52529,600         9      :        3        0        1        0      :        2        2        1        1      :        1        4        1        2      :        0        5        1        2      :        5        6        1        3      :        4        7        1        4      :        3        9        1        5      :        3        1 28,95028,98029,01029,04029,07029,10029,13029,160         9      :        3        0        1        0      :        1        0        1        0      :        5        0        1        1      :        3        0        1        2      :        1        0        1        2      :        5        0        1        3      :        3        0        1        4      :        1        0        1        4      :        4        9        1        5      :        3        0 May 27, 2014 29,00029,02129,04229,06329,08429,10529,12629,14729,168         9      :        3        0        1        0      :        1        5        1        1      :        0        0        1        1      :        4        4        1        2      :        2        9        1        3      :        1        3        1        3      :        5        8        1        4      :        4        3        1        5      :        2        8        1        6      :        1        3 May 26, 2014 28,50028,56028,62028,68028,74028,80028,86028,920         9      :        3        0        1        0      :        2        2        1        1      :        1        4        1        2      :        0        5        1        2      :        5        6        1        3      :        4        7        1        4      :        3        8        1        5      :        3        0  AKD Securities Limited 30 May 2014 StockSmart Pakistan Weekly Update This Week’s Daily Reports 3 High    future   open   interest     position   is   not    as   bad    as   it    looks,   (AKD   Daily,   May    27,   2014)   With   budget   FY15   right   around   the   corner   and   newsflow   regarding   CGT   (Capital   Gains   Tax)   coming   thick   and   fast,   the   KSE ‐ 100   Index   has   remained   virtually   stagnant   with   re ‐ turn   of    mere   37bps   MTD   and   volumes   drying   up.   MTD   average   traded   volumes   have   clocked   in   at   142mn   shares   vs.   244mn   shares   in   CY14TD,   down   42%.   MTD   figures   con ‐ tinue   to   look   depressed   even   when   paired   against   FY14TD   average   trade   volumes   of    216mn   shares   as   investors’   await   clarity   on   different   issues   due   to   be   taken   up   in   the   upcoming   budget.   With   a   wait   and   see   stance   at   the   bourse,   there   is   a   feeling   that   fu ‐ ture   open   interest   position,   which   as   of    yesterday   was   recorded   at   PkR4.25bn   (close   to   PkR4.48bn,   highest   recorded   in   a   single   month)   could   pile   pressure   in   the   market.   That   said,   we   believe   this   will   not   pose   major   concern   for   the   market   despite   volumes   being   on   the   lower   side.   We   have   analyzed   the   KSE ‐ 100   Index’s   performance   in   the   last   4   trading   sessions   during   the   previous   30   odd   months,   in   which   11   times   prior   to   current   month   future   open   interest   position   stood   at   PkR3bn+   levels.   Interestingly,   7   out   of    those   11   times   market’s   performance   remained   positive   during   the   last   4   trading   ses ‐ sions,   which   signals   that   futures   were   successfully   rolled   over.   Pakistan   Banks:   Looking   good     for    a   2QCY14   result    rally!    (AKD   Daily,   May    26,   2014)   Weighted   average   banking   sector   spreads   have   clockeds   in   at   6.05%   in   Apr’14,   lower   by   14bps   compared   to   Apr’13   but   flat   on   a   sequential   basis.   As   a   result,   4MCY14   spreads   have   averaged   6.03%,   lower   by   18bps   YoY.   That   said,   anticipated   lending   yield   rerating   should   enable   spreads   to   pick   up   in   the   next   few   months   while   NIMs   should   already   be   depicting   an   upward   trajectory   considering   the   sharp   shift   towards   higher   yielding   PIBs   in   the   investment   mix.   This   should   enable   the   pace   of    earnings   growth   to   accelerate    –   after   rising   by   7%YoY   in   1QCY14   (ex ‐ NBP:   11%YoY),   we   expect   the   earnings   for   the   AKD   Banking   Universe   to   grow   by   more   than   15%YoY   in   2QCY14.   Considering   the   listed   banking   sector   has   been   lackluster   over   the   last   month,   we   believe   current   share   prices   offer   an   attractive   entry   point   ahead   of    2QCY14   results.   At   current   levels,   our   top   pick   is   UBL   (target   price:   PkR225/share).    AKD Securities Limited 30 May 2014 StockSmart Pakistan Weekly Update 4 Commodities   International Major Currencies  Source: Bloomberg Source: Bloomberg Major World Indices’ Performance  Source: Bloomberg TRJ-CRB Index Source: Bloomberg PkR/US$ Trend Source: Bloomberg Regional Valuations (2015) Source: Bloomberg & AKD Universe 270275280285290295300305310      M    a    y   -     1     3     A    u    g   -     1     3     O    c     t   -     1     3     J    a    n   -     1     4     M    a    r   -     1     4     M    a    y   -     1     4 95.097.099.0101.0103.0105.0107.0109.0      M    a    y   -     1     3     J    u     l   -     1     3     S    e    p   -     1     3     N    o    v   -     1     3     D    e    c   -     1     3     F    e     b   -     1     4     A    p    r   -     1     4     M    a    y   -     1     4 SPOT   Units   30 ‐ May ‐ 14 23 ‐ May ‐ 14 WoW CYTD TRJ ‐ CRB Points 306.32 308.26  ‐ 0.63% 9.33%Nymex   (WTI) US$/bbl. 103.03 104.35  ‐ 1.26% 4.68%ICE   Brent   US$/bbl. 110.65 111.7  ‐ 0.94%  ‐ 0.15%N.   Gas   Henry   Hub US$/Mmbtu 4.62 4.38 5.48% 6.35%Cotton   USd/Pound 89.4 90.85  ‐ 1.60%  ‐ 0.33%Gold   US$/Tr.Oz 1255.04 1292.56  ‐ 2.90% 4.10%Sliver   US$/Tr.Oz 19.0462 19.4625  ‐ 2.14%  ‐ 2.17%Copper   US$/MT 6973 7021  ‐ 0.68%  ‐ 5.46%Platinum   US$/Oz 1464.25 1473.75  ‐ 0.64% 6.92%Coal   US$/MT 73.1 73.1 0.00%  ‐ 13.59% SPOT   30 ‐ May ‐ 14 23 ‐ May ‐ 14 Chg   +/ ‐ WoW CYTD Dollar   Index   80.459   80.393   0.066 0.08% 0.53%USD/PkR   98.705   98.846  ‐ 0.141  ‐ 0.14%  ‐ 6.29%USD/JPY   101.620   101.970  ‐ 0.350  ‐ 0.34%  ‐ 3.50%EUR/USD   1.362   1.363  ‐ 0.001  ‐ 0.10%  ‐ 0.93%GBP/USD   1.675   1.683  ‐ 0.009  ‐ 0.52% 1.14%AUD/USD   0.930   0.923   0.007 0.75% 4.30%NZD/USD   0.848   0.855  ‐ 0.007  ‐ 0.80% 3.26%CHF/USD   0.896   0.896   0.000 0.06% 0.38%CAD/USD   1.086   1.086   0.000  ‐ 0.01% 2.23%USD/KRW   1,020   1,025  ‐ 4.550  ‐ 0.44%  ‐ 2.82%CNY/USD   6.247   6.236   0.011 0.18% 3.18% Country Bloomberg   Code 30 ‐ May ‐ 14 23 ‐ May ‐ 14 WoW CYTD Pakistan   KSE100   Index 29,738   28,756   3.41% 17.72%Srilanka CSEALL   Index 6,263   6,280  ‐ 0.27% 5.93%Thailand   SET   Index 1,416   1,397   1.35% 9.01%Jakarta   JCI   Index 4,894   4,973  ‐ 1.59% 14.50%Malaysia   FBMKLCI   Index 1,873   1,869   0.22% 0.34%Philippines PCOMP   Index 6,648   6,811  ‐ 2.40% 12.87%Vietnam VNINDEX   Index 562   541   3.79% 11.37%Hong   Kong   HSI   Index 23,082   22,966   0.50%  ‐ 0.96%Singapore   FSSTI   Index 3,296   3,278   0.54% 4.05%Brazil IBX   Index 21,557   21,705  ‐ 0.68% 1.23%Russia   RTSSTD   Index 9,671   9,713  ‐ 0.43%  ‐ 4.97%India   SENSEX   Index 24,217   24,693  ‐ 1.93% 14.39%China   SHCOMP   Index 2,039   2,035   0.23%  ‐ 3.63%S&P SPX   Index 1,920   1,901   1.03% 3.88%DJIA INDU   Index 16,699   16,606   0.56% 0.74%NASDAQ    Composite   CCMP   Index 4,248   4,186   1.48% 1.71%UK UKX   Index 6,857   6,816   0.61% 1.60%German   DAX   Index 9,941   9,768   1.77% 4.07%Qatar   DSM   Index 13,694   13,008   5.27% 31.93%Abu   Dhabi ADSMI   Index 5,253   4,926   6.65% 22.45%Dubai   DFMGI   Index 5,087   4,864   4.59% 50.97%Kuwait   KWSEIDX   Index 7,291   7,347  ‐ 0.76%  ‐ 3.42%Oman   MSM30   Index 6,857   6,744   1.68% 0.33%Saudi   Arabia   SASEIDX   Index 9,823   9,751   0.74% 15.09%MSCI   EM MXEF   Index 1,039   1,043  ‐ 0.41% 3.59%MSCI   FM MXFM   Index 692   661   4.61% 16.35% EPS   Growth   PE(x) Pakistan   26% 9.17   Indonesia 14% 12.04   Malaysia   18% 13.20   Philippines 9% 15.24   Vitenam 16% 16.07   India 16% 13.23   China 14% 7.06   % ROE Divd   Yld Pakistan   21.42   5.12   Indonesia 18.56   2.26   Malaysia   13.34   3.27   Philippines 14.74   2.36   Vitenam 15.58   2.83   India 16.50   1.89   China 14.25   4.01  

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