AKD Quotidian about — Pakistan Economy: CA slips into the red in Feb’13

Karachi, March 19, 2013 (PPI-OT): The Current Account balance for Feb’13 has registered a deficit of US$596mn, up a sharp 89%MoM bringing the revised SMFYI3 deficit to US$700mn vs. a deficit of US$3,235mn in 8MFYI2.

According to AKD Securities in this regard, the 78%YoY shrinkage in the current account deficit is due to i) receipt of Coalition Support Funds (US$1 .8bn FYID), ii) 7%YoY reduction in the trade deficit, iii) 7%YoY increase in remittances and iv) 17%YoY reduction in interest payments.

Nevertheless, with the CA balance falling back into the red in Feb’13 and expected to stay in the deficit on a sequential basis, the implication is for further pressure on forex reserves which have already come off to US$12.5bn (with SBP: US$77bn), indicating an import cover of less than -4 months and likely further pressure the PkR which has depreciated by 3.7%FYTD vs. the US$.

Going forward, in the absence of further foreign inflows, swifter reserve erosion are likely to arise on the back of IMP loan repayments. While no formal request has been made to the IMF, AKD Securities believes a fresh loan program is inevitable where any inordinate delay in the same could spark BoP concerns. As such, from a near-term investment perspective, AKD Securities prefers Oil and Gas, IPPs and Textile sector scraps which stand to benefit from a weaker NcR.

PSMC: CY12 Result Preview

PSMC is scheduled to announce its CYI2 result on Thursday Mar 2113. AKD Securities expects the company to post NPAT of PkR1,304mn (EPS: PkR1 5.65) in CY12 versus NPAT of PkR794mn (EPS: PkR9.65) in CYI1, posting robust growth of 64%YoY. Alongside the result, AKD Securities expects the company to announce a final dividend of PkR3/share (payout ratio close to 20%). In this regard, growth drivers include 1) a -4%YoY increase in sales to 95,763 units and 2) a -1O%YoY increase in average unit price which should push up CYI2 gross margin by 80bps to 4.4% particularly in the backdrop of soft steel prices.

On a sequential basis, AKD Securities expects PSMC to post NPAT of PkRl28mn (EPS: PkRL56) in 4QCY12, depicting a recovery against loss of PkRl93mn (LPS: PkR2.35) in 3QCY12, on the back of an increase in product prices (+2%-4%) in Oct12 which is expected to have offset higher costs associated with Euro-Il compliant production as well as sequentially lower sales of 16665 units (down by 6%QoQ).

In this regard, note that AKD Securities has not incorporated one-off gain on sale of land (pre4ax EPS impact of PkR3.3) which AKD Securities believes will appear on PSMC’s books in CY13. While PSMC has gained 16%CYTD and the proverbial regulatory sword still hangs (w.r.t. potential loosening of used car import policy), AKD Securities believes local OEMs are poised to depict improvement in CY13. PSMC offers an upside of 12.7% to AKD Securities targets price of PKRI15/share where AKD Securities will look to revisit AKD Securities investment s case post release of CY12 accounts.

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