Karachi, March 07, 2019 (PPI-OT): Pakistan Strategy: One sunrise does not make a summer
The PTI-led GoP passed the second amendment of the Finance Supplementary Bill 2019, where minor ‘tweaks’ have been made to provisions introduced in its previous edition with positives in place for Autos (scrapping of non-filer sales ban) and negatives for Banks (continuation of Super tax beyond 2020).
From a macro lens, the second supplementary budget remains mute on concrete measures to address fiscal woes, where recent data points necessitate immediate action to instill budgetary discipline. The GoP’s reliance on collecting GIDC arrears remains in place, a measure we believe will prove to be inadequate in balancing the prevailing fiscal equation.
For Banks, imposition of super tax on FY18 income (CY17 profits of the sector) could dampen 1QCY19 earnings by ~PkR0.3-1.5/sh across our universe (already incorporated), with HBL and UBL on the higher end of our estimates and BAFL and MEBL at the lower end, while the extension of super tax levy beyond 2020 cuts our valuation for the sector by ~4-6%.
For Autos, non-filer ban removal irrespective of engine capacity is a clear positive for the space, where previously indicated partial removal (upto 1,300CC) in the first draft of the Supplementary Bill had kick-started price performance in PSMC (up 89.1%CYTD), and is likely to spur price performance in HCAR (100% of sales from 1,300CC+ segment).
For equity investors, we believe the initial euphoria of ‘positive measures’ in the Bill have largely worn-off due to its long gestation period (first introduced in parliament on Jan 22nd), showcased by lackluster performance on its eventual passing. Standing by our cautious stance on market performance, we retain a liking for Banks (MEBL, MCB) and PkR-hedge oriented plays (NML, HUBC, OGDC).