Elixir Securities Limited – Pakistan Equity Market: Weekly Review

Karachi, June 14, 2018 (PPI-OT): Political Noise to the Forefront Again

KSE100 corrected 0.6%WoW (267pts) to close at 43,681pts on the back of 1) re-emergence of political noise, 2) PKR depreciation and 3) Interim Finance Minister’s comments hinting towards economic challenges. Average daily volume traded decreased 28%WoW to 132mn shares due to dull investors activity as last days of Ramadan coincided with outgoing week (less working days). Average daily traded value also fell by 29%WoW to USD54mn.

On economic front, the Pakistani Rupee (PKR) devalued another 4.2% during the week, with the bulk of the decline coming in on the first trading day of the week. This marks the third round of depreciation since December, amid looming Balance of Payment crisis and declining Foreign Exchange Reserves (SBP reserves at USD 10.03bn).

In her first public appearance as Interim Finance Minister, Shamshad Akhtar ruled out the possibility of talks with the International Monetary Fund (IMF) for a Bailout Program during the caretaker setup. She has also deferred the plan of holding Article-IV mandatory consultations with the IMF, leaving the issue for the next government. The Caretaker Finance Minister hinted at 1) possibility of further currency depreciation, 2) increase in petroleum product prices, and 3) likelihood of twin deficits breaching the government targets.

On political front, National Accountability Bureau (NAB) requested the Ministry of Interior to place former Prime Minister Nawaz Sharif, daughter Maryam Nawaz, and son-in-law Capt (retd) Safdar’s names on the Exit Control List (ECL) on Monday. This brought the political uncertainty back to the limelight, leading to a decline of 702pts in the benchmark KSE100 index the very next day (Tuesday).

Fertilizer and Textile sector remained in the lime light during the week. Fertilizer returned 2.9%WoW, largely driven by Engro Corporation (ENGRO, +3.7%) on announcement of its mining company unearthing coal at Thar Coal. On the other hand, entire Textile Value chain performed on the back of PKR depreciation (Textile Weaving up2.5%WoW, Textile Composite up 0.4%WoW and Textile Spinning 1.7%WoW).

Cements, Automobile Assemblers and Commercial Banks contributed most to the index decline. Cements (down 6%WoW) dragged down KSE100 the most at 237pts, followed by Automobile Assemblers (down 0.7%WoW) and Commercial Banks (down 1.9%WoW). Reason for the decline for Cements and Autos was sudden PKR depreciation, which may lead to weakness in demand and erosion in margins. Commercial Banks, on the other hand, continued to suffer from foreign selling.

As per the data released by Pakistan Automobile Manufacturers Association (PAMA), Passenger Car sales for the month of May-18 fell 15%MoM as production slowed down due to reduced working hours in Ramadan. However the overall sales growth remained robust on YoY basis, as can be gauged by 4/16% YoY increase in May-18/ 11MFY18. Amongst assemblers, Pak Suzuki Motor Company (PSMC) was the key laggard with a MoM sales decline of 21%, likely due to restoration of previous import vehicle policy resulting in an influx of imported used cars. This has normalized the sales trajectory for the company, unwinding the abnormal growth witnessed in previous month (+32%MoM in Apr-18)

Amongst other sectors related news flow; Mirpurkhas Sugar Mills (MIRKS) on Wednesday unveiled a plan to set up bagasse-fired power plant and a steel rebar manufacturing facility with a combined cost of PKR6.5bn. The firm said it set up a fully owned subsidiary by the name of Mirpurkhas Energy Limited (MEL) to produce power from bagasse.

Foreign investors and domestic Individuals offloaded shares worth USD4.4mn and USD3.0mn, respectively. Local companies absorbed the selling as they mopped up shares worth USD10.6mn.

Key news this week

Foreign reserves reach $16.42 billion – Neutral

Rupee falls for fourth time in one year – Neutral

Caretaker govt increases prices of petroleum products for remaining days of June – Negative

Trade deficit widens to $33.9b in 11 months – Negative

Caretaker govt rules out bailout talks with IMF – Negative

This week’s top stories

Automobile Assemblers – Ramadan Drowsiness: Sales for May-18 Declined by 15%MoM

Pakistan State Oil Company Limited – Upwards Revision in LNG Margins to Raise Earnings

Equity Market Outlook and Perspective

Financial Action Task Force (FATF) meeting is scheduled to be held in Paris from June 24 to 29, 2018, where decision to put Pakistan on the Grey List will be taken. We expect Pakistan to be included on the Grey List, but see very slim chances of inclusion on the Black List. While the news is largely priced in, investors would keep a keen eye on the language used by FATF. OPEC is also scheduled to meet on June 22, 2018 in Vienna to decide on extension of production cuts – any surprise moves may result in further volatility in international crude oil prices, with local E and P stocks likely following suit.

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Elixir Securities Limited – Pakistan Equity Market: Weekly Review

Karachi, June 14, 2018 (PPI-OT): Political Noise to the Forefront Again

KSE100 corrected 0.6%WoW (267pts) to close at 43,681pts on the back of 1) re-emergence of political noise, 2) PKR depreciation and 3) Interim Finance Minister’s comments hinting towards economic challenges. Average daily volume traded decreased 28%WoW to 132mn shares due to dull investors activity as last days of Ramadan coincided with outgoing week (less working days). Average daily traded value also fell by 29%WoW to USD54mn.

On economic front, the Pakistani Rupee (PKR) devalued another 4.2% during the week, with the bulk of the decline coming in on the first trading day of the week. This marks the third round of depreciation since December, amid looming Balance of Payment crisis and declining Foreign Exchange Reserves (SBP reserves at USD 10.03bn).

In her first public appearance as Interim Finance Minister, Shamshad Akhtar ruled out the possibility of talks with the International Monetary Fund (IMF) for a Bailout Program during the caretaker setup. She has also deferred the plan of holding Article-IV mandatory consultations with the IMF, leaving the issue for the next government. The Caretaker Finance Minister hinted at 1) possibility of further currency depreciation, 2) increase in petroleum product prices, and 3) likelihood of twin deficits breaching the government targets.

On political front, National Accountability Bureau (NAB) requested the Ministry of Interior to place former Prime Minister Nawaz Sharif, daughter Maryam Nawaz, and son-in-law Capt (retd) Safdar’s names on the Exit Control List (ECL) on Monday. This brought the political uncertainty back to the limelight, leading to a decline of 702pts in the benchmark KSE100 index the very next day (Tuesday).

Fertilizer and Textile sector remained in the lime light during the week. Fertilizer returned 2.9%WoW, largely driven by Engro Corporation (ENGRO, +3.7%) on announcement of its mining company unearthing coal at Thar Coal. On the other hand, entire Textile Value chain performed on the back of PKR depreciation (Textile Weaving up2.5%WoW, Textile Composite up 0.4%WoW and Textile Spinning 1.7%WoW).

Cements, Automobile Assemblers and Commercial Banks contributed most to the index decline. Cements (down 6%WoW) dragged down KSE100 the most at 237pts, followed by Automobile Assemblers (down 0.7%WoW) and Commercial Banks (down 1.9%WoW). Reason for the decline for Cements and Autos was sudden PKR depreciation, which may lead to weakness in demand and erosion in margins. Commercial Banks, on the other hand, continued to suffer from foreign selling.

As per the data released by Pakistan Automobile Manufacturers Association (PAMA), Passenger Car sales for the month of May-18 fell 15%MoM as production slowed down due to reduced working hours in Ramadan. However the overall sales growth remained robust on YoY basis, as can be gauged by 4/16% YoY increase in May-18/ 11MFY18. Amongst assemblers, Pak Suzuki Motor Company (PSMC) was the key laggard with a MoM sales decline of 21%, likely due to restoration of previous import vehicle policy resulting in an influx of imported used cars. This has normalized the sales trajectory for the company, unwinding the abnormal growth witnessed in previous month (+32%MoM in Apr-18)

Amongst other sectors related news flow; Mirpurkhas Sugar Mills (MIRKS) on Wednesday unveiled a plan to set up bagasse-fired power plant and a steel rebar manufacturing facility with a combined cost of PKR6.5bn. The firm said it set up a fully owned subsidiary by the name of Mirpurkhas Energy Limited (MEL) to produce power from bagasse.

Foreign investors and domestic Individuals offloaded shares worth USD4.4mn and USD3.0mn, respectively. Local companies absorbed the selling as they mopped up shares worth USD10.6mn.

Key news this week

Foreign reserves reach $16.42 billion – Neutral

Rupee falls for fourth time in one year – Neutral

Caretaker govt increases prices of petroleum products for remaining days of June – Negative

Trade deficit widens to $33.9b in 11 months – Negative

Caretaker govt rules out bailout talks with IMF – Negative

This week’s top stories

Automobile Assemblers – Ramadan Drowsiness: Sales for May-18 Declined by 15%MoM

Pakistan State Oil Company Limited – Upwards Revision in LNG Margins to Raise Earnings

Equity Market Outlook and Perspective

Financial Action Task Force (FATF) meeting is scheduled to be held in Paris from June 24 to 29, 2018, where decision to put Pakistan on the Grey List will be taken. We expect Pakistan to be included on the Grey List, but see very slim chances of inclusion on the Black List. While the news is largely priced in, investors would keep a keen eye on the language used by FATF. OPEC is also scheduled to meet on June 22, 2018 in Vienna to decide on extension of production cuts – any surprise moves may result in further volatility in international crude oil prices, with local E and P stocks likely following suit.

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