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KEY NEWS HELP INDEX CLIMB; FTSE MOVE, BY-ELECTION LIKELY TO PUSH SENTIMENTS

During the week ended 15th September 2017, the benchmark index of Pakistan Stock Exchange closed at 42,787 points, up 3.35%WoW. The rally was driven by 4.8% WoW increase in international oil prices and HBL saga ending with the bank agreeing to pay US$225 million against the initial expectations of US$630 million. Average daily traded volumes, though remaining dismal, was up 15.5%WoW to 157.13 million shares. The volume leaders were: WTL, ANL, TRG, ASL and BOP.

The key news driving the market during the week included: 1) Country’s trade deficit widening by 33.52%YoY to US$6.29 billion during 2MFY18, with imports rising by 24.85%YoY and exports by paltry 11.8%YoY, 2) foreign workers’ remittances during first two months of current financial year posting an increase of 13.2% to US$3.49 billion with a seasonal impact of Eidul‐Azha, 3) cumulative cement dispatches growing by 5.02%YoY to 3.76 million tons in August 2017 on the back of strong domestic offtake rising at 10.8%YoY, 4) GoP approving sugar export quota of half a million tons with a subsidy of Rs10.7/kg and 5) NAB reportedly finalizing to file an appeal against Sharif family in the Hudabiya Paper Mills case.

The top gainers of the week were: HBL, ENGRO, EFOODS, NBP and NML; while laggards included CHCC, APL, FCCL, GWLC and PIOC. Domestic equities garnered significant foreign interest, with foreigners emerging as net buyers of US$27.7 million, the most in a week since the beginning of FY18. Result of By‐election in NA‐120, scheduled on Sunday 17th September are likely to drive investors’ sentiments during the upcoming week. With FTSE rebalancing on 15th September set to take effect from the next week in the local market. Stock specific movement in MCB, SNGP, BAFL, MTL and THAL can’t be ruled out. Cements and steel sectors are likely to remain in focus with DGKC, FCCL and MUGHAL scheduled to announce their annual results.

According to the data released by the Automotive Manufacturers Association (PAMA), sales of passenger cars in Pakistan increased by 28% during the first two months of the current financial year (FY18). These numbers are above the estimates by analysts and attributed to the introduction of new models. As per details 35,002 units were sold during the two month as compared to sale of 27,317 units during the same period of last financial year. In August 2017, a total of 22,000 units, including LCVs, vans, and jeeps were sold, showing an increase of 25%YoY. A total of 1,946 LCVs, vans and jeeps were sold against sales of 111 units sold in the same period last year. A total sale of 4,724 pick-ups against 4,157 units sold during the corresponding period last year.

According to State Bank of Pakistan, bank deposits increased by 12.56% to Rs11.414 trillion in August. The rise in banking sector deposits is attributable to higher quantum of money in circulation in the country. Deposits were reported at Rs10.140 trillion for the same period of 2016. Analysts attributed a jump in the deposits also to higher growth in the business and retail bank accounts. A growing customer deposit portfolio of banks is a positive sign for the banking industry. The increase in private sector deposit of banks also supports the view of improving economic and corporate activities. Customer deposits refer to current, savings, and fixed accounts of individuals and businesses.

The local manufacturers dispatched 7.15 million ton cement during July-August 2017, up 21% as compared to the corresponding period of last fiscal year. While domestic offtake increased by 28%, exports declined by 14% during this period. Cement consumption in the north region was up 28.5% YoY, the increase recorded in the south region was 25.4% YoY. While exports from the north region declined 2.47%, there was 25.45% decline in export from the south region. The constant decline in cement exports should be a matter of concern for the authorities. The south-based factories led exports in the past because of their proximity to the sea.

Oil & Gas Development Company (OGDC) and MOL Group announced a strategic cooperation initiative for evaluating future potential business opportunities in international upstream exploration and production. The strategic cooperation between the two oil exploration companies envisages exploring opportunities jointly in Pakistan, Middle East, African continent and CIS Region. OGDCL is the largest oil and gas exploration company of Pakistan and MOL Group in Pakistan is the largest foreign producer of fossil energy. The two oil exploration and production companies with a robust financial background have desired through this MoU to exchange technical knowledge and industry experiences, allowing for further discussion of potential international upstream growth synergies and possible partnerships.

HASCOL intends to issue 20% right shares at a price of Rs165/share for planned CAPEX for strengthening storages and retail support infrastructure. The issue will enable the company to mobilize Rs3.98 billion against an estimated expenditure of Rs7.8 billion (ex of equity investment in HASCOL Terminals JV and any plans for LPG/LNG). Overlaying planned storage CAPEX with current forays by the OMC in expanding its retail footprint in Balochistan.

Analysis of half yearly accounts indicates that product wise margins took a hit from the three downward revisions to notified monthly prices during 2QCY17. MOGAS margins slid due to internationally procured product being more expensive, while HSD margins firmed up due to effective hedging against PSO’s import cost. Higher rate of depreciation for the newly inaugurated terminals also raised cost of sales and eroded margins, with the latest depot to be added (Sahiwal with 6,000/3,500 ton capacity for HSD/MOGAS) in August 2017. Marketing expenses from the lubes segment depleted profitability further, leading to a higher operating expense for the quarter. Comparing recent retail outlet expansions, analysts highlight the additions to outlets situated in the province of Balochistan, 71 outlets added during FY17.

Moreover, 30 additional outlets commenced operations in Punjab, followed by 12 outlets in Sindh. As of July’17, HASCOL’s retail network comprises of 460 outlets, with 118 outlets added averaging to 10 outlets per month for the period. Increasing exposure to the western CPEC commercial transport network, HASCOL has also announced storage expansion in the south and Balochistan, seizing the advantage derived through increasing road infrastructure investments in Balochistan province.

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