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Stock Review

Market takes meager progress, textile firms spur may improve participation

The week ended 12th January 2018 can be termed relatively better as compared to the earlier weeks. The benchmark index of Pakistan Stock Exchange (PSX) posted a paltry gain of less than one percent to close at 42,934 points. Further impetus was provided by aggressive foreign buying of US$26.41 million with total net inflows reaching US$49.37 million in CY18. The market witnessed erosion of some of the gains towards the end of week. Volumes remained healthy averaging 276.38 million shares, up 16.83%WoW. The volume leaders were: WTL, TRG, ANL, SSGC and PAEL. SSGC and SNGPL registered gains as ECC approved financing plan for the 3rd RLNG pipeline at Rs175 billion. However, NEPRA’s resistance to revise KEL’s MYT dragged the stock down by around 5%WoW. Other key news flows for the week included: 1) US officials reiterating their demand of concrete actions against certain terrorists group allegedly having safe havens in Pakistan, 2) ECC approving a waiver of sales tax and customs duty on the import of cotton, 3) trade deficit widening to almost US$18 billion during 1HFY18, up 24.5%YoY led by 11.2% increase in exports and 19.1% increase in imports, 4) overseas Pakistanis remitting US$9.7 billion during 1HFY18, up by 2.5%YoY, 5) auto sales for CY17 posting 18.7%YoY growth and 6) GoP mulling to levy further duties on import of luxury items while considering to slash power/gas tariffs for textile firms. Major gainers of the week were: FFC, FFBL, HBL, APL and CHCC, while laggards included: NBP, KEL, DGKC, ASTL and KAPCO. Political noise is expected to dampen investors’ sentiments. Progress over GoP’s incentives for textile firms, rationalization of tariff and resolution of GIDC issue can lead to increased optimism amongst the market participants to be furthered in case of sustained foreign buying. Only a few textile companies are anticipated to remain the center of attention, while resolution of GIDC issue might also positively impact the fertilizer sector in the upcoming week.

Engro Fertilizers (EFERT) emerges outstanding among all the fertilizer manufacturing companies operating in Pakistan for its installed capacity, overall capacity utilization and cost effectiveness. Notable improvement in company fundamentals include: 1) a 10%YoY growth in urea offtake during CY17 coupled with 7% uptick in urea industry offtake and 2) reduction in discount offerings on the back of normalization of inventory levels — healthy demand along with allowance for exports and rebound in international urea prices. Pakistan’s leading brokerage house, AKD Securities has revised its industry urea offtake to 5.95 million tons. In the absence of any major future capital expenditure and improved debt profile, the brokerage house expects EFERT to maintain its dividend payout ratio at 90% going forward. EFERT posted unconsolidated profit after tax of Rs6.69billion (EPS: R5.01) for 9MCY17 as compared to net profit of Rs5.66 billion (EPS: Rs4.25) for 9MCY16, an increase of 18%YoY. Key highlights of the results included: 1) strong 15%YoY growth in topline to PkR51.86 billion (includes subsidy) reflecting 27%/30%YoY increase in Urea/imported DAP off-take to 1.29 million/306,000 tons and 2) jump in gross margin to over 36% (including subsidy). During the year, the company also paid a cash dividend of Rs5.5/share taking 9MCY17payout to 110%.

Rupee hit an all-time high of 113 against the US dollar in the open market on the first day of this past week, as the exchange companies struggled to keep the greenback’s supply intact after the central bank restricted their currency imports. The rupee/dollar parity touched as high as 113.50 in the kerb market in an intra-day trade. However, dealers closed the rupee sale at 112.40 and buying at 112.80 after some correction. The rupee traded at 111.50 to 111.80/USD on Friday. There is a dollar shortage in the market and the demand is high. The value of rupee fell more than two percent in a week since the State Bank’s decided to impose 35% restriction on the import of cash US$ against export of permissible foreign currencies. Overseas Pakistani workers remitted US$9,744.75 million in the first six months (July to December) of FY18, compared with US$9,505.11 million received during the same period in the preceding year. During December 2017, the inflow of worker’s remittances amounted to US$1723.57 million, which was 9.31% higher than November 2017 and 8.72% higher than December 2016.

 

The Securities and Exchange Commission of Pakistan (SECP) has introduced the amendments to the Public Offering Regulations, 2017 to promote quality listing, ensure fair price discovery through book-building process and increase investors’ base. After thorough consultation and concurrence of the leading market participants, the SECP has introduced the amendments to the Public Offering Regulations, 2017, notified vide S.R.O. 7(I)/2018. The said notification and amended copy of the regulations is available on the SECP’s website. In order to encourage quality listing and minimize the subjectivity involved in the approval process, certain specific requirements for listing have been introduced to the regulations. The said requirements include at least 3 years operational track record of the company with two years profitability from its core business activities and the book value per share of the company shall not be less than its face value per share.

The government is preparing a roadmap to borrow US$10 billion from external sources in next six months to repay previous loans and finance the current account deficit. Out of this amount (US$10 billion), the government will make payment of around US$3.5 billion to International Monetary Fund (IMF) and others while up to US$7 billion will be used to finance the trade deficit of the country. The roadmap in this regard would be finalized in next few days. The government would approach the commercial banks for borrowing. The government is in negotiations with some foreign banks and expected to sign more agreements to procure more commercial loans. The government had already borrowed US$1.1 billion from the commercial banks during five months (July-November) of the current fiscal year.

The government on Friday approved the financing plan for 1.2 billion cubic feet per day (BCFD) capacity RLNG-III pipeline project (Karachi to Lahore) to be undertaken by SSGCL and SNGPL. The meeting of Economic Coordination Committee of the Cabinet chaired by Prime Minister Shahid Khaqan Abbasi, approved financing plan for RLNG-III pipeline project (Karachi to Lahore). The ECC directed Petroleum Division to also examine as the Ministry of Finance and Federal Board of Revenue have agreed to the new policy. The government wants to reduce taxes to control the cost of production and discourage subsidies. The new policy will benefit farmers as well as the industry.

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