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Stock Review

Market stays in the positive territory; negative outlook, new monetary rates in focus

Continuing with its last five week’s positive momentum, the benchmark index of Pakistan Stock Exchange (PSX) gained another 372 points during the week ended 26th January 2017 and closed at 44,551 points, up 0.84%WoW. Rising trend in international oil prices and renewed interest from foreign investors helped the index to post broad-based recovery. The market was however down on the last day of the week after credit rating agency Fitch’s negative outlook cautioned the investors, who took some profit-taking move and of monetary policy mixed expectations. In a surprise move State Bank of Pakistan (SBP) raised policy rate by quarter of a percent for the next two months, after the recent depreciation of the rupee.

Average daily traded volumes improved significantly by almost 50%WoW to 275.41 million shares with TRG, KEL, DCL, BOP and POWER being the volume leaders.

Key news flows impacting the market during the week were: 1) Pakistan’s foreign exchange reserves falling to US$19.640 billion, 2) Fitch Ratings revising Pakistan’s outlook from Stable to Negative and affirming both long-term Foreign currency IDRs at ‘B’, 3) as per NFDC, fertilizer off-take during CY17 growing by 8%YoY to 9.87 million tons, 4) World Economic Forum (WEF) ranking Pakistan at 47th position, ahead of India at 62nd position in terms of emerging economies of the world and 5) State Bank of Pakistan (SBP) stating in its quarterly report that prospects for economic growth remain strong and the economy is poised to achieve FY18 growth target of 6%.

Performance leaders during the week were: EFOODS, DGKC, PIOC, CHCC and FCCL; while laggards included: POL, UBL, FFBL, BAFL and FFC. Foreign participation remained in the positive zone with US$12.44 million inflows compared to US$33.11 million inflows in the preceding week. The hike in interest rate by SBP is likely to boost investor’s optimism in local bourse in the upcoming week, driven by index heavy banking sector. Moreover, the market is likely to take direction from ongoing results season on better earnings expectation from Fertilizer, Auto and Oil & Gas sectors.

The central bank raised its policy rate by 25bps to 6.00% per annum. While analysts expected the SBP to end its dovish policy stance in 2018, the surprise has come early in the year with the following justifications: 1) Pak rupee depreciating by around 5.00% , 2) oil prices hovering around US$70/bbl, 3) central banks around the world adjusting their policy rates upwards adversely affecting rupee based interest-rate differentials vis-à-vis their currencies and 4) multiple indicators showing that the output gap has significantly narrowed indicating a buildup of demand pressures. According to AKD Securities, a 25bps hike in policy rate is not likely to have any significant bearing on the earnings estimate of its investment universe. It also believes that the market should interpret this move by the SBP as an improvement in sentiments for the banking sector. Historically leveraged sectors like Textiles and Cements would have to weather higher interest rate.

The Senate Standing Committee on Finance was informed that Pakistan has no plan to enter the IMF program and the current account deficit would be met through acquiring loans and issuing bonds. The committee was given an in-camera briefing by Tariq Bajwa, Governor of the central bank over depleting foreign exchange reserves as well as outflow of billions of dollars by various foreign airlines. The country needs US$3 billion by the end of June this year — mainly for debt retirement and some other components leading to rising current account deficit.


Pakistan Oilfields (POL) has released its 1HFY18 financial results posting net profit of Rs4.76 billion (EPS: Rs20.12), slight increase of 2.27% over 1HFY17. Along with the result, the Company has announced an interim dividend of Rs17.5/share. This can be attributed to: 1) elevated international oil prices (increase of 20.8%YoY), 2) tie-in of Jhandial well and 3) Rupee devaluation during the quarter, top-line of the Company grew by a meager 3.4%YoY. This was significantly below market expectations that can be attributed to: 1) the company reversed gas revenues from TAL block (Mamikhel, Maramzai and Makori East) fields amounting to Rs3.01 billion for July-December 2017 period and 2) did not book one-time gain of Rs5.99/share for revenues prior to July 2015. As per note 16.1 of the attached notes, GoP notified on 27th December 2017 that all field conversions pursuant to PP1994 and PP1997 (where TAL block fields fall) shall be subject to retrospective applicability of Wind fall Levy on oil/condensate. Also, DGPC has required all E&P companies to submit supplemental agreements within 90 days (incorporating retrospective windfall levy) failing to which the companies would not be eligible for enhanced gas pricing as well. As per the Company’s perspective, this clause was not included during the signing of supplemental agreement of field conversion and hence intends to challenge GoP’s decision in the court. Since the company has been recording enhanced revenue from those fields since July 2015 and did the same for the outgoing 1HFY18 as well, it has reversed all such revenues for the time being and will record again post resolution of this matter.

Attock Petroleum (APL) the country’s third largest OMC by volumes has posted profit after tax of Rs1.48 billion (EPS: Rs17.85) for2QFY17, higher than market expectation arising from gross margins higher than expectations estimates (gross margins were reported at 6.4% against an expectation of 5.5% expectation). Finance expenses kept a lid on bottom-line growth. From a consolidated perspective 1HFY18 net profit was reported at Rs2.81 billion as compared to Rs3.16 billion for 1HFY17, with the decline of 11%YoY. The OMC continued to follow aggressive retail expansion plan, accompanied by on-boarding of planned CAPEX projects.

Fauji Fertilizer Company (FFC) is scheduled to announce its 4QCY17 financial results on Tuesday, 30th January 2018. According to AKD Securities, FFC is forecast to post profit after tax of Rs4.94billion (EPS: Rs3.88) as compared to net profit of Rs4.28billion (EPS: Rs3.66) for the corresponding period last year, up 15%YoY. This increase in earnings is anticipated on the back of: 1) improvement in gross margins (GM) to 30.5% (includes subsidy) on account of higher urea prices – reduction in discounts offering as urea inventory normalizes amid higher international prices and 2) healthy urea/DAP offtake of 824000 and 176,000 tons during the period under review. On a cumulative basis, the brokerage house expects CY17 earnings to decline to Rs10.87billion (EPS: Rs8.54) as compared to Rs11.78billion (EPS: Rs9.26) for CY16, down 8%YoY. Along with the result, the brokerage also anticipate final cash dividend of Rs3.50/share taking CY17 total payout to Rs7.50/share.

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