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Stocks under pressure after global rout, buyers set sight on volatility ease

During the week ended 9th February 2018, Pakistan Stock Exchange benchmark Index remained under the shadow of global equities market and closed at 43,809 points, posting 1.11% WoW decline. Overall traded volumes went down by more than 4%WoW to about 245 million shares. Key news driving the market were: 1) law makers in the US pushing for further aid suspension to Pakistan citing lack of actions against terrorist groups, 2) the Government of Pakistan (GoP) planning to announce separate amnesty schemes for both foreign and local assets, 3) possible announcement of budget by the 2nd week of May where incentive packages regarding the fertilizer and IT sectors seem to be on the cards, 4) National Assembly being apprised that the general elections schedule would be announced on 26th May this year and 5) Ministry of Finance scrapping the idea of another US$1.00 billion Eurobond issuance, while foreign reserves dwindled by US$173 million (down 0.9%WoW) to US$19.18 billion.

Volume leaders of the week were: ANL, TRG, LOTCHEM, ASL and SSGC. While gainers were: NBP, UBL, KAPCO, BAFL and HUBC, laggards included: CHCC, PIOC, DGKC, PPL and MLCF. Foreigners continued to off-load their holding, selling stocks worth US$8.5million during the week. MSCI’s next quarterly review is scheduled on 12th February where changes in the constituents’ weights can drive stock specific performances accordingly. Moreover, market is anticipated to take direction from the ongoing result season where ASL, ASTL and BAHL are scheduled to release their financial results for the period. Lastly, foreigners can once again shift focus towards the Pakistani market as volatility eases in the global markets.

A point of serious concern is that Pakistan’s liquid foreign exchange reserves are persistently on the decline. Even bigger concern is that the incumbent government is not taking steps to either boost exports or contain imports. On top of all remittances are also on the decline. According to a release by State Bank of Pakistan (SBP), during the week ended 02nd February 2018, reserves held by SBP decreased further by US$173 million to US$13,061 million, due to external debt servicing and other official payments. This brought the total liquid foreign reserves held by the country to US$19,182.9 million. The net foreign reserves held by commercial banks were reported at US$6,122.3 million.

According to media reports, Pakistan’s much-needed requirements of getting Development Policy Credit (DPC) from the World Bank and program loans from the Asian Development Bank are largely dependent on the IMF’s upcoming report and the country’s ability to keep foreign currency reserves above 2.2 months of import bill. Official sources confirmed that the declining foreign currency reserves were posing a threat to halt the DPC and program loans in months ahead so risk on external accounts might be increased with every passing month. The IMF is expected to present its report before the Fund’s executive board by the first week of next month and then it will be released. Former Secretary Finance had refused to finalize macroeconomic projections especially on account of current account deficit on the eve of last post program monitoring and both sides finalized at that time for evolving consensus after firming up data for end December 2017.


In line with market expectation, Engro Fertilizers (EFERT) posted unconsolidated profit after tax of Rs3.44billion (EPS: Rs2.59) for 4QCY17 as compared to net profit of Rs3.36billion (EPS: Rs2.52) for 4QCY16, an increase of 2%YoY. On a cumulative basis, CY17 earnings rose to Rs10.14billion (EPS: Rs7.60) as compared to Rs9.03billion (EPS: Rs6.78) for CY16, up 12%YoY. Alongwith the result, company also announced payment of an impressive final cash dividend of Rs3.0/share taking CY17 total payout to Rs8.50/share. Highlights of result include: 1) improvement in gross margins to 36.6% on account of higher urea prices (reduction in discounts offering as urea inventory normalizes amid higher international prices) and lower mix of low margin DAP sales in topline, 2) growth in Urea and DAP offtake to 1.80 million tons and 531,000 tons respectively, 3) decrease in distribution cost on the back of lower inventory levels this year and 4) decrease in finance cost on account of swift deleveraging and low interest rate environment.

The year 2017 marked a shift in electricity generation landscape of Pakistan with overall capacity rising by 6,175MW to 29,444MW. Along with this, the outgoing year witnessed establishment of 5 new plants including 3 RLNG based (3,700MW) and 2 coal based (2,640MW). Moving in tandem, fuel mix remained reflective of the new additions. Enhancement of nuclear generation complex (Chashma I-IV) further aided in narrowing down the share of hydel based generation to 26.5%. Citing spare capacity of RLNG based plants and in anticipation of further additions in the generation slate, GoP took an unprecedented move in the latter part of 2017, ordering immediate closure of Furnace Oil based plants only to ban the import of FO later on while allowing only the efficient ones to consume locally produced FO. Such stringent measures shed FO’s share in the mix by 3.6% over the previous year to an all-time low of 26.5%. Despite the shift in generation base, oil remained the inherent price componentraising cost of generation to Rs5.09/unit against Rs4.39/unit in the previous year.

With heavy investments in the power sector under CPEC, analysts expect the country to see another 8,000MW addition in the generation slate by FY21. Average generation cost during CY17 inched up to Rs5.09/unit from Rs4.39/unit in CY16. Surge in unit cost was predominantly caused by hike in oil prices; up 23.4%YoY leading to higher FOand RLNG costs.

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