Karachi Stock Exchange Weekly Analysis 21 July, 2012

The Karachi Stock Exchange (KSE) market has witnessed bullish activity. KSE – 100 index has reached 14,564 points by gaining 232 points or 1.6 percent. While KSE – 30 index has reached 12,623.90 points.

Average daily turnover this week was seen at 122 million shares, up 28% WoW. We feel volumes could dry up a little given the Ramazan factor and political noise, however the downside should be limited due to the excitement on corporate earnings and payouts.

With the onset of the Holy month of Ramazan, seasonally lower activity could be seen; however given the  jam-packed nature of the upcoming result calendar, we feel that the bourses would keep bustling. For politics on the other hand, next week is critical; the initial hearing challenging the passage of the contempt of Court Bill is scheduled for 23rd July followed by Round II of the NRO saga (25th July) where the PM’s stance on writing a letter to Swiss authorities will be put forward.

Following news have played vital role in Karachi Stock Market index movement:

  • The kick start of the result season and SECP Chairman’s announcement regarding CGT rules and demutualization kept the investor interest intact Moreover, Standard & Poor's Ratings Services affirmed Pakistan’s sovereign long term rating and upgraded short term rating
  • During the week, SECP Chairman announced that the CGT rules for the stock exchanges would be finalized within the next two weeks and its collection would start after a month
  • An additional 70mn MMCFD) gas has come into the system of Sui‐Northern Gas Pipeline Limited (SNGPL) as gas supply from Manzalai gas field was restored after the completion of the Annual Turn‐ Around (ATA) of the field
  • As per latest data by SBP, foreign direct investment (FDI) showed a significant decline of 50.3% to US$812.6mn in FY12 from US$1.6bn in FY11. Sector wise, oil and gas exploration, petroleum refining, beverages, electrical machinery, automobiles, construction, and textiles sectors recorded higher growth in FDI while FDI in telecommunications, power and financial sectors witnessed negative growth mainly led by energy crises and circular debt issues
  • In last week, FPI’s came in strongly, clocking an inflow of US$ 10.8 million
  • The federal government raised PRs 51.2 billion through an auction of PIBs, vs. the target of PRs 30 billion. 10yr PIB attracted the highest bids (PRs34.8 billion) out of which PRs 9.1 billion was accepted, while PRs 5.4 billion were raised through 20‐yr bond
  • Moody's downgraded the corporate family rating of Pakistan Mobile Communications Limited (Mobilink) to B2 from B1 and the senior unsecured rating to Caa1 from B3
  • Moody’s Investors Services, a bond credit rating provider, has downgraded the local‐currency deposit ratings of five Pakistani banks (ABL, HBL, MCB, NBP and UBL) by one notch from B2 to B3, and maintained its negative outlook on the rated Pakistani banks
  • National Electric Power Regulatory Authority (Nepra) on Wednesday allowed an increase ofPKR1.14 and PKR0.52 per unit in tariff of Karachi Electric Supply Company (KESC) for April and May this year
  • Among the list of companies announcing their results were (1) Hubco with FY12 EPS 7.08 (+51% YoY) and final payout of PRs 3/sh (FY12 DPS PRs 6.0), (2) Engro Foods with 1H12 EPS PRs 1.35 (+370% YoY) driven by higher dairy volumes (+39% YoY) and ice‐cream margins and (3) UBL which posted 1H earnings of PRs 7.67/sh with profit growth coming from a considerable reduction in provisioning expenses (‐78% YoY). The bank also announced an interim payout of PRs 2/sh. 
  • While news flow related to MCB’s plan to open three branches in India triggered interest in the stock
  • The Engro Corp. has approached financial institutions to get rescheduling of its loans as the group is facing a liquidity crunch in the absence of cash flows from its fertilizer business

Abbot Laboratories, Murree Brewery, Jahangir Siddiqui & Co, Pak Reinsurance and Clariant Pak, ICI Pakistan, Askari Bank, Adamjee Insurance, P.I.A.C.(A), United Bank, Maple Leaf Cement, Pak Suzuki Motors Co. Ltd., Lafrage Pakistan Cement Ltd., Nishat Chunian Ltd., DGKC, were the major gainers while Ghani Glass, Colgate, Agritech Ltd, Dawood Hercules and Engro Corporation, Philip Morris Pak, International Steel, Feroz 1888 mills, NIB Bank, Engro Plymer were major losers in the benchmark KSE - 100 this week.

The top ten volume leaders were: JDWS, DAWH, EFOODS, LOTPTA, NIB, NBP, LUCK, FCCL, BAFL, NML.

We see a window of opportunity in the market and recommend investors to build positions in names such as PPL, APL, PSO, OGDC, POL, Hubco and NCPL in the energy sector. Among banks MCB is our preferred play while Fatima Fertilizer and Lucky Cement also warrant a closer look given favourable operating dynamics and upside potential.

NOTE: The information posted in this blog (forum) is based on current affairs & investors point of view. There may be discrepancy in the ground realities.

Written by: Rana Khurram

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