Karachi Stock Exchange Weekly Analysis 28 July, 2012

The Karachi Stock Exchange (KSE) market has witnessed lackluster and flat. KSE – 100 index has reached 14,526 points by losing 38 points or 0.26 percent. While KSE – 30 index has reached 12,592.74 points.

The seasonal Ramadan factor, with reduced trading hours resulted in lower interest at the local bourse. Average volumes dropped to a 28 week low at 56mn shares, down 53.7%WoW. On the macro front, World Bank released a report in which it stated that Pakistan’s GDP may grow by 3.5% in 2013.

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

  • Lucky Cement faced selling pressure at the Karachi Stock Exchange on Thursday on reports that importers in Africa have raised some issues in the quality of its cement
  • The Ministry of Water and Power, in an attempt to avert the fuel crisis, has pressed the Ministry of Finance to immediately release Rs45 billion for Pakistan State Oil (PSO), the oil marketing giant, which is facing the prospect of default on payments to international oil suppliers
  • Gas related woes continued for the fertilizer sector
  • Engro Fertilizers has approached banks to “re-profile” its debt and extend the loan repayment dates by about two and a half years, as the company is trying to reach an agreement with the government to shift its $1.1 billion Enven fertiliser plant from the Sui Northern Gas Pipelines Limited (SNGPL) network to non-network gas fields
  • Inflation is expected to ease down substantially in Jul12 as we anticipate the same to reside at 10%
  • News reports have indicated that the US is set to release US$1.12bn in pending Coalition Support Funds (CSF)
  • Indus Motors Company Ltd (INDU) is scheduled to announce its FY12 results on Aug 10, 2012. And FY12 earnings expected at PKR 55.26 per share
  • Fauji Fertilizer Company (FFC) announced its 1H CY12 earnings today (Jul25’12). The company posted profit after tax of PKR 10.3bn (EPS: PKR 8.12) against PKR 8.2bn (EPS: PKR 6.44), up by 26% YoY and above the market consensus. In 2Q CY12, the earnings propelled by 58% YoY to PKR 6.5bn (EPS: PKR 5.08) as compared to PKR 4.1bn (EPS: PKR 3.21) in 2Q CY11
  • Kot Addu Power Company (KAPCO) has seen its earnings decline by 13% YoY to PKR 4,354mn (EPS: PKR 4.95) during 9mo FY12. Higher finance costs continue to dampen company’s profitability as based on our estimates, KAPCO is likely to have incurred a negative spread of ~PKR 0.89 per share on account of penal markup income during 9mo FY12. However, the company has already announced PKR 3.75 per share as interim cash dividend so far
  • FX reserves of the country declined by US$ 166 million (1.11%) WoW to stand at the level of US$ 14.77 billion
  • Securities and Exchange Commission of Pakistan (SECP) approved various documents submitted by the stock exchanges under the Stock Exchanges (Corporatisation, Demutualisation and Integration) Act, 2012
  • PTCL has decided to offer 16,000 employees a Voluntary Separation Scheme (VSS) at a total cost of Rs 8-10 billion. The stock dropped 3.5% on the last trading day and underperformed the market by 4.6% WoW
  • PSO’s circular debt issue also remained in the limelight during the week. PSO receivables have swelled to a staggering Rs232bn while the company’s payables have surged to Rs181bn. However, due to expectations of release in payments to PSO, the stock outperformed the market by 1.3% WoW
  • Foreigners were net buyers of US$ 4.2 million during the week
  • In the hearing before the Supreme Court on the IPPs petition, the govt. outlined that a payment of PRs24bn would be made to small IPPs in three equal monthly installments (PRs8bn each) with the first tranche to be paid in August
  • The SBP data on Friday showed that borrowing for budgetary support by the federal and provincial governments stood at PKR1.198 tr during FY12 against borrowing of PKR 590 billion in FY11, depicting a healthy increase of PKR 608 billion
  • Despite energy shortfall, country's oil consumption declined by 3 % in FY12 to 19.1 million tons as against 19.7 million tons recorded in FY11 
  • The government continued aggressive borrowing from the commercial banks and raised PKR 360 billion through Treasury Bills auction on Wednesday

Rafhan Maize, Abbot Laboratories, Murree Brewery, Bata (Pakistan), EFOODS, DGKC, MEBL, PSO and Pak Cables were the major gainers while Media Times, International Steel Ltd, ICI Pakistan, HCAR, EPCL, UBL, P.T.C.L and Pak Suzuki were major losers in the benchmark KSE-100 this week.

Top performers of last week were: JSCL, HUBCO, Nishat Chun Power, PTCL, Maple Leaf Cement Factory Limited, Engro Foods Ltd., NIB Bank Limited, DGKC, ABL, PSO, NBP, FFC, Packages Ltd., Fauji Cement Company Ltd., Sui Northern Gas Ltd.

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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