Tag Archives: AKD Securities

AKD Quotidian about — Circular Debt resolution leads to 8MFY14 FO based generation

Karachi, April 16, 2014 (PPI-OT): Following partial resolution of Circular Debt (CD) in which the govt injected Independent Power Producers (IPPs) with PkR270bn, massive improvement in cumulative power production of the country was expected.

However, the velocity of this improvement remained slow as Pakistan’s total power generation according to data released by National Electric Power Regulatory Authority (NEPRA) rose by mere 6%YoY to almost 11k MW, up 6%YoY (or 626MW) in 8MFY14 as against 10.3k MW during the same period last year. At the same time, production coming in from FO (Furnace Oil) based power producers (the prime beneficiaries of Circular Debt resolution) rose by an impressive 16%YoY (or 556mw) to 4.1k MW vs. 3.6k MW produced during the corresponding period last year while. Conversely, generation through gas witnessed a sharp decline, as demand for the natural resource kept rising while supply remained stagnant.

This led to gas-based generation diminishing by 15%YoY (365MW) to 2k MW from 2.4k MW last year. Once again, Hydel and other less costly generation sources came to the sectors rescue. Generation through Hydel improved by 8%YoY (or 227MW) to 3.8k MW in 8MFY14 as against 3.6k MW in 8MFY13, mainly down to better overall water flows especially during winter season (Dec13). Following suit, generation from other sources (coal, nuclear and wind) increased by robust 46%YoY (or 193MW) to 613MW from 420MW last year.

Generation mix tilting towards FO: Following partial resolution of circular debt in mid-2013, FO based energy generation remained highest during subsequent months. Apart from 16%YoY higher generation, this is further highlighted by 290bps improvement in FOs share in the country’s generation mix, which rose to 37.8%, from 34.7% during the same period last year. Following FO, significant improvement was seen in Nuclear energy generations share in total energy mix, rising to 5.3% from previous 4% while Hydel generations share was better off by 60bps to 35.2%.

Cumulative generation cost up just 5%YoY: Despite higher generation coming in from FO based sources, Pakistan’s cumulative generation cost rose by mere PkR0.36 per KWH. This is mainly due to 5%YoY decline in international FO prices, which are down to US$614/ton as against US$646/ton during 8MFY13. Furthermore, better Hydel generation lent its support to keep cumulative generation cost at bay.

Outlook: On an individual basis AKD Securities favours HUBC, which produced 910MW during Jan and Feb14, which is higher than 734MW produced during 2QFY14, but down 5% against 962MW produced during 3QFY13. We believe that investors should look at HUBC for share price gains, as the IPP is expected to post a strong rebound in sequential profitability. In this regard, AKD Securities Limited’s TP of PkR63/share for HUBC provides 20% upside.

AKD Quotidian about — Fertilizer Numbers: Potential for higher imports in 2Q?

Karachi, February 28, 2014 (PPI-OT): As per the latest numbers released by the National Fertilizer Development Centre (NFDC), total urea off take In the first month of CYI4 (Jan) stood at 6192k tons, an increase of 19.7%YoY.

According to AKD Securities, the growth was led primarily by higher sales of EFERT following availability of feed gas to both urea plants as well as higher sales of imported urea within the country. At the same time, DAP volumes within the country fell by 49.4%YoY to 270k tons following end of Rabi sowing season as well as high carryover inventory at the dealer level.

In terms of urea market share, NFML continued to lead the way with a share of 358% in Jan’14 closely followed by FFC and EFERT with market shares of 31.2% and 28.2%, respectively. With respect to DAP market share, FFBL continued to lead with a share of 45.8% while EFERT accounted for 22.1% of total Jan14 sales.

While initial estimates pointed towards comfortable urea inventory level for IHCYI4 following provision of gas to both of EFERT’s urea plants, recent revelations pertaining to reversion of Guddu gas to the power plant earlier than expected could potentially lead to higher urea Imports during the year, particularly in the Kharif season.

AKD Securities portend imports of about 700k-800k tons urea in 2QCYi4 given demand of about 1.4mn-1.Gmn tons coupled with domestic production at just 930k-950k tons (assuming EFERT operates one plant) in 2QCYI4. At current levels, FATIMA remains AKD Securities’ top pick in the sector with a TP of PkR35.1/share.

Urea up 19.7%YoY; DAP down 49.4%YoY: Urea demand withki the country increased by 1 9.7%YoY to stand at 619.2k tons. The increase was fuelled by higher demand accounted through higher production by EFERT (174.3k tons) following provision of feedstock gas to both plants as well as higher imported urea within the country (NFML Sales: 221.8k tons).

On a MoM basis, urea sales were down 8.1% following a cyclical downturn as Rabi sowing season draws to a close. Contrary to urea, DAP sales were down 49.4%YoY/84.4%MoM to 27.0k tons following i) low production from FFBL following closure of its plant due to gas availability, ii) seasonality reasons with Rabi sowing season nearing end in January and iii) high available inventory at the dealer level. In this regard, NFDC estimates 125k tons inventory at end Jan’14.

Outlook and Investment Perspective: While initial estimates pointed towards comfortable urea inventory level for the first half of the year following expected provision of gas to both of EFERT’s plants till end 1 HCY1 3, recent revelation regarding termination of Guddu gas to EFERT potentially by Mar’14 end may lead to higher than expected urea imports during the year, particularly 20CY14.

NFDC estimates total urea ending inventory at 336k tons by end Mar14 where, given historical demand of between 1.4mn- t6mn tons in 20 coupled with estimated production at about 930k-950k tons during the quarter (assuming EFERT operates one plant), AKD Securities believes imports of about 700k-800k tons are likely to materialize in 20CY14.

At current levels, given risks pertaining to the industry in terms of product price as well as input availability, AKD Securities’ top pick within the sectors remains FATIMA given its stable feedstock gas supply (at subsidized rates) as well as product diversification. Trading at CY14 PIE of 5.7x, the scrip offers an upside of 21.8% to ourTP of 35.1/share – BUY!

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AKD Quotidian about — Pakistan Economy: FX Reserves bottomed out

Karachi, December 20, 2013 (PPI-OT): The Executive Board of the IMF has completed its quarterly review of the EFF program and has approved immediate disbursement of about US$550mn.

According to AKD Securities, in doing so, the performance criterion on net international reserves was also waived. While expressing overall satisfaction over Pakistan’s performance in the program thus far, the IMF has pointed out the need to deepen structural reforms, improve tax administration, further enhance energy sector efficiency and rebuild fx reserves. Regarding the latter, the IMF has called for the SBP to use the policy tools at its disposal, including policy rate adjustments.

Considering AKD Securities is still early in the new IMF program, and the GoP has taken tough decisions on the fiscal front, AKD Securities sees continued smooth release of quarterly disbursements under the EFF program particularly over 2014 which will see sizeable repayments to the IMF pertaining to the previous SBA program. With other multilaterals expected to continue their own disbursements, it appears that fx reserves have bottomed out with fresh FDI/privatization proceeds to provide impetus.

FX reserves: As at Dec 13’13, total fx reserves have increased by ~US$500mnWoW to US$8.53bn, driven by an increase in SBP reserves to US$3.47bn. In this regard, chunky inflows received by the central bank include US$144mn from the UK’s DFID, US$137mn from the IDB and US$149mn from other multilateral institutions. Following the disbursement of US$550mn from the IMF (vs. repayments of ~US$270mn across the next two weeks), the SBP’s reserves should climb to about US$3.75bn by early Jan’14. While fx reserves appear to have bottomed out, implied import cover would still be a limited ~2.5m through, underpinning the need to rebuild FX reserves through the GoP’s own initiatives. Key checkpoints on this front are 1) FDI trend (up 5%YoY to US$331mn in 5MFY14) and 2) privatization proceeds. Onus on the SBP.

The IMF press release has called for the central bank to use the policy tools at its disposal to boost reserves through policy rate adjustment, reserves purchases, and greater exchange rate flexibility. Based on AKD Securities’ estimated FY14 CPI average of 10%+, AKD Securities sees the SBP increasing the DR by a further 100bps to 11% by end-FY14.

Furthermore, while AKD Securities maintains AKD Securities’ end-Jun’14 estimate of the PkR/US$ parity at about 108 (recent recovery is encouraging) another dip in fx reserves can potentially lead to a bout of fresh pressure on the PkR. and also on the MoF: While the IMF has highlighted the GoP’s steps to address fiscal imbalances and energy sector issues, it has flagged that overall vulnerabilities remain high with a particular need to improve tax administration/plug tax loopholes.

While the IMF press release does not delve into specifics, AKD Securities believes further near-term steps on the GoP’s agenda would be to phase out the SRO culture, raise gas tariffs and fast-track the privatization process. Thus far, buoyed by provincial surpluses, the consolidated 1QFY14 fiscal deficit has been recorded at 0.50% of GDP which is encouraging.

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AKD Securities Equity Research

Karachi, March 14, 2013 (PPI-OT): Corrective Profile

Short- Term View: The benchmark KSE encountered resistance around the 50% retracement of 18312 to 17491 descend at 17902 yesterday.

According to AKD Securities today, the index can recede back to minute supports around 17633 and 17579. In case of a break above 17902 17930 the index would complete the 61.8% retracement at 17999 level. AKD Securities maintains a corrective stance on the index, sighting possibility for deeper correction towards the 38.2% and 50% retracements of last rally (16036 to 18312) at 17442 and 17174 respectively containing the 55- DMA (17283). It’s too early to say that the downwards corrective phase is over. Therefore, it is advised to reduce exposure on strength up to 18000 level. A closing break of 18185 will mitigate the corrective theme.

Intermediate View: On the weight of the evidence, the bullish peak and trough progression remains intact above Jan’13 low of 16036 level. However, in absence of a clear basing structure at weekly overbought momentum, AKD Securities maintains a neutral stance focusing on the short- term trades only.