AKD Equity Research – Stock Smart
Karachi, April 03, 2015 (PPI-OT): Weekly Review
After witnessing 4.8% decline in the last week, the KSE‐100 index posted a sharp rebound in the week under review, with the market gaining 3.9%WoW to settle at 31,414 points. The market commenced the week in negative territory as benchmark index fell 3.4% on Mon‐day, however, going forward positivity was restored.
News flow affecting the broader market included: 1) Successful completion of sixth review of Pakistan’s economic performance and release of tranche worth US$501.4mn under EFF arrangement, 2)
The GoP raised PkR 76bn though MTB auctions with 3mth, 6mth and 12mth cut‐off yields at 7.96 (down 22bps), 7.94% (down 4bps) and 7.83% (stable) respectively, 3) Int’l oil prices declined (Brent down 3.77%) after Iran and world powers agreed the “key parameters” of a nuclear deal and 4) 200 mmcfd of LNG injected into system with a final price of in the range of US$10‐11 per mmbtu.
Scrip’s exhibiting price performance included 1) AICL (+15.9% WoW), 2) MLCF (+15.5% WoW), 3) HMB (+15.3% WoW) and 4) NBP (+15.2% WoW). Laggard at the bourse were, 1) OGDC (‐5.3% WoW), 2) POL (‐2.9% WoW), and 3) PPL (‐1.7% WoW). Average daily turnover clocked in at 244.31mn shares, an improvement of 45.29% WoW, with volume leaders being, 1) KEL (121.41mn shares), 2) PAEL (109.27mn shares), 3) BOP (89.46mn shares) and 4) FCCL (65.84mn shares). FIPI clocked in at a net buy of US$4.09mn reversing the negative trend witnessed in the month of Mar’15.
Though the market bounced back sharply, AKD Securitas Limited believes benchmark index will move in a narrow band next week owing to lack of positive triggers on the liquidity front especially when the HBL transaction is right around the corner. Furthermore, with budget being not far away, KAD Securitas Limited advises investors to adopt a cautious stance and take shorter term positions rather than long ones. Top picks for next week include EFERT, MLCF, HUBC, UBL and PTC.
Nishat Mills Limited: the best to continue with its test (AKD Daily, April 03, 2015)
In 2QFY15, Nishat Mills Limited (NML) posted NPAT (unconsolidated) of PkR1.54bn (EPS: PkR4.38), lower by 32%YoY. On the back of sluggish demand and ample supply pulling pressure on the topline (down by 4%YoY), and COGS stepping up by 5%YoY due to increased power costs and charging of further depreciation, NML’s GMs radically came off by 720bps YoY to 11.6% in 2QFY15. In line with recent pressure at the bourse, NML also shed 14.7% in Mar’14, to trade at a FY15E/FY16F PE of 8.1x/6.6x. Based on AKD Securities Limited’s Dec’15 TP of PkR168.5, the scrip offers a potential upside of 59% where KAD Securitas Limited a BUYs stance on the scrip. Our call is underpinned by its well diversified portfolio and 70% revenue generation from the value added segment. The Dec’15 TP includes 109/sh from NML’s well diversified portfolio, discounted at 40%.
EFERT: Top pick in Fertilizer space (AKD Daily, April 02, 2015)
We update AKD Securities Limited’s investment case on EFERT where post incorporation of Eximp’s fertilizer trading business, tweaking finance cost and capacity utilization assumptions KAD Securitas Limited revises AKD Securities Limited’s earnings forecast by 14.2% in CY15E to PkR13.23/sh vs. PkR11.59/sh previously, while the same over the long term (CY16‐20) improves by 4‐5%. Based on this and the recent 50bps reduction in DR KAD Securitas Limited raises AKD Securities Limited’s Dec’15 TP by 22.4% to PkR102/sh. EFERT announced NPAT of PkR8.20bn (EPS: PkR6.29) in CY14, higher by 35%YoY vs. NPAT of PkR5.49bn (EPS: PkR4.66) in CY13.
Improved earnings were achieved on the back of 22.5%YoY topline growth in CY14 owing to continued gas supply from Guddu and 33.2%YoY decrease in finance cost to PkR6.62bn on account of early repayments and lower interest rates environment.
In addition to this, CY14 result was accompanied by a surprise first ever DPS of PkR3.00. We have a Buy stance on EFERT as the scrip at present trades at CY15E P/E of 6.05x (KSE‐100 P/E 8.05x) and offers D/Y of 8.3% (KSE‐100 D/Y 6.08%) and provides an upside of 29.1% against AKD Securities Limited’s revised TP of PkR103. Furthermore, as news regarding gas price rationalization make rounds, KAD Securitas Limited opines EFERT remains one of the key beneficiaries as it enjoys feed gas supply fixed at US$0.70/mmbtu.
Pakistan Market_Mar’15 Review and Outlook, (AKD Daily, April 01, 2015)
Overlooking key macro‐economic developments such as: i) The SBP reducing its policy rate by 50bps to 8% and ii) Moody’s revising its outlook on Pakistan’s foreign currency debt, negativity that was seen in Feb’15 continued in Mar’15 as well.
The KSE‐100 Index recorded a return of ‐ve 10.1% in Mar’14, taking CY15TD returns to ‐ve 5.9%. That said, the KSE‐100 Index’s performance could have been much worse had KAD Securitas Limited does not seen a sharp 4.52%/1,307pts recovery yesterday. Market’s performance in Mar’15 is not only the worst in last 58mths but it also marks the second consecutive month where the KSE‐100 Index has yielded ‐ve returns (last seen at the end of 2011).
Going forward, with the current round of negativity subsiding, KAD Securitas Limited believes the prevailing disconnect between the market performance and improving macros will ease out, providing impetus to AKD Securities Limited’s P/E re‐rating theme. We remain bullish on the market over the medium term with AKD Securities Limited’s Dec’15 Index target of 37k pts where KAD Securitas Limited flags MLCF, EFERT, ENGRO, UBL, POL and HUBC as AKD Securities Limited’s preferred plays.
NBP: Underperformance opens up valuation, (AKD Daily, March 31, 2015)
Following higher than expected NPAT of PkR16.08bn (EPS: PkR7.56) in CY14, KAD Securitas Limited raises AKD Securities Limited’s CY15F/CY16F EPS estimates for NBP by 2.1% ‐ 1.9% and AKD Securities Limited’s TP by 6% to PkR73/share. While CY14 results were influenced by capital gains, KAD Securitas Limited flags anticipated down‐trend in credit costs (coverage 84%; +4ppt), emphasis on low cost deposits (CASA 73%), and focus on diversifying non‐interest income to drive 13% profitability growth for the bank across the medium term.
This should lead to Tier‐1 ROE averaging 16.9% over the next 3yrs, vs. previous 3yr average of 11.4% with room for positive surprises on cost rationalization and swifter than expected loan book growth. Not to forget, unrealized capital gains (on shares and mutual funds) of PkR29bn also imply significant room to boost earnings, going forward.
Overlooking recovery in fundamentals and on‐target macroeconomic upgrade, NBP has lost a good 25% in just two weeks and is now trading at a level last seen in Mar’14. Such underperformance has opened up valuations for NBP that trades at an attractive CY15F P/B of 0.75x, P/E of 7.5x and D/Y of 13.5%. Our revised TP of PkR73.3/sh implies a Buy stance.
Pakistan Economy: IMF approves another tranche, (AKD Daily, March 30, 2015)
The IMF approved the release of US$501mn under the EFF agreement at the conclusion of its Board’s meeting of the sixth review while commending GoP for its progress on the program as well as brining economic stability. Pakistan comfortably met all quantitative and structural benchmarks for the review, assessing performance for the period Oct‐Dec’14. While KAD Securitas Limited awaits the release of the memorandum of economic and financial policies (MEFP) and staff report, earlier speculations had suggested that fiscal deficit targets for the remainder of FY15 may be revised owing to low price levels that can stress revenue collection.
We also expect the addition of more structural reforms for the remainder of the program, where the focus is expected to remain on (i) strengthening the functioning and autonomy of SBP and (ii) ensuring fiscal consolidation through reduction of subsidies and gas sector price rationalization. Performance criteria for the next fiscal year likely to be added to the report may give an indication for the upcoming FY16 budget (tentative date: 29 May’15).