december 2013 the abacus prompt™ · pakistan’s market trades at a significant discount in...

The Abacus Prompt™ Monthly Business Review – Pakistan

December 2013

December 2013

Issue 36, Vol. 3

Consulting | Technology | Outsourcing

new

KSE-100 Index Performance

Dec 2 24,302 3.95%

Dec 31 25,261

KSE

Market Cap - (PKR Billion) Dec 2 5,874

3.10% Dec 31 6,056

KSE 100

Best Performing Stocks

Company Opening Price Closing Price Change

JDWS 145 203.23 40% SNBL 8.08 10.93 35%

ICI 190.38

38

253.02 33%

BATA 2,144 2,792.46 30%

MUREB 314.99 400.02 27%

KSE 100

Worst Performing Stocks Company Opening Price Closing Price Change

AICL 102.84 37.37 -64% NESTLE 9,300 7,550 -19%

ABOT 422.58 393.5 -7%

AGL 13.49 12.67 -6%

PTC 29.99 28.44 -5%

Top Picks (Stocks Offering Maximum Upside Potential)

Company Closing Price Target Price Potential

AH

L ENGRO 158.38 211 33%

DGKC 85.73 110 28%

BAFL 27.04 34.2 26%

KA

SB

PPL 213.96 290 36%

HUBC 60.72 75 24%

DGKC 85.73 100 17%

AK

D HUBC 60.72 77.41 27%

FFC 111.96 138.62 24%

DGKC 85.73 105.47 23%

JS

FFC 111.96 138 23%

POL 497.71 605 22%

NCPL 34.78 40 15%

Source: Abacus Research, KSE

Stock Market

KSE-100 rose to its all time high of 25,261 in Dec, rising by a 3.95% MoM. Key developments which helped propel the market to its new high included PKR’s appreciation of ~3% against the USD on the back of rising foreign reserves – boosted by inflows from IMF’s Extended Fund Facility – and lower than estimated CPI figures. Market volumes skyrocketed by 44% YoY to an average of 270mn shares.

The spectacular performance by the index in CY13 was driven by P/E multiple’s re-rating as optimistic investor pushed stock prices rapidly higher in the post-election period. The successful transition of power from one to another democratically elected government was cheered by the markets and viewed as a harbinger of economic revival in the country. Although a strong depreciation in PKR during CY13 occasionally slowed the index’s rise, investors continued to believe in the incumbent government’s ability to steer the economy away from disaster.

The improved market sentiment directly led to a foreign portfolio investment of USD 402mn in 2013; the figure is the highest in three years. KSE also outperformed several of the regional markets in CY13, posting a YTD appreciation of over 49%, compared to India’s 9% and China’s -7%.

Source: Bloomberg

Pakistan’s market trades at a significant discount in comparison to its regional peers in terms of relative forward P/E valuations. In CY13 Pakistan managed to bridge the gap. This month’s performance has pushed its P/E up by 4% MoM.

FCCL assumed the title of highest traded stocks with 312mn shares traded while PTC followed the lead for the month of Dec.

Source: KSE

-5.3% -4.7%

-2.4%-0.3%

1.8%3.0% 3.90%

-10.0%

-5.0%

0.0%

5.0% Regional Comparison

Thailand China Hong Kong Singapore India Malaysia Pakistan

8.49.7

13.514.9 15.2 16.1

18.0

0

5

10

15

20Regional Valuations P/E (x) 2013E

China Pakistan Thailand India Singapore Hong Kong Malaysia

147 153 158

218

312Highest Traded Stocks on KSE (Million Shares)

JSCL BAFL MLCF PTC FCCL

December 2013

Issue 36, Vol. 3

The Abacus Prompt™

Monthly Business Review - Pakistan

The Abacus Prompt™ The Abacus Prompt™ The Abacus Prompt™

Pakistan Rupee Monthly Performance

Currency Open Rate Close Rate Change

108.48 105.49 2.76%

177.57 174.85 1.53%

147.57 145.33 1.52%

28.92 28.12 2.77%

29.53 28.72 2.74%

1.73 1.70 1.73%

1.05 1.00 4.76%

KIBOR Monthly Movement

Tenor Open Rate Close Rate Change

1-Month 10.15 10.37 2.20% 3-Month 10.01 10.09 0.80% 6-Month 10.08 10.15 0.70%

Key Commodities Monthly Price Movement

Commodity Description Opening Price

Closing Price

Change

Precious Metals

Gold

24Karat (PKR/Tola)

52,400 49,550 -5.4%

Gold Spot (USD/oz) NY-Close 1,253 1,205 -3.8%

Silver (PKR/Tola) 830 770 -7.2%

Silver Spot (USD/oz)

NY-Close 20 19 -2.6%

Gold- Silver Ratio

GSR 62.5 63.4

Oil

Crude Oil (US)

(USD/bbl). NYMEX 92.72 98.42 6.1%

Furnace Oil

(PKR/Ton ) IMPORT 81,065 81,065 0.0%

High Speed Diesel

(PKR/Ltr) 116.80 116.80 0.0%

Motor Spirit

(PKR/Ltr) 113 113 0.0%

Agriculture & Cement

KCA- Cotton

(PKR/ maund)

6,350 6,950 9.4%

Urea

(PKR/Bag)

1,831 1,856 1.4%

Cement (Avg.)

( PKR/50kg)

508 513 1.0%

Currency Market

United States Dollar

USD received a much needed boost from two fronts: the non-farm payroll data and the Fed’s taper decision, both pushing the dollar index from its lows in the month of December. Furthermore, USD was helped by the upward revision to third quarter GDP from an earlier estimate of 2.8% to 3.6% annual rate. However, the USD’s upward revision was bucked by relative strengthens of EUR and GBP which make a sizable portion of index. PKR appreciated by ~3% against USD, after inflows from IMF eased pressure on foreign reserves.

Euro, British Pound and Japanese Yen

EUR rose to a two and a half year high against USD during Dec before ending the month only marginally higher MoM. EUR has risen by more than 7% against USD from its low in July, largely due to ECB’s intervention. GBP gained against the USD after UK’s GDP was confirmed to have expanded by 0.8% in the third quarter, higher than previously estimated. GBP gained as much as 1.21% against the dollar. Yen has declined cumulatively by 22% against USD in 2013, due to monetary easing adopted by the central bank to combat the decades-long deflation. Yen fell by 2.8% MoM against the USD.

KIBOR

KIBOR rate for every tenure rose marginally, following a revision in the policy rate as per the Nov MPS.

Commodities Market

Precious Metals

Gold prices suffered another setback in Dec as U.S. Federal Reserve finally decided to taper its mammoth asset purchase program by USD 10 billion to USD 75 billion per month. Gold prices are generally understood to be negatively correlated with inflationary expectations and as the size of monetary stimulus begins to decrease, investors are finding little incentive to invest in gold. 2013 turned out to be a terrible year for the precious metal, which declined by over 29% as gold backed ETFs continued to witness large outflows throughout the year. Silver prices decreased by 2.3% MoM.

Oil

WTI oil price rose on the back of data released by the Energy Information Administration (EIA) that revealed that oil stocks had declined more than that expected by analysts. Cumulatively, inventories have fallen by 24 million barrels, helping push oil prices from the lows witnessed after a glut of oil from the Gulf Coast had depressed the prices earlier. Domestic prices however remained flat MoM.

Agriculture

Strong buying during the end days of CY13 boosted the price of cotton, which closed at 9.4% higher MoM. The strong demand was witnessed as mills and spinners continued to pay higher price for the fine quality cotton.

Cement

APCMA reported that total dispatches during 1HFY14 stood at 16.13mn tons, increasing by 1.14% YoY. Cement dispatches in Dec were up 8% MoM as PSDP related and private construction work picked up speed. Exports in 1HFY13 came in at 4.14mn tons, registering a slowdown of 2% YoY. Demand for cement in Afghanistan is reducing while the country remains the largest cement importer from Pakistan.

USD

JPY

EUR

SAR

AED

INR

GBP

Sources: SBP, XE.com, Investats, Bloomberg, FX.pk and KITCO

December 2013

Issue 36, Vol. 3




Economy of Pakistan

Sources: SBP, PBS, Statpak, FBR *Inflation rebased to FY08 (Sep 2011) (P): Provisional

Monetary Policy

The SBP had earlier decided to increase the DR by 50bps to 10 percent for a two month period starting Nov 18

th. The increase met analyst expectations of a

contractionary monetary policy regime during FY14 as Islamabad jiggles rising inflation (expected to reach 11.5% at the end of FY14), increased GoP borrowings and a slowing economic growth. Structural weaknesses have long been identified as sole contributors to the country’s economic woes; however an IMF reform package has helped guide the financial managers to carry out some reforms, however a sizeable effort is still required on the front. During the 6MFY14, some fiscal consolidation has taken place, with the tax authorities rationalizing direct tax rates, as well as increasing the GST. The fiscal side has also been helped with the much needed realization of non tax revenues such as CSF payments.. However, a lack of documentation still haunts the economy and effectively cannot bring in the informal sector into the tax net. Fiscal deficit has been projected at 6.3% for FY14. On the external front, the situation remains bleak (the external account deficit was recorded at USD 1.2bn during Q1FY14). This is due to weak financial inflows, rising imports as well as substantial debt repayments to the IMF. Speculative sentiments on the IMF bailout have also resulted in high exchange rate volatility and have had a sizeable impact on foreign exchange flows. The SBP believes that progress on reforms as part of the IMF package will help the country in reigning in the external account as well.

As per provisional figures, FBR managed to collect PKR 216 bn in Dec, up 2.3% YoY. Furthermore, PKR 1,020 bn were collected during the first half of FY 14 (Jul-Dec 2013), up 16% YoY, against a target of PKR 1,090bn for the period. This represents a shortfall of PKR 70 bn. The aggregate tax collection target of PKR 2,475bn looks unrealistic and has already been rendered irrelevant by the FBR as well as the IMF, who project collection at PKR 2,345bn for FY14. Tax concessions to industrialists and traders have dented collection efforts for the current FY. A blanket amnesty program for industrialists announced by the PM is also expected to hurt revenue collection.

Power Sector

Circular debt for the power sector started to pile up again as dues against the NTDC rose to PKR 216 bn in six months after PML-N took charge. The government had already cleared the liabilities outstanding for the sector till May 31. The pilling up of the circular debt liability was due to a range of factors including delays in the announcement of increase in power tariffs, lack of clarity on measures to curb power theft and increasing bill collection. The GoP has initiated tariff rationalization efforts for all customers, having raised by PKR 2 to PKR 6.59/kWh for commercial, industrial and bulk customers, as well by 30% for domestic consumers (electricity consumption of up to 200 units will be exempted from the increase in tariff). PEPCO announced that power shortfall reached 4,000 MW in Dec as SNGPL shut gas supply to four IPPs while PSO reduced oil supply to PEPCO on account of non-payment of outstanding dues.

Inflation

According to PBS, CPI was recorded at 9.18% YoY in Dec, decreasing from 10.9% in Nov. Earlier, rationalization of power tariffs and cutting of subsidies throughout the spectrum has been a major contributor towards increasing CPI levels during the 5MFY14. Food inflation was recorded at 9.3%, non-perishable food items witnessed a surge of 8.09% and perishable items prices increased 14.37% in Dec over last year. Core inflation was recorded at 8.2% YoY.

Other Key Indicators

Forex reserves were recorded at USD 8.52bn (Dec 27), rising 3.3% MoM but were lower by 38.5% YoY. Reserves held with SBP amounted to USD 3.65bn (down 59.30% YoY), and with commercial banks USD 4.86bn (down 0.15% YoY). Although the reserves have been under immense pressure with heavy IMF repayments, inflows from IMF’s Extended Fund Facility supported reserves in Dec.

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Inflation*

Food Inflation Core Inflation CPI

2.0 1.8 2.1 2.1 2.2 2.2 2.1 2.0

2.6

1.91.8

2.3

3.83.4 3.7

3.94.3

3.9 3.8 3.6 3.8

3.33.7 3.6

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Imports and Exports (USD Billion)

Exports Imports Trade Deficit

1.2

1.26

1.14

1.37

1.021.13 1.09

1.031.12

1.221.19 1.16

1.40

1.23 1.28 1.35

1.13

1.38

Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun

Foreign Remittances (USD Billion)

FY2013 FY2014

111 126

172

138 145

211

114 138

182 172 170

245

120

145

202

168 169

216.0


Federal Tax Collection (PKR Billion)

FY2013 FY2014

14.6 14.8 14.9 14.3 13.5 13.8 13.6

12.9 12.2 11.8 11.5 11.0

10.2 9.99 9.999.52

8.24 8.52


Foreign Exchange Reserves (USD Billion)

FY2013 FY2014

December 2013

Issue 36, Vol. 3




FY13

(B) FY13

(Revised) FY14 (B)

Real GDP Growth 4.2% 3.2% 4.4%

GDP (mp) (PKR bn) 23,655 23,655 26,001

Average CPI 11-12% 10% 11 – 12%

Remittances (USD bn) 14.1 14.1 15.0

Total Debt (PKR bn) NA NA NA

Total Debt (% of GDP) 56.5% 61.8% 61.3%

External Debt (USD bn) NA NA NA

External Debt (% of GDP) NA NA NA

Exports (fob) (USD bn) 25.9 25.9 26.6

Imports (fob) (USD bn) 42.7 42.7 43.3

Tax Collection (PKR bn) 2,381 2,007 2,475

Fiscal Deficit (% of GDP) 4.7% 6.5% 6.3%

Current Account Balance (% of GDP)

-1.9% -1.0% -1.1%

Sovereign Credit Ratings (foreign and local currency debt)

S&P: B- / Stable / C (Foreign and Local-Short and Long term)

Moody’s: Caa1/Negative (LT Issuer Rating-foreign and local currency)

Economy of Pakistan

Major News & Events

Source: SBP, Economic Survey of Pakistan, Budget Review FY13, Planning Commission. IMF Public Information Notice No.12/135 Nov 2012 (P): Provisional; (B): Budgeted; (e): Estimated; Proj.: Projections

Sovereign Credit Ratings (foreign and local currency debt):

Standard & Poor’s: B-/ Stable/ C Moody’s: B3 – Stable (foreign and local currency debt)

(P=Provisional, B=Budgeted)

Other Key Indicators

Overseas remittances during Dec amounted to USD 1.38bn and were up by 22.5% MoM from USD 1.13bn in Nov. Remittances for the 6MFY14 combined were recorded at USD 7.79bn and were up 9.46% when compared to the same period in FY13. According to a few analysts foreign remittances are expected to grow between four and five percent during FY14.

Pakistan’s exports stood at USD 2.275bn in Dec, up 26.11% MoM from USD 1.804bn in Nov. On a YoY basis exports were up by 15.54%. While attaining the GSP+ status bodes well for the country’s exports, the import growth needs to be curtailed for the country to secure some relief on the external accounts front. Imports for Dec were recorded at USD 3.561bn, compared to USD 3.651bn in Nov (down 2.5% MoM) and USD 3.67bn in Dec 2012 (down 3.02% YoY). But imports are expected to grow further, as the shortage of natural gas in the winter months would increase demand for imported petroleum products. The trade deficit for the month contracted to USD 1.286bn from USD 1.847bn in Nov 2013 and USD 1.70bn in Dec 2012. Analysts expect that the current account deficit would widen with the rising oil prices due political tensions in Syria and Libya. Moreover, despite the GSP+ status, the world economy would have to improve to create the demand for exports while domestic energy crisis needs to be solved before meaningful improvements in the trade deficit appears.

The current account deficit for 5MFY14 widened to USD 1.8bn mainly due to the poorer performance of trade and services sector. A rising current account deficit further puts pressure on foreign reserves as the government is forced to spend millions of dollars to finance the deficit.

Note: This report is for information purposes only and no action is being solicited through it. The material used is based on information we believe to be reliable but we do not guarantee its accuracy or completeness. AbacusConsulting will not be responsible for the consequence of reliance upon any opinion or statement herein or for any omission. This report or any part of it may not be reproduced or published without prior permission.

The European Commission imposed fines amounting to EUR 1.7 billion on six of the major international banks for manipulating lending rates. The latest fine will add pressure on the bottomline of these banks, which are already struggling due to previous fines.

Asian Development Bank is to provide USD 900 million in loan for a coal power generation unit in Pakistan. The project is to be completed by the end of 2018.

The European Commission has granted Pakistan GSP plus status on Dec 12

th, 2013. Through this status, Pakistan’s over 600 items will be

able to enter the EU duty free for ten years. Since countries such as Bangladesh and Sri Lanka have already been granted the status, Pakistan will more effectively compete with them.

In a surprise move, credit rating agency S&P downgraded EU by one notch from its previous rating of triple A. S&P cited concerns of how the bloc’s budget was financed. European officials were quick to term the rating as misguided

China has committed USD 6.5 billion for the construction of a nuclear power plant in Karachi. Analysts view the move by China as an attempt to further strengthen its ties with its longstanding ally in the region.

PTCL is reported to have submitted a binding offer for a 100 percent acquisition of Warid Telecom. The bid price is not yet known.

Nelson Mandela, former President of South Africa and leader of anti-apartheid struggle in South Africa, died on Dec 5

th, 2013. Nelson was

in critical condition in a hospital after he received treatment for lung infection.

Musharraf was summoned by a special court to face charges of high treason under article 6 of the constitution initiated by the federal government. The hearing was later delayed till 1

st of January, 2014.

The central Development Working Party (CDWP) approved as many as 38 projects, costing PKR 244.5 billion, relating to energy, water, education, governance etc.

The National Electric Power Regulatory Authority (NEPRA) mandated that DISCOs return to consumers PKR 35 billion that were collected in relation to monthly Fuel Adjustment Surcharge in 10 months.

The Privatization Commission announced on Dec 2nd

, 2013 that one financial advisor for the privatization of 31 entities has been hired while two other advisors will be hired by end of March.

The government officially launched its Youth Program on Dec 7th

, 2013 in a bid to provide a total amount of PKR 100 billion to a hundred thousand youth.

SECP was directed by the Ministry of Finance to finalize the formalities for the launch of the government securities of T-Bills and Pakistan Infrastructure Bonds (PIBs) through the country’s bourses by February. The move will facilitate the participation of small and private investor in the debt market.

The U.S. Federal Reserve has decided to cut its pace of asset purchases by USD 10 billion, leading total monthly asset purchases to USD 75 billion.

december 2013 the abacus prompt™ · pakistan’s market trades at a significant discount in...

Documents