Morning Briefing for April 11, 2014 – Standard Capital

Karachi, April 11, 2014 (PPI-OT): Insurance Sector gains confidence | Portfolio galore…maintain buy in AICL

The macro-economic indicators showing revival of Pakistan economy which has attracted foreign investors to invest in Pakistan Reportedly a Switzerland based private equity fund has shown interest in the insurance sector in Pakistan, where at least 3 companies are likely to be on a roll.

Since the economy is growing and non –life insurance is correlated with the economic growth, it’s evident that insurance sector will perform well in the coming years. Though Pakistan insurance industry ranks lowest amongst its peers, however the performance of the insurance sector in the recent years indicates that there is lot of potential in insurance companies to grow.

Insurance Sector – Standard Capital Limited’s coverage AICL, CENI, RICL and IGIIL

Analytical review of 4 major insurance companies’ annual reports shows that Insurance sector has performed well in CY13 as compared to CY12.

Adamjee Century Reliance IGI
2013 2012 Change 2013 2012 Change 2013 2012 Change 2013 2012 Change
Rs million
Net Premium Revenue 5,507 5,672 -3% 322 268 20% 261 241 8% 1,067 939 14%
Net Claims – 3,487 – 4,143 16% – 159 – 112 -42% – 88 – 83 -6% – 767 – 583 -31%
Underwriting Results 137 – 412 133% 83 84 -1% 20 17 15% 105 232 -55%
Investment Income 2,357 1,332 77% 133 105 27% 97 110 -12% 658 397 66%
PBT 2,210 670 230% 151 129 16% 81 94 -14% 911 – 343 366%
PAT 1,966 628 213% 147 116 27% 75 87 -14% 813 – 354 330%
EPS 5.62 1.79 214% 3.22 2.56 26% 2.04 2.38 -14% 7.29 – 3.17 330%

In 2013, the reduction in Insurance prices continued to put pressure on premiums but the selected companies managed to perform well. There is increase in underwriting results.

Insurance companies highly depend on their investment incomes, insurance companies in Pakistan maintain balance portfolio and due to the outperformance of capital markets in CY13 insurance sector in Pakistan enjoyed high incomes which resulted significant increase in profits and EPS.

Adamjee Century Reliance IGI
PBV 0.74 0.45 0.35 1.03
P/E 9.15 6.74 5.37 27.83
Book value per share 69.73 48.65 31.46 196.20
ROA 7.2% 8.5% 5.1% 6.2%
ROE 15.1% 13.3% 11.4% 7.5%

Insurance companies show good BV (inclusive of investment portfolio). Normally, equities of insurance companies exclude gains or deficit on portfolio investment and hence under represent actual book value amount. As per Standard Capital Limited’s working the earnings capacity of insurance companies largely depend upon investment portfolios.

From the book value perspective Standard Capital Limited sees AICL undervalued (also reported vide Standard Capital Limited’s Apr 10, 2014 call) alongside CENI and also RICL

As on April 10, 2014
Script Adamjee Century Reliance IGI
Avg Volume (52 weeks) (mn) 2.1 0.079 0.02 0.108
52 weeks High (Rs) 108.99 22.9 12.6 234
52 weeks Low (Rs) 36.36 11.2 7 110.1
Close (Rs) 51.44 21.7 10.95 202.9
Market Capitalization (bn) 18 0.99 0.4 22.36
Beta 1.33 0.94 0.16 0.78
Total no. of shares (mn) 350 45.72 36.68 111.54
Free float shares (mn) 74.22 11.43 10.08 21.55

AKD Quotidian about — Pakistan’s oil sales in FY14 to be highest ever

Karachi, April 11, 2014 (PPI-OT): Marred by sluggish economic performances (5 yr average GDP growth at 2.9% and engulfed by the menace by the menace of circular debt ,Pakistan ‘s oil sales during the past 5 yrs (FY09-13)failed to live up to the precedent set inFY05-08.Such was the magnitude of negativity brought by circular debt that 5Yr volume CAGR (FY08-13) was recorded at just 1% and if it was not for robust MS (motor spirit ) sales during the aforementioned period (5yr CAGR at 17 % ) this growth could well have been in the red zone.

Conversely ,at the time when the industry was shielded from circular debt ,its 3yr CAGR (FY05-08)growth clocked in at an impressive 8% with FO (furnace oil ) leading the way (3yr CAGR at 19% ) .Fast forward to 9MFY14, industry sales growth due to partial resolution of circular debt (leading to higher FO demanded from IPPs) and on –going crisis (making consumers shift towards MS from CNG) has reached 11 % YOY.At that run rate, Pakistan oil sales may reach 21.5mn tons by the end of current fiscal year , at all –time high.

9MFY14 oil sales better off by 11 % YoY : in 9MFY14 we have seen industry selling 13.7 mn tons as opposed to 12.3 mn tons sold during the same period last year .11% YOY growth witnessed during 9MFY14 was primarily due to 16%YOY increase in FO sales to 6.9mn tons while MS sales grew by 22% YoY to 2.8mn tons. Therefore, of 1.3mn tons incremental sales during the aforementioned period ,66% or 0.9 mn tons contribution came from FO. In contrast to this, HSD(high speed diesel ) sales remained unimpressive and virtually stagnant at previous year’s level of 4.8 mn tons.

PSO fails to replicate industry growth: At the time when industry sales growth has clocked in at 11% PSO remained laggard with sales growth of mere 4% YoY . This resulted in the company losing its market share, which from 66% in 9MFY13 fell to 62% in 9MFY14 .This decline is mainly due to dull HSD sales: during the year company faced distribution woes which led to HSD sales declining to 2.6mn tons as opposed to 2.8mn tons , down 7%YoY.

However .7%YoY higher FO sales to 5.1mn tons more than made for the gloom brought in by HSD sales, with summer season all but started, .we believe higher demanded from IPPs will enable PSO to regain some of its lost market share.

(000′tons) Mar14 MOM 9MFY14 YoY

FO 516 14% 5.072 7%
HSD 221 -4% 2.564 -7%
MS 149 3% 1,371 15%
Others 51 8% 402 -4%
Total 938 12% 8.472 4%

Source: OCAC and AKD Research

Outlook Pakistan’s oil sales to reach 21.5mn tons: As mentioned above , commencement of summer season will improve FO sale of not just PSO but of the whole industry as power (electricity) demand start s to rise. Furthermore, with imminent economic recovery, demand starts to rise. Furthermore, with imminent economic recovery ,we believe demanded for HSD is also likely to pick pace. A for MS ,we believe the demanded will continue to grow as more and more consumers shift from CNGs to MS .This impetus shall allow FY14 OMCs sales to clock in at all time high to 21.5 mn tons.

State Bank of Pakistan’s Open Market Operations (Injection) results

Karachi, April 11, 2014 (PPI-OT): State Bank of Pakistan conducted its Open Market Operation (Injection) in following contracts on April 11, 2014, received and accepted as given below:


NO OMO Tenor Range Number of Quotes Offered
1 7-Days (Injection) 10.25 – 9.99% 23


(Rs. In Millions)

7-Days (Injection)

OMO Tenor Amount Amount Rate of Return Number of Quotes
Offered Accepted Accepted Accepted
(% p.a.)
07-Days 314,950.00 308,750.00 10.15 20

Total 314,950.00 308,750.00

For more information, contact:
Syed Wasimuddin
Chief Spokesman
State Bank of Pakistan (SBP)
Tel: +9221 3921 2562
Fax: +9221 3921 2563

Board meeting of United Bank Limited to be held on April 18, 2014

Karachi: United Bank Limited informed Karachi Stock Exchange about the board meeting of the company scheduled to be held on April 18, 2014 at Islamabad. The agenda of the meeting shall be consideration of quarterly accounts for period ended March, 2014.

Further, the closed period of the company shall be from April 10, 2014 to April 18, 2014.

United Bank Limited is incorporated in Pakistan and is engaged in the business of commercial banking and other related services. The foundations of the bank are developed under the Banking Companies Ordinance, 1962. The bank is responsible for accepting the deposits of money on current accounts and withdrawal by cheque, draft or order. The registered office of the bank is located at Islamabad. The shares of the company are quoted on the Karachi, Lahore and Islamabad Stock Exchanges of Pakistan.

The global depository receipts of the bank are on the list of the UK Listing Authority and the London Stock Exchange Professional Securities Market. The subsidiaries are located in Switzerland, UK and Tanzania. United Bank AG Zurich, UBL Funds Managers and United Executors and Trustees Company Limited are also the subsidiaries of the bank. The associate companies include UBL Insurers Limited and Oman United Exchange Company LLC.

The products of the bank are UBL Click N Bank, UBL Tezraftaar, UBL Click N Remit, UBL Tezraftaar Account Services, NRP Direct and UBL Tezraftaar Pardes Card for the customers. The bank is also provides global remittance facilities to its customers.

The symbol “UBL” is being used by the stock exchanges for the shares of United Bank Limited.

Postponement of annual general meeting of Pakistan International Airlines Corporation

Karachi: Pakistan International Airlines Corporation has informed Karachi Stock Exchange about postponement of annual general meeting of the company by one month. The agenda of the meeting shall be discussion of financial statement of the company for the year ended December 31, 2013.

Further, notice of the date, time and place shall be given by the company after obtaining approval from the Securities and Exchange Commission of Pakistan.

Board meeting of Security Papers Limited to be held on April 21, 2014

Karachi: Security Papers Limited informed Karachi Stock Exchange about the board meeting of the company scheduled to be held on April 21, 2014 at Karachi. The agenda of the meeting shall be consideration of quarterly accounts for the period ended March 31, 2014.

Further, the closed period of the company shall be from April 11, 2014 to April 21, 2014.