AKD Quotidian about — Pakistan Market: 1QFY13 review and outlook

Karachi, October 01, 2012 (PPI-OT): The KSE-100 Index ended 1QFY13 on 15,445 points, up a strong 12%QoQ, bringing CYTD gains to 36% which makes Pakistan one of the best performing markets in the world.

According to AKD Securities, although Banks and Chemicals remained under pressure, the Index was propelled by strong gains across Telecoms, Cements, Textiles, Food Producers and heavyweight E and P. In addition to strong results (4QFY12 AKD Universe profits up 33%YoY/2%QoQ), bullish sentiment emanated from monetary easing amidst single-digit CPI and improved US-Pakistan relations. Net FIPI for the quarter came in at USS$93 million, bumping CYTD net inflow to US$64 million. Average daily volumes in 1QFY13 clocked in at 140 million shares (All Share), down 34%QoQ partly due to Ramadan. Although risks remain – political noise may escalate in the run-up to general elections while latent BoP concerns linger – the Pakistan Market retains attractive valuations (FY13F P/E: 6.6x, at a 42% discount to the region). AKD Securities’ end-Jun’13 Index target is 17,000 points where top picks include PTC, NCL, FATIMA, KAPCO and UBL.

String of Positives: In addition to positive sector-specific developments (particularly for Telecoms), strong Index gains in the previous quarter were helped by monetary easing (DR cut by 150bps to 10.5% in the last MPS) and improved US-Pakistan relations, underpinned by release of CSF dues. Corporate results (+33%YoY/2%QoQ) continued to surprise, beating consensus estimates by 3% on average. Political noise remained relatively subdued despite former PM Gilani’s disqualification in late Jun’12.

Sector and Stocks: Within mainboard sectors, top gainers in the last quarter were Fixed Line Telecom (+39%QoQ on ICH implementation), Cements (+28%QoQ on strong 4QFY12 results amidst strong margins) and Textiles (+19%QoQ on lower EPS rates/reduced GIDC/ improved prospects for exports). Underperforming sectors included Banks (+1%QoQ on margin compression concerns) and Chemicals (-0.3%QoQ on poor product offtake). Index heavyweight Oil and Gas returned 13%QoQ in 1QFY13 amidst release of the new Petroleum Policy but has still underperformed the index by 15%CYTD. Top three stocks in the outgoing quarter were PTC (+42%QoQ), ULEVER (+37%QoQ), DGKC (+28%QoQ) and NCL (+28%QoQ) while FFBL (-12%QoQ), BAFL (-9%QoQ) and UBL (-6%QoQ) were key laggards.

Volumes and Liquidity: Average daily volumes in 1QFY13 clocked in at 140 million shares (All Share), down 34%QoQ partly due to shorter working hours in Ramadan. Net FIPI for the quarter came in at USS$93 million, increasing CYTD net inflow to US$64.4 million as the PKR shed a contained 0.31% vs. the US$. In 1QFY13, Banks were net sellers to the tune of US$27 million, likely opting for capital gains realization to counter tighter NIMs. Net selling for Individuals came in at US$33 million.

Outlook: Near-term checkpoint include 1) next MPS and SC deadline for finalizing Swiss letter; Oct 5’12 for both, 2) outcome of ongoing IMF-Pakistan talks, 3) conversion to free-float weighted Index methodolody and 4) start and BoP front), AKD Securities retains an end-Jun’13 Index target of 17,000 points underpinned by attractive valuations (FY13F P/E: 6.6x). Top picks include PTC, NCL, FATIMA, KAPCO and UBL.