AKD Quotidian about — Pakistan Market: FY12 Review and Outlook

Karachi, July 02, 2012 (PPI-OT): The KSE-100 Index closed out FY12 at 13,801 points, up 10.4%YoY/21.6% CYTD. While CYTD performance is exceptional (price discovery aided by revision in CGT collection methodology), even on a FY basis the Pakistan Market remained one of the best in the world.

According to AKD Securities, in this regard, AKD Securities highlights the confluence of 1) relative political stability – at least over the better part of the year, 2) improvement on the law and order front and 3) robust corporate profitability. Average daily traded value clocked in at US$55mn CYTD vs. US$44mn in FY12. Within main board sectors, main performers in included Construction and materials, Electricity and Commercial Banks while underperformers included Oil and Gas, Chemicals and Fixed Line Telecom. Going forward, although political noise has escalated of late, the Pakistan Market remains enticing, particularly from a bottom-up perspective (FY13F P/E:6.0x). Besides developments on the political landscape (incl. US-Pakistan relations), key checkpoints ahead include monetary policy trajectory, the Forex reserves position and corporate profitability.

Year of Two Halves: The KSE-100 gained 21.6% in 2HFY12, enabling full-year FY12 to close out with a gain of 10.4%. The catalyst for robust price discovery in 2HFY12 was a regulatory change (revision in CGT calculation methodology) which supported the confluence of 1) relative political stability – at least over the better part of the year, 2) improvement on the law and order front – terrorism incidents at 3yr low as per Pak Institute of Peace Studies and 3) robust corporate profitability – AKD Universe combined profits up 31%YoY in 1QCY12.

Volumes and Liquidity: Average daily traded volume registered at 196mn shares in 2HCY12 vs. 130mn across FY12, punctuating the process of price discovery in the second half of the year. Foreign funds and domestic individuals were key participants in the 2HFY12 rally, with the former injecting net buy of US$38.8mn vs. net sell of US$119mn in FY12 (ex-HUBC settlement). Recent subdued market performance (KSE-100 Index down 5.6% since CYTD peak) has dovetailed with a dip in volumes – Jun’12 average volumes/value has clocked in at 92mn shares/US$37mn.

Sectors and Stocks: In FY12, within main board sectors, main performers included Construction and Materials (+87%YoY), Electricity (+15%YoY) and Commercial Banks (+13%YoY) while underperformers included Oil and Gas (+2%YoY), Chemicals (-2%YoY) and Fixed Line Telecom (-3%YoY). Within AKD Securities’ coverage universe, the top three performing stocks were EFOODS (+161%YoY), MEBL (+86%YoY) and BAFL (+79%YoY) while the main laggards were LOTPTA (-49%YoY), HMB (-21%YoY) and MTL (-20%YoY).

Outlook: Although political noise has escalated of late, the Pakistan Market remains enticing from a bottom-up perspective (FY13F P/E:6.0x) where AKD Securities retains AKD Securities’ end-Dec’12 Index target of 16,000 points, In AKD Securities’ view, macros particularly the Forex reserves position will likely retain paramount importance with investors likely to keep a closed watch on US-Pakistan relations and any release in funding.