reports
- Yusra Beg
Intermarket Pulse: Pakistan Food producers: 1QCY18- Another weak quart...
IMS Food Universe (EFOODS, NESTLE, NATF and UPFL) posted combined 1QCY18 NPAT of PRs3.9bn, down 12%YoY (incl. FFL: down 17%YoY). Dairy company profits dropped 15%YoY (NESTLE- Dairy segment, EFOODS and FFL) while non-dairy results (NESTLE- Beverages, NATF and UPFL) depicted a 13%YoY decline; UPFL outperformed. Dairy players, Nestle (dairy) and particularly FFL reported a 6%/54%YoY jump in revenue, on expanding UHT footprint, although translation bottlenecks remain for FFL (1QCY18 LPS: PRs1.17 ...
- Ailia Naeem
Pakistan IPPs: Favor NPL over NCPL in a tougher macro environment
We revisit our investment case on Nishat IPPs, while incorporating revised USD/PKR and Furnace oil price assumptions. With USD hedged ROEs and fuel savings and penal income linked to FO price, this has led to an upward earnings revision for both IPPs to the tune of 10-12% over next 3 years. However, we have revised down our DPS estimates in the face of immediate cash constraints. Our new TPs for NPL and NCPL are PRs36/sh and PRs25/sh respectively, implying a Buy call on NPL. We prefer NPL gi...
- Raza Jafri
- Yusra Beg
Intermarket Pulse: Pakistan Banks: Valuation anomaly warrants switch t...
Medium banks in Pakistan now trade at a premium to large banks, something that has not happened in close to 10yrs. This follows (i) one-off hits for large banks e.g. pension fund charges, (ii) concentrated foreign selling pressure and (iii) higher capital requirements for systemically important banks (D-SIBs). As the large banks go through a tough period, growth posted by medium banks has been impressive. This valuation anomaly may only be temporary, however. Save for the D-SIBs classificat...
- Abdul Samad Khanani
FFC: GIDC resolution holds the key, upside triggers remain; Neutral
We tweak our estimates for FFC with a new Dec’18 TP of PRs101/sh, backed by slightly higher Urea prices in CY18, 10% cut in DAP offtakes for CY19/20F and settlement of GIDC/subsidy accruals by CY19F. Recent developments on water scarcity has reportedly unfolded an alarming situation in Sindh and Punjab, especially for sugarcane and rice crops. We believe negative implications would be mostly visible in P/K nutrient offtakes (DAP/NP/NPK), following healthy demand trends witnessed in last 5yrs ...
- Ahmed Raza
Intermarket Pulse: Pakistan Autos: Moderate growth due to Ramadan fact...
Pakistan’s Auto industry registered sales of 21,813 units in May’18, up 5%YoY, translating 11MFY18 sales to 240,114 units, up 21%YoY. This was the industry’s slowest YoY growth for a month since Oct’17 due to usual lackluster activity observed during Ramadan. Tractor sales reached 6,753 units in May’18, up 19%YoY, as Kharif (summer) sowing season continues. Such numbers, however, can turn out to be unsustainable if concerns over water shortages materialize. With another round of PKR depreci...
- Ailia Naeem
Pakistan Textiles: Another round of PKR depreciation opens up valuatio...
In another round of PKR depreciation on 11th Jun’18, the currency weakened by 3.7%, taking cumulative FYTD PKR depreciation to 14%. Given the macroeconomic situation, we revise our USD PKR assumption in IMS Textile Earnings estimates. Our new USD/PKR assumptions for FY19-23F are 11% higher than previously. Our top picks from the sector are NML (TP: PRs177/sh; upside: 15%) and NCL (TP: PRs68/sh; upside: 36%). Our current valuations for NML do not reflect its Auto venture, which may add another...
- Syed Waqas Imam
Intermarket Pulse: LUCK: Relative protection against sector headwinds
We raise our Jun’19 TP for LUCK to PRs677/sh (marginally up 3.0%), offering 17% upside; we maintain Buy stance on the scrip. LUCK’s unique diversification from ICI and international cement operations, along with cost leadership in its core business lends it some protection against local cement sector headwinds. Our revised estimates include recent announcement of LUCK’s backward integration in Iraq by setting up a 1.2mntpa clinker production facility at an estimated cost of US$109mn by the en...
- Yusra Beg
Pakistan Pharmaceuticals: Impressive 1QCY18 performance; GMs key for 2...
1QCY18 earnings growth was robust (+12%YoY) for selected pharma cluster (GLAXO, ABOT, SEARL, HINOON & AGP), up 8%YoY when including FEROZ. Within our coverage, SEARL and AGP stood out as clear outperformers with 52%/18%YoY bottom-line growth for the period. Despite two rounds of PKR devaluations, full impact on imported APIs is yet to be felt, where 1QCY18 industry GMs (ex. FEROZ) inched up to 38% (1QCY17: 37%). We therefore anticipate devaluation impact to fully reflect in 2QCY18. Volumetric...
- Ailia Naeem
Pakistan Textiles: Another Package on the cards; clarity on terms awai...
In a major positive for the textile sector, the GoP has reportedly approved an extension in Textiles Exports Package worth PRs65bn for FY19-21F, albeit with slight amendment. Duty drawbacks are expected to be on the same terms as applicable in FY18; however, they will now be applicable on value added textile exports only. Conservatively assuming exports growth to remain below 10%YoY, and thus only 50% of the duty drawbacks on value added textile exports to be availed, we foresee positive EPS ...
- Ahmed Raza
PSMC: Too many risks warrant caution; Sell
We downgrade our stance on PSMC from Neutral to Sell with a revised target price of PRs432/sh (from PRs497/sh earlier), implying a downside of 6%. Major factors leading to this revision include elevated JPY against US$, increased capex and higher selling expenses in recent quarters, even as there are net positive contribution from corporate taxation measures of FY19 Budget. Ban on new car sales to non-filers and entry of new players in economy cars are additional risks to our thesis. The form...
- Yusra Beg
ABL: At an unjustified valuation discount; upgrade to Buy
We upgrade our stance on ABL to Buy from Neutral with a revised TP of PRs115/sh following above expected 1QCY18 results (EPS: PRs3.36 vs. our expectation of PRs2.90). We have raised our CY18-22F EPS estimates for ABL by 9% on average. Superior asset quality, improved capital gains realization and an efficient cost structure underpin our liking for ABL. Although pickup in NIMs may be slow compared to peers, we draw attention to robust asset quality, where the bank posted its 8th consecutive qu...
- Muhammad Saad Ali
- Raza Jafri
Pakistan Market: May’18: Steep decline on political overhang
The KSE-100 shed 6% MoM in May’18 amid worsening political and economic backdrop. Market participation dwindled significantly with average daily value traded declining 40% MoM to US$49mn. FIPI outflow rose to a 9mth high of US$73.2mn (partly MSCI rebalancing) with heavy selling in Banks and Cements. Political uncertainty was fueled by ex-PM Sharif’s negative remarks pertaining to involvement in Mumbai attacks. For the appointment of caretaker PM, an initial standstill finally culminated in...
- Abdul Samad Khanani
Intermarket Perspective - Shell Pakistan Ltd – Initiation of Coverag...
We initiate coverage on Shell Pakistan (SHEL) – the second largest OMC in Pakistan by network size – with a Buy rating and Dec’18 TP of PRs461/sh. Our investment thesis is based on recovery in retail market share, leading presence in the lucrative lubricants market (c. 40% share) and inorganic growth from PAPCO pipeline network. SHEL’s retail market share hit decade lows of 5.5/11.1% in Jul'17 (HSD/MS), post tragic Bahawalpur truck explosion amid ensuing supply-chain bottlenecks. However, ...
- Ailia Naeem
HUBC: Price performance expected closer to expansion CoDs; Buy
We have revised our CoD assumption for the 330MW local fired power plant, delaying it to FY22F from FY21F earlier. The 330MW and 1,320MW coal fired power plants are expected to cumulatively add PRs4.0/sh to HUBC’s bottomline post CoD. We highlight that HUBC outperformed the market by 15% on average 12M before commissioning of its 215MW Narowal and 84MW Laraib Power plants, which cumulatively added PRs1.14/sh post CoD. The 1,320MW is expected to come online in Aug’19, which may trigger price ...
- Abdul Samad Khanani
HASCOL: Volume base conducive for earnings growth
We remain Neutral on HASCOL but upgrade our Dec’18 TP to PRs331/sh (up from PRs268/sh), buoyed by c. 30% rise in our earnings estimate across the investment horizon. Major changes in our assumptions include: (i) downward revision in sales discounts, (ii) lower operating expenses (iii) removal of MENA Energy penalties from CY18/19F, and (iv) lower market shares for HSD/MS. HASCOL’s encouraging 1Q EPS of PRs5.04 (up 96% YoY, normalized at PRs3.75/sh for inventory gains and exchange losses), wa...
- Muhammad Saad Ali
Pakistan Economy: SBP ramps up monetary tightening
SBP raised the policy rate by 50bps to 6.5% (discount rate 7.0%) in its May’18 MPS, which was in line with our expectations. The central bank attributed little respite in deteriorating external account and recent core inflation crossing the 7.0% mark, which is likely to be sticky, in our view. This takes overall increase in CY18TD to 75bps, while we expect total 150bps rate hike during CY18, in light of inflationary pressures, challenges on the external front and likely entry into IMF pro...
- Syed Waqas Imam
Intermarket Pulse: Pakistan Cement: Foresee rising pressure on prices;...
We roll forward our TPs of IMS cement universe to Jun’19 and update combination of macro changes in our models namely (i) North/South price declines from current levels, (ii) coal prices of US$90 for FY19 vs. US$80 earlier, (iii) fuel tariff adjustments, (iv) changes in local/export demand assumptions according to updated timeline of new capacities and PSDP cuts. We anticipate price reductions on falling utilization rates over the medium term. Prices in South may witness steep correction (PRs...
- Ailia Naeem
NML: Negatives priced in; Buy
We revisit our investment case on NML, post dismal 3QFY18 results (EPS: PRs0.28, down 82%YoY), and revise down our earnings estimates by 10% on average over our investment horizon. Our new FY19/20F EPS estimates are PRs11.72/13.02. The downward revision in earnings estimates emanates from (i) lower weighted average product prices by 2% than our previous estimates, (ii) fuel cost per KWh revised up by 22% to PRs 8.0/KWh following incorporation of LNG in the fuel mix and upward revision in Furn...
- Abdul Samad Khanani
Intermarket Pulse: ENGRO: Diversification abound, cash to drive valuat...
We upgrade ENGRO to Buy with revised Dec’18 TP of PRs355/sh. New estimates now include changes in portfolio valuations (now PRs206/earlier PRs192), 6months earlier CoD of Thar projects, and investment of up to US$21mn in Siddiqson Energy. With diversification tracking blend of growth (polymers) and defensive attributes (fertilizers and power), ENGRO’s biggest advantage lies in its existing cash position (PRs64bn); which is not fully reflected in market valuations, in our view. We raise ou...
- Syed Waqas Imam
ISL: Competitive landscape beyond FY20; maintain Buy
We revise down our FY19-21F earnings estimates for ISL by 6.5% on average with a new TP to PRs147/sh (rolled over to Jun’19), down 10% from PRs164/sh earlier (post-budget corporate tax changes), still offering an upside of 45% since the stock has corrected 12% in last one month. The decline in FY19/20 earnings is largely owed to soft international CRC margins (US$90/ton FYTD18) vs our initial estimate of US$105/ton. In addition, we foresee competition in the industry to intensify with a new ...
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