AAKASH CAPITAL LIMITED

Weekly Newsletter from Aakash Capital Limited for the week ending on 1st March, 2019

NEPSE UPDATE

Indicators 24th Feb, 2019

27th Feb, 2019

(+)/(-) %

NEPSE 1102.32 1105.53 0.29% SENSITIVE 234.18 234.8 0.26% FLOAT 80.04 80.33 0.36% BANKING 944.27 946.63 0.25% HOTELS 1702.38 1684.03 -1.08% DEVELOPMENT BANKS 1411.98 1407.73 -0.30% HYDROPOWER 1108.51 1109.3 0.07% FINANCE 591.22 584.84 -1.08% NON LIFE INSURANCE 5272.94 5317.12 0.84% MANU. & PRO. 2023.42 2015.54 -0.39% OTHERS 695.23 703.05 1.12% MICROFINANCE 1378.97 1372.78 -0.45% LIFE INSURANCE 5533.79 5583.09 0.89% TRADING - - -

Market Summary Statistics (24th Feb to 27th Feb)

Total Turnover (Rs) 799,448,979

Total Traded Shares 2,881,878

Total Number of Transactions 18,282

Scrips Traded 168

Market Cap at Week start 1,345,571.27 Millions

Market cap at Week end 1,351,182.81 Millions

Floated Market Cap at Week start 470,531.51 Millions Floated Market Cap at Week end 473,052.80 Millions

Bullion Update

As on 1st March, 2019 Hallmark Gold Rs.62,000/tola

Worked Gold Rs.61,700/tola

Silver Rs.770/tola

The secondary market remained open for just 4

trading days this week. The market gained a meager

0.29% or 3.21 points in the trading week between

February 24 and February 27. Along with Nepse index,

the sensitive index went up by 0.26% or 0.62 points

and float index went up by 0.36% or 0.29 points.

The secondary market had opened at 1115.20 points

on Sunday and went down 12.88 points to end the day

at 1102.32. On Monday, the index gained 7.41 points,

which was duly inversed on the following day as the

market lost 7.17 points on Tuesday. The stock market

went green on Wednesday by 2.97 points to end the

trading week at 1105.53.

In the review period, hotels, development banks,

finance, microfinance and manufacturing and

production subgroups ended in red, while other

remaining subgroups ended in green. Trading

subgroup, however, didn’t entertain any transactions

this trading week. Insurance and Others subgroup

outperformed the gains in the market. On the other

hand, hotels and finance subgroup lost the most.

The total turnover during the trading week stood at

just Rs 799.44 billion. A lackluster market activity was

seen, with the average daily turnover at just Rs 199.86

million. This clearly indicates that investors are in a

wait and watch situation, as no new developments in

the market have taken. The total market value

increased by Rs 5611.54 million as the market

capitalization increased a minor 0.42% during the

trading week.

This week as well the market witnessed very dismal

transaction. It seems that the big players have not

invested much in the market recently as shown in the

daily transaction volume. So, to say that the investors’

interest in the share market is progressively fading

would not be wrong. The current NEPSE index is still

trading at its lowest in the last 38-months.

.

News Update

Brokers agitated over preparations to bring banks into brokerage business

Stock brokers have warned to launch protest against SEBON over recent remarks of the latter's chairperson about brokerage

firms’ lack of corporate governance, professionalism and capacity….Read More

‘It is the best time for Chinese investors to invest in Nepal’

Nepali Ambassador to China Leela Mani Paudyal has pointed out that Nepal's enormous natural and human resources coupled

with political stability and excellent bilateral relations between the two countries make it the best time for Chinese investors to

invest in Nepal….Read More

Nepali companies may be allowed to issue bonds in foreign capital markets

The government registered a bill to amend and integrate foreign investment and technology transfer related act in parliament,

proposing a new provision to open public companies and other companies authorized to issue securities to float their

debentures, bonds and other securities in foreign capital market….Read More

Federation backs down from demand for interest rate cut

The Federation of Nepalese Chambers of Commerce and Industry has decided to back down from its demand for lower interest

rates….Read More

Interest rate is something that is determined by the market

Sujan Dhungana of The Himalayan Times talked to Ashok Sherchan, CEO of Prabhu Bank, and Hari Bhakta Sharma, president of

Confederation of Nepalese Industries regarding interest rate…Read More

Market Announcements

Rastriya Banijya Bank Limited has announced its 13th AGM going to be held on 4th Chaitra, 2075.

Salt Trading Corporation Limited has announced its 52nd AGM going to be held on 11th Chaitra, 2075.

Chautari Laghubitta Bittiya Sanstha Limited has announced its 3rd AGM going to be held on 16th Chaitra, 2075.

Nagbeli Laghubitta Bittiya Sanstha Limited has announced its 9th AGM going to be held on 15th Chaitra, 2075.

Kalika Power Company Limited has announced its 11th AGM going to be held on 8th Chaitra, 2075.

Universal Power Company Limited has allotted 93,27,410 units IPO shares in the second phase to the general public on

15th Falgun, 2075.

Panchthar Power Company Limited is issuing its 16,27,733 units IPO shares to the general public from 13th Falgun, 2075.

Asha Laghubitta Bittiya Sanstha Limited has appointed Prabhu Capital Market Limited as its share registrar.

Global IME Bank Limited is issuing its 6,00,000 units at Rs.1000 per unit "10.25% Global IME Bank Limited Debenture

2080/81 " to the general public from 15th Falgun, 2075.

Sparsha Laghubitta Bittiya Sanstha Limited has published an offer letter to issue 2,69,630 units IPO shares to the general

public from 26th to 29th Falgun, 2075.

Mountain Hydro Nepal Limited has published an offer letter to issue 18,16,110 units IPO shares to the general public from

23rd to 28th Falgun, 2075.

IME General Insurance Limited is selling its 1,598 unit promoter shares and 1,00,766 unit ordinary shares in auction to the

general public from 22nd to 30th Falgun, 2075.

Unnati Microfinance Bittiya Sanstha Limited is issuing its 5:1 ratio 1,10,000 units right share to its shareholders from 13th

Falgun, 2075

IME General Insurance Limited has allotted its 10:8 ratio 42,17,636 units right share to its shareholders on 9th Falgun, 2075

and refunding money to non-allottee investors from 12th Falgun, 2075.

NEPSE - TECHNICAL ANALYSIS

The Nepalese stock market is in bearish trend after the market made its top on 27th of July, 2016. The current bearish trend of

the market started from 16th of January, 2019. This week the market closed at 1105.53 showing making a bull candle on daily

chart. Taking the Fibonacci retracement from 299 to 1881, 50% retracement lies at 1090 and 61.8% retracement lies at 900.

The mentioned Fibonacci retracement are the psychological support level for the market.

The weekly volume of the market is lower than that of previous week. At the end of the week all the sub-indices and sector

wise index remained green except Development Bank, Finance, Manufacturing & Production and Microfinance. The downfall

of hydropower sector is high in comparison to other sectors. In contrary, insurance is the only sector that have low downfall

than that of other sectors as well as the overall market.

This week, Banking, Non-life, Others, Microfinance and Life-insurance are the sectors that had higher downfall than the market

whereas Hotel, Development Bank, Hydropower, Finance and Trading sectors are the sectors with minimum downfall in

comparison to overall market.

Currently, the market lacks volume and the selling pressure in the market is higher. This week, the market shows a bit of

friction in continuation of bearish trend and is testing the level of 1100.

Relative Strength Index (RSI) Analysis

RSI is a moment indicator that measures the magnitude of recent price changes to evaluate overbought or oversold conditions

in the price of a stock. RSI is typically used on a 14-day time frame, measured on a scale from 0 to 100, where a value above 70

represents overbought and below 30 represents oversold condition.

The current RSI of NEPSE is 35.64 which implies the market is currently at moderate zone and nearer to oversold zone. There

isn’t any kind of RSI divergence seen in the market as the fall in Price and RSI is somehow similar.

Moving Average Convergence Divergence (MACD)

MACD is a momentum oscillator formed by using two different moving averages, typically a 26 day EMA and 12 day EMA,

which provides specific buy/sell signal. When the MACD line crosses signal line from above, it is considered bearish, indicating

a sell signal and vice-versa.

Currently Histogram, MACD and Signal line is at 0.3980, -15.4478 and -15.8458 respectively. Both MACD line and Signal line are

below the baseline. A golden cross can be observed and the crossover still needs confirmation. The MACD and signal line are

currently converged to each other.

Moving Average Analysis

Moving average is a technical analysis tool that smooths out price data by creating a constantly updated average price. It is

used to identify the trend direction, support or resistance levels and also to generate potential buy/sell signals. Price crossover

and MA crossover are some of the strategies that can be used to buy/sell a stock.

The EMA (5, 0) is at 1106.98 and EMA (20, 0) is at 1123.66. The market is currently trading below 5 days and 20 days

Exponential Moving Average. The market is continuously falling after making the dead crossover on 20th of January, 2019.

There isn’t any signal of golden cross since both EMA are moving downwards and their gap is higher.

Bollinger Band

Bollinger band is a technical indicator that consists of a set of lines plotted two standard deviations up and below a 21-day

simple moving average. The bands are an indication of volatility; a widening gap indicates higher volatility and vice-versa.

Prices are relatively high when above the upper band and low when below the lower band.

The Upper Band, Middle Band and the Lower Band is at 1159.72, 1124.29 and 1088.86 respectively. The market is currently

trading above the lower band and below the middle band. From the starting of the month of February, the gap between Upper

Band and Lower Band has increased. The gap between the Upper Band and Lower Band signals for volatility.

Stock Analysis – NMB Bank Limited

Introduction

NMB Bank Limited commenced its operations on December 26, 1996 as a Class C finance company. It has been operating as a

commercial bank following its upgradation to Class A in May 2008. After becoming a commercial bank, accession to the Global

Alliance for Banking on Values (GAVB) in 2013 was another major milestone for NMB. It is the only member bank from Nepal

in GAVB, an independent worldwide network of banks whose objective is to use finance to deliver sustainable economic, social

and environmental development. NMB, being a values based bank, is focusing more on core sectors like agriculture,

infrastructure, tourism, agriculture, energy and education.

The bank has a Joint Venture Agreement with Nederlandse Financierings-Maatschappij voor Ontwikkelingslanden (FMO),

wherein FMO holds 17% of the bank’s shares. Earlier in 2010, NMB Bank diversified its activities by establishing NMB Capital

and NMB Microfinance as its subsidiaries. NMB has been awarded 'Bank of the Year - 2017' and 'Bank of the Year

2018' consecutively by The Banker, Financial Times, London.

The bank has an authorized capital of Rs 10 billion and paid-up capital of Rs 8.74 billion.

Board of Director

The Board of Director of NMB consists of 3 from promoters group, 2 from public shareholders, 1 independent director and 1

alternative director. Also, the board has representation from FMO and Employee Provident Fund. The BOD is chaired by Mr.

Pawan Kumar Golyan and Mr. Sunil KC is the current CEO of the company.

Current shareholding composition

The top shareholders of the bank are FMO with 17% holding, Employees Provident Fund 6.86% and Yong Lian Realty with

5.23%.

Name Designation

MR. Pawan Kumar Golyan Chairman

MR. Nico Pijl Representative of FMO

MR. Rajendra Kafle Representative of Employee Provident Fund

MR. Harischandra Subedi Public Shareholder

MR. Hari Babu Neupane Public Shareholder

MR. Pradeep Raj Pandey Independent Director

MR. Nanda Kishor Rathi Alternate Director to Mr. Nico Pijl

Particulars Percent

Domestic Ownership 77.7

Nepal Government -

"A" class licensed institutions -

Other Institutions 14.87

Public 62.90

Foreign ownership 22.23

Total 100

Snapshot of Performance

Company Financials

Yearly Analysis:

The following table presents the trend of financial performance of NMB from the FY 2012/13 to 2017/18.

14.57% 15.20%16.25%

14.01%

11.24%

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

16.00%

18.00%

2013/14 2014/15 2015/16 2016/17 2017/18

Return on equity

40.9950.10

111.51

148.86

185.38

0.00

20.00

40.00

60.00

80.00

100.00

120.00

140.00

160.00

180.00

200.00

2013/14 2014/15 2015/16 2016/17 2017/18

Net profit (in crore)

27.09

36.72

64.78

73.22

84.57

20.47

27.29

53.0261.76

75.21

0.00

10.00

20.00

30.00

40.00

50.00

60.00

70.00

80.00

90.00

2013/14 2014/15 2015/16 2016/17 2017/18

Deposits and loans (in arba)

Deposits Loans and advances

240.00273.24

551.86

646.18

760.33

43.40 58.16

139.68 165.07

248.60

0.00

100.00

200.00

300.00

400.00

500.00

600.00

700.00

800.00

2013/14 2014/15 2015/16 2016/17 2017/18

Paidup capital and reserve and surplus (in crore)

Paidup capital Reserve and surplus

Particulars 2013/14 2014/15 2015/16 2016/17 2017/18

Paidup capital 2,400,000 2,732,365 5,518,636 6,461,774 7,603,290

Reserve and surplus 434,003 581,575 1,396,824 1,650,679 2,485,970

Deposits 27,087,258 36,722,917 64,781,463 73,224,063 84,570,136

Loans and advances 20,467,040 27,288,891 53,021,384 61,756,061 75,209,339

Total assets 30,211,663 41,337,462 74,613,328 93,074,422 112,391,430

Revenue 2,005,346 2,315,441 4,053,341 6,109,326 8,728,699

Gross profit 789,282 967,367 2,013,282 2,603,979 2,904,014

Operating profit 552,080 724,766 1,068,090 2,016,293 2,561,115

Net profit 409,922 500,989 1,115,067 1,488,617 1,853,792

Capital fund to RWA 10.75% 11.20% 11.08% 13.61% 15.75%

Non-performing loan 0.55% 0.42% 1.75% 1.68% 0.88%

Cost of fund 5.52% 4.55% 3.99% 7.05% 7.43%

Base rate 8.12% 7.89% 6.68% 10.12% 10.70%

The bank has a moderate and steady rate of business growth as seen in its indicators such as deposits loans and advances and

net profit. It has a fairly stable return on assets in the past two years. However, the return on equity has declined in the latest

fiscal year because of the infusion of equity, while income could not grow in the same pace. Looking at its pricing ratios, both

the P/E and P/B has declined significantly, meaning that the stock has become fairly cheaper. The bank also has a strong

institutional backing with institutional promoters from FMO and Employee Provident Fund. Moreover, their representation in

BOD adds to a good corporate governance structure.

NMB has a good asset base, as it has been maintaining a low non-performing loan. With the fresh injection of equity in the

form of FPO, it has a respectable capital adequacy ratio, meaning the bank has room for additional risk taking. The bank has a

strong capital level which is all set to increase further as it has already obtained approval from SEBON to issue Rs 3 billion

worth of debenture. So, the future growth prospective is promising.

As is the case with many banks in Nepalese banking industry, the growth rate of loans and advances has surpassed that of

deposits consistently. This is one of the reasons for liquidity crunch suffered by banks in last 2-3 years; the latest CCD stood at

77.72%. However, to counter this issue the bank has already brought in US$ 15 million and three other such debt

investments. This is the first bank in Nepal to bring in foreign debt, which is also an indication of its network and fundamental

strength.

All in all, the balance sheet figure and income statement are quite healthy. The company can do further better by controlling

its operating expenses, which will reduce its base rate and make it more competitive in the industry.

Quarterly Comparision:

The following table presents 2nd Quarter analysis of the company for the FY 2017/18 to 2018/19.

CCD ratio 75.02% 72% 78.69% 74.90% 77.72%

Return on equity 14.57% 15.20% 16.25% 14.01% 11.24%

Return on asset 1.48% 1.40% 1.92% 1.69% 1.65%

Earnings per share 17.08 18.34 20.21 26.88 28.67

Net worth per share 118.08 121.28 125.31 164.46 216.80

P/E ratio 30.15 27.65 40.09 20.27 12.48

P/B ratio 4.36 4.18 6.46 3.31 1.65

Particulars Industry Q2 18/19 Q2 17/18 Q2 18/19 %change

Paid-up capital 8,707,963.48 6,461,774 8,743,784 35.32%

Reserve and surplus 6,050,027.70 5,404,846 9,243,227 71.02%

Deposits 91,622,816.78 80,552,649 88,070,975 9.33%

Loans and advances 82,594,050.67 70,223,120 85,375,659 21.58%

Net profit 1,052,204.00 962,791 1,109,942 15.28%

Return on equity 14.26% 16.23% 12.34% -23.97%

Return on asset 1.85 2.01 1.91 -4.98%

Earnings per share 24.58 25.33 25.21 -0.47%

Net worth per share 167.84 183.64 205.71 12.02%

P/E ratio 12.84 18.04 12.89 -28.55%

The bank has already met its paid-up capital requirement. Its paid-up capital grew 35.32% in the second quarter of 2018/19

as compared to the corresponding period of the previous year. A massive increase in its reserve and surplus can be seen. Its

reserve and surplus has actually surpassed its paid-up capital. This clearly shows how strong the bank has grown. On the

weaker side, however, the bank has not been able to increase its deposit base; loans and advances, on the other hand, has

grown significantly. ROE fell mainly because of massive increase in its equity size. The growth in net profit is quite good. The

way forward would be to increase its deposit base, as it already has a massive capital to take further risks.

Dividend history

Dividend 2013/14 2014/15 2015/16 2016/17 2017/18

Dividend Per Share 21.05 8.42 20 15.7895 30

Bonus % 20 8 19 15 10

Cash % 1.05 0.42 1 0.7895 20

It can be seen that the bank has been providing regular dividend to its shareholders. Moreover, over the last five years, the

bank has focused more on stock dividend.

Technical analysis of the company (as on February 27, 2019)

Day candle

Open 303

High 307

Low 302

Close 303

Pattern Analysis

Chart pattern Downtrend

Resistance R1: 377 R2: 398

Support S1: 303 S2: 235

Higher breakout level 398

Particulars Points Remarks

Volume 33,696.00 The average volume of the week is slightly greater than that of the month.

Avg. Volume (1 week) 24,003.80

Avg. Volume (1 month) 22,444.19

No. of Transaction 114.00

The average number of transactions for 1 week period is slightly greater than of the month.

Avg. no. of Transaction (1 week) 98.60

Avg. no. of Transaction (1 month) 94.05

180 days Average 340.82 The price of the stock is trading below 180 days and 360 days average. 360 days Average 401.41

52 Weeks High Price 502 The stock is currently trading near 52 weeks low price. 52 Weeks Low Price 300

Nepse Index 1-Year Change -23.45% The overall market is at downtrend and so as the industry as well as the stock. The 1 year change of stock is higher than that of the Industry and the overall market index.

Industry Index 1-Year Change -26.48%

Stock 1-Month Change -4.42%

Stock 1-Year Change -33.41%

Monthly Beta 0.449 The monthly and quarterly beta both are lower than that of the market which shows that currently the stock is not risky.

Quarterly Beta 0.798

Total Holdings of Mutual Funds (Magh) 82,287 The mutual funds are holding good no. of shares.

Stock Holdings of Top Broker (from 25th Dec, 2018) 25,794.00 The sum of stock holdings of 5 Brokers is shown

with the average of their average buying and selling price. The holding period is taken after the price adjustment for 10% bonus share.

Top Broker Avg. Buy Price 319.43

Top Broker Avg. Sell Price 323.03

Indicators Points Remarks

RSI (14) 32.73 NMB is moderating at the oversold zone.

MACD (12,26,9) -5.54 The MACD line is negative and converged to signal line and the histogram is just above the baseline. So, MACD doesn’t give any indication of change in current trend.

Signal Line (12,26,9) -5.68

Histogram (12,26,9) 0.13

EMA (5,0) 303.43 The EMA 5 is below the EMA 20, and EMA 5 has acted as a resistance for price line.

EMA (20,0) 308.88

+DMI(13,8) 9.70 The -DMI is above and +DMI is below which shows the dominance of negative directional movement. The ADX is above 25 which means the current bearish trend is gaining strength. -DMI(13,8) 19.45

ADX (13,8) 41.62

Chaikin Money Flow (20) -0.33 CMF is below the baseline which shows selling pressure in the market.

Concluding remarks

From the above analysis it can be clearly seen that the company is fundamentally strong. The bank has a good capital

adequacy ratio, which is set to increase further with the floatation of Rs 3 billion debenture. So, the bank has scope for

increasing its business. Also, to ease its CCD ratio, the bank has bought foreign debts from various institutions. Thus, the bank

has a good future growth perspective. Looking from the valuation perspectives, the bank has a latest P/E ratio of 11.93 and

P/B ratio of 1.47, the industry average stands at 11.61 and 1.74 respectively. With a long track record, institutional backing of

FMO and Employee Provident Fund, good brand image, and good fundamentals, NMB could be a good option to buy.

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Disclaimer and important information: This document has been prepared by Aakash Capital Limited for information and

illustration purpose only. The information provided in this document is subject to change. While this information has been

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