November 2013 The Abacus Prompt™

The Abacus Prompt™ Monthly Business Review – Pakistan

November 2013

November 2013

Issue 35, Vol. 3

Page 1 Consulting | Technology | Outsourcing

new

KSE-100 Index Performance

Nov 1 22,776 6.70%

Nov 29 24,302

KSE

Market Cap - (PKR Billion) Nov 1 5,423

8.31% Nov 29 5,874

KSE 100

Best Performing Stocks

Company Opening Price Closing Price Change

PAKT 325 464 43% AICL 73 102 41%

SIEM 889 1220 37%

MARI 161 219 36%

NESTLE 7,043 9,300 32%

KSE 100

Worst Performing Stocks Company Opening Price Closing Price Change

IBFL 67 61 -8% MDTL

2.75 2.61 -5%

FABL 11.32 10.79 -5%

SILK 2.18 2.08 -5%

IDYM 1,030 999 -3%

Top Picks (Stocks Offering Maximum Upside Potential)

Company Closing Price Target Price Potential

AH

L ENGRO 148.81 211 42%

DGKC 77.92 110 41%

PSO 313.14 403 21%

KA

SB

DGKC 77.92 108 39%

POL 478 587 23%

PSO 313.14 366 17%

AK

D DGKC 77.92 107 38%

EPCL 12.69 16 30%

FATIMA 28.58 35 23%

JS

DGKC 77.92 95 22%

POL 478 550 15%

FFC 108 123 14%

Source: Abacus Research, KSE

Stock Market

The positive flow of foreign portfolio investment that began in Oct continued in Nov as well, clocking in at USD 26 million of net portfolio investment, including the buy-back of Siemens Pakistan shares worth USD 8.5 million. KSE-100 index rose by 6.7% during the month, reaching its all time high of 24,302 points while market volume grew by 27% MoM. Following the news of price hike in medicines, the Health Care Equipment and services sector witnessed a boost of 39% while Tobacco and Food sectors grew at 33% and 31% respectively.

The bullishness in the market is palpable but on the macroeconomic front, the picture gets murky. Pressures on the foreign exchange reserve are mounting as IMF repayments worth USD 693 million were made in Nov, depressing the value of the rupee in the Forex market. Part of the bullish sentiment in the market could be explained by two key appointments during the month: COAS General Raheel Sharif and Chief Justice of the Supreme Court Tassaduq Hussain Jillani. Both appointments are thought to pave the way for smoother implementation of the government’s agendas.

Source: Bloomberg

Pakistan’s market trades at a significant discount in comparison to its regional peers in terms of relative forward P/E valuations. Pakistan had lately managed to marginally bridge the gap; this month’s performance has pushed its P/E up by 8% MoM.

PTC assumed the title of highest traded stocks with 236mn shares traded while FCCL followed the lead for the month of Nov.

Source: KSE

-5.0%

-1.1% -1.0%

0.3%2.9% 3.7%

6.70%

-10.0%

-5.0%

0.0%

5.0%

10.0% Regional Comparison

Thailand Singapore India Malaysia Hong Kong China Pakistan

8.7 9.3

13.4 14.415.5 16.1

17.5

0

5

10

15

20Regional Valuations P/E (x) 2013E

China Pakistan Thailand India Singapore Hong Kong Malaysia

113138

185222 236

Highest Traded Stocks on KSE (Million Shares)

ENGRO BOP JSCL FCCL PTC

November 2013

Issue 35, Vol. 3

Page 2

The Abacus Prompt™

Monthly Business Review - Pakistan

The Abacus Prompt™ The Abacus Prompt™ The Abacus Prompt™

Pakistan Rupee Monthly Performance

Currency Open Rate Close Rate Change

106.80 108.48 -1.57%

171.42 177.57 -3.59%

145.18 147.57 -1.65%

28.47 28.92 -1.58%

29.08 29.53 -1.55%

1.73 1.73 0.00%

1.08 1.05 2.78%

KIBOR Monthly Movement

Tenor Open Rate Close Rate Change

1-Month 9.19 10.15 10.4% 3-Month 9.49 10.01 5.5% 6-Month 9.57 10.08 5.3%

Key Commodities Monthly Price Movement

Commodity Description Opening Price

Closing Price

Change

Precious Metals

Gold

24Karat (PKR/Tola)

52,938 52,400 -1.0%

Gold Spot (USD/oz) NY-Close 1324.60 1,253 -5.4%

Silver (PKR/Tola) 877 830 -5.4%

Silver Spot (USD/oz)

NY-Close 21.83 20 -8.4%

Gold- Silver Ratio

GSR 60.67

Oil

Crude Oil (US)

(USD/bbl). NYMEX 96 92.72 -3.4%

Furnace Oil

(PKR/Ton ) IMPORT 80,587 81,065 0.6%

High Speed Diesel

(PKR/Ltr) 117 116.80 -0.2%

Motor Spirit

(PKR/Ltr) 113.24 113 -0.4%

Agriculture & Cement

KCA- Cotton

(PKR/ maund)

6,600 6,350 -3.8%

Urea

(PKR/Bag)

1,814 1,831 0.9%

Cement (Avg.)

( PKR/50kg)

504 508 0.8%

Currency Market

United States Dollar

The dollar index ended the month almost flat, rising by a marginal 0.52%. Investors look for economic reports that will shed light on the likely monetary policy stance adopted by the Fed. Although, the Fed’s new Chairperson Janet Yellen highlighted the importance of quantitative easing, USD didn’t nudge much; a dovish stance is probably already priced in. PKR depreciated by about 1.57% against the USD. Part of the decline can be explained by the debt repayment made to IMF during the month. Pressures are mounting on Pakistan’s reserves and analysts expect further depreciation of PKR.

Euro, British Pound and Japanese Yen

Latest inflation data from Japan reveals moderate inflation, which along with aggressive monetary policy has lowered real rates. Consequently, the Yen hit a five year low in November and analysts expect further weakness as aggressive policy continues. Third quarter annualized GDP growth of 1.5% in UK and BoE’s decision to end funding for a Lending Scheme aimed at spurring housing sector recovery helped push GBP up 2.5% against USD. Policy makers at BoE had feared the immergence of a property market bubble. EUR on the other hand has ended the month flat against USD.

KIBOR

KIBOR rate for every tenure rose, following a revision in the policy rate as per the Nov MPS.

Commodities Market

Precious Metals

Fed’s likely monetary stance has been a key driver of gold’s prices. The minutes from the last Fed meeting revealed that a scale-back in the stimulus program would begin if the labor market continues to improve. A report published by the World Gold Council revealed that demand for the metal is at its four-year low. Moreover, western investors continue to dump their hold holdings while Indian gold sales are down after the government imposed import duties. Gold plunged 5.4% in Nov and is down 23% since the start of 2013.

Oil

Data from the Energy Information Administration revealed that U.S. stockpiles continued to climb for the 10th consecutive week, thanks to surging supply from shale formations. While WTI slumped 3.4%, supply in other parts of the world were remain pressurized due to supply disruptions in Nigeria and Libya. This month Iran’s deal with world power over Iran’s nuclear program failed to impact Brent as oil sanctions on Iran remain in place. Domestically, Motor Spirit prices fell marginally by 0.4%.

Agriculture

Latest figures from the Pakistan Cotton Ginner’s Association reveal that total cotton arrivals as of 1st of Dec stood at 11.05 million bales, up by 15.3% from the same period last year. These figures are fast approaching the revised target of 11.95 million bales for FY2014.

Cement

As per provisional figures, cement dispatches in Nov are down 6% MoM; domestic dispatches fell by 3% MoM while exports fell by 16% MoM. Dispatches are generally down during the winter season. Cement prices continue to inch higher given the implementation higher power tariffs and analysts expect further uptick in prices.

USD

JPY

EUR

SAR

AED

INR

GBP

Sources: SBP, XE.com, Investats, Bloomberg, FX.pk and KITCO

November 2013

Issue 35, Vol. 3

Page 3




Economy of Pakistan

Sources: SBP, PBS, Statpak, FBR *Inflation rebased to FY08 (Sep 2011) (P): Provisional

Monetary Policy

The SBP decided to increase the DR by 50bps to 10 percent for a two month period starting Nov 18

th. The increase met analyst expectations of a contractionary

monetary policy regime during FY14 as Islamabad jiggles rising inflation (expected to reach 11.5% at the end of FY14), increased GoP borrowings and a slowing economic growth. Structural weaknesses have long been identified as sole contributors to the country’s economic woes; however an IMF reform package has helped guide the financial managers to carry out some reforms, however a sizeable effort is still required on the front. During the 5MFY14, some fiscal consolidation has taken place, with the tax authorities rationalizing direct tax rates, as well as increasing the GST. The fiscal side has also been helped with the much needed realization of non tax revenues such as CSF payments. An USD 322mn payment has been received by Pak during Oct, and the remaining is expected during Q2 and Q3 of FY14. However, a lack of documentation still haunts the economy and effectively cannot bring in the informal sector into the tax net. Fiscal deficit has been projected at 6.3% for FY14. On the external front, the situation remains bleak (the external account deficit was recorded at USD 1.2bn during Q1Fy14). This is due to weak financial inflows, rising imports as well as substantial debt repayments to the IMF. Speculative sentiments on the IMF bailout have also resulted in high exchange rate volatility and have had a sizeable impact on foreign exchange flows. The SBP believes that progress on reforms as part of the IMF package will help the country in reigning in the external account as well.

As per provisional figures, FBR managed to collect PKR 169bn during Nov, up 21% YoY, against a target of PKR 167bn for the month. The collection for the first 5MFY14 was recorded at PKR 806bn or PKR 34bn short of the target of PKR 840bn for the period. The aggregate tax collection target of PKR 2,475bn looks unrealistic and has already been rendered irrelevant by the FBR as well as the IMF, who project collection at PKR 2,345bn for FY14. Tax concessions to industrialists and traders have dented collection efforts for the current FY. A blanket amnesty program for industrialists announced by the PM is also expected to hurt revenue collection.

Power Sector

Circular debt for the power sector started to pile up again as dues against the NTDC rose to PKR 216 bn, after the government had already cleared the liabilities outstanding for the sector till May 31. The pilling up of the circular debt liability was due to a range of factors including delays in the announcement of increase in power tariffs, lack of clarity on measures to curb power theft and increasing bill collection. The GoP has initiated tariff rationalization efforts for all customers, having raised by PKR 2 to PKR 6.59/kWh (average increase of 35%) for commercial, industrial and bulk customers, as well by 30% for domestic consumers (electricity consumption of up to 200 units will be exempted from the increase in tariff). Hikes in power tariffs have however exerted pressure on the CPI in the coming months.

Inflation

According to PBS, CPI returned to double digits and was recorded at 10.9% YoY, increasing from 9.1% during Oct. Rationalization of power tariffs and cutting of subsidies throughout the spectrum has been a major contributor towards increasing CPI levels during the 5MFY14. Food inflation was recorded at 13.0%, non-perishable food items witnessed a surge of 0.97% and perishable items prices increased 12.09% in October over last year. Core inflation was recorded at 8.5% YoY.

Other Key Indicators

Forex reserves were recorded at USD 8.24bn (Nov 29), down 13.51% MoM and were also lower by 39.1% YoY. Reserves held with SBP amounted to USD 3.05bn (down 64.99% YoY, lowest level in the last twelve years) and with commercial banks USD 5.19bn (up 7.5% YoY). Reserves have been under immense pressure with heavy repayments over the past few months, with an additional USD 558mn repayment in the last week of Nov. The country expects to receive USD 550mn in Dec however it has to repay USD 200mn at the end of Dec, and will not alleviate any pressure.

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov

Inflation*

Food Inflation Core Inflation CPI

2.0 2.01.8

2.1 2.1 2.2 2.2 2.12.0

2.6

1.9 1.8

3.7 3.83.4

3.7 3.94.3

3.9 3.83.6 3.8

3.33.7

Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov

Imports and Exports (USD Billion)

Exports Imports Trade Deficit

1.21.26

1.14

1.37

1.021.13 1.09

1.031.12

1.221.19 1.16

1.40

1.23 1.281.35

1.13

Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun

Foreign Remittances (USD Billion)

FY2013 FY2014

111 126

172

138 145

211

114 138

182 172 170

245

120 145

202

168 169


Federal Tax Collection (PKR Billion)

FY2013 FY2014

14.6 14.8 14.9 14.3

13.5 13.8 13.6 12.9

12.2 11.8 11.5 11.0 10.2 9.99 9.99

9.528.24


Foreign Exchange Reserves (USD Billion)

FY2013 FY2014

November 2013

Issue 35, Vol. 3

Page 4




FY13

(B) FY13

(Revised) FY14 (B)

Real GDP Growth 4.2% 3.2% 4.4%

GDP (mp) (PKR bn) 23,655 23,655 26,001

Average CPI 11-12% 10% 11 – 12%

Remittances (USD bn) 14.1 14.1 15.0

Total Debt (PKR bn) NA NA NA

Total Debt (% of GDP) 56.5% 61.8% 61.3%

External Debt (USD bn) NA NA NA

External Debt (% of GDP) NA NA NA

Exports (fob) (USD bn) 25.9 25.9 26.6

Imports (fob) (USD bn) 42.7 42.7 43.3

Tax Collection (PKR bn) 2,381 2,007 2,475

Fiscal Deficit (% of GDP) 4.7% 6.5% 6.3%

Current Account Balance (% of GDP)

-1.9% -1.0% -1.1%

Sovereign Credit Ratings (foreign and local currency debt)

S&P: B- / Stable / C (Foreign and Local-Short and Long term)

Moody’s: Caa1/Negative (LT Issuer Rating-foreign and local currency)

Economy of Pakistan

Major News & Events

Source: SBP, Economic Survey of Pakistan, Budget Review FY13, Planning Commission. IMF Public Information Notice No.12/135 Nov 2012 (P): Provisional; (B): Budgeted; (e): Estimated; Proj.: Projections

Sovereign Credit Ratings (foreign and local currency debt):

Standard & Poor’s: B-/ Stable/ C Moody’s: B3 – Stable (foreign and local currency debt)

(P=Provisional, B=Budgeted)

Other Key Indicators

Overseas remittances during Nov amounted to USD 1.13bn; and were lower by 16.1% MoM from USD 1.35bn in Oct. Remittances for the 5MFY14 combined were recorded at USD 6.41bn and were up 7.10% when compared to the same period in FY13. According to a few analysts foreign remittances are expected to grow between four and five percent during FY14.

Pakistan’s exports stood at USD 1.804bn in Nov, down 3.22% MoM from USD 1.864bn in Oct. On a YoY basis exports were lower by 4.85%. While attaining the GSP+ status bodes well for the country’s exports, the import growth needs to be curtailed for the country to secure some relief on the external accounts front. Imports for Nov were recorded at USD 3.65bn, compared to USD 3.28bn in Oct (up 11.3% MoM) and USD 3.61bn in Nov 2012 (up 1.22% YoY). Imports are expected to grow further, as the shortage of natural gas in the winter months would increase demand for imported petroleum products. The trade deficit for the month widened to USD 1.85bn from USD 1.42bn in Oct and USD 1.71bn in Nov 2012. The widening trade deficit hurts the Balance of Payments as well as the foreign exchange reserves position of the country.

The current account deficit for 4MFY14 widened to USD 1.36bn mainly due to the poorer performance of trade and services sector, against a surplus of USD 14mn in the corresponding period last year. Fast depleting foreign exchange reserves and a falling PKR has not helped the country on the current account front. Furthermore analysts believe that inflows such as the USD 550mn payment in Dec under the EFF, as well as any release of the USD 1.6bn in CSF payments whilst bring stability would not be enough to curb the deficit from reaching or even breaching its budgeted level of 1.1% of GDP.

Note: This report is for information purposes only and no action is being solicited through it. The material used is based on information we believe to be reliable but we do not guarantee its accuracy or completeness. AbacusConsulting will not be responsible for the consequence of reliance upon any opinion or statement herein or for any omission. This report or any part of it may not be reproduced or published without prior permission.

The European Commission has reiterated that growth across the eurozone would clock at 1.1% next year. ECB cut interest rates to new lows after predicting prolonged period of low inflation in the eurozone.

Global regulators are now targeting HSBC for suspected rigging of foreign exchange. HSBC is Europe’s biggest bank. The news has come at a time when several global banks have suspected of LIBOR manipulations.

The EU gave a green light to Pakistan’s request for duty-free access to European markets, paving way for the country’s acquisition of the EU Generalised Scheme of Preferences (GSP) Plus status.

Pakistan in contemplating on issuing its first Eurobond worth USD 750 million to shore up foreign reserves and support the local currency.

While Parliamentarians remained divided on the way forward after the drone strike that killed TTP leader, PTI activists staged a sit-in in Peshawar to block NATO supplies in protest to the use of drone in Pakistan.

MoF has reportedly refused to provide funds amounting to PKR 500 million to the Trade Development Authority to pay sugar millers as inland freight subsidy on export of 0.5 million MT of sugar.

Engro Fertilizer has completed its book building of 56mn shares and a strike price of PKR 28.25 was determined. Subsequently, Engro sold 30mn shares at it strike price.

MCB has been given a go ahead by the SBP to initiate a due diligence exercise on the acquisition of a Kenyan bank.

Leader of the extremist TTP, Hakimullah Mehsud was killed in a US drone strike on Nov 1

st in the restive North Waziristan region, dashing

GoP’s hopes of peace talks with the faction. Hardliner Fazlullah was elected as the new TTP leader.

Lt-Gen Raheel Sharif was appointed as the new COAS by PM Sharif,

following the retirement of Gen Ashfaq Pervaiz Kayani on Nov 29.

Army was called in after violence erupted in three cities following the

Ashura processions. Curfew was imposed in Rawalpindi where

sectarian clashed left 9 dead and several injured.

Federal government announced to initiate legal proceedings against

former President Pervez Musharraf under the High Treason Act.

Iran and six world powers clinched a deal on Nov 24 to curb Iranian

nuclear programme in exchange for initial sanctions relief. The deal

was resisted by Israel, Saudi Arabia and other regional stakeholders.

PM announced to waive off existing declaration requirements for

source of investment made in green field projects or for the

expansion of existing projects, spurring investor interest.

A massive typhoon hit central Philippines in early Nov, claiming more

than 5,000 lives while making over 2 million homeless.

Janet Yellen, was nominated as the next Chair of the Fed. She strongly

defended the role of QE in spurring US economic growth.

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November 2013 The Abacus Prompt™