AAKASH CAPITAL LIMITED

Weekly Newsletter from Aakash Capital Limited for the week ending on 15th February, 2019

NEPSE UPDATE

Indicators 8th Feb, 2019

14th Feb, 2019

(+)/(-) %

NEPSE 1127.53 1112.87 -1.30% SENSITIVE 240.21 236.92 -1.37% FLOAT 81.96 80.86 -1.34% BANKING 969.49 955.2 -1.47% HOTELS 1712.57 1691.3 -1.24% DEVELOPMENT BANKS 1422.28 1417.03 -0.37% HYDROPOWER 1143.95 1132.71 -0.98% FINANCE 593.99 593.14 -0.14% NON LIFE INSURANCE 537.79 5305.56 -1.34% MANU. & PRO. 1940.43 1981.72 2.13% OTHERS 723.25 711.04 -1.69% MICROFINANCE 1409.78 1388.72 -1.49% LIFE INSURANCE 5672.22 5581.94 -1.59% TRADING 251.79 251.37 -0.17%

Market Summary Statistics (8th Feb to 14th Feb)

Total Turnover (Rs) 3,037,412,173.00

Total Traded Shares 11,224,052.00

Total Number of Transactions 25,491.00

Scrips Traded 174.00

Market Cap at Week start 1,377,469.23 Millions

Market cap at Week end 1,358,447.52 Millions

Floated Market Cap at Week start 481,844.40 Millions

Floated Market Cap at Week end 474,853.72 Millions

Bullion Update

As on 15th Feb, 2019 Hallmark Gold Rs.62,100/tola

Worked Gold Rs.61,800/tola

Silver Rs.765/tola

Quote for the Week

“The stock market is a device for transferring

money from the impatient to the patient”

-Warren Buffet

The market descended by 1.30% or 14.66 points in the

trading week between February 8 and February 14.

Along with Nepse index, the sensitive index also fell by

1.37% or 3.29 points and float index went down by

1.34% or 1.1 points to end the week at 80.86.

The secondary market had opened at 1138.62 points

on Sunday and went down 11.09 points to end the day

at 1127.53. On Monday, the index witnessed a meager

ascend of 1.33 points. The market further fell down

from there for the rest of the days in the trading week.

It fell by 0.67 on Tuesday, 7.11 points on Wednesday

and further 8.21 points on Thursday to end the trading

week at 1112.87.

In the review period, all the subgroups except

manufacturing and production, whose index advanced

2.13%, ended in red. The banking sub index lost 14.29

points or 1.47% during the week. The life and non-life

insurance sub-index slumped by 90.28 and 72.23

points respectively.

The total turnover during the trading week stood at Rs

3.037 billion. Such a feat was a result of huge turnover

of Everest Bank’s Promoter Share, whose turnover

alone stood at Rs 1.917 billion on Thursday. Nullifying

its transaction for a clearer picture, the average daily

turnover stood at just Rs 223.95 million. The total

market value depreciated by Rs 19.02 billion as the

market capitalization dipped 1.38% during the trading

week.

In a nutshell, the overall trend is still downwards. The

uninspired trading in the secondary market couldn’t

take a major upheaval as investors are in a wait-and-

watch scenario. One of the major reasons being the

interest rate. Despite a lower interest rate on deposits,

the BFIs have not slashed the interest on loans such as

margin lending. The capital market has not seen any

major catalyst as the government’s assurances in

reforming the market has not taken pace. Despite the

companies publishing astounding earning reports, the

index has failed to make any significant recovery.

.

News Update

Nepal Infrastructure Bank gets operating license

Nepal Infrastructure Bank Ltd, which has been established to invest in infrastructure sector, has obtained a license from Nepal Rastra Bank for its operation…..Read More

Balance of Payment deficit widens further

The outflow of money from the economy surpassed inflows by Rs 63.7 billion in the first half of the fiscal year as Nepal’s

imports exceeded exports by almost 16 times….Read More

PM Employment Programme Announced

The government has launched the Prime Minister Employment Programme in a bid to end the problem of unemployment

faced by the country….Read More

Industrialists threaten to stop repaying loans

The industrialists at Bhairahawa have protested against the high interest rate on loans by declaring that they would not pay

loans if rates are not brought down….Read More

NMB secures debt from CDC

NMB Bank has become the first bank in Nepal to secure $15 million debt investment from CDC Group, a development finance institution at UK….Read More

Interbank transaction on a rise

Commercial banks have been lending money to other commercial banks at an average rate of up to 6.4 per cent in recent

weeks….Read More

Market Announcements

Asian Life Insurance Company Ltd has received approval from the SEBON to issue 60 percent right shares to its

shareholders.

Agriculture Development Bank has announced its 12th AGM to be held on Chaitra 15, 2075.

Prabhu Bank Limited proclaim its 17th AGM going to be held on Falgun 19, 2075.

Divya Laghubitta Bittiya Sanstha Limited has announced its 1st AGM going to be held on 25th Falgun, 2075.

Everest Insurance Company Limited has published a notice regarding bid opening date of 197,717 unit promoter shares in

auction to the general public on 5th Falgun, 2075.

Nepal Insurance Company Limited is issuing its 1:0.65 ratio 4,014,651.58 units right share to its shareholders from 21st

Falgun to 25th Chaitra, 2075.

4729968.06 units bonus share of Muktinath Bikas Bank Ltd has been listed on Falgun 02, 2075.

Shivam Cements Limited is going to issue its 41,20,000 units at Rs.300 IPO share to the general public from Falgun 06, 2075

to Falgun 09, 2075.

Meromicrofinance Lahghubitta Bittiya Sanstha Limited is going to issue its 1:1 ratio 32,89,000 units of ordinary right shares

at Rs.100 per unit to the shareholders from Falgun 19, 2075 till Chaitra 24, 2075.

Unnati Microfinance Bittiya Sanstha Limited is going to issue its 5:1 ratio 1,10,000 units of ordinary right shares at Rs.100

per unit to the shareholders from Falgun 13, 2075 till Chaitra 17, 2075.

NEPSE - TECHNICAL ANALYSIS

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

the market lies at 1109 and its strong support lies at 1022. The current bearish trend of the market started from 16th of

January, 2019. This week the market closed at 1112.87 showing bearish sentiment in the market. 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 Rs 22.4 crore, which is lower than that of previous week. Along with the market, all the

sub-indices and sector-wise indices are in the bearish trend. In a long-term view, the downfall of hydropower sector is high in

comparison to other sectors. In contrary, insurance is the only sector that has 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. Psychologically, fear among investors is

replicated in the stock market of Nepal.

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 23.7258 which implies that the market is currently at an oversold zone. There isn’t any kind of RSI

divergence seen in the market as the fall in price and RSI is somehow similar. When the market index was at 1195.54, the RSI

was at 57.61 and after that continuous fall in price and RSI can be observed.

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 -3.9471, -14.5213 and -10.5742 respectively. Both MACD line and signal line

are below the baseline. The MACD line is below the signal line after the crossover on 20th of January, 2019 and currently

moving deep below the baseline.

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 1123.7637 and EMA (20, 0) is at 1145.8958. 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. The

gap between 5 days and 20 days EMA is gradually increasing which supports the current bearish trend.

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, middle and the lower bands are at 1188.5064, 1150.6320 and 1112.7576 respectively. The market is currently

trading at the lower 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 – Butwal Power Company Limited

Company Introduction

BPCL was incorporated in 1966 as a private company and later on converted into a public limited company in 1993. Through its

subsidiaries, BPCL is engaged in operation and maintenance of power plants, consulting engineering of hydropower and

infrastructural projects, manufacturing and repair of hydro-mechanical and electro-mechanical equipment of power plants.

Share Ownership Structure

The share ownership structure of the company after the issue of FPO in the Fiscal Year 2074/075 is as follows:

Group Shareholder % Holding Total of group

A Government of Nepal 7.42% 9.70%

United Mission to Nepal 1.37%

NIDC Development Bank Ltd 0.05%

Nepal Electricity Authority 0.86%

B Shangri-La Energy Limited (SEL) 56.27% 57.85%

IKN Nepal AS 1.58%

C General Public (Including Employees) 32.45% 32.45%

Total 100% 100%

Board Members

Name Position Group Representing

Mr. Padma Jyoti Chairperson B SEL

Mr. Pradeep Kumar Shrestha Director B SEL

Mr. Bijaya Krishna Shrestha Director B SEL

Mr. Om Prakash Shrestha Director B SEL

Mr. Sandip Kumar Dev Director A GON

Mr. Chandi Prasad Shrestha Director C General Public

Vacant Director C General Public

Vacant Independent Director - -

Vacant Independent Director - -

Mr. Bijay Bahadur Shrestha Alt. Director B SEL

Mr. Sanjib Rajbhandari Alt. Director B SEL

The company’s majority stake is held by Shangri-La Energy Limited. The shareholders of Shangri-La Energy Limited are-Araniko

Group, Beltronix Group, Jyoti Group, Mercantile Group, Panchakanya Group and Snowlion Group. These groups are involved in

manufacturing industries, information technology, service industries, trade, insurance and finance industries.

Existing, Under-development and Future Projects

Projects Subsidiary and Associates Shareholdings Status

Existing Projects

Khudi Power Project 60% The project with Capacity of 4MW. EPS(Rs.): 32.97, BVPS(Rs.): 243.03

Himal Power Limited 16.88% EPS(Rs.): 170.44, BVPS(Rs.): 381.99

Nepal Hydro and Electric Limited

51.30% EPS(Rs.): 33.98, BVPS(Rs.): 294.17

Hydro-consult Engineering Limited

80.00% EPS(Rs.): 186.56, BVPS(Rs.): 701.58

BPC Services Limited 100.00% EPS(Rs.): 11.74, BVPS(Rs.): 150.57

Hydro Lab (P) Limited 10.73% EPS(Rs.): 102.19, BVPS(Rs.): 1001.87

Gurans Energy Limited 40.00% EPS(Rs.): 0, BVPS(Rs.): 96.40

Jhumdi Hydropower Company Limited

1.06%

Projects Under Development

Nyadi Hydropower Limited 97.22% 30MW project under construction with 50% progress, Commercial operation date scheduled on 18th April, 2020

Kabeli Energy Limited 27.24% 37.6MW project under construction with 22% progress, The project of the project isn't as expected

Future Projects

Mugu Karnali HEP -

The 160MW project survey License has been obtained and feasibility study is ongoing.

Chino Khola HEP -

The 8.5MW project development modality is under preparation.

Lower Manang Marsyangdi Project

-

The License of 140MW project has been obtained as a joint venture project with Chinese partners.

Manang Marsyangdi Project

-

The License of 282MW project has been obtained as a joint venture project with Chinese partners.

Upper Marsyandi-2 Hydropower Project

-

600 MW project is being developed by Himtal Hydropower Co. Pvt. Ltd and the share of the company are acquired by

BPCL and Chinese Partners.

Company Financials

Yearly Analysis:

The following table presents the trend of financial performance of BPCL from the FY 2013/14 to 2017/18.

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

EBITDA (Rs. in million) 814 768 718 625 444

Net Profit (In million) 702.3 668 619.4 479.8 303.8

Book value of Share(Rs.) 293.4 243 238 226 195

Earnings Per Share (Rs.) 36.33 37.02 34.57 28.68 19.75

Return on Capital Employed 10% 13.70% 12.90% 10.30% 7.10%

Return on Assets (ROA) 9.14% 12.44% 13.04% 11% 7.69%

Return on Equity (ROE) 10.79% 15.20% 15.42% 13.54% 9.83%

Current Ratio 7.29 1.47 1.44 1.56 1.71

Total Debt/Equity 0.08 0.11 0.21 0.23 0.31

Along with the increase in EBITDA and net profit, there is growth in book value per share in every successive years.

There is also successive growth in each year in the earnings per share of the company. However, the earnings per

share in the last year has slightly declined, which maybe the impact from the additional FPO shares. The return on

capital has also declined in last year along with ROA and ROE. The current ratio of the company was in decreasing

trend but in last year the current ratio is very high which signals the company is unable to mobilize its assets

effectively. The debt-to-equity ratio of the company is in decreasing trend which shows that company is lowering

its risk.

Quarterly Analysis:

The following table presents 2nd Quarter analysis of the company:

Particulars Industry BPCL Q2 75/76 BPCL Q2 74/75 BPCL Q2 % change

Paid Up Capital 1,293,620 2,440,555 1,810,570 34.79%

Reserve & Surplus 593,602.22 4,227,173 3,049,640 38.61%

Net Profit 110,613.35 758,242 599,205 26.54%

Current Ratio (Liquidity Ratio) 3.36 3.61 3.06 17.97%

Networth per Share (Rs.) 119.4 273.21 268.44 1.78%

Earnings per Share (EPS Annualized - Rs.) 11.06 62.14 66.19 -6.12%

Price to Earning Ratio (PE ratio - times) 168.2 6.04 10.74 -43.76%

Price to Book Value Ratio (Pb ratio - times) 1.23 1.37 2.65 -48.30%

Return on Equity (ROE %) 7.34 22.74 24.66 -7.79%

Return on Assets (ROA %) 5.9 20.44 9.31 119.55%

All of the mentioned financials of the company are better than the industry average. The paid up capital and the

reserves shows that the company’s fundamentals are very strong. The PE ratio of the company is very lower than

the industry average which shows the company is undervalued within its industry. The company’s ROA and ROE is

also higher in comparison to the industry average. The company’s current ratio is approximately around the

industry average that shows the company is able to utilize its resources properly. All the financials are

comparatively better than previous corresponding quarter except return on equity.

Dividend Distribution

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

Dividend Per Share (Rs.) 28 20 27 20 15

Bonus % 10 - 7 - -

Cash % 18 20 20 20 15

Dividend Payout Ratio 36.33% 54.02% 78.44% 69.74% 82.63%

The overall trend of company’s dividend payout ratio shows that the company is giving less dividend from the

earnings per share in its every successive years. The dividend per share of five years shows random distribution of

dividend to the shareholders.

Technical Analysis of the Company as on 14th February, 2019

Day Candle Pattern Analysis

Open 343 Chart Pattern Bearish

High 348 Resistance 405 496

Low 343 Support 343 n/a

Close 348 Higher Breakout Level 415

Particulars Points Remarks

Volume 5,028 The average volume of the week and month are

somehow similar. Avg. Volume (1 week) 2,899

Avg. Volume (1 month) 2,613

No. of Transaction 39

The average number of transactions are approximately equal for the week and month.

Avg. no. of Transaction (1 week) 33.60

Avg. no. of Transaction (1 month) 33.81

180 days Average 432.04 The price of the stock is trading below 180 days and 360 days average. 360 days Average 510.30

52 Weeks High Price 575 The stock is currently trading near 52 weeks low price. 52 Weeks Low Price 343

Nepse Index 1-Year Change 19.88% 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 36.16%

Stock 1-Month Change -7.20%

Stock 1-Year Change -37.75%

Monthly Beta 2.065 The Monthly beta is very higher than that of the market which shows that currently the stock is very risky.

Quarterly Beta 0.729

Total Holdings of Mutual Funds (Poush) 246,730 The Mutual Funds are holding good no. of shares.

Stock Holdings of Top Broker (from 23rd Dec, 2018) 22,473 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 366.42

Top Broker Avg. Sell Price 265.91

Indicators Points Remarks

RSI (14) 38.76 BPCL is at moderate zone and nearer to oversold zone.

MACD (12,26,9) -9.3488 The MACD line is negative and converged to signal line and the histogram is above the baseline. So, MACD doesn’t give any indication of change in current trend.

Signal Line (12,26,9) -9.6170

Histogram (12,26,9) 0.2683

EMA (5,0) 349.7866 The EMA 5 and 20 are above the price line. There isn’t any indication of change in trend.

EMA (20,0) 358.9811

+DMI(13,8) 31.0455 The +DMI is above and -DMI is below the level of 25 which shows the dominance of positive directional movement. The ADX is below the level of 25 which means the current bearish trend is weaker. -DMI(13,8) 19.3298

ADX (13,8) 17.2919

Chaikin Money Flow (20) -0.3716 CMF is below the baseline which shows selling pressure in the market.

Based on the above company analysis, the financials of the company are quite charming and is performing well within its

industry. The company has scheduled to start the commercial operation of 30MW Nyadi Hydropower from 18th April, 2020

whose shares are almost owned by the company. Besides, the company is all set to start bigger hydropower projects in a

joint venture with its Chinese partners. The company’s stock price is trading near all-time low price and it is best to buy the

stock for those investors with long-term investment strategy.

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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

obtained from sources believed to be reliable, Aakash Capital Limited is not liable for erroneous information obtained from

the sources. Aakash Capital Limited, its directors and employees are not liable/responsible for any direct, indirect or

consequential loss arising from use of this document or its contents. Past performance is no indication of future results.

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