AAKASH CAPITAL LIMITED

Weekly Newsletter from Aakash Capital Limited for the week ending on 21st June, 2019

NEPSE UPDATE

Indicators 16th June, 2019

20th June, 2019

(+)/(-) %

NEPSE 1258.27 1,264.36 0.27% SENSITIVE 269.97 271.6 0.50% FLOAT 92.24 92.79 0.41% BANKING 1127.94 1,135.91 0.56% HOTELS 2074.62 2,078.60 -0.43% DEVELOPMENT BANKS 1587.81 1,596.95 0.75% HYDROPOWER 1189.98 1,202.79 0.33% FINANCE 615.06 617.47 0.06% NON LIFE INSURANCE 5268.16 5,239.14 -1.25% MANU. & PRO. 2709.23 2,710.98 -0.97% OTHERS 722.28 725.79 0.17% MICROFINANCE 1411.23 1,424.92 1.20% LIFE INSURANCE 6163.34 6,111.90 0.08%

Market Summary Statistics (16th June to 20th June)

Total Turnover (Rs) 1,914,975,112

Total Traded Shares 6,430,074

Total Number of Transactions 28,236

Scrips Traded 177

Market Cap at Week start 1,565,258.33 Millions

Market cap at Week end 1,573,038.23 Millions

Floated Market Cap at Week start 548,091.46 Millions Floated Market Cap at Week end 551,400.04 Millions

Bullion Update

As on 21st June, 2019 Hallmark Gold Rs.65,000/tola

Worked Gold Rs.64,700/tola

Silver Rs.740/tola

Quote for the week

“Compounding interest is the eighth wonder of

the World. He who understands it earns it. He

who doesn’t pays it”

- Albert Einstein

The market increased by an insignificant 0.27% or 6.09

points in the trading week between June 16 and June

21. The sensitive index, which measures the

performance of big companies, also registered a gain

of 0.50% or 1.63 points. Similarly, float index also went

down 0.41% or 0.55 points.

This week the market had opened at 1271.18 on

Sunday and went down by 12.91 points to sit at

1258.27 points. The market dangled in all the following

days, albeit very low points. The market gained 2.63 on

Monday and decreased by 2.24 and 0.20 points on

Tuesday and Wednesday respectively. At the end of

the trading week, Thursday, it gained 5.90 points to sit

at 1264.36 points.

In the review period, all the sub-indices except for

hotels, non-life insurance and manufacturing and

production posted gains. The highest gaining sector

this trading week was microfinance. It increased by

1.20 per cent or 13.69 points. Except for this, all the

other sectors that ended in green increased by less

than 1 per cent. Banking, development banks,

hydropower, finance, others and life Insurance

increased by a meagre 0.56%, 0.75%, 0.33%, 0.06%,

0.17% and 0.08% respectively. On the other hand, non-

life insurance, which has been shedding points for last

several weeks, lost the highest in the market with

1.25% or 7.66 point. Similarly, it was followed by

manufacturing and production and hotels sector with

0.97 % or 1.75 point and 0.43% or 3.98 point decline

respectively.

The total turnover in this trading week stood at Rs 1.91

Billion while daily turnover averaged just Rs 0.38

billion. This clearly shows the falling participation of

investors in the market. The total market Value

increased by Rs. 7779.9 million as the market

capitalization increased by 0.43 per cent.

.

News Update

Finance ministry transfers Rs 85m in two months to finance foreign junkets

The Ministry of Finance (MoF) has transferred Rs 84.51 million from one budget heading to another to finance foreign junkets

of top-ranking functionaries and officials in the past two months alone…Read More

Provinces bring Rs 260 billion budget with focus on agro, tourism, and infrastructure

Provincial governments have brought budgets of a total size of Rs 259.57 billion for the upcoming fiscal year –

FY2019/20. Presenting budgets in the provincial parliaments, finance ministers of respective provincial governments have

unveiled expenditure plans for their provinces as well as the sources of resources for such expenditures…Read More

Trade deficit balloons to Rs 1,100 billion in first ten months

In a recent statistics released by the Department of Customs (DoC) based on data from 23 major ports of Nepal, trade deficit of

the country has risen to Rs 1,099.6 billion in the first 10 months of the current Fiscal Year 2018/19…Read More

Stakeholders call for merger of cooperatives

Stakeholders in the cooperatives sector have urged cooperative organizations to merge, considering the steady rise in the

number of cooperatives and traits of financial anarchy…Read More

BoP under pressure as trade deficit widens

Owing to rising imports amid slower exports, country’s trade deficit widened by 19.7 per cent to Rs 1,099.6 billion in the first 10

months of the current fiscal year (mid-July to mid-May), according to statistics of Nepal Rastra Bank…Read More

Market Announcements

Sagarmatha Insurance Company Limited has announced its 22nd AGM going to be held on 13th Ashad, 2076.

Prabhu Life Insurance Limited has announced its 2nd AGM going to be held on 26th Ashad, 2076.

Corporate Development Bank Limited has announced its 11th AGM going to be held on 27th Ashad, 2076.

Progressive Finance Limited has announced its 21st & 22nd AGM going to be held on 29th Ashad, 2076.

Upper Syange Hydropower Limited has announced its 2nd AGM going to be held on 29th Ashad, 2076.

Unnati Microfinance Bittiya Sanstha Limited is distributing 5:1 ratio right share directly to DEMAT accounts and

urged its shareholders to dematerialize their shares

Nepal Insurance Company Limited has allotted its 2,511.73 unit promoter shares and 1,44,591.35 ordinary shares

in auction to the general public on 31st Jestha, 2076 and refunding money to non-allottee investors from today

(1st Ashad, 2076).

Nepal Investment Bank Limited has allotted its 20,00,000 units @ Rs.1000 per unit of 10.5% Nepal Investment

Debenture 2082 to the general public on Ashad 04, 2076.

Multipurpose Finance Company Limited is issuing it's 1:8.65 ratio 35,85,264 units right share to its shareholders

from 23rd Ashad to 26th Shrawan, 2076.

Multipurpose Finance Company Limited has announced a book closure date for its upcoming 1:8.65 ratio right

share on 11th Ashad, 2076

Nepal Insurance proposed 7.5% bonus for its shareholders; Paid-up capital to reach Rs 1.09 Arba

NEPSE lists 59.5 lakh bonus and right shares of Jebils Finance, LIC Nepal, Mithila Laghubitta and Mero

Microfinance

12% bonus shares of Nabil Bank Limited listed on NEPSE

NEPSE - TECHNICAL ANALYSIS

The Nepalese stock market declined continuously after it made its top on 27th of July, 2016. Currently, the index is in at support

zone. The market had shown short term bull after Nepali New Year. This week the market closed at 1264.36 forming a green

candle on last trading day. This week NEPSE opened at 1269.60 and formed a bear candle by closing at 1258.27, losing 11.33

points during the day. Mostly, the sellers dominated the market during the trading week. As a result, the market shed points.

Along with the fall in index, the transaction turnover also lost its momentum. . The transaction turnover has decreased from

Rs.418 million of previous week ending to Rs.375 million at the end of this week. Market was unable to cross turnover of Rs.500

million in any of the trading day this week. This shows the faltering participation of investors in the market.

Downtrend market has shown short term bull basically in the month of March and April in last three years. Currently, market is

at support zone of around 1257.

Taking the Fibonacci retracement from 1098.95 to 1296.92, the 0.618 Fibonacci ratio lies at 1174.48. So, the market holds a

psychological support level at 1174.48.

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.

Current RSI value of NEPSE is 40.64 which indicates that the market is at moderate zone. There isn’t any kind of RSI divergence

seen in the market as fall in price and RSI is somewhat 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 MACD and signal line is at -6.24 and -0.97 respectively. MACD has already crossed the signal line and both are below

the base line which indicates the negative signal for the market.

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) green line is at 1263.09 and EMA (20, 0) red line is at 1278.24. The green line has already crossed the red line

which is known as death cross indicating chance of fall in the market. The index is currently trading below 5 days and above 20

days Exponential Moving Average. This indicates that the overall market is falling towards support zone.

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 1330.24, 1287.27 and 1244.31 respectively. The market is trading in between

middle and lower band which indicates market is at oversold zone.

Stock Analysis: Prime Commercial Bank Limited (PCBL)

Introduction

Prime Commercial Bank Ltd. was established in September 2007 as the 21st commercial bank in Nepal. It is an ‘A’ Category

Financial Institution in Nepal with its registered central office in Kamal Pokhari, Kathmandu. It has been established by prominent

business personnel and professionals from diversified areas with a prime objective of providing ‘The Banking Services to

Everyone’ in the country. It has committed to provide the highest standard of services for customers from all regions and

societies. The bank has established itself as an emerging player in financial sector with focus in customer service excellence

maintaining excellent relationship with valued customers. It is counted among the top 10 commercial banks in Nepal by

independent raters and publications in the country.

Today, it has 73 branches and operates 46 ATMs outlets throughout the seven provinces of Nepal strategically placed for the

convenience of customers. After the acquisition of Kankai Bikas Bank and Lalitpur Finance, the branch network of the bank will

reach to 92 branches. It has a market share of 2.61% in terms of deposit base and 2.99% of the total advances of commercial

bank industry as on mid-April 2019.

Board of Director

The Board of Director of Prime Commercial Bank consists of three members from promoter, 3 from public and one Independent

Promoter. The BOD is chaired by Mr. Rajendra Das Shrestha and Mr. Narayan Das Manandhar is the current CEO of the company.

Current Share Holding Composition

PCBL has an authorized capital of Rs 10 billion and paid-up capital of Rs 8.033 billion. The promoters of PCBL hold the 51

percent of total shares of bank while public holds the rest 49 percent. The current shareholder structure of the bank is as

follows:

S.N. Particulars Percent (%) Amount (Rs.)

1 Domestic Ownership 100 8,033,298,870

1.1 Nepal Government - -

1.2 “A” Class Licensed Institutions - -

1.3 Other Licensed Institutions - -

1.4 Other Institutions - -

1.5 Public 49 3,936,316,446

1.6 Other 51 4,096,982,423

2 Foreign Ownership - -

Total 100 8,033,298,870

Name Designation

Mr. Rajendra Das Shrestha Chairman

Mr. Uday Mohan Shrestha Director

Mr. Narendra Bajracharya Director

Mr. Gajendra Bista Public Director

Mr. Mangala Shrestha Independent Director

Mr. Prachanda Man Shrestha Public Director

Mr. Manoj Paudel Public Director

Financial Highlights

314.01370.53

455.75

632.54

803.33

47.69 62.75 84.62140.18

317.44

0.00

100.00

200.00

300.00

400.00

500.00

600.00

700.00

800.00

900.00

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

Paidup capital and reserve and surplus (in crore)

Paidup capital Reserve and surplus

34.0541.01

48.34

65.8672.64

27.1032.62

40.27

57.71

69.97

0.00

10.00

20.00

30.00

40.00

50.00

60.00

70.00

80.00

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

Deposits and loans (in arba)

Deposits Loans and advances

55.34

74.56

111.58

146.79

172.62

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)

17.63

20.12

24.48

18.27

21.49

0

5

10

15

20

25

30

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

EPS

1.57%

1.78%

2.23%2.22%

1.81%

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

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

ROA

16.85%

18.76%

22.92%

19.79%

15.40%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

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

Return on equity

Company Financials

Yearly Analysis

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

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

Paidup capital "000" 3,140,053 3,705,262 4,557,473 6,325,432.181 8,033,298.870

Reserve and surplus "000" 476,895 627,527 846,223 1,401,824.68 3,174,411.75

Deposits "000"" 34,045,263 41,005,754 48,342,121 65,855,880.39 72,635,987.98

Loans and advances "000" 27,104,417 32,616,506 40,272,095 57,711,391.95 69,966,856.44

Total assets "000" 38,030,964 45,800,892 54,398,973 77,702,801.85 95,043,979

Revenue "000" 2,871,169 3,242,635 3,556,635 5,208,727.38 8,559,690.846

Gross profit "000" 1,059,966 1,387,783 1,588,461 1,904,341.19 2,665,915.437

Operating profit "000" 733,764 1,010,968 1,435,009 1,990,902.68 2,425,837.108

Net profit "000" 553,448 745,589 1,115,759 1,467,942.93 1,726,246.11

Capital fund to RWA 12.40% 12.16% 11.73% 13.36% 12.24%

Non-performing loan 2.43% 1.83% 1.23% 0.88% 0.85%

Base rate 8.91% 7.62% 6.97% 10.64% 10.47%

Return on equity 16.85% 18.76% 22.92% 19.79% 15.40%

Return on asset 1.57% 1.78% 2.23% 2.22% 1.81%

Earnings per share 17.63 20.12 24.48 18.27 21.49

Net worth per share 115.19 116.94 118.57 117.45 120.27

P/E ratio 33.08 22.61 30.47 23.04 13.35

P/B ratio 4.25 3.27 5.1 2.82 2.05

Market Price 583 455 746 421 287

Looking at the major indicators like deposits, loans and advances and net profit, it can be said that the bank has experienced a

moderate and steady rate of business growth. Deposit base has increased to Rs. 72.6 billion from Rs. 34.05 billion and loans

and advances to Rs. 69.96 billion from 27.1 billion in five years. In other words, loans and advance has increased by 2.58 times

whereas deposit has increased by 2.13 times in five years periods. 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.

Likewise, net profit has increased by more than 3.11 times with an average of Rs. 111.6 million each year over the past five

years. Return on assets seems fairly stable over the past five years and has been providing constantly more than 1.94 per cent

since past five years. Though return on equity has declined insignificantly for couple of years but hasn’t provided return less

than 15 per cent over the five years. In fact, has provided return of 18.74 per cent on average over the span of five years. Prime

Commercial Bank has a good asset base, as it has been maintaining a low non-performing loan of 0.85 per cent.

Looking at its pricing ratios, both the P/E and P/B has declined over the past years. It has almost decreased by 2 times meaning

that the stock has become fairly cheaper whose impact can be seen in the market price of Bank.

On the whole, 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. The company’s

overall size is set to increase as the bank is set to acquire Kankai Bikas Bank Limited and Lalitpur Finance Limited.

Quarterly Analysis

The following table presents 3rd Quarter analysis of the company for the FY 2017/18 to 2018/19.

There is no any change in the capital structure of the bank. Reserve and Surplus has increased remarkably by 76.58 percent,

Net profit by almost 14 per cent in comparison of same quarter of corresponding past year though it is less than industry

average. Similarly, earnings per share has increased and is above industry average which is positive indication for a company.

On weaker side, Loans and advances have increased by 9.52 per cent and worst is deposit base has decreased by 7.47 per cent

instead of increasing in comparison of last year of same quarter which may be alarming and both indicators are still below

industry average. Similarly, return on equity and Price to Earning has decreased by less than one per cent. Moreover there is

no any improvement in return to Assets.

The way forward would be to increase its deposit base equivalent to industry average offering various lucrative schemes and

make a balanced proportional growth between deposit and loans and advance. This would eventually help the bank refraining

from inviting possible undesirable outcomes due to non-performing loans.

Dividend History

It can be seen that the bank has been providing regular dividend to its shareholders. It provided remarkable 27 percent returns

to shareholders in 2016/17. On an average, bank has provided more than 20 percent return to shareholders across five year

comparative periods focusing more on stock dividend.

Particulars Q3 Industry Average Q3 2017/18 Q3 2018/19 Growth (%)

Paidup capital ('000) 8,864,608.63 8,033,299 8,033,299 0.00%

Reserve and surplus ('000) 5,999,375.60 2660399.22 4,697,629 76.58%

Deposits ('000) 91,041,633.19 74,200,724.56 68,657,824.00 -7.47%

Loans and advances ('000) 84,891,475.83 66,535,632.54 72,868,687 9.52%

Net profit ('000) 1,561,848.85 1358574.54 1,547,905 13.94%

Return on equity 14 16.94 16 -0.94

Return on asset 2% 2.08% 2% 0.00

Earnings per share 23.39 22.55 25.69 13.92%

Net worth per share 165.82 133.12 158.48 19.05%

P/E ratio 13.91 13.08 12.84 -0.24

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

Dividend Per Share 20 18.95 18.46 27 16

Bonus % 19 18 17.25 27 16

Cash % 1 0.95 1.21 0 0

Technical Analysis of PCBL as on 20th June, 2019

Particulars Points Remarks

Volume 13,314 The daily volume and weekly volume of the

stock is lower than that of the 1 month. Avg. Volume (1 week) 17,923.80

Avg. Volume (1 month) 30,543.52

No. of Transaction 59 The daily number of transactions is lower than that of average transaction of the week and month.

Avg. no. of Transaction (1 week) 66.80

Avg. no. of Transaction (1 month) 115.86

180 days Average 326.57 The price of the stock is trading below both 180 days and 360 days average. 360 days Average 313.78

52 Weeks High Price 397 The stock is currently trading closer to 52 weeks high price. 52 Weeks Low Price 273

Nepse Index 1 year Change -6.81% The overall market in the last 12 months is in a downtrend and so is the industry. The stock has fall in the past one year and even more so in the 1 month’s period.

Industry Index 1year Change -0.03%

Stock 1-Month Change -21.31%

Stock 1-Year Change -0.69%

Monthly Beta 1.009 The monthly and quarterly beta of the stock is higher than the market. Quarterly Beta 1.125

Total Holdings of Mutual Funds (Baishakh) 326,047 The Mutual Funds are holding good number of shares of the company.

Stock Holdings of Top Broker (from Dec 26, 2018) 382,411 The sum of Stock holdings of 5 Brokers is shown with the average of their average buying and selling price.

Top Broker Avg. Buy Price 343.09

Top Broker Avg. Sell Price 340.54

Day Candle

Open 286

High 290

Low 286

Close 288

Pattern Analysis

Chart Pattern Short term Uptrend

Resistance R1: 301 R1: 301

Support S1: 279 S1: 279

Higher Breakout Level 316

Concluding remarks

From the above analysis, it is clear that the bank has steady performance along with healthy financial and asset quality

indicators. It has the best cost to income ratio in the commercial banking industry at 23.80%. This shows that the bank is

operationally very efficient. Also, it has a good profitability indicators which is supported by steady net interest income to total

operating income of 76.26% as against the industry average of 78.10%. Most of the fundamental indicators of the company are

growing and has potential to grow further.

Overall, the balance sheet size and business has quite increased in recent time and it can do better if it can control its cost of

fund and hence, the base rate; cost of fund stands at 8.29% as against the industry average of 7.17%. One of the major weakness

of the bank is its inability to attract deposit and hence provide loans. The major challenge for the bank would be to bring down

its loan portfolio or increase its deposit as the loans and advance has surpassed the deposit collection.

Indicators Points Remarks

RSI (14) 30.33 PCBL is at an oversold zone.

MACD (12,26,9) -14.7235 MACD and signal line both are below the base line. The MACD line looks to be crossing the signal line from below which gives the buy signal. But, confirmation is required.

Signal Line (12,26,9) -14.7280

Histogram (12,26,9) 0.0045

EMA (5,0) 288.20 EMA 5 is below the EMA 20 and the price is below both the EMAs, meaning that the stock is in bearish trend. EMA (20,0) 303.80

+DMI(13,8) 24.78 The -DMI is dominant over +DMI and ADX is below is at 15.21.

-DMI(13,8) 25.65

ADX (13,8) 15.21

Chaikin Money Flow (20) -0.0570 CMF is slightly above the baseline which shows slight buying pressure for the stock in the market.

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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. Aakash Capital is

regulated by Securities Board of Nepal. This document may not be reproduced, distributed or published by any person for any

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