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The Abacus Prompt™ Monthly Business Review – Pakistan

May 2013

May 2013

Issue 29, Vol. 3

Consulting | Technology | Outsourcing

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KSE-100 Index Performance

May 1 18,982 15.00%

May 31 21,823

KSE

Market Cap - (PKR Billion) May 1 4,663

13.51% May 31 5,293

KSE 100

Best Performing Stocks

Company Opening Price Closing Price Change

MARI 100.95 163.99 62.45% PSEL

PCAL

240.5 388 61.33%

PSO

201.54 294.84 46.29%

PIAA 5.76 8.13 41.45%

PGF 16.94 23.75 40.20%

KSE 100

Worst Performing Stocks Company Opening Price Closing Price Change

BATA 2,270.28 1,730 -23.80% CPL

335.72 292.63 -12.84%

AKBL 18.45 16.41 -11.06%

SHFA 50 45 -10.00%

COLG 1,945.12 1810 -6.95%

Top Picks (Stocks Offering Maximum Upside Potential)

Company Closing Price Target Price Potential

AH

L DGKC 78.5 110 40%

ENGRO 146.9 196 33%

LUCK 182.36 240 32%

KA

SB

FATIMA 23.99 31 29%

APL 523.9 555 6%

PPL 219 228 4%

AK

D ENGRO 146.9 222.5 51%

DGKC 78.5 107.9 37%

NML 99.36 131.2 32%

IG

I

NBP 43.19 54 25%

NRL 239 294 23%

PTC 22.08 27 22%

Source: Abacus Research, KSE

Stock Market

PML-N’s victory in the May-13 general elections provided further impetus to the bull market and helped the index close at over the 21,800 mark. The 15% MoM gain is the highest since Mar-09.

The market viewed the election of PML-N as the harbinger of renewed foreign investment interest in Pakistan, resolution of long-standing crippling issues such as the circular debt, and the promotion of infrastructure projects. FPI skyrocketed to USD271mn, up from USD28mn witnessed in March.

The spectacular Bull Run is associated with what analyst term as a re-rating of the market. This is an expansion in market multiples brought about not by underlying fundamentals, but by a boost in investor confidence that prompts investors to pay more for stocks. This in turn means that the government has to live up its expectations to avoid a slump in confidence and consequently the stock market. To tackle the energy issue, the new government has already pointed towards both short-term solutions such as cash injection and long term solutions including coal fired projects.

Source: Bloomberg

‘Construction and Materials’ continued to lead the individual sectors in May as well.

FCCL assumed the title of highest traded stocks with 550mn shares traded while BOPR followed the lead for the month of May.

Source: KSE

-1.7% -1.5% -0.5%

1.3%3.0%

5.6%

15.00%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0% Regional Comparison

Singapore HongKong Thailand India Malaysia China Pakistan

8.34% 9.97% 11.04%

19.77% 20.51%

Highest Traded Sector (% of Total Turnover)

Fixed Line Telecommunications Electricity Chemicals Commercial Banks Construction And Materials

260 280 295

450550

Highest Traded Stocks on KSE (Million Shares)

BOP TRG PTC BOPR FCCL

May 2013

Issue 29, Vol. 3

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

98.47 98.49 -0.02%

153.03 149.53 2.29%

129.67 127.85 1.41%

26.26 26.26 0.00%

26.81 26.81 0.00%

1.83 1.74 5.13%

1.009 0.97 3.87%

KIBOR Monthly Movement

Tenor Open Rate Close Rate Change

1-Month 9.59 9.91 3.33% 3-Month 9.54 9.59 0.52% 6-Month 9.58 9.58 0.00%

Key Commodities Monthly Price Movement

Commodity Description Opening Price

Closing Price

Change

Precious Metals

Gold

24Karat (PKR/Tola)

57,000 53,900 -5.4%

Gold Spot (USD/oz) NY-Close 1,476 1,387 -6.0%

Silver (PKR/Tola) 897 880 -1.9%

Silver Spot (USD/oz)

NY-Close 24.33 22.26 -8.5%

Gold- Silver Ratio

GSR 62.30

Oil

Crude Oil (US)

(USD/bbl). NYMEX 93.46 91.97 -1.6%

Furnace Oil

(PKR/Ton ) IMPORT 75,864 72,953 -3.8%

High Speed Diesel

(PKR/Ltr) 109.00 106 -2.8%

Motor Spirit

(PKR/Ltr) 102.3 97.59 -4.6%

Agriculture & Cement

KCA- Cotton

(PKR/ maund) 6,600 6,400 -3.0%

Urea

(PKR/Bag)

1,709 1,726 1.0%

Cement (Avg.)

( PKR/50kg)

459 463 0.09%

Currency Market

United States Dollar

A better than expected US job figures for Apr helped provide USD substantial stimulus. By the end of the month, indications by the Fed that it might taper off its aggressive bond-buying program in light of encouraging economic indicators, pushed the dollar index up which closed at 83.4, representing a ~2% MoM gain. PKR remained stable against the USD, declining by a nominal 0.02%.

Euro, Great British Pound and Japanese Yen

A contraction of 0.2% in the Euro-zone economy and a policy rate cut by the ECB to stimulate the economy put pressure on EUR which slid by 2.6% against USD by mid May. However, a spur of “risk-on” trading helped EUR recover earlier losses and it closed down by ~ 1.3%. USD also breached the psychological 100 mark barrier against the Yen. Yen had slid by as much as 6.5% by mid May before a recovery later in the month. Covering of short Yen positions and rising Japanese yields strengthened Yen by the last of week of May. In UK, reports of slowdown in inflation during Apr put pressure on GBP which slid by more than 3% against USD.

KIBOR

KIBOR for the 1M tenure increased by 32bps whilst only nominal changes were observed across all other tenures reflective of unchanged monetary stance.

Commodities Market

Precious Metals

Gold has continued it slump as investors dump gold ETFs in an environment that is not plagued by fears of inflation. Allure of equities and a firmer dollar added to the pressure on the yellow metal. Although physical buyers, particularly in China and India, added to their gold inventory, movements in and out of ETFs have a larger impact on the price. Gold slid by 6% in May and closed at USD 1388. Silver too suffered a retreat and was down by 8.5% MoM. The decline of silver is worrying given its important industrial usage.

Oil

HSBC’s China May manufacturing index fell below 50 for the first time in seven months; a reading below 50 indicates contraction. This, coupled with a scare in Japanese markets following the comments from Bernanke triggered heavy sell-off in commodities. Since China is one of the largest purchaser of oil, alongside U.S., a contraction in manufacturing activity is a bearish sentiment for crude oil, which slid by 1.6%. Domestically, Motor Spirit price was reduced by 4.6% which subdued inflation.

Agriculture

Weak buying interest in the cotton market contributed to a further slide in cotton prices which closed at PKR 6,400, down by 3% MoM. However, reports of a fall of 965,000 bales of cotton from India could help push prices up in the future. Urea sales in May stood at 445,000 tons, up 44% MoM. The uptick in Urea sales can be attributed to the beginning of the Kharif season.

Cement

Cement dispatches declined to 2.918mn in May from 2.888mn tons achieved in the same month last year. Contributing to the decline was explained by APCMA as the strict implementation of the axle load limit by the national highway and motorway authorities. The resulting transportation shortage led to an increase in the transportation charges. Price increased by 0.9% to PKR 463/bag.

USD

JPY

EUR

SAR

AED

INR

GBP

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

May 2013

Issue 29, Vol. 3




Economy of Pakistan

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

Monetary Policy

The policy rate remained at 9.5% for the seventh consecutive month following the April 12

th MPS decision. With some breathing space provided by falling CPI, as well

as the news of a potential delay in the country’s return to the IMF program, some pressure is off the SBP on the monetary side, with some analysts predicting a fall in the DR in the Jun 21 MPS. However, rapidly depleting foreign exchange reserves (down by more than USD 2.2bn from end Jan CY13), aggressive government borrowing from both the domestic banking system as well as the SBP (total public debt till end Mar CY13 was recorded at PKR 13.9 tn) and the potential of the CPI to return to its increasing ways are all valid challenges that could reverse the pressure on the monetary policy in the coming months. The weak balance of payments position is an area of particular concern for the central bank. With lower financial inflows and high debt payments (Pak is liable to retire an additional USD 4bn to the IMF under the SBA head), pressuring foreign exchange reserves further. Furthermore the new economic managers are contemplating returning to the IMF for a five year USD 5bn program to help with the budgetary financing in the medium to long terms. However unlike the SBA, this facility is expected to have softer conditions as well as a longer payback period.

The situation on the fiscal front remains bleak as well, with subsidies and rising interest payments. According to the SBP’s Quarterly Review of Q3FY13, the amount of subsidies paid in Q3 alone exceeded the full year target. Debt servicing too has taken its toll on the fiscal discipline of the country. The government, according to Fiscal Responsibility and Debt Limitation Act (2005), must achieve a public debt-to-GDP ratio of 60 percent by the end of FY13, which shall be difficult to achieve given the existing stock of public borrowing. The rise in the debt stock accompanied by debt servicing, directly adds to subsequent fiscal deficits. On the revenue front tax collection growth was at its lowest level since FY02. As per provisional figures, FBR managed to collect PKR 170bn during May, down 7% YoY. FBR’s struggle with achieving the tax collection target continues, with the target being downward revised twice during FY13 to the current target of PKR 2050bn against an originally budgeted PKR 2,381bn. Collections during 11MFY13 amounted to a provisional PKR 1,675bn and roughly equate to 81% of the revised annual tax collection target, and require a collection of PKR 375bn in Jun FY13. FBR remains upbeat about achieving this feat however. According to the FBR, lower growth in tax collection has been due to an economic recession, severe structural weaknesses impacting the manufacturing sector as well as a slump in dutiable and taxable imports.

Power Sector

Average power shortfall during May stood at around 6,000 MW, translating to up to 20 hours of load shedding in select areas of all major urban centers. According to NEPRA the average shortfall is expected to widen to 7,000 MW in the coming summer months (which includes the Holy month of Ramadan in July), as the country struggles with a large circular debt problem. The newly elected government has set its sight on resolving the circular debt for the power sector (estimated at PKR 500bn) through the issue of ST T-Bills. It has also vowed to improve operational efficiencies as well as a switch to generation from RFO/HSD to domestic coal. Blended generation cost remained at par with the Apr levels observed at ~PKR 14/kWh, against the average generation tariff of ~PKR 10/kWh, contributing to the stock of tariff differential subsidies. The volume of power sector subsidies has breached PKR 268bn out of an upward revised allocation of PKR 291bn.

Inflation

According to PBS, CPI was recorded at 5.1% YoY in May against 5.8% during Apr. Average 11MFY13 CPI as a result is recorded at 7.51% against 10.97% in the corresponding period of FY12, and is well within the GoP's FY13 inflation target of 10%. The fall in CPI for the third consecutive month is positive and provides the GoP with some much needed breathing space on the monetary front. However some economists believe that the muted inflation points towards reduced development expenditures, and could have negative implications for the economy. Food and Core inflation were recorded at 6.5% and 8.1% YoY, respectively during May.

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

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

Inflation*

Food Inflation Core Inflation CPI

2.1 2.11.9

2.2 2.0

1.62.0 2.0

1.82.1

2.1 2.2

4.03.7 3.7 3.5 3.8 3.7 3.7

3.83.4 3.7

3.94.3

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

Imports and Exports (USD Billion)

Exports Imports Trade Deficit

0.8

1.3

0.9 1.0

0.9

1.1 1.1 1.2 1.1 1.1 1.2 1.1 1.2

1.3 1.1

1.4

1.0 1.1 1.1 1.0

1.1 1.2 1.2

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

Foreign Remittances (USD Billion)

FY2012 FY2013

112 121

148 128 131

200

132 130 132

158

182

283

111

126

172

138 145

211

114

138 182

172 170


Federal Tax Collection (PKR Billion)

FY2012 FY2013

18.3 18.1 17.3 17.1 16.7 16.9 16.9 16.4 16.5 16.4 16.0 15.3 14.6 14.8 14.9

14.3 13.5 13.8 13.6 12.9

12.2 11.8 11.5


Foreign Exchange Reserves (USD Billion)

FY2012 FY2013

May 2013

Issue 29, Vol. 3




FY12

(P) FY13 (B)

FY13 (Revised)

Real GDP Growth 3.7% 4.2% 3.2%

GDP (mp) (PKR bn) 20,654 23,655 23,655

Average CPI 11% 11-12% 10%

Remittances (USD bn) 13.2 14.1 14.1

Total Debt (PKR bn) 14,587 NA NA

Total Debt (% of GDP) 60% 56.5% 61.8%

External Debt (USD bn) 65.83 NA NA

External Debt (% of GDP) 30.2% NA NA

Exports (fob) (USD bn) 23.6 25.9 25.9

Imports (fob) (USD bn) 44.9 42.7 42.7

Tax Collection (PKR bn) 1,913 2,381 2,050

Fiscal Deficit (% of GDP) 6% 4.7% 6.5%

Current Account Balance (% of GDP)

-1.85% -1.9% -1.0%

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

Forex reserves were recorded at USD 11.46bn (May 31), down 3 % MoM and lower by 26.4% YoY. Reserves held with SBP amounted to USD 6.40bn (down 43.2% YoY) and with commercial banks USD 5.06bn (up 17.4% YoY). Reserves are under increasing pressure from mounting external debt repayments, and currently are sufficient only to cover two months of imports. The country has paid around USD 5bn in FY13TD. The SBP is expected to pay-off the entire debt by FY15.

Overseas remittances during May amounted to USD 1.19bn; and were lower slightly by 1.9% MoM from USD 1.22bn in Apr. Remittances in 11MFY13 totaled USD 12.76bn, 5.7% higher than the corresponding period last year. MoF has claimed that Pakistan would receive USD 14bn in remittances during FY13 and bring some respite to the fast depleting stock of forex reserves.

Pakistan’s exports stood at USD 2.175bn in May, up 2.11% MoM from USD 2.130bn in Apr. On a YoY basis exports were higher by 0.8% YoY basis. The export target of USD 25.9bn for FY13 however remains all set to be missed, as this would require achieving nearly 65% MoM growth in the exports for the month of Jun. Cumulative exports for the 11M period totaled USD 22.322bn or 86.2% of the target. Structural issues such as power shortages as well as the slowdown in demand for Pakistani exports due to the global economic slowdown continue to be major deterrents to value added exports from the country. However with a a pro-LSM government in the form of PML (N) at the helm, as well as some recovery made by the sector during Q3, the outlook for export growth remains positive. Imports for May were recorded at USD 4.35bn, compared to USD 3.91bn in May (up 11.2% MoM) and USD 3.89bn in May 2012 (up 11.7% YoY). The trade deficit for the month widened to USD 2.17bn from USD 1.78bn in Apr, while the deficit for 11MFY13 decreased by 3.9% YoY to USD 18.69bn.

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.

Volatility struck asset markets around the globe as Fed Chairman Ben Bernanke indicated that the FOMC will consider tapering off its bond buying program if they see a sustainable outlook in the economy.

European Central Bank (ECB) cuts its policy rate to provide much needed stimulus to slow growing Eurozone members. The rate was cut to 0.5% on May 2

nd.

Japan sovereign yields rose above German Bond’s in May for the first time in 20 years after liquidity concerns struck the bond market.

India introduced inflation-linked bonds in order to counter the country’s increasing demand for Gold as a hedge against inflation. Imported gold has put pressure on India’s balance of payments.

IMF team is due in late June in Pakistan to discuss wide ranging issues with the upcoming elected government.

S&P and Moody’s rating agencies decided to maintain Pakistan’s sovereign ratings, citing increased political stability post-elections.

Engro increased urea prices by PKR 30/bag w.e.f May 24th

to account for rising inland transport cost.

Fauji Fertilizer and Fauji Bin Qasim completed its acquisition of a PKR173mn stake in Askari Bank.

Attock Petroleum and PSO combined won the bid for establishing Fuel Farm and Operation & Maintenance of Hydrant Refueling System at New International Airport Islamabad.

Memikhel-2 and Maramzai-2 wells have started production and are currently producing 2,400bpd of oil and 30-35mmcfd of gas.

PML-N emerged as the winner of the historic 2013 general elections, after securing 126 seats in the NA. The elections were historic in that they marked the first instance of a transfer of power from one democratically elected government to another. PML – N chief Nawaz Sharif assumed the office of the Prime Minister for the third time on Jun 5

th.

The PTI also made significant inroads and was successful in securing 26 seats in the NA, making it as a formidable opposition party along with the PPP, MQM and other political parties.

Election related violence claimed a number of lives across the length and breadth of the country. PTI’s leader Imran Khan received serious injuries when he fell nearly 15 ft from top of a forklift in Lahore, moments before he was to address a political rally on May 7

th.

Gunmen abducted former PM Gilani’s son, Ali Haider, from a political rally. Ali Haider was a candidate for PPP in Multan.

The PML-N government after assuming charge is reported to be working hard in order to address the PKR500bn circular debt, through the issuance of ST T-Bills within the first 60 days of it assuming the government.

Preparations on the FY14 budget started immediately on May 12th

with Finance Minister elect Ishaq Dar, vowing to present a pro-development budget by mid-June.

TTP leader Waliur Rehman, who was the deputy chief and commander of the Mehsud Area, was killed in a CIA drone strike on May 29

th.

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