AKD Quotidian about — Pakistan Market: CY12 Review and Outlook

Karachi, January 01, 2013 (PPI-OT): In continuation to what was an excellent year, the KSE-100 gained 2% in Dec’12, bringing CY12 gains to 49%.

According to AKD Securities, while this makes Pakistan one of the best performing markets in the world, valuations are by no means stretched (forward P/E: 7.2; D/Y: 7.6%). The latest extension in the Bull Run emanated from fresh monetary easing (DR cut by 50bps to 9.5%) and continued improvement in US-Pakistan relations culminating in the recent release of US$688 million in CSF flows. This is fitting, considering that a dovish monetary policy and uptick in US-Pakistan relations, in addition to strong corporate results and capital gains tax reforms, were instrumental in driving market performance across 2012. Going forward, although political noise and a potential return to IMF could temporarily stall the market’s rally, AKD Securities flags this as an opportunity to build fresh positions where corporate earnings growth/payouts should remain strong. AKD Securities eyes an Index target of 18,500 points by Jun’13 with top picks including FATIMA, POL, KAPCO, ENGRO, UBL and PSMC.

2012 Review: Propelled by the latest 50bps cut in the DR to 9.5% and release of US$688 million in CSF flows, the KSE-100 gained 2% in Dec’12 to bring 2012 gains to 49%. While the year started off with relations with the US at a trough (closure of NATO supply routes), gradual improvement saw eventual release of pending Coalition Support Funds. On the domestic front, robust share price performance arose on a confluence of positive factors including strong corporate result, monetary easing (DR cut by a cumulative 450bps since Jul’’11) and capital gains tax reforms, the latter resulting in the highest average daily volumes (135.6 million shares) and value (US$49.78 million) in 3yrs. Despite the PKR depreciating by 8.42% vs. the US$, foreign investors remained key players – net FIPI in CY12 came in at US$130 million.

Gains all Around! This was undoubtedly the year of Textiles (+101% on lower interest rates/EU’s ATP Scheme/strong yarn exports) and Cements (+153% on higher domestic demand and margin expansion on higher cement price/lower coal prices). Other prominent gainers included Food Producers (+70% on strong topline), Fixed Line Telecom (+70% on ICH implementation), Non Life Insurance (+58%; in lockstep with the market) and Banks (+49% on lower provisions). At the same time, underperforming sectors included Oil and Gas (+27% on circular debt) and Chemicals (+14% on gas supply concerns and urea imports). Within the AKD Universe, top performing stocks were EFOODS (+334%), DGKC (+187%) and NCL (+116%) while main underperformers included FFBL, and LOTPTA.

Outlook – Volatility ía an Opportunity! Going forward, although political noise end a potential return to IMP could temporarily stall the market’s rally, AKD Securities flags this as an opportunity to build fresh positions where corporate earnings growth/payouts should remain strong. In this regard, the KSE-100 offers high timing returns – over the last t0 years, investing at each year’s low would have generated an average annual return at 70%! AKD Securities eye a lobes target of 18,500 points by Jun’13 with top picks including FATIMA, POL, KAPCO, ENGRO, UBL and PSMC.

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