The equity markets cheered State Bank of Pakistan’s (SBP) cut of 100bps in discount rate, as the benchmark KSE-100 closed the week up 1.2 per cent WoW at 34,444.

However, average trading volumes declined by 1.3pc WoW to 298m shares/day due to deteriorating law and order in the city, while net foreign buying clocked in at $3.3m agains last week’s net buying of $1.7m. The highly leveraged cements (+4.5pc WoW) and EFERT (+7.2pc WoW) remained in the limelight given the cut in the discount rate. Heavy-weight oil and gas sector (-2.8pc WoW) was a key laggard during the outgoing week due to below-than-expected earnings announcements. Other key highlights of the week were: government approving upfront tariff for Thar coal-fired projects, minister confirming first shipment of LNG to arrive on March 31st, KSE mulling easing cap on shares trade and K-Electric (KEL) signing accord with China’s CMEC to setup 700MW coal-fired power project.

According to experts, yields on fixed income govt papers have come off considerably on the back of interest rate expectations and liquidity. In the first PIB (Pakistan Investment Bond) auction of CY15, held on January 28’ 2015, SBP has received welcoming response by local investors with the participation of ~PKR292b by investors while cut-off yields have declined by average 1.1-1.7pps to 8.89pc for 3-years, 9.7pc for 5-years and 10.0pc for 10-years papers. This is the first time since CY07, money market yields have also come down by 72-75bps during Jan’15 on benign inflation outlook and falling DR.

They said that banks have made record investment of PKR2.6tn in PIBs during CY14 against annual average of PKR129b since CY01. Considering the fact that bonds yields are inversely related to their market prices, the sharp decline in the PIB yields is going to beef up banks’ revaluation surplus on fixed income instruments, hence higher book value. It would also encourage bankers to shift to private sector lending for higher returns and investors to turn to stock market.

With yields coming down, valuations of listed companies will theoretically be revised upwards by 5-10pc. We expect more cash flows from institutions and high net worth individuals to come to equities if yields on PIBs remain low. Global commodity slump would provide the necessary cushion to economic managers to bring back growth in the country and invest in infrastructure projects. Experts at Taurus Securities Limited remain affirm on KSE-100 index target of crossing 37k by Dec 2015. Pakistan stock market is trading at CY015F PE of 9.2x. Banks and cements remain our top sectors that can outperform the market, they added.

During the week, Fauji Fertilizer Company (FFC) announced 2014 earnings of Rs18.2b (EPS Rs14.3), down 10pc, compared to Rs20.1b (EPS Rs15.8) last year. The company posted profits of Rs5.3b (EPS Rs4.1) in 4Q2014, down 1pc, compared to Rs5.2b (EPS Rs4.1) in the same quarter last year. The result is accompanied with a final cash dividend of Rs3.5/share, taking total payout to Rs13.7/share in 2014 as compared to Rs15.4/share in 2013.

Fauji Fertilizer Bin Qasim (FFBL) announced full year 2014 results, where the company posted earnings of Rs4.02b (EPS RS4.30) down 31pc YoY. Earnings announcement was slightly above our estimates on the back of better than expected other income at Rs1.06b, which was up 56pc YoY. The company also announced a final cash dividend of Rs2.25/share beating our expectations of Rs2.0/share.

Pakistan Petroleum Limited (PPL) also in its 2QFY15 results reported unconsolidated PAT of Rs8.4b (down by 40pc YoY), translating into an EPS of Rs4.29. Cumulatively, earnings during 1HFY15 settled at Rs22.1b, exhibiting a decline of 16pc YoY. Alongside the result, the company also announced an interim cash dividend of PKR4.5/share for ordinary shareholders. Revenues of PPL dropped by 13pc during 2Q, resulting into 1HFY15 top line of PKR57.8b (down by 1pc YoY). Though oil production was up (which averaged at 14.6kbopd) during 2Q, material decline in oil prices and slight dip in gas production (down 4pc) led to compression in the revenues.

Field expenditures shot up in 2Q, soaring by 28pc YoY, taking 1HFY15 total costs to PKR17.4b (up by 29pc YoY). Significant expansion in its exploratory activities coupled with aggressive drilling in various blocks kept drilling and seismic expenses inflated during the period, as a result, operating profit of the company dropped by 25pc YoY during 2Q.


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