Daily Research Report Karachi Stock Exchange
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Psychic
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It I it is mine pic in avatar
@Psychic it is mine pic. Any problem with that?[/QUOTE]
Remove it and use other pics like other members. Some other female members are also not using their own pics.
Every type of idiot and badmash is a member in this forum and they may tease you etc or take your pic.
Psychic
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SBD-3
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Banks are going to be the next big thing in KSE.
I hope you didn't sell them in distress.
Neutron
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I sold them last week waiting for market to go down again. I considered market correction and bearish cycle intact. Many analyst suggested to off load on strength and wait......re enter around 28000. However market moved against my expectations. Now waiting for dip.
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It's not gonna come for a while. Not until 34000 is breached.
Neutron
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Heading Towards The Deeper 78.6% Retracement At 33,684 Level
Short‐Term: Extending recovery for the third straight week, the benchmark KSE surpassed the deeper 61.8% retracement of last decent (35,055 to 28,648) at 32,608 level last week. Upside in wave B can extend further towards 33,469 — 33,684 levels where the index would complete the 78.6% retracement. Immediate supports reside around 32,927 and 32,592 levels. Increased volatility and momentum at resistance readings remain a concern for sustained upside ahead. On the downside, a relapse below 32,050 level is required to terminate the upwards move. General outlook remains restrictive. Investors are advised to avail this relief as an opportunity to reduce exposure awaiting a fall in wave C to re-enter.
13-day Leaders: PAEL, JSCL, TRG, MLCF, KTML, PUNO, ATRL, PIBTL, DAWH & EFOODS
13-day Laggards: PSEL, SHEZ, IDYM, RMPL,NATF, NESTLE, SSGC, SHFA, MUREB & FML
Short‐Term: Extending recovery for the third straight week, the benchmark KSE surpassed the deeper 61.8% retracement of last decent (35,055 to 28,648) at 32,608 level last week. Upside in wave B can extend further towards 33,469 — 33,684 levels where the index would complete the 78.6% retracement. Immediate supports reside around 32,927 and 32,592 levels. Increased volatility and momentum at resistance readings remain a concern for sustained upside ahead. On the downside, a relapse below 32,050 level is required to terminate the upwards move. General outlook remains restrictive. Investors are advised to avail this relief as an opportunity to reduce exposure awaiting a fall in wave C to re-enter.
13-day Leaders: PAEL, JSCL, TRG, MLCF, KTML, PUNO, ATRL, PIBTL, DAWH & EFOODS
13-day Laggards: PSEL, SHEZ, IDYM, RMPL,NATF, NESTLE, SSGC, SHFA, MUREB & FML
Neutron
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update
Cotton arrivals - PCGA: According to the statement issued by Pakistan Cotton Ginners' Association (PCGA), cotton arrivals have been impressive and have continued to grow on a yearly basis as they increased by 11.0%YoY in the season to ~14.86mn bales till 15th Apr'15. As expected, the Punjab region, particularly led by Bahawalpur (up 20.6%YoY) and Rahim Yar Khan (up 19.2%YoY), fueled the aforementioned growth in total arrivals. While Sanghar (up by 7.8%) pushed Sindh's arrivals up, Baluchistan also came up with decent figures. Resultantly, going forward we foresee cotton prices to remain soft as high local inventory stock coupled with low demand from China and increased production from India will keep the international prices on the lower side. .
Textile Exports - SBP: The trend of low value goods exports tapering off to erode growth exhibited by higher value goods continued, in Feb'15. Aggregate textile exports during Feb'15 contributed ~56.3% towards total Pakistani exports where they were realized at US$1.05bn against US$1.03bn, up 3%YoY. This restricted growth came on the back of low value segment exports, which went southwards by 3%YoY to US$341.8mn during the period under review vs. US$350.7mn a year earlier, primarily because of high base effect and decent cotton arrivals in major cotton exporting countries globally. In effect, limiting the improvement in the higher value added goods' exports. Increase of 5%YoY in latter's exports to US$710.5mn itself was due to access in various markets (especially European), as well as low base effect because returns from GSP+ status in Feb'14 weren't in full swing. Summary of the textile exports breakup is given in the following table:
Current Scenario: In its latest release "Cotton: World Markets and Trade", USDA continues to expect India ending up as the largest cotton producer in MY2014/15 (with ~30mn bales). With India's domestic consumption expected to settle within ~25mn bales mark, the excess production might continue to trouble the local Pakistani market, as supply of Indian cotton in Pakistan raises competition for the local players, who already are struggling with thin margins. In this regard, APTMA continues to urge the GoP to tighten up the influx of imported cotton and introduce barriers to aid the ailing sector. A 15% regulatory duty on import of subsidized cotton yarn (primarily from India) is proposed to the GoP, which could encourage the usage of local cotton (being cheaper in case of imposition). Moreover, exporters in Karachi also raised their concerns over regular load-shedding and higher electricity tariffs, which pose an additional threat to their competitiveness against fellow regional exporters.
Investment perspective: With budget announcement expected by the end of May'15, and textile sector eyeing some respite, we continue with our Underweight stance on the sector in the current scenario. NML remains our top pick, presently trading at FY15E and FY16F core P/E of 19.8x and 13.0x, respectively, offers an upside of 46% against our Dec'15 TP of PkR168.5/sh (PkR60/sh core TP). Our liking of the scrip is primarily based on company's better top-line composition (~65% from value added goods), and a well-diversified portfolio exposing it to sectors like Banking, Power and Cements.
Cotton arrivals - PCGA: According to the statement issued by Pakistan Cotton Ginners' Association (PCGA), cotton arrivals have been impressive and have continued to grow on a yearly basis as they increased by 11.0%YoY in the season to ~14.86mn bales till 15th Apr'15. As expected, the Punjab region, particularly led by Bahawalpur (up 20.6%YoY) and Rahim Yar Khan (up 19.2%YoY), fueled the aforementioned growth in total arrivals. While Sanghar (up by 7.8%) pushed Sindh's arrivals up, Baluchistan also came up with decent figures. Resultantly, going forward we foresee cotton prices to remain soft as high local inventory stock coupled with low demand from China and increased production from India will keep the international prices on the lower side. .
Textile Exports - SBP: The trend of low value goods exports tapering off to erode growth exhibited by higher value goods continued, in Feb'15. Aggregate textile exports during Feb'15 contributed ~56.3% towards total Pakistani exports where they were realized at US$1.05bn against US$1.03bn, up 3%YoY. This restricted growth came on the back of low value segment exports, which went southwards by 3%YoY to US$341.8mn during the period under review vs. US$350.7mn a year earlier, primarily because of high base effect and decent cotton arrivals in major cotton exporting countries globally. In effect, limiting the improvement in the higher value added goods' exports. Increase of 5%YoY in latter's exports to US$710.5mn itself was due to access in various markets (especially European), as well as low base effect because returns from GSP+ status in Feb'14 weren't in full swing. Summary of the textile exports breakup is given in the following table:
Current Scenario: In its latest release "Cotton: World Markets and Trade", USDA continues to expect India ending up as the largest cotton producer in MY2014/15 (with ~30mn bales). With India's domestic consumption expected to settle within ~25mn bales mark, the excess production might continue to trouble the local Pakistani market, as supply of Indian cotton in Pakistan raises competition for the local players, who already are struggling with thin margins. In this regard, APTMA continues to urge the GoP to tighten up the influx of imported cotton and introduce barriers to aid the ailing sector. A 15% regulatory duty on import of subsidized cotton yarn (primarily from India) is proposed to the GoP, which could encourage the usage of local cotton (being cheaper in case of imposition). Moreover, exporters in Karachi also raised their concerns over regular load-shedding and higher electricity tariffs, which pose an additional threat to their competitiveness against fellow regional exporters.
Investment perspective: With budget announcement expected by the end of May'15, and textile sector eyeing some respite, we continue with our Underweight stance on the sector in the current scenario. NML remains our top pick, presently trading at FY15E and FY16F core P/E of 19.8x and 13.0x, respectively, offers an upside of 46% against our Dec'15 TP of PkR168.5/sh (PkR60/sh core TP). Our liking of the scrip is primarily based on company's better top-line composition (~65% from value added goods), and a well-diversified portfolio exposing it to sectors like Banking, Power and Cements.
Neutron
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Result Previews
Banking sector results announcements will be commencing this week; first up being BAFL (Apr22) followed by ABL (Apr24) and UBL (Apr24). As a group, we expect the Big-6 Banks to post combined NPAT of PkR31.7bn in 1QCY15E, up by 27%YoY. Clear winners, in this regard, will likely be the banks with 1) a higher proportion of CASA in their deposit mix, 2) a strong non-core income stream and 3) lower credit costs. Not to forget, the hefty backlog of capital gain both on equity and bond portfolios can result in positive surprises should the banks choose to realize it. Despite a shaky start to the year on potential concerns on interest margins amid the monetary easing scenario, the banking sector has managed to recover most of its losses after successful divestment of HBL shares (+5% since divestment) . An attractive valuation set (sector CY15F P/B of 1.4x and P/E of 7.9x) as well as anticipated buoyant 1HCY15 financial performance provides impetus for banks to extend their current rally. Within the banking space, we prefer UBL (TP: PkR210/sh, upside:23%) and BAFL (TP: PkR38/sh, upside: 36%). .
1QCY15E result previews: As a group, we expect the Big-6 banks to post combined NPAT of PkR31.7bn in 1QCY15E, up by 27%YoY. We believe profit growth is likely to be a function of 1) strong 32%YoY increase in NII on the back of shift in investment mix to PIBs further supported by lagged asset-repricing versus an immediate repricing for liabilities and 2) healthy non-core income franchise. Room for positive surprises exists should the banks choose to utilize their capital gains on stock of long term papers which will have been further augmented following the 200bps cut in the DR as compared to same period last year.
CY15F outlook: Post a windfall CY14, earnings for the sector are likely to come off but should still sustain in double digits. In this regard, we expect the Big-6 banks to post 10%YoY growth in CY15F. While 1HCY15F is expected to fare better, potential regulatory tightening in 2HCY15 (e.g. introduction of a target rate to be reviewed by Sep'15) expected to shave an estimated 13% off CY15F estimates, all else the same. Mitigating factors, in this regard can be higher than anticipated loan growth or realization of capital gains on equity and bond portfolios alike.
Investment perspective: Negative developments especially on account of concerns regarding potential regulatory tightening of NIMs along with successive 150bps cut in DR have clearly taken a toll on the sector's performance (down 8% CYTD). However, we feel the negativity has largely been priced in where the AKD Banks Universe at present trades at a CY15F P/B of 1.35 vs. an average P/B of 2.5x during the 2003-07 macro bull cycle providing significant room for valuation rerating considering similar macro-economic situation at play. In the near term, we see strong incoming 1QCY15F results to catalyze bank's price performance with our inclination towards UBL - upside 23% (diversified operations a key plus) and BAFL - upside 36% (swift growth can unlock rerating potential).
Banking sector results announcements will be commencing this week; first up being BAFL (Apr22) followed by ABL (Apr24) and UBL (Apr24). As a group, we expect the Big-6 Banks to post combined NPAT of PkR31.7bn in 1QCY15E, up by 27%YoY. Clear winners, in this regard, will likely be the banks with 1) a higher proportion of CASA in their deposit mix, 2) a strong non-core income stream and 3) lower credit costs. Not to forget, the hefty backlog of capital gain both on equity and bond portfolios can result in positive surprises should the banks choose to realize it. Despite a shaky start to the year on potential concerns on interest margins amid the monetary easing scenario, the banking sector has managed to recover most of its losses after successful divestment of HBL shares (+5% since divestment) . An attractive valuation set (sector CY15F P/B of 1.4x and P/E of 7.9x) as well as anticipated buoyant 1HCY15 financial performance provides impetus for banks to extend their current rally. Within the banking space, we prefer UBL (TP: PkR210/sh, upside:23%) and BAFL (TP: PkR38/sh, upside: 36%). .
1QCY15E result previews: As a group, we expect the Big-6 banks to post combined NPAT of PkR31.7bn in 1QCY15E, up by 27%YoY. We believe profit growth is likely to be a function of 1) strong 32%YoY increase in NII on the back of shift in investment mix to PIBs further supported by lagged asset-repricing versus an immediate repricing for liabilities and 2) healthy non-core income franchise. Room for positive surprises exists should the banks choose to utilize their capital gains on stock of long term papers which will have been further augmented following the 200bps cut in the DR as compared to same period last year.
CY15F outlook: Post a windfall CY14, earnings for the sector are likely to come off but should still sustain in double digits. In this regard, we expect the Big-6 banks to post 10%YoY growth in CY15F. While 1HCY15F is expected to fare better, potential regulatory tightening in 2HCY15 (e.g. introduction of a target rate to be reviewed by Sep'15) expected to shave an estimated 13% off CY15F estimates, all else the same. Mitigating factors, in this regard can be higher than anticipated loan growth or realization of capital gains on equity and bond portfolios alike.
Investment perspective: Negative developments especially on account of concerns regarding potential regulatory tightening of NIMs along with successive 150bps cut in DR have clearly taken a toll on the sector's performance (down 8% CYTD). However, we feel the negativity has largely been priced in where the AKD Banks Universe at present trades at a CY15F P/B of 1.35 vs. an average P/B of 2.5x during the 2003-07 macro bull cycle providing significant room for valuation rerating considering similar macro-economic situation at play. In the near term, we see strong incoming 1QCY15F results to catalyze bank's price performance with our inclination towards UBL - upside 23% (diversified operations a key plus) and BAFL - upside 36% (swift growth can unlock rerating potential).
Neutron
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Signs Of Exhaustion
Short‐Term: Some signs of exhaustion have started to surface near the 78.6% retracement of last decent (35,055 to 28,648) at 33,684 level. A relapse below yesterday’s low (32,826) is required to perpetuate selling towards 32,382 level where such weakness would confirm an immediate top. Any recovery attempt is likely to counter resistance around 33,335 — 33,365 levels. So far, we continue to prefer the corrective Elliot wave count viewing recent recovery as wave B. Increased volatility and momentum at resistance readings remain a concern for sustained upside ahead. Investors are advised to avail this relief as an opportunity to reduce
Short‐Term: Some signs of exhaustion have started to surface near the 78.6% retracement of last decent (35,055 to 28,648) at 33,684 level. A relapse below yesterday’s low (32,826) is required to perpetuate selling towards 32,382 level where such weakness would confirm an immediate top. Any recovery attempt is likely to counter resistance around 33,335 — 33,365 levels. So far, we continue to prefer the corrective Elliot wave count viewing recent recovery as wave B. Increased volatility and momentum at resistance readings remain a concern for sustained upside ahead. Investors are advised to avail this relief as an opportunity to reduce
Neutron
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Pakistan Economy: Low CPI levels suggest room available for rate cut!
In keeping up with the low CPI trend, headline inflation clocked in at 2.11%YoY for Apr'15 vs. 9.18%YoY in Apr'14. That said, on monthly basis CPI depicted an increase of 1.32%YoY mainly on the back of: 1) increase in heavyweight food basket, 2) higher education costs and 3) rental inflation. While inflationary pressures may start to mount next month onwards, we reiterate our FY15 avg. forecast of 4.6%YoY owing to high base effect. As yields on govt. securities continue to taper off remaining indicative of further monetary easing, we see a 50bps cut in the upcoming May'15 MPS on the back of 1) soft inflation levels, 2) fx reserve accretion with HBL's privatization bringing in greater than expected foreign flows, and 3) need for private sector credit off-take. With our expectation of a 50bps rate cut already factored in by the market we expect budget concerns and political noise related to decision on re-election to create a drag on the market. That said, we continue to prefer leverage plays in cement and textile sector.
April'15 CPI Review: Headline inflation for Apr'15 came in at 2.11%YoY compared to 9.17%YoY in Apr'14, in-line with our expectations (higher than market consensus of 1.7%YoY). However, CPI on MoM basis saw an increase of 1.32%, considerably up from +0.23%MoM recorded last month on the back of: 1) 1.5%MoM jump in the food basket (0.57% share in MoM delta), 2) seasonal impact on education costs (0.34% participation in MoM change), and 3) quarterly rental inflation (representing 0.18% of 1.32%MoM). Going forward, inflationary pressures may start to mount due to: 1) the Ramadan effect and 2) higher fuel prices as oil prices start to rebound. However, as the high base effect will linger till Oct'15, we reiterate our forecast for FY15 CPI average at 4.6%YoY and expect inflation levels to remain limited to 5%YoY there onwards.
MPS Outlook: Inflation levels at their lowest levels since re-basing further cements anticipation for another 50bps rate cut in the upcoming May'15 MPS as part of the ongoing monetary easing cycle. In addition to soft price levels, a policy rate reduction is supported by: 1) positive surprise on the fx reserve front with HBL's privatization bringing in greater than expected foreign flows of US$764mn (total import cover at 5m) and 2) need for private sector credit revival which has failed to pick up despite 200bps cuts since Nov'14 with credit growth at 7.94%YoY in Mar'15 vs. 11%YoY in June'14. Moreover, a steep decline witnessed in MTB and PIB yields is also indicative of rate cut expectations. In this regard, cut-off yields for PIBs have come off by 46-74bps in past two auctions while those of MTBs have also declined by 16-69bps during the same period. Secondary yields have followed a similar trend with 3yr, 5y and 10yr tenor bonds losing around 65bps, 47bps and 16bps respectively since the last MPS in Mar'15.
Investment Perspective: The market can benefit from low inflation levels along with a possible DR cut during the month adding to the theme of macro improvement. Having gained 5%CYTD, the KSE-100 index currently trades at a P/E of 9.09x. However, the market can possibly remain subdued on budget-related concerns over the short term. Potential negative impact may also come from political noise emanating from the decision on re-election in Lahore. That said, we continue to remain favorable on leveraged plays in cement (DGKC, upside 12.4%) and textile (NML, upside 49.1%) sectors.
In keeping up with the low CPI trend, headline inflation clocked in at 2.11%YoY for Apr'15 vs. 9.18%YoY in Apr'14. That said, on monthly basis CPI depicted an increase of 1.32%YoY mainly on the back of: 1) increase in heavyweight food basket, 2) higher education costs and 3) rental inflation. While inflationary pressures may start to mount next month onwards, we reiterate our FY15 avg. forecast of 4.6%YoY owing to high base effect. As yields on govt. securities continue to taper off remaining indicative of further monetary easing, we see a 50bps cut in the upcoming May'15 MPS on the back of 1) soft inflation levels, 2) fx reserve accretion with HBL's privatization bringing in greater than expected foreign flows, and 3) need for private sector credit off-take. With our expectation of a 50bps rate cut already factored in by the market we expect budget concerns and political noise related to decision on re-election to create a drag on the market. That said, we continue to prefer leverage plays in cement and textile sector.
April'15 CPI Review: Headline inflation for Apr'15 came in at 2.11%YoY compared to 9.17%YoY in Apr'14, in-line with our expectations (higher than market consensus of 1.7%YoY). However, CPI on MoM basis saw an increase of 1.32%, considerably up from +0.23%MoM recorded last month on the back of: 1) 1.5%MoM jump in the food basket (0.57% share in MoM delta), 2) seasonal impact on education costs (0.34% participation in MoM change), and 3) quarterly rental inflation (representing 0.18% of 1.32%MoM). Going forward, inflationary pressures may start to mount due to: 1) the Ramadan effect and 2) higher fuel prices as oil prices start to rebound. However, as the high base effect will linger till Oct'15, we reiterate our forecast for FY15 CPI average at 4.6%YoY and expect inflation levels to remain limited to 5%YoY there onwards.
MPS Outlook: Inflation levels at their lowest levels since re-basing further cements anticipation for another 50bps rate cut in the upcoming May'15 MPS as part of the ongoing monetary easing cycle. In addition to soft price levels, a policy rate reduction is supported by: 1) positive surprise on the fx reserve front with HBL's privatization bringing in greater than expected foreign flows of US$764mn (total import cover at 5m) and 2) need for private sector credit revival which has failed to pick up despite 200bps cuts since Nov'14 with credit growth at 7.94%YoY in Mar'15 vs. 11%YoY in June'14. Moreover, a steep decline witnessed in MTB and PIB yields is also indicative of rate cut expectations. In this regard, cut-off yields for PIBs have come off by 46-74bps in past two auctions while those of MTBs have also declined by 16-69bps during the same period. Secondary yields have followed a similar trend with 3yr, 5y and 10yr tenor bonds losing around 65bps, 47bps and 16bps respectively since the last MPS in Mar'15.
Investment Perspective: The market can benefit from low inflation levels along with a possible DR cut during the month adding to the theme of macro improvement. Having gained 5%CYTD, the KSE-100 index currently trades at a P/E of 9.09x. However, the market can possibly remain subdued on budget-related concerns over the short term. Potential negative impact may also come from political noise emanating from the decision on re-election in Lahore. That said, we continue to remain favorable on leveraged plays in cement (DGKC, upside 12.4%) and textile (NML, upside 49.1%) sectors.
Neutron
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Recovery Attempt To Counter Resistance Around 33,804 — 33,909 Levels
Short‐Term: In a follow-through of Monday’s reaction, yesterday’s weakness has confirmed a short-term resistance at 34,000 psychological level. Any immediate recovery attempt led by oil sector on strengthening international oil prices is likely to face resistance clustered within 33,804 — 33,909 levels. A relapse below 33,390 level would instill weakness towards 33,000 level. A closing break above the 34,000 level is needed to refresh the bullish momentum. Despite a deep and steep recovery beyond the 80% retracement of Feb’15 to March’15 fall (35,055 to 28,648) over the last five weeks, we continue to prefer a corrective Elliot wave count (Zig Zag) viewing ensuing recovery as wave B. A relapse below 32,826 level would confirm that upwards move is done and market has entered the wave C fall.
13-day Leaders: EFUL, INDU, HCAR, AHCL, IBFL, GHGL, FABL, BAFL, ABOT & ENGRO
13-day Laggards: TRG, BNWM, JSCL, ATLH, NATF, PIBTL, PAKT, HUMNL, GATM & ARPL
Short‐Term: In a follow-through of Monday’s reaction, yesterday’s weakness has confirmed a short-term resistance at 34,000 psychological level. Any immediate recovery attempt led by oil sector on strengthening international oil prices is likely to face resistance clustered within 33,804 — 33,909 levels. A relapse below 33,390 level would instill weakness towards 33,000 level. A closing break above the 34,000 level is needed to refresh the bullish momentum. Despite a deep and steep recovery beyond the 80% retracement of Feb’15 to March’15 fall (35,055 to 28,648) over the last five weeks, we continue to prefer a corrective Elliot wave count (Zig Zag) viewing ensuing recovery as wave B. A relapse below 32,826 level would confirm that upwards move is done and market has entered the wave C fall.
13-day Leaders: EFUL, INDU, HCAR, AHCL, IBFL, GHGL, FABL, BAFL, ABOT & ENGRO
13-day Laggards: TRG, BNWM, JSCL, ATLH, NATF, PIBTL, PAKT, HUMNL, GATM & ARPL
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And the LDI story is not over yet!
Failing to impress the market on account of slower than expected recovery in revenue and earnings in 1QCY15, PTC has lost a good 8.7% since its result announcement. While revenue shrinkage has been a persistent problem on both dwindling cellular (mainly voice services) and LDI revenues (lower int'l incoming traffic amid ICH deregulation), GMs have also tread lower (down 110bpsYoY to 28%) as competition toughened up further. That said, contrary to general opinion, we eye termination of ICH along with a crackdown on illegal SIMs (via bio-metric verification) as positive developments considering the dismal state of int'l incoming traffic (dropped to as low as 220mn mins/month) in the post-ICH phase. In this regard, our channel checks suggest a healthy 3x-4x increase in int'l incoming traffic following ICH dissolution as call rates adjust downward between USc2.5-3/min from USc8.8/min earlier and illegal SIMs are being done away with. Though awaiting further clarification on abovementioned, we believe any jump in int'l traffic will bode well for PTC's LDI revenues that contribute ~8% in standalone revenues. That said, with increasing usage of smartphones (~28mn users) on the back of improving 3G penetration, we believe that growth in incoming minutes is unlikely to reach pre-ICH levels of 1.3-1.4bn mins/month (base case assumes 800mn mins/month). Our TP of PkR25.1/sh PTC offers a 1yr total return of 23%, implying a Buy stance. Furthermore, we eye any positive development on LDI front as the key factor in determining the future outlook.
1QCY15 Review: PTC posted consolidated NPAT of PkR0.72bn (EPS: PkR0.14) in 1QCY15 as compared to NPAT of PkR4.4bn (EPS: PkR0.85) in 1QCY14; lower by a hefty 84%YoY. On a sequential basis, the company showed some signs of recovery, as it managed to post aforementioned profit against NLAT of PkR3.8bn (LPS: PkR0.76) in the previous quarter on account of: 1) 500bps jump in GMs and 2) absence of one-off costs (VSS and fire losses). Key highlights of the result included: 1) 10%YoY decline in revenues to PkR30.1bn, 2) decline in GMs by 110bps to 28% as competition stiffens in the 3G space and 3) increase in finance cost by a massive 251%YoY on loans taken for li.cense acquisition. .
ICH dissolution + Re-verification drive can push int'l minutes higher: The coincidence of the dissolution of ICH and the bio-metric verification drive across the country could not have been more opportune for the LDI industry. While largely being viewed as negative developments, we believe these can turn out to be revenue accretive measures for the operators where cheaper call rates along with a crackdown on grey traffickers can potentially increase incoming minutes that had come down significantly during the ICH period. That said, we do not see incoming traffic going up to pre-ICH levels of 1.3-1.4bnmins/month on the back of swifter transition to VoIPs (Skype, WhatsApp etc) as viable modes for making international calls. Although clarity is yet to emerge, we present a sensitivity analysis of int'l incoming traffic and rates to our EPS and TP where our base case TP of PkR25.1/sh has room for further appreciation depending upon the uptick in incoming int'l traffic (bull case EPS: PkR2.98, TP: PkR27.1/sh).
Investment Perspective: Although weak fundamentals, concerns on sustainability of ICH, one-off cost pressures and 3G's inability to make a mark as yet have taken a toll on PTC's price performance; we feel all is not lost yet. LDI business segment, contributing ~8% to the standalone topline, can potentially provide respite to revenues as int'l incoming traffic starts to increase following ICH dissolution and biometric re-verification drive. PTC currently trades at a CY15E P/E of 10.9x where our TP of PkR25.1/ sh offers total 1-yr return of 23%.
Failing to impress the market on account of slower than expected recovery in revenue and earnings in 1QCY15, PTC has lost a good 8.7% since its result announcement. While revenue shrinkage has been a persistent problem on both dwindling cellular (mainly voice services) and LDI revenues (lower int'l incoming traffic amid ICH deregulation), GMs have also tread lower (down 110bpsYoY to 28%) as competition toughened up further. That said, contrary to general opinion, we eye termination of ICH along with a crackdown on illegal SIMs (via bio-metric verification) as positive developments considering the dismal state of int'l incoming traffic (dropped to as low as 220mn mins/month) in the post-ICH phase. In this regard, our channel checks suggest a healthy 3x-4x increase in int'l incoming traffic following ICH dissolution as call rates adjust downward between USc2.5-3/min from USc8.8/min earlier and illegal SIMs are being done away with. Though awaiting further clarification on abovementioned, we believe any jump in int'l traffic will bode well for PTC's LDI revenues that contribute ~8% in standalone revenues. That said, with increasing usage of smartphones (~28mn users) on the back of improving 3G penetration, we believe that growth in incoming minutes is unlikely to reach pre-ICH levels of 1.3-1.4bn mins/month (base case assumes 800mn mins/month). Our TP of PkR25.1/sh PTC offers a 1yr total return of 23%, implying a Buy stance. Furthermore, we eye any positive development on LDI front as the key factor in determining the future outlook.
1QCY15 Review: PTC posted consolidated NPAT of PkR0.72bn (EPS: PkR0.14) in 1QCY15 as compared to NPAT of PkR4.4bn (EPS: PkR0.85) in 1QCY14; lower by a hefty 84%YoY. On a sequential basis, the company showed some signs of recovery, as it managed to post aforementioned profit against NLAT of PkR3.8bn (LPS: PkR0.76) in the previous quarter on account of: 1) 500bps jump in GMs and 2) absence of one-off costs (VSS and fire losses). Key highlights of the result included: 1) 10%YoY decline in revenues to PkR30.1bn, 2) decline in GMs by 110bps to 28% as competition stiffens in the 3G space and 3) increase in finance cost by a massive 251%YoY on loans taken for li.cense acquisition. .
ICH dissolution + Re-verification drive can push int'l minutes higher: The coincidence of the dissolution of ICH and the bio-metric verification drive across the country could not have been more opportune for the LDI industry. While largely being viewed as negative developments, we believe these can turn out to be revenue accretive measures for the operators where cheaper call rates along with a crackdown on grey traffickers can potentially increase incoming minutes that had come down significantly during the ICH period. That said, we do not see incoming traffic going up to pre-ICH levels of 1.3-1.4bnmins/month on the back of swifter transition to VoIPs (Skype, WhatsApp etc) as viable modes for making international calls. Although clarity is yet to emerge, we present a sensitivity analysis of int'l incoming traffic and rates to our EPS and TP where our base case TP of PkR25.1/sh has room for further appreciation depending upon the uptick in incoming int'l traffic (bull case EPS: PkR2.98, TP: PkR27.1/sh).
Investment Perspective: Although weak fundamentals, concerns on sustainability of ICH, one-off cost pressures and 3G's inability to make a mark as yet have taken a toll on PTC's price performance; we feel all is not lost yet. LDI business segment, contributing ~8% to the standalone topline, can potentially provide respite to revenues as int'l incoming traffic starts to increase following ICH dissolution and biometric re-verification drive. PTC currently trades at a CY15E P/E of 10.9x where our TP of PkR25.1/ sh offers total 1-yr return of 23%.
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Psychological Restriction Still In Place
Short‐Term: Restriction continues around the 34,000 psychological level. Immediate weakness below 33,688 level can expose pressure towards 33,390 and 33,000 levels. On the upside, strength above 34,020 is required to allow minute continuation towards 34,143 level. Despite a deep and steep recovery beyond the 80% retracement of Feb’15 to March’15 fall (35,055 to 28,648) over the last five weeks, we continue to prefer a corrective Elliot wave count (Zig Zag) viewing ensuing recovery as wave B. A relapse below 32,826 level would confirm that upwards move is done and market has entered the wave C fall.
13-day Leaders: EFUL, INDU, ABOT, HCAR, SHFA, AHCL, GHGL, HBL, IGIIL & JGICL
13-day Laggards: GATM, ATLH, BNWM, NATF, MUREB, IBFL, JSCL, SNBL, OLPL & PAKT
Short‐Term: Restriction continues around the 34,000 psychological level. Immediate weakness below 33,688 level can expose pressure towards 33,390 and 33,000 levels. On the upside, strength above 34,020 is required to allow minute continuation towards 34,143 level. Despite a deep and steep recovery beyond the 80% retracement of Feb’15 to March’15 fall (35,055 to 28,648) over the last five weeks, we continue to prefer a corrective Elliot wave count (Zig Zag) viewing ensuing recovery as wave B. A relapse below 32,826 level would confirm that upwards move is done and market has entered the wave C fall.
13-day Leaders: EFUL, INDU, ABOT, HCAR, SHFA, AHCL, GHGL, HBL, IGIIL & JGICL
13-day Laggards: GATM, ATLH, BNWM, NATF, MUREB, IBFL, JSCL, SNBL, OLPL & PAKT
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