The Abacus Prompt™

The Abacus Prompt™ Monthly Business Review – Pakistan

July 2012

July 2012

Issue 19, Vol. 2

Page 1

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KSE-100 Index Performance

Jul 2 13,801 5.6%

Jul 31 14,577

KSE Market Cap - (PKR Billion)

Jul 2 3,518 5.9%

Jul 31 3,724

KSE 100 Best Performing Stocks

Company Opening Price Closing Price Change

ABOT 119.05 165.95 39.4% ICI 131.07 174.36 33.0%

THALL 93.00 122.38 31.6%

MREB 100.16 126.24 26.0%

JSCL 12.41 15.34 23.6%

KSE 100 Worst Performing Stocks

Company Opening Price Closing Price Change

PMPK 169.45 143.05 -15.6% DAWH 33.01 28.85 -12.6%

GHGL 57.16 51.10 -10.6%

ENGRO (SPOT) 101.84 93.81 -7.9%

PACE 2.04 1.90 -6.9%

Top Picks (Stocks Offering Maximum Upside Potential)

Company Closing Price Target Price Potential

TSL

PSO 246.79 402.50 63.1%

EPCL 9.31 14.60 56.8%

FFBL 38.08 54.20 42.3%

AH

L PSO 246.79 437.00 77.1%

ENGRO 93.81 158.20 68.6%

PTC 14.00 21.50 53.6%

IG

I

FFBL 38.08 63.00 65.4%

PSO 246.79 365.00 47.9%

LOTPTA 7.40 10.50 41.9%

AK

D SSGC 20.30 38.60 90.1%

FFBL 38.08 67.80 78.0%

ENGRO 93.81 147.20 56.9%

AFS

FFC 118.10 225.69 91.1%

ATRL 124.95 192.95 54.4%

SSGC 20.30 28.45 40.1%

Source: Abacus Research, KSE

Stock Market

The beginning of the new fiscal year spelt a reversal of fortune for KSE with the Index increasing by 776 points MoM or a healthy 5.6%. Average daily volumes also grew by 17% over Jun, to about 90mn shares. Positive FPI flows were seen throughout most trading days of the month, netting at an inflow of USD 28.8mn posting a surge of 198% YoY, from outflows of USD 29.4mn in Jul 2011.

Improving Pak-US relations remained the main driving force for the bourse in view of the implications for improvement in foreign inflows. News on positive corporate earnings also drove the Index high. Domestic economic and political problems, and even the country’s credit rating downgrade by Moody’s, was overshadowed by the general positive thrust. Even when the volumes were seen to decline sharply in the latter part of Jul due to the shorter workdays in Ramadhan, the Index maintained a generally consistent upward trend. Other positive news for traders included the firming of CGT rules, SECP accepting the demutualization documents submitted by the stock exchanges and the KESC/SECP decision to allow intraday short-selling.

Pakistan outshined the competing regional stock markets for the month closely followed by Singapore, while China remained a distant laggard.

Source: Bloomberg

‘Construction and Materials (Cement)’ was the highest traded sector for Jul, accounting for nearly quarter of the total turnover.

The highest traded individual stock was DGKC with a total of 220 million shares traded during the month of Jul.

Source: KSE

-5.5%

-1.1%

1.8% 2.0% 2.3%

5.5% 5.6%

-10.0%

-5.0%

0.0%

5.0%

10.0%Regional Comparison

China India HongKong Malaysia Thailand Singapore Pakistan

6.7%

12.6% 14.6% 15.7%

24.4%

Highest Traded Sector (% of Total Turnover)

Personal Goods Financial Services Chemicals Commercial Banks Construction & Materials

68 7098

188220

Highest Traded Stocks on KSE (Million Shares)

ANL BAFL EFOODS JSCL DGKC

Jun 2012

Issue 19, Vol. 2

Page 2

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

94.48 94.69 -0.2%

148.40 148.54 -0.1%

119.64 116.62 2.5%

25.20 25.25 -0.2%

25.72 25.78 -0.2%

1.6985 1.7021 -0.2%

1.18 1.21 -2.5%

KIBOR Monthly Movement

Tenor Open Rate Close Rate Change

1-Month 12.14 12.10 -0.3% 3-Month 11.99 11.95 -0.3% 6-Month 12.06 12.00 -0.5%

Key Commodities Monthly Price Movement

Commodity Description Opening Price

Closing Price

Change

Precious Metals

Gold

24Karat (PKR/Tola)

56,545 57,166 1.1%

Gold Spot (USD/oz) NY-Close 1,599 1,614 0.9%

Silver (PKR/Tola) 972 991 2.0%

Silver Spot (USD/oz)

NY-Close 27.49 27.95 1.7%

Gold- Silver Ratio

GSR 58.2 57.7

Oil

Crude Oil (US)

(USD/bbl). NYMEX 85.04 88.10 3.6%

Furnace Oil

(PKR/Ton ) 73,062 71,913 -1.6%

High Speed Diesel

(PKR/Ltr) 99.69 97.21 -2.5%

Motor Spirit

(PKR/Ltr) 89.51 85.90 -4.0%

Agriculture & Cement

Rice IRRI 6 (PKR/100 kg) 3,547 3,463 -2.4%

KCA- Cotton

(PKR/ maund) 6,100 6,100 0.0%

Urea (PKR/Bag) 1,720 1,652 -3.9%

Cement (Avg.)

(PKR/50kg) 441.25 445.50 1.0%

Currency Market

United States Dollar

PKR’s decline against foreign currencies slowed down during Jul due to improved foreign inflow expectations from release of the pending CSF refunds, FPI and overseas remittances. USD slipped lower against JPY during the month as China’s economic data did not indicate much improvement prompting a shift in buying from USD and EUR to JPY. USD gained against the EUR and remained flat against GBP.

Euro, Great British Pound and Japanese Yen

Euro spiraled down during Jul as expectations from bailouts waned and the market grew doubtful if ECB could do enough to spur growth and save the Euro. Moody’s lowered the Aaa credit rating and outlook of Germany, Netherlands and Luxembourg to negative, citing rising uncertainty in the Eurozone as the main reason. Euro scraped its lowest value in two years against most currencies including PKR. Yen resumed its rise in Jul as its demand grew as a safe haven against more risk sensitive currencies.

KIBOR

A marginal decline in various KIBOR tenures was witnessed despite tight liquidity conditions indicating expectations of easing discount rate in SBP’s next monetary policy of Aug.

Commodities Market

USD

JPY

EUR

SAR

AED

INR

GBP

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

Precious Metals

Gold and silver prices rose during Jul as USD faltered against most major currencies. News on Russian central bank’s procurement of 6.2MT of gold to increase its holdings, China’s preparations to introduce its first interbank gold trading system and US QE3 expectations have led to the hype for gold, which may see a rally in Aug. Silver followed suit and gained twice as much as gold during Jul making up for the losses in Jun, and pushing down the GSR.

Oil

Crude oil prices broke Jun’s downward trend, with a 3.6% MoM increase in WTI prices. Renewed Iran-Israel tensions, speculation on expectation of monetary easing in the US and EU as well as strong demand despite slowing economic growth in China, may be attributable to the rise. Locally, POL prices were revised downwards twice during Jul with closing figures indicating significant cuts across the board.

Agriculture

Cotton prices remained unchanged on MoM basis, with steady demand by spinners as well as adequate rains in the cotton growing regions of Punjab. Rice prices fell during Jul contributing to the fall in the food component of CPI. Urea sales witnessed a 60% MoM decline, owing to stocking by buyers in Jun. Hence decrease in Urea demand and increase in supply due to continued imports pushed Urea prices down.

Cement

Cement prices varied between territories, though an overall increase was

observed MoM. Cement manufacturers reduced export price for India by

13% to be able to compete in a huge but difficult market.

Jun 2012

Issue 19, Vol. 2

Page 3




Economy of Pakistan

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

Monetary Policy

The policy rate in Jul remained at 12% for the 10th

consecutive month. Jul was marked by the usual economic woes of a severe liquidity crunch, low private investment and declining growth; however inflationary pressures softened during the month according to PBS. Improving inflation and decline in KIBOR rates point at expectations of a discount rate cut.

Government borrowing from SBP showed a decrease of PKR 198bn, as the govt. took a positive step towards retiring SBP’s debt and improving the central bank’s leverage position. Improving US-Pak relations and the imminent release of USD 1.118bn in CSF payments as a result have eased immediate pressure on government borrowings from the domestic banking sector. The SBP expects to inject over PKR 400bn into the economy in the early part of Aug as a result.

As per provisional figures, FBR managed to collect revenues of about PKR 111bn during Jul – a substantial albeit predictable drop from around PKR 283bn in Jun. However, a marginal decline was also seen YoY from PKR 112bn in Jul 2011. Revised provisional tax collection figures for FY12 have been reported by MoF as PKR 1.88tn (up 21% YoY) as compared to the earlier reported PKR 1.9bn. FBR Chairman Rizvi took an early retirement ostensibly due to the cellular companies’ tax evasion scam and the Board’s failure to meet the ambitious annual revenue collection target.

Power Sector

Mass power shutdowns and inefficiencies continued to be headline news of the power sector during Jul, with blackouts lasting between 8-12 hours (urban) and 14-18 hours (rural areas) in the holy month of Ramadan despite tall claims to the contrary by officials. Production inefficiencies, mismanagement, liquidity crisis and dodgy RFO supplies continued to feed the burgeoning supply-demand gap - which breached 6000MW during Jul (or one-third of national power demand).

A positive development in the ongoing IPP-GOP legal dispute was the GOP’s willingness to pay PKR 24bn in three equal monthly installments starting in Aug. Earlier the amount of PKR 45bn was verified as the undisputed overdue amount to these IPPs in a SC hearing (as opposed to PKR 61bn cited earlier). The SC has also directed the govt. not to deduct capacity payments arising due to govt’s non-payment of overdue amounts to these IPPs.

Inflation

According to PBS, CPI in Jul was recorded to be lower by 0.2% over Jun and a surprising single digit 9.6% over Jul 2011 on YoY basis. The decline in CPI during Jul came on the back of a substantial decrease in the sub-indices of both food and non-food components. Food and Core Inflation both recorded YoY increases at 9.1% and 11.3%, respectively.

Other Key Indicators

Forex reserves fell to USD 14.57bn at the end of Jul as compared to USD 18.3bn previous Jul, indicating a decline of 20.4% YoY and 4.6% MoM. Reserves held with SBP were recorded at USD 10.1bn (down 31.4% YoY) while those with commercial banks stood at USD 4.44bn (up 26.03% YoY). Reserves remained under pressure due to scheduled foreign debt repayments, and sharp decline in foreign inflows.

5.0%

10.0%

15.0%

20.0%

25.0%

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

Inflation*

Food Inflation Core Inflation CPI (FY08)

2.0 1.8 1.9 1.61.9 2.0 2.0 2.0

2.2 2.22.1 2.1

3.8 3.6 3.6 3.74.3

3.6 3.5 3.5 3.8 3.9 4.03.7

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

Imports and Exports (USD Billion)

Exports Imports Trade Deficit

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

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

Foreign Exchange Reserves (USD Billion)

FY2012 FY2013

112 121 148

128 131

200

132 130 132 158

182

283

111


Federal Tax Collection (P) (PKR Billion)

FY2012 FY2013

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


Foreign Remittances (USD Billion)

FY2012 FY2013

Jun 2012

Issue 19, Vol. 2

Page 4




FY12 Target FY12

(P) FY13 (B)

Real GDP Growth 4.2% 3.7% 4.2%

GDP (mp) (PKR bn) 21,041 22,000 (e) 23,500 (e)

Average CPI 12.0% 11% 11-12%

Remittances (USD bn) 12.0 13.2 14.1

Total Debt (PKR bn) N.A NA NA

Total Debt (% of GDP) N.A NA NA

External Debt (USD bn) N.A NA NA

External Debt (% of GDP) 32% NA NA

Exports (fob) (USD bn) 25.8 23.6 25.9 (e)

Imports (fob) (USD bn) 38.0 44.9 42.7 (e)

Tax Collection (PKR bn) 1,952 1,913 2,381

Fiscal Balance (% of GDP) -4% -6% 4.7%

Current Account Balance (% of GDP)

-0.6% -1.85% -1.9%

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. (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)

Govt filed a review petition in SC seeking permission to operate three RPPs, namely Gulf, Noudero-1 and Karkey, as IPPs. This would add 329MW to the system using the RPP infrastructure.

The first IPO of FY13 took place on Jul 3 and 4 for Aisha Steel Mills (ASML), a JV of Arif Habib, Metal One and Universal Metal. The IPO was oversubscribed by 2.7 times.

NAB stopped FBR from waiving PKR 47bn in sales tax liabilities collected on interconnect calls by the 5 telcos. These telcos have approached the PM in-turn and asked for a waiver.

The power supply system in India collapsed plunging 700mn people in 21 (out of 28 states) into darkness, as a result 2 major outages in 2 days (Jul 30 and 31). Massive losses are envisaged.

CERN Director Gen Heuer announced on Jul 4 that scientists were more than 99% certain that they had discovered the long sought Higg’s Boson aka the ‘God Particle’.

The 30th

Summer Olympics 2012 began in London on Jul 25. Around 10,500 athletes from 204 National Olympic Committees, including Pakistan, participated.

Chinese economy hit its 3-year low with figures for Q2 of 2012 (ended-Jun) indicating growth of 7.6% - lowest since Q1 of 2009,

Author Stephen Covey, whose "The 7 Habits of Highly Effective People" sold more than 20 million copies, died on Jul 16 aged 79.

Other Key Indicators (Contd..)

FDI for Jul was recorded at USD 42mn down 50.4% YoY from USD 84.7mn. The decline can be attributed to an adverse law and order situation especially in Karachi, energy crisis as well as increasing political uncertainty. Net foreign investment grew 28.2% YoY to USD 70.8mn in Jul from USD 55.3mn.

Remittances from overseas Pakistanis during Jul amounted to USD 1.21bn, up by 7.6% MoM from USD 1.12bn in Jun; and by 9.9% from last Jul. The general increase is accredited by SBP to the Pakistan Remittance Initiative, while the monthly surge may be attributable to the advent of Ramadhan.

Pakistan’s exports stood at USD 2.06bn in Jul, compared to USD 2.14bn in Jun (down 3.7% MoM) and USD 2.16bn in Jul 2011 (down 11.6% YoY). Exports have shown a weakening trend over the past few months largely due to the persistent energy crisis and fall in international prices of exported commodities. Imports for Jul at USD 3.66bn, however, also indicated a decline compared to USD 3.98bn in Jun (down 8% MoM) and USD 3.69bn in Jul 2011 (down 0.7% YoY). Reduction in the imports bill - mainly because of the fall in international oil prices - eased the pressure on the trade balance which declined to USD 1.61bn from USD 1.84bn the previous month. However, the monthly deficit in Jul FY11 had been recorded at a lower USD 1.53bn indicating a YoY rise.

The 7-month Pak-US stalemate came to an end on Jul 3 when Sec Clinton said ‘sorry’ to FM Khar for Pak Army losses at Salala, and NATO supply routes were opened shortly after that.

The MoU to regulate NATO supplies to Afghanistan was finally signed on Jul 31, after weeks of negotiations. US announced immediate release of USD 1.12bn of the frozen CSF payments

On Jul 13 Moody’s cut Pakistan’s sovereign (foreign and local long term) credit rating to Caa1 from B3, with a negative outlook. This is the lowest ever level for Pakistan, with the highest ever being B1 from Nov 2006 to May 2008.

Following the sovereign downgrade, Moody’s cut ratings for 5 Pakistani banks (HBL, MCB, NBP, UBL and ABL) by one notch also given their extended exposure to govt lending. (Jul 17)

The NRO-tug-of-war between the judiciary and govt. continued through Jul with the judiciary consistently showing restrain against an increasingly defiant govt.

PTCL offered the third Voluntary Separation Scheme for pre-mature retirement to 16000 employees (more than half of its manpower) to reduce its operational costs.

The Lucky Cement Consortium acquired 75.81% stake in the demerged ICI Pakistan comprising of polyester, soda ash and life sciences businesses – at a bid price of USD 152.5bn.

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.

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