LAHORE – The week started off with extremely dull investor sentiment amid turbulence in domestic political environment and US-Pak relationship. However, the approval of Finance Bill by National Assembly cleared ambiguities pertaining to the revised CGT regime and helped in regaining investor interest. Other major highlights during the week included: 1) cement offtake for May rising by 5 per cent YoY, 2) Punjab govt. announcing to continue with the Yellow Cab and Green Tractor scheme for FY13 and 3) notification of HUBC’s revised Narowal tariff. Consequently, the KSE-100 index closed at 13,666, up 0.8 per cent WoW with average daily volumes of 86m shares, down 9.3 per cent WoW. Foreigners were net sellers of $13.5m.

Cement sales in 11MFY12 stood at 29.5m tons, up by 3 per cent YoY. The growth was largely driven by improved local sales, up 8 per cent YoY. In May alone, cement sales were recorded at 2.9m tons (up 5 per cent YoY) in which local dispatches surged by 10 per cent YoY while exports were down 6 per cent YoY. However, during the week construction and material sector underperformed the market by 1.3 per cent.
Punjab government in its provincial budget has announced to continue with the Yellow Cab and Green Tractor schemes for FY13. PSMC, the major beneficiary of the Yellow Cab scheme outperformed the market by 4.6 per cent.
HUBC remained in the limelight because of the NEPRA’s notification regarding the post Commercial Operation Date (COD) Narowal tariff. It is expected to positively impact the earnings of the company. During the week, HUBC outperformed the market by 3.6 per cent.
Experts said that in spite of attractive valuation, due to foreign outflow, jittery US-Pak relationship volumes remained dull. However, National Assembly’s budget approval that subsequently giving CGT ordinance a legal cover created positive vibes in the market and benchmark index managed to close 100 points up to 13,665 level. The International Power deal of Hub Power Co was finally executed this week which would result in Hub Power Co being largely owned by local investors.
Meanwhile, the central bank has once again emphasised the need for fundamental restructuring of the economy. It was explicitly highlighted that total stock of government borrowing directly from SBP has swelled to Rs1,660 billion – govt has borrowed Rs414 billion up till end May 12. This is in negation to the SBP (Amendment) Act 2012 requiring government to maintain zero quarterly borrowing and retire the total stock in next seven years. Although SBP is not expecting any sharp increase in inflation but is worried over its persistence at high levels; largely due to monetisation. The economic managers pointed towards fiscal authority and stated that reduction in reliance over banking system and retirement of borrowing from SBP without bringing structural reforms is not possible.
Experts provisionally expect POL to post EPS of Rs 12.03 in 4Q (down 10 per cent QoQ). The major reason for the decline in profitability is lower Arab Light crude oil prices by 7 per cent QoQ. However, rupee depreciation by an average of 2 per cent QoQ is likely to somewhat mitigate the impact of lower oil prices. As a result, we fine tune our FY12 earnings estimate to Rs51.5/share (Rs52.7 previously). They raise FY13 earnings forecast by 12.5 per cent to Rs64.1/share on the back of expected production additions from ME-2 (4,900bpd of oil and 17.3mmcfd of gas) from October 2012. On the contrary, we cut our production estimates from Domial and Pindori to 200bpd and 500bpd.
The stock has underperformed the market by 12 per cent in last 3 months predominantly due to sharp fall in international oil prices. However we highlight that our Arab Light crude oil assumption for FY13 stands at $95/bbl for FY13, which is lower than the current spot rate of $96.24/bbl. Hence, from that perspective the concerns have been slightly overplayed.