Strong Earnings Push KSE-100 to Highest Level in 4 Years

A string of strong earnings announcements by Karachi Stock Exchange listed companies and the Central Bank's 1.5% rate cut have helped the KSE-100 index gain 32% year to date. In the week ended on August 16, the benchmark index surged by 238.59 points, or 1.61 percent, to 51-month high of 15,000.08 points. This was the highest close since April 30, 2008.

Strong Earnings:

Last week, KSE-listed Indus Motors announced 57% jump in profits on record sales of Toyota Corolla cars.  It was followed by Lucky Cement Ltd. (LUCK), Pakistan’s largest producer of the building material, announcing 71 percent surge in profits to a record as an increase in domestic sales offset a decline in exports. Pakistan Petroleum Limited (PPL), the country’s second largest oil and gas explorer, said its profits soared 30% to Rs40.9 billion in fiscal 2012. Strong earnings have also been reported by Unilever Foods and Bata shoes in the last few days.

Best Performing Market:

 So far in 2012 Pakistan is the best performing market in Asia surpassing the Philippines which was the top performer until June of this year.  Karachi stocks have also significantly outperformed all emerging stock smarket indexes, including Mumbai and Shanghai, in 2012.

 Rising Consumer Demand: 

 Meteoric rise of Engro Foods symbolizes strong consumer demand in growing package food sector. Its CEO Muhammad Afnan Ahsan has forecast 81% increase in net income in the current year ending December 31, 2012.  With a compound annual growth rate (CAGR) of 65 percent and a planned infrastructure investment in 2012 of eight billion rupees, Engro Foods has become the country's fastest growing local company catering to a wide range of consumers in Pakistan and overseas. 

Undeterred by the gloom and doom reports in the media, Pakistani consumers are continuing to spend and private consumption has now reached 75 percent of GDP. It rose 11.6% in real terms in 2011-12 compared with just 3.7% growth a year earlier , according to Economic Survey of Pakistan. In fact, many analysts believe that Pakistan's official GDP of  $220 billion is understated by as much as 50%, buttressing a recent claim by the head of Karachi Stock Exchange that Pakistan's real GDP is closer to $300 billion.

I believe that even a modest effort to increase tax collection can significantly improve Pakistan's state finances to support higher public sector investments in energy, education, health care and infrastructure.
 Related Links:

Haq's Musings

Pakistan's Underground Economy

Pakistan Cement Sector Research Report

Tax Evasion Fosters Aid Dependence

Poll Finds Pakistanis Happier Than Neighbors

Pakistan's Rural Economy Booming

Pakistan Car Sales Up 61%

Resilient Pakistan Defies Doomsayers

Land For Landless Women in Pakistan


Riaz Haq said…
Here's Reuters on KSE-100 continuing to climb higher:

Pakistani stocks ended higher on Monday after the Supreme Court gave the prime minister breathing space in a case that could see him charged with contempt of court and disqualified.

The Karachi Stock Exchange (KSE) benchmark 100-share index ended 0.88 percent, or 132.48 points, higher at 15,171.66, on volume of 14.84 million shares.

Prime Minister Raja Pervez Ashraf appeared in court over his failure to comply with orders to reopen corruption cases against President Asif Ali Zardari.

The case has fuelled tension in a long-running standoff between the government and increasingly assertive judiciary. The court adjourned proceedings until Sept. 18.

It said Ashraf must ensure a letter is written to Swiss authorities asking them to reopen corruption cases against Zardari. Justice Asif Khosa said Ashraf did not have to write the letter himself. He could nominate someone else to write it.

"Markets have improved because the Supreme Court has given another few weeks to the prime minister. Investors believe this time may help in resolving the ongoing issue with the judiciary," said Mohammad Sohail, chief executive at Topline Securities.

Pakistan Telecommunications Company Limited was the biggest winner in terms of volume, gaining 6.54 percent to close at 16.29 rupees.

In the currency market, the Pakistani rupee ended slightly higher at 94.80/94.85 to the dollar, compared to Friday's close of 94.87/93.

Overnight rates in the money market ended at 7.5 percent, compared with 9.5 percent on Friday.
Riaz Haq said…
Standard Charter (Pakistan) profits rise 45%, reports Business Recorder:

Standard Chartered Bank (Pakistan) Limited has earned a profit (before tax) of Rs 3.9 billion, which has risen by 45 per cent, in H1 2012 as compared to same period of the last calendar year. Earning per share has also surged to Rs 0.65 per share from Rs 0.44 per share in H1 2011.

Standard Chartered Bank (Pakistan) Limited has announced its H1 2012 results. The Bank has successfully executed its strategy of focused growth, improved cost discipline and prudent credit expansion, resulting in improved financial performance with steady revenue and decreasing loan impairments. Administrative costs of the bank have again remained more or less flat despite continuing double digit inflation. Deposits have increased by 6% to Rs 249 billion from Rs 236 billion, while advances (net of provisions) have grown by 4% to Rs 135 billion from Rs 130 billion in December 2011.

The quality of assets remains good with a high coverage ratio of 82 per cent for non-performing loans. The Bank thus remains well-capitalised and highly liquid, with surplus funds that continue to be deployed in Government Securities. Interim cash dividend of 7.50% (Re. 0.75/- per share) in respect of the half year ended June 30, 2012 has been declared by the Board of Directors in their meeting held on August 28, 2012.

Commenting on the results Mohsin Nathani, Chief Executive, Standard Chartered Bank (Pakistan) Limited, said, "The Bank continues to deliver a strong set of results for the first half of 2012. The growth in revenue is encouraging, while we continuously endeavour to keep cost growth at moderate levels, ensuring necessary investment in our businesses to keep the momentum rolling. The Bank is dedicated to continuing to grow their business and to provide high quality of service and products to their customers."
Riaz Haq said…
Here's BMI's Q3/2012 report on rising food consumption in Pakistan:

Our near-term domestic demand outlook for Pakistan is looking brighter than before. Declining costs of credit and disinflationary pressures should prove supportive of domestic demand. However, we acknowledge a near-term risk to our domestic demand outlook, which is the impact of deteriorating macroeconomic conditions on remittance inflows. Should a slowdown in global demand weigh on remittance growth, this could dampen domestic consumption in the near term. Longer term, the business environment challenges of a destabilising insurgency, chronic lack of electricity generation capacity and an unskilled labour force will continue to hold back the consumer sector from realising its full potential. We therefore expect the liberalisation of the Pakistani consumer sector to occur at a glacial pace going forward.

Headline Industry Data

2012 food consumption growth = +12.1%, compound annual growth rate (CAGR) forecast to 2016 = +9.3%

2012 alcoholic drinks value sales growth = +19.0%, CAGR forecast to 2016 = +10.4%

2012 soft drinks value sales growth = +15.2%, CAGR forecast to 2016 = +8.8%

2012 mass grocery retail sales growth = +20.9%, CAGR forecast to 2016 = +12.2% Key Company Trends Pakistan A Fledgling But Growing Force On Global Halal Scene: Pakistan has not been able to gain much from its US$2trn halal brand market, and has a small share in the global halal industry. The country’s exports have improved from zero-level during the past two years; however, it is still insignificant. However, with the Pakistani government now putting its weight behind the development of the domestic halal industry, there is certainly a cause for optimism in the sector’s future prospects.

The Sindh Board of Investment has entered an agreement with the Halal Department of Malaysia to provide training of certification to its staff. The government also announced that it will be engaging in a project to ensure the credibility of the country’s halal certifications in a bid to tap into the global halal market, which is valued at over US$1trn.

BMI Bullish Coca-Cola’s Prospects In Pakistan: US soft drinks giant The Coca-Cola Company is planning to invest another US$280mn by 2013 in Pakistan. According to Coca-Cola, it plans to channel the bulk of its capital expenditures towards increasing the production of its existing brands as well as expanding its overall beverages portfolio. Coca-Cola plans to introduce more juices and mineral water in the Pakistani market over the coming years. This strategy could diversify Coca- Cola’s presence beyond the carbonates sector and help it secure early footholds in the higher-value bottled water and fruit juice segments, which boast tremendous long-term promise.
Riaz Haq said…
In addition to adding $500 million to Google's revenue, young Pakistanis are making significant voluntary contributions to Google offerings like Google Maps. This has attracted the attention of Google bosses like Eric Schmidt who recently visited Pakistan and described Pakistan's young demographics as a great asset.

Here's an ET report on Google in Pakistan:

Google earns an estimated $500 million in revenues from its users in Pakistan, about 1.3% of the firm’s global total, according executives at Google Pakistan, who held their first ever public event in the country to highlight the technology giant’s interest in the country.

“Pakistan is Google’s next big market in the region,” Google’s head of Emerging Market Development, Southeast Asia, Jana Levene told a gathering of IT experts, bloggers, businessmen and selected journalists at Pearl Continental hotel in Karachi on Monday.

The gathering comes after Google’s executive chairman Eric Schmidt visited Pakistan in June to meet with the country’s politicians and businessmen. “It was just a regular visit. He wanted to find out how important the use of technology for the country’s leadership and businessmen is,” said Badar Khushnood, Google’s consultant in Pakistan.

Moreover, Google has intensified its operations by getting involved in a lot of projects – especially with the Punjab government – in the country recently. “Innovation Punjab” is one example where Google has partnered with Punjab Information Technology Board. It has launched a social innovation fund – in collaboration with Pakistan Software Houses association, also their partner for the event – to support young entrepreneurs struggling to get their ideas public.

Google’s increased interest in the country, Schmidt’s visit of Pakistan and now this event sends very strong signals to the country – the giant may consider opening an office in Pakistan. Khusnood denied if Google was opening its first office in the country anytime soon but added it couldn’t be ruled out. Google’s representatives attributed Pakistan’s growing importance to multiple factors.

“To enter a market, the first thing we look at is its demographics – number of internet users in that country,” Jana Levene said, explaining why Google is interested in Pakistan. “Twenty-two million internet users is a huge number. It’s more than Australia’s whole population. That’s why we are here,” she said.

The second thing Google is interested in, Levene said, is the size of the market. “Pakistan is a $400 to $500 million market for Google,” she said. Currently, four of the top 10 most popular websites in Pakistan are Google’s sites.
But the key takeaway from the event was not the information, but the fact that it was addressed by six senior Google executives, a strong indication that the technology giant wants to expand further in the Pakistani market.

“We are calling you to help us bring more Pakistanis online,” Jana Levene said addressing country’s leadership as well as the technology sector. “Tell the world Pakistan is economically viable. It’s a safe place to do business,” Levene said.
Riaz Haq said…
Here's a Businessweek story on record profits for DG Khan Cement in Pakistan:

D.G. Khan Cement Ltd. (DGKC), Pakistan’s second-largest producer, reported a fourfold surge in net income on record prices of the building material.

Net income increased to 1.42 billion rupees ($14.8 million), or 3.23 rupees a share, in the three months ended Sept. 30, from 355.5 million rupees, or 0.81 rupee a year earlier, the Lahore-based company said in a filing today. Sales rose 15 percent to 6.1 billion rupees.

Cement makers have relied on price increases amid stagnant sales in the past five years, a move that led the country’s competition commission conduct searches in January this year to investigate price manipulation. Manufacturers of the building material were fined 6.3 billion rupees in August 2009 for price monopoly by the watchdog.

“Cement prices rising to a record saved the day as the quantity sold remained almost the same,” said Syed Asad Ahmed, analyst at IGI Finex Securities Ltd. in Karachi. Local prices on average rose 12 percent to a record 438 rupees per 50 kilogram bag (110 pounds) in the quarter versus 391 rupees in the same period last year, IGI’s Ahmed said.

D.G. Khan’s shares rose 1 percent to 52.30 rupees at the close of trading in Karachi. The stock has rallied 175 percent this year, compared with a 40 percent gain in the benchmark KSE100 index.
Riaz Haq said…
Here are latest cement sector profit reports in The Nation of KSE listed firms:

Lucky Cement Limited declared a profit after tax of Rs2,014 million for the quarter ending 30th September 2012. The Earnings per Share (EPS) of the company increased to Rs6.23 per share versus Rs4.66 per share achieved in the same period last year.Gross profit for Lucky Cement, which is Pakistan’s largest cement manufacturer increased by 32.87pc during quarter as its net sales revenue improved by 18.09pc to Rs 8,852 million against Rs. 7,496 million of the same period last year. Higher sales volume in the domestic markets in line with the company’s strategy attributed to the increased profits.The local sales volume during the quarter under review registered a growth of 5pc that rose to 0.86 million tons sold as compared to 0.82 million tons sold during the same period last year. However, the export sales volume declined by 9pc from 0.62 million tons to 0.56 million tons during the first quarter ending 30th September 2012. This was mainly due to intentional focus on the domestic markets, which contributed in increasing the overall profitability of the company. The company also managed to decrease its financing cost by 76pc during the quarter under review as compared to the same period last year.Meanwhile, Nishat Chunian Limited (NCL) has announced an impressive 1QFY13 result, posting a PAT of Rs375m (diluted EPS: Rs2.06) compared to a loss of Rs86m (diluted loss per share: Rs0.47). Main reason for the growth in bottom line was high gross margins of 17.6pc compared to 8.7pc in 1QFY12. Meanwhile, 1) other income of Rs70m (up 19pc YoY) and lower finance cost of Rs302m (down 5pc YoY) further supported the growth in core operations. Note that QoQ EPS is down 6pc sequentially. This is primarily due to lower other income mainly due to exchange gains. On the margins front gross margins are up 480bps. Meanwhile, Nishat Mills Limited (NML) announced its 1QFY13 result. As expected, the company posted a growth of 3pc YoY in its bottom-line to Rs1.1b (EPS: Rs3.02). Higher gross margin in 1QFY13 was the major reason behind this growth. Recall that margins during last year came under pressure as the company had booked expensive inventory of the previous year.

Other than the core operations, lower finance cost and healthy dividend income continued to lend support to cumulative profits of the company. Although, dividend income in 1QFY13 was on the lower side due to lower payout of Pakgen Power, it still provided support to the bottom line.
Riaz Haq said…
Here's a News report on Lucky Cement's expansion plans in Middle East and Africa:

KARACHI: Lucky Cement, which claims to be the largest manufacturer of cement in Pakistan, has entered into a couple of joint ventures for making investment in international projects, besides expending and diversifying its business locally, according to a notification of the company to the Karachi Stock Exchange (KSE) on Thursday.

Muhammad Abid Ganatara, secretary of Lucky Cement, said that the company has entered into joint ventures in cement plants in DR Congo, Africa, and Iraq.

“The plant and machinery for the project [in Africa] has been negotiated and finalised with a renowned European supplier and the terms of the project financing are under process of negotiations with the development financial institutions and multilateral agencies,” the notice said.

Besides, the company has also entered into joint venture investment in cement grinding facility in Iraq.

“The contract for the supply of plant and machinery for this project has been signed and the project team, as well as civil contractors, have been mobilised at the project site,” it said.

An industry source said that the demand for Pakistani cement is on the higher side in Africa and Lucky Cement aimed at capturing that opportunity. The project would also help the company save logistic cost of cement exports to the African countries, said source.

“The logistic cost of cement exports remained one of the major hurdles in increasing such exports from Pakistan,” said another industry source, on the condition of anonymity.

“The cost factor is causing continuous decline in exports for the last several quarters.”

Moreover, Iraq has been destructed due to the war on terror and it needs to be reconstructed. Therefore, making investment in cement plant in Iraq would also help the company realise higher earnings. Besides, the company could also export cement to nearby countries such as Qatar and other GCC countries, he said.

Lucky Cement also reported to investment equity in an associated company for 50MW wind farm project. “The power generation licence and the requisite approval from the authority concerned for the acceptance of upfront tariff have been obtained.

The project team is actively engaged in negotiations of concession documents and financing close with the stipulated timeframe,” according to the company notice.

The company also reported successful supply of uninterrupted electricity to Hyderabad Electric Supply Company (HESCO) with effect from July 1, averaging a supply of over 20MW per hour during the quarter ended September 30.
Riaz Haq said…
Here's Daily Times on KSE-100 crossing 16000 level:

Hopes for cut in policy rate boost KSE by 289 points

KARACHI: The Karachi stock market witnessed a historic trading week by breaching the psychological level of 16,000 points on back of hopes for further decline in the State Bank of Pakistan’s policy rate after consumer price index (CPI) inflation figures for October 2012 clocked in at 7.66 percent.

The Karachi Stock Exchange (KSE) 100-share index gained 288.83 points or 1.82 percent to close at 16,101.55 points as compared to 15,812.72 points of the previous week.

Analysts said investor sentiment was upbeat at the market throughout the week on expectations that October 2012 CPI figure will slide further.

The market opened on Tuesday after prolonged Eidul Azha vacations on a negative note as Hurricane Sandy that lashed US East Coast triggered uncertainty in global markets and propelled local investors to offload their holdings. The 100-share index shed 16.79 points or 0.11 percent to close at 15,795.93 points as compared to 15,812.72 points.

On Wednesday the market made another historic high level of 15,910 points as hopes for lower inflation for the month of October and better-than-expected earnings of Pakistan Petroleum Ltd and Hubco triggered across-the-board buying. The 100-share index gained 114.18 points or 0.72 percent to close at 15,910.11 points.

The record-breaking spree continued at the market on Thursday as investors went for buying on hopes that lower inflation figure will force the State Bank of Pakistan to reduce the policy rate. The 100-share index gained 52.26 points or 0.33 percent to close at 15,962.37 points

The market continued its record-breaking streak on the last trading day of the week Friday by crossing the psychological level of 16,000 points. The 100-share index gained 139.18 points or 0.87 percent to close at 16,101.55 points. The weekly turnover went up by 40.79 percent and traded 191.49 million shares compared to previous weeks 136.01 million shares.

“Market expectations were realised on Friday with October 2012 CPI clocking in at 7.66 percent as against 8.79 percent in September 2012, thus raising hopes of another rate cut in the next monetary policy (due in December),” said JS Sec analyst Furqan Ayub. “Investors’ interest was concentrated in the cement and textile sectors with Lucky Cement and Nishat Mills outperforming the market by 1.1 percent and 3.6 percent, respectively.”

Net buying by foreigners this week amounted to $12.6 million, he added.

Analysts said the market is at a historic high level and any untoward development can drag the market into the red zone, analysts said and added that technical correction is, however, due next week as usually when the 100-share index breaches psychological levels consolidation is seen and with this historic high it is evident.\11\04\story_4-11-2012_pg5_16
Riaz Haq said…
Here's a Daily Times story on a report about Pak stocks and bonds historic performance:

Magnus publishes first comprehensive study on Pakistani stocks and bonds

KARACHI: The first comprehensive study about returns of stocks and bonds in Pakistan has been recently published by Magnus Investment Advisors Limited. The research provides data for equities starting July 1965 and for bonds starting January 2001. The study shows that long term real Pakistani rupees return (after inflation adjustment) on local equities ranges between 4.82 percent to 5.69 percent. The treasury bills have provided negative returns. The real return on 5 year and 10 year PIBs is 2.19 percent and 3.43 percent respectively. The study also provides nominal and US dollar returns. Issues such as 'Equity Risk Premium' and relevance of 'Purchasing Power Parity' in the context of local securities market are also dealt with. The study also provides an asset allocation frame-work for local trustees. The most interesting part is the analysis of equity returns in Pakistan with other emerging markets and investment in Pakistani equities from the perspective of foreign investors. The study conclusively demonstrates that Pakistan stocks do not represent any unusual risk in the universe of emerging markets. Pakistani stocks should get one of the highest allocations among emerging markets from the perspective of US investors. The study is not only useful for local trustees of retirement funds and charitable institutions but it also fills a major gap for local business schools where so far graduates had little knowledge and understanding about risks and returns of local capital markets. The study is also a useful read for the Ministry of Finance, SECP and BoI officials who are called upon to promote investment in Pakistan from time to time. Magnus is a boutique investment advisory firm based in Karachi. It acts as an investment advisor to retirement funds sponsored by large companies (mostly MNCs) in Pakistan.\12\14\story_14-12-2012_pg5_6
Riaz Haq said…
Here's a report on Karachi's KSE-100 hitting new highs:

Pakistani stock market surged by over 500 points today to a record high of 21,500 points on heavy buying by overseas investors, amid reports government plans to sell treasury bills worth USD 5 billion to pare debt.

The Karachi Stock Exchange's benchmark 100-share index closed 2.59 per cent, or 542.86 points, higher at 21,501.72.

"The market was buoyed by reports today that the new government plans to sell USD 5 billion in treasury bills to pay off a chain of debt that has led to power crisis and is affecting the economy," Sohail Ahmed, a market analyst, said.

The new government is planning to pay off the debt within the first 100 days in power as it believes the economy will only be lifted and foreign investments will grow if the power shortage crisis is dealt with immediately, said experts.

In Lahore, Pakistan's Prime Minister-designate Nawaz Sharif pledged that the incoming PML-N government would make efforts to overcome power problem as soon as possible.

The stock market rally came after two straight days of decline.

On the previous two trading days, the stock market saw profit-booking after a wave of massive buying saw investors betting big that the crisis-ridden economy would revert back to high growth under Sharif, set to become premier for an unprecedented third term.

The Pakistani rupee also remained stable on Tuesday ending in the market on 98.43/98.49 against the US dollar.

Sharif, himself an industrialist and co-owner of diversified multi-million dollar conglomerate Ittefaq group, has said that revival of economy would be among his top priorities. He is seen by many in Pakistan as someone who can fix the country's bleeding economy.

There are only 569 listed companies on the Karachi Stock Exchange, as against about 5,000 in the Indian stock market, where total investor wealth is close to Rs 70 lakh crore.

The number of companies listed on KSE has come down in the past few years, from more than 650 in 2009, as the country's economy has been struggling amid a turbulent political scene.

However, a clear mandate in the just-held historic polls is expected to revive the economic activities and therefore the stock markets as well.

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