June 2017 The Abacus PromptTM Business Review – Issue 78, Vol.7 June 2017 Page 1

Monthly Snapshot

Stock Market 12 Month KSE-100 Performance 600 60000  The KSE -100 index decreased 8% during June, closing at 46,565 pts 500 50000 400 40000  Average daily turnover decreased 28% Mo M to ~242 mn shares 300 30000  Foreigners reported a net buy of USD 7.9 mn in June. Individuals 200 20000 reported a net sell of USD 61 mn whereas Insurance Companies 100 10000 reported a net buy of USD 40 mn. 0 0  Oil & Gas, Cement, Fertilizer and Power sector stocks were Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun 16 16 16 16 16 16 17 17 17 17 17 17 negative contributors Average Daily Volume (shares mn) (LHS) KSE-100 Index (RHS) Currency and Commodity Markets

Pakistan Rupee Monthly Performance  The PKR depreciated 0.05% MoM against the USD, 0.80% MoM Currency Open Rate Close Rate Change against the GBP, and 1.78% MoM against the EUR USD 104.83 104.88 -0.05%  Domestic Gold prices increased by 0.30% MoM, while domestic GBP Silver prices decreased by 2.7% MoM 135.16 136.24 -0.80%  WTI Crude decreased by 4.8% MoM. Domestic HSD and Motor EUR 117.55 119.65 -1.78%

Spirit prices decreased 1.8% and 2% respectively on a MoM basis Key Commodities - Monthly Price Movement  Cotton (KCA) prices decreased by 2.9% MoM to PKR Opening Closing Commodity Description Change 6,600/maund Price Price Precious Metals  Urea prices remained stable MoM at PKR 1,365/bag Gold 24 Karat 49,950 50,100 0.30%  Total cement dispatches during June 2017 were recorded at 2.73 mn (PKR/Tola) Silver (PKR/Tola) 634 617 -2.68% tonnes, down 26.5% MoM and 18.62% YoY. Prices remained stable. Oil Crude (USD/bbl). Macroeconomic Profile 48.36 46.04 -4.80% Oil (US) NYMEX High Speed  (PKR/Ltr) The SBP remained unchanged at 5.75% Diesel 81.40 79.90 -1.84%  Forex Reserves increased by USD 0.18 bn to USD 21.37 bn Motor  (PKR/Ltr) 72.80 71.30 -2.06% CPI Inflation was recorded at 3.90% YoY Spirit  Exports increased by 17.5%% MoM to USD 1.91 bn and imports Agriculture & Cement KCA- (PKR/ decreased by 10.9% MoM to USD 4.53 bn; resultantly, the trade 6,800 6,600 -2.94% deficit decreased by 24.3% MoM to USD 2.62 bn Cotton Maund)  Foreign remittances decreased by 1.45% MoM to USD 1.84 bn Urea (PKR/Bag) 1,365 1,365 0.00%

 The FBR reported provisional revenue collection at around PKR Cement (PKR/50kg) 527 bn in June 2017 (Avg.) 538.94 538.94 0.00%

 Net FDI was recorded at USD 295 mn in May. 11MFY17 net FDI was recorded at USD 2.2 bn, up 8.6% on a YoY basis. Key Stats Indicator Year Current MoM News Highlights to Date Month Direction CPI Inflation 4.15% 3.90%  PSX conducted an IPO for sale of 20% stake to local investors  Pakistan became as a member of the Shanghai Cooperation Forex Reserves USD 21.37 bn* USD 0.18 bn Organisat ion  State of Pakistan approved the amalgamation of NIB Bank Exports USD 20.45 bn USD 1.91 bn with MCB Bank Limited  BOC Group announced to divest its entire shareholding in Linde Imports USD 53.03 bn USD 4.53 bn

Pakistan Limited Trade Deficit USD 32.58 bn USD 2.62 bn  Saudi Arabia and five other countries severed diplomatic ties with Qatar Foreign USD 19.30 bn USD 1.84 bn  Daimler and Volkswagen announced plans to enter China’s electric Remittances car market Tax Collection PKR 3,392.0 bn PKR 547.0 bn  The UK snap General Election 2017 took place, which cost the *Cumulative To Date Conservatives their majority *Cumulative to date.

June 2017 The Abacus PromptTM Business Review – Pakistan Issue 78, Vol.7 June 2017 Page 2

Stock Market

The KSE-100 recorded healthy gains during the outgoing fiscal year, ending FY KSE-100 17 up 23.24% on a YoY basis. However, the benchmark index closed June at Index Performance Jun 1 50,592 46,565 points, down nearly 8% during the month. Reasons for the monthly -7.96% decline include significant uncertainty on the political front regarding the Jun 30 46,565 ongoing investigations by a Supreme Court sanctioned JIT investigation. The KSE-100 JIT continued its investigations into the Panama Papers case and major Market Cap - (PKR Billion) incumbent government office holders were summoned to answer questions. Jun 1 10,083 -5.56% Foreigners reported a net buy of USD 7.9 mn in June. Individuals reported a net Jun 30 9,522 sell of USD 61 mn whereas Insurance Companies reported a net buy of USD 40 mn. Average daily turnover decreased 28% MoM to ~242 mn shares. Going forward, the market is expected to experience increased volatility in the KSE-100 days leading up to the outcome of the JIT investigation. However, market Best Performing Stocks of the Month fundamentals remain strong and the market is expected to gradually rebound Company Opening Price Closing Price Change post-correction once prices become significantly attractive enough to local and CECL 96.66 201.35 118.72% foreign investors. TOWL 68.30 100.03 44.59% SAZEW 213.00 273.93 34.02% In terms of sectors, Oil & Gas, Cement, Fertilizer and Power sector stocks were OTSU 228.50 292.96 33.99% negative contributors. EMCO 35.50 42.50 24.60%

6% Regional Comparison KSE-100 4.2% 4.1% Worst Performing Stocks of the Month 4% 3.5% 2.6% Company Opening Price Closing Price Change SLL 5.50 3.00 -49.92% 2% 1.1% HSM 68.98 42.94 -39.16% 0% JATM 5.80 3.70 -38.33% -0.1% -0.3% SKRS 18.81 13.02 -34.28% -2% MZSM 10.33 6.83 -33.88% Malaysia Pakistan China India Thailand

Source: Bloomberg

Pakistan lagged behind its regional peers in terms of relative forward P/E Top Picks (Stocks Offering Maximum Upside Potential) valuations in June. The Indian market boasted the highest forward P/E. Closing Target Company Potential Regional Valuation P/E Price Price 20 17.8 16.0 16.4 14.0 KOHC 235.5 317.2 34.69% 15 12.8 14.3

10.9 EFERT 60.6 80.9 33.50%

10 FFBL 48.7 64.4 32.24%

5 AHL FFC 96.3 121.6 26.27%

PPL 174.7 203.4 16.43% 0 GWLC 57.7 104.0 80.24% Pakistan China Singapore Thailand Hong Kong Malaysia India

MLCF 111.4 154.0 38.24%

PTC 15.5 20.0 29.03%

The highest traded individual stock was BOPR2 with ~338 mn shares traded. AKD FCCL 45.3 55.0 21.41% Highest Traded Stocks on PSX (Million Shares) LUCK 859.2 990.0 15.22% 333 338 KOHC 235.5 348.0 47.77%

199 215 PIOC 145.7 205.0 40.70% 153 MLCF 111.4 155.0 39.14% Elixir CHCC 184.9 251.0 35.75%

PPL 174.7 200.0 14.48%

DSL TRG EPCL KEL BOPR2 Source: Abacus Research, PSX

Graph Sources: Abacus Research, PSX

June 2017 The Abacus PromptTM Business Review – Pakistan Issue 78, Vol.7 June 2017 Page 3

Currency Markets

United States Dollar Pakistan Rupee Monthly Performance The Dollar Index decreased 1.85% MoM against a basket of major currencies Currency Open Rate Close Rate Change in June to close at 95.60, after weaker than expected U.S. manufacturing data dented expectations of an aggressive string of interest rate hikes by the U.S. USD 104.83 104.88 -0.05% Federal Reserve. Moreover, diplomatic concerns such as the alleged collusion GBP 135.16 136.24 -0.80% between the gov. of Russia and the Trump presidential campaign, the EUR reversal of some of Obama’s conciliatory foreign policies, along with a surge 117.55 119.65 -1.78% in the Euro further weakened the Dollar Index. The PKR depreciated by SAR 27.95 27.96 -0.02% 0.05% against the USD on MoM basis. AED 28.54 28.54 -0.01% Euro, Great British Pound and Japanese Yen CNY 15.40 15.46 -0.39% The GBP weakened against major currencies after the June 8 election outcome and a weakening of the housing market, which in part caused a loss JPY 0.94 0.93 0.96% of confidence among investors and consumers during the month. However, the GBP ended the month higher by 0.80% MoM against the PKR. The KIBOR Euro strengthened by 1.78% MoM while the Yen depreciated 0.96% MoM Monthly Movement against the PKR during June. Tenor Open Rate Close Rate Change KIBOR 1-Month 6.27 6.26 -0.16% 3-Month 6.14 6.14 0.00% KIBOR rate for the 3-month tenure remained stable MoM, while KIBOR 6-Month 6.16 6.15 -0.16% rates for the 1-month and 6-month tenures both decreased MoM by 0.16% during June 2017.

Commodity Markets

Precious Metals Key Commodities Monthly Price Movement In Pakistan, gold prices increased slightly by around 0.30% MoM, in contrast Opening Closing Commodity Description Change to a decrease in international gold prices (by around 1.8% MoM). This can be Price Price attributed to the increased domestic stock market volatility during the month, Precious Metals where investors preferred to shift towards safe-haven assets in Pakistan. Gold 24 Karat (PKR/Tola) 49,950 50,100 0.30% Silver prices in Pakistan decreased by around 2.7% MoM, similar to Gold Spot (USD/oz) 1,269 1,246 -1.81% international prices which increased around 4% MoM in June 2017. NY-Close Oil Silver (PKR/Tola) 634 617 -2.68% Silver Spot (USD/oz) 17.33 16.62 -4.10% WTI crude oil price decreased nearly 5% MoM, as U.S. drillers continue to NY-Close Gold- add rigs, blunting OPEC-led efforts to rebalance an oversupplied market. In GSR Silver Ratio 78.78 81.19 fact, June 2017 recorded the 22nd week in a row in which U.S. explorers Oil boosted their rig count, the longest stretch of uninterrupted growth in more Crude (USD/bbl). 48.36 46.04 -4.80% than three decades. Domestic petroleum prices - set on fortnightly basis – Oil (US) NYMEX declined slightly by around 2% MoM, following international prices. Furnace (PKR/Ton ) 45,880 45,880 0.00% Agriculture Oil (HS) High Speed (PKR/Ltr) Urea prices remained stable MoM during June 2017, reflecting the impact of Diesel 81.40 79.90 -1.84% subsidy amounts released by the GoP to maintain prices, as well as high Motor inventory levels. Cotton prices decreased by nearly 3% MoM, due to shortage (PKR/Ltr) 72.80 71.30 -2.06% Spirit of phutti (seed cotton) and lack of buying interest from spinners (owing to Agriculture & Cement Ramadan and Eid-ul-Fitr holidays). Despite the fact that stocks are low, there KCA- (PKR/ 6,800 6,600 -2.94% have not been signs of panic buying. Going forwards, cotton prices in the Cotton Maund) local market may face some headwinds due to tepid demand from local mills. Urea (PKR/Bag) 1,365 1,365 0.00% Cement Cement (PKR/Bag) Total cement dispatches during June 2017 were recorded at 2.73 mn tonnes, (Avg.) 538.94 538.94 0.00% down 26.5% MoM and 18.62% YoY. This was the first month that dispatches were below 3 mn tonnes in 11 months, driven by weak domestic Sources for the above: SBP, Business Recorder, DAWN, Investcap, KITCO, PSO. demand. During FY 17, the cement sector recorded dispatches of 40.3 mn tonnes, up 3.7% from FY 16.

June 2017 The Abacus PromptTM Business Review – Pakistan Issue 78, Vol.7 June 2017 Page 4

Economy of Pakistan

Monetary Policy 6.00% Inflation The policy rate was left unchanged at 5.75% by the SBP in its bi-monthly 5.00% th Monetary Policy Statement issued on May 20 , 2017. The SBP’s decision was 4.00% broadly in line with the overall corporate sector and stock market stakeholders’ 3.00% expectations. Inflation expectations within the target range, expansion in real 2.00% economic activity, widening current account deficit, healthy private sector credit expansion, and availability of ample liquidity were cited by the SBP as major 1.00% reasons for maintaining the status quo in the policy rate. 0.00% Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May June Primary macroeconomic factors influencing the future direction of interest rates include changes in the overall Balance of Payments position, as well as the Food Inflation Core Inflation CPI currency exchange rate. While growth prospects in foreign exchange inflows from remittance and export proceeds are anticipated to remain modest, higher Imports and Exports (USD Billion) 5.01 5.00 5.09 expectations on the foreign direct investment front pertaining to CPEC-related 4.74 4.53 4.33 4.50 4.42 3.86 4.03 4.23 inflows as well as foreign portfolio investors’ interest in the reconstituted Pakistan 3.56 Stock Exchange may lend sustained support to the Balance of Payments. Moreover, despite the relative stability in the rupee parity against the USD 2.08 1.78 1.80 1.81 1.91 witnessed during CY 2016, any adverse movement in the country’s oil import bill 1.48 1.66 1.54 1.76 1.73 1.64 1.63 as well as scheduled foreign debt repayments by the GoP during CY 2017 could weigh unfavourably on the exchange rate and the overall Balance of Payments. This, in turn, may restrict the SBP’s ability to further reduce interest rates. On the July Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun policy front, the GoP’s measures aimed at incentivizing the export-oriented sectors Exports Imports Trade Deficit to arrest the declining trend in exports, as well as to maintain private sector credit Federal Tax Collection (PKR Billion) 527 off-take to support continuing growth in the Large-Scale Manufacturing sector 458 (which clocked in at 5.1% during 9MFY2017), may dissuade an increase in interest 363 rates. In view of the above, interest rates are unlikely to be increased significantly 341 338 346 259 287 259 298 and can be expected to stay at around current levels for the foreseeable future. 210 260 235 240 234 242 221 225 181 223 209 Tax Collection 156 162 143 The FBR reported provisional revenue collection at around PKR 527 bn in June 2017, taking the tax collection figures for FY17 to PKR 3,392 bn. This represents a shortfall of around PKR 129 bn against the revised FY 17 tax collection target of Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun PKR 3,521 bn. The IMF suggests a number of new revenue measures may be FY 2016 FY 2017 required in the upcoming fiscal year for the GoP to achieve the FY 18 revenue collection target of PKR 4,013 bn. Foreign Remmitances (USD Billion) 2.07 Power Sector 1.87 1.54 1.84 1.78 1.62 1.69 1.80 1.76 1.56 1.71 1.66 1.61 1.59 1.64 1.58 1.66 In a letter to the GoP on June 23, PSO stated that it is no longer in a position to 1.53 1.54 1.49 1.52 continue to carry the burden of debt servicing for PIA, whose outstanding dues 1.33 1.46 1.42 have accumulated to PKR 14.63 billion. The total receivables of PSO have swelled to PKR 287.4 billion as at the end of FY 17. Nepra, in its State of Industry Report, stated that load-shedding will not come to an end in 2018 as claimed by the incumbent government. The report estimates that the power shortage will be 3710 MWs in 2017 and 500 MWs in 2018. The Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun annual publication also cites the centralized control of the Ministry of Water and FY2016 FY2017 Power as one of the major reasons for continued deterioration of sector performance. Foreign Exchange Reserves (USD Billion) 24.02 The Ministry of Water and Power and Nepra failed to reach common ground on 23.00 23.03 23.62 23.38 23.19 21.19 23.10 22.24 22.07 21.01 21.37 21.57 20.80 21.35 the proposed amendments to the Regulation of Generation, Transmission and 20.81 20.35 20.92 20.07 19.85 19.82 20.29 Distribution of Electric Power Act 1997. 18.82 18.49 Inflation CPI was recorded at 3.9% during June 2017, down from 5.0% recorded in the previous month. This was largely a result of a decrease in the average prices of food in the country. Food inflation was recorded at 2.4%, down from 4.9% in May 2017. Core Inflation was recorded at 5.50%, remaining stable MoM during June 2017. Average CPI during FY17 was recorded at 4.15%, compared to 2.86% for FY 16. Inflation figures for FY 17 remained under the GoP’s average FY 17 Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun inflation target of 6.00%. FY2016 FY2017 Source: SBP, PBS, FBR.

June 2017 The Abacus PromptTM Business Review – Pakistan Issue 78, Vol.7 June 2017 Page 5

Economy of Pakistan

Other Key Indicators FY16 FY16 FY17 (B) (A) (B) Forex reserves were recorded at USD 21.37 bn in June 2017, higher 0.84% Real GDP Growth 5.5% 4.7% 5.7% MoM and down 7.49% YoY. Reserves held with the SBP were USD 16.14 GDP (mp) (PKR bn) 30,672 29,598 33,509 bn (down 1.68% MoM) and withFY15 commercialFY15 USDFY16 5.22 bn (up 9.32% MoM). (B) (Revised) (B) Average CPI 6.0% 2.9% 6.0% OverseasReal GDP Growthremittances during June5.1 amounted% to4.2% USD 1.84 5.5%bn, down 1.45% Remittances (USD bn) 17.2 19.9 19.0 GDPMoM (mp) and (PKR 11.24% bn) YoY. The 29, largest078 inflows27,384 were reported30,672 from Saudi Total Debt (PKR bn) 19,017 21,458 20,575 Arabia (USD 438 mn), UAE (USD 414 mn) and the USA (USD 265 mn). Total Debt (% of GDP) 62.0 72.5 61.4 TheAverage overall CPI share of GCC countries8% in overse4.8%as remittances6% to Pakistan was 59%. Exports (fob) (USD bn) 25.5 21.9 24.8 Remittances (USD bn) 16.9 18.5 17.2 According to the PBS, Pakistan’s exports in June were recorded at USD Imports (fob) (USD bn) 43.3 40.3 45.2 1.91Total Debt bn, up(PKR 17.5% bn) MoM. Growth17,069 in exports17,225 during 19,017 the month was Tax Collection (PKR bn) 3,418 3,024 3,421* Totalfacilitated Debt by(% ofthe GDP) PKR 180 bn subsidy58.7 package62.9 announced 62.0 in January 2017 Fiscal Deficit (% of GDP) 4.3 4.6 3.8 for incentivizing key export-oriented sectors; namely, textile & clothing, sportsExports goods,(fob) (USD surgical, bn) leather, 23.4 and carpets sectors.24.2 The subsidyNA package Current Account Deficit 1.0 1.1 1.0 (% of GDP) would be applicable till June 30, 2018. Imports (fob) (USD bn) 45.6 41.1 NA Source: SBP, Economic Survey of Pakistan, Budget in Brief FY16-17, News Articles. Imports decreased by 10.9% MoM to stand at USD 4.53 bn. Consequently, (B): Budgeted; (A): Actual; *: Revised. theTax Collectiontrade deficit (PKR w asbn )recorded at3,129 around USD2,910 2.62 bn in 3,418June, decreasing Fiscal24.3% Deficit MoM. (% The of GDP) overall trade deficit4.9 was recorded5.0 at USD4.3 32.58 bn in FY 17, increasing by 36.3% YoY. Sovereign Credit Ratings (foreign and local currency debt) Current Account Balance -1.0 -0.8 -1.0 According to the latest figures by the SBP, Pakistan’s 11MFY17 Current S&P: B / Positive / C (Foreign and Local-Short and Long term) (% of GDP) Account Deficit was recorded at USD 8.9 bn, higher Economy 177% YoY of, PakistanMoody’s: B3/Stable (LT Issuer Rating-foreign and local currency) accounting for 3.2% of GDP (as opposed to 1.3% of GDP in the Fitch: B/Stable (LT Issuer Rating-foreign and local currency) corresponding period of last year). Net FDI was recorded at USD 295 mn in May. 11MFY17 net FDI was recorded at USD 2.2 bn, up 8.6% on a YoY basis.

Major News & Events

 PSX conducted an IPO for sale of 20% stake to local investors.  Limited announced increase in sales from  Pakistan became as a member of the Shanghai Cooperation Kandhkot Gas Field to 230 mmscfd ahead of scheduled time. Organisation.  Syngenta Pakistan announced support for small and medium growers  Pakistan signed a USD 300 million loan agreement with the ADB to take up modern ways of farming. to support structural reforms and performance improvement of  announced plans to issue term finance certificates worth public sector enterprises. PKR 2 billion to comply with capital adequacy ratio requirements.  Pakistan and France signed a EUR 100 mn credit facility agreement  HabibMetro Bank signed an agreement with 1Link (Guarantee) to to implement a sustainable energy sector reforms program. issue PayPak debit cards.  approved the amalgamation of NIB Bank  (PSO) partnered with Telenor Pakistan to offer with MCB Bank Limited. branchless banking services through PSO’s retail outlets.  BOC Group announced to divest its entire shareholding in Linde  SECP notified the draft Companies Regulations, draft Intermediaries Pakistan Limited. Regulations, draft Limited Liability Partnership Regulations, and draft  United Motors Private Limited, Kia-Lucky Motors Pakistan Insurance Bill for the year 2017. Limited and Nishat Group obtained formal approval from MoIP to  NEPRA issued generation licences to three companies for bagasse- set up vehicle assembly and manufacturing units in Pakistan. based electricity generation.  Scania awarded exclusive distribution rights to Yousuf Dewan  The UK snap General Election 2017 took place, which cost the Companies to introduce its vehicle range in Pakistan. Conservatives their majority  BankIslami Pakistan extended its agreement with Audi Pakistan to  Saudi Arabia and 5 other countries severed diplomatic ties with Qatar provide financing packages to Audi’s customers.  Daimler and Volkswagen announced plans to enter China’s electric car market.

This report is for information purposes only and no action is being solicited through it. The material used is based Abacus Consulting Technology (Pvt.) Ltd. on information we believe to be reliable but we do not guarantee its accuracy or completeness. AbacusConsulting www.abacus-global.com will not be responsible for the consequence of reliance upon any opinion or statement herein or for any omission. Editor: Ahmad Raza Tahir

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