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February 2014 No.89, Volume 8

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February 2014 No.89, Volume 8 ran nvestment TURQUOISE Monthly PARTNERS February 2014 - Volume 8, No 89 Orumirh salt lake, West Azarbaijan province, northwestern Iran Market Overview 2 The Tehran Stock Exchange (TSE) experienced a 5% decrease during the month of January; this came after a year of consistently positive performance in 2013. The market P/E ratio which at its peak on January 2nd reached 8.5 has declined to less than 8. In the last week of January, the next year’s budget plan was reviewed by the parliament. Country Overview 5 President Rouhani’s speech at the World Economic Forum and the Turkish Prime Minister’s visit to Tehran will be discussed in this section. Economy 7 Oil market’s response to Iran’s oil exports, drop in producer and export price indices and an over- view of in\ation and industrial production will be covered in this section. Iran Investment Monthly is produced by Turquoise Partners Turquoise Partners, No. 17 East Gord Alley, Bidar St., Fayyazi (Fereshteh) Ave. and distributed electronically by exclusive subscription. Tel : +98 21 220 35 830 Fax : +98 21 220 49 260 Chief Editor: Ramin Rabii Email : [email protected] Authors: Shervin Shahriari To nd out more about Turquoise Partners, visit our website at: Sanam Mahoozi www.turquoisepartners.com. Elham Fotovat © 2014 All rights reserved Radman Rabii Ehsan Ghamarian Market Overview Volume 8, No. 89 The Tehran Stock Exchange (TSE) experienced signi[cant impact on the pro[tability of listed a 5% decrease during the month of January; this companies. As stated, one of the reasons be- came after a year of consistently positive perfor- hind the price correction phase that the market mance in 2013. The recent price correction will experienced during the month of January was help bring current valuations of stocks to more re- the lower-than-expected earnings results report- strained levels. Valuations had been signi[cantly ed during the month. The sector that reported stretched due to the excess liquidity injected into the worst results, with a 70% quarterly drop in the stock market by individuals, particularly in the earnings compared to the previous quarter, was last quarter of 2013. The market P/E ratio which the housing and construction sector. This huge at its peak on January 2nd reached 8.5 has de- plunge in earnings is the result of the stagnation clined to less than 8 and the average price of that the country’s property sector has been go- shares has quickly moved towards more reason- ing through over the last several months. The able levels. sector’s index fell by 22% during January which made it the worst performing industry on the Meanwhile, in the last week of January, the next market. Most export-oriented companies, espe- year’s budget plan was reviewed by the parlia- cially in the metals and mining sectors, which ment. The budget plan is one of the most in\uential had been hurt by the appreciation of Iranian Rial drivers of the stock market’s performance. During over the last six months, also reported poor re- the month of February, analysts will be observ- sults. Auto-producers and banks also reported ing closely the parliament discussions in relation lower-than-expected earnings over the course to the budget plan and the government’s revenue of the autumn, with their industry indices falling and cost outlook for the coming Iranian calendar by 5% and 4.6% respectively. The only sector year. Of particular interest are some ambiguities that positively surprised the market and beat ex- in the market such as potential levies imposed on pectations in its earnings report was the phar- mining and petrochemical feedstock prices, and maceuticals sector. This is mainly due to price also the implementation of the subsidies reform increases that they recently bene[ted from plan. when the government raised the ceiling on its price controls. The pharmaceuticals index was We will now examine in detail a few individual sec- the best performer amongst all industries on the tors as well as some important developments in market, and the sector as a whole enjoyed a the market. 24% rise in companies’ quarterly earnings in the autumn in comparison to the summer. With rela- tively poor autumn performances for most sec- Quarterly company earnings reports tors in comparison to the market expectations, During the month of January and depending on it is likely that most companies will release cau- [ their [scal year, most listed companies released tious and conservative pro tability forecasts for their third quarter earnings reports. Earnings re- next Iranian year (beginning 21 March) within ported this time did not signi[cantly change the the next few weeks. previously reported forecasts of the total mar- ket pro[ts, and the [gure still stands at around $17 billion. This was released at a time when Petrochemical many investors, excited by the current positive The different committees within the Iranian par- atmosphere in the market and in the country as liament have approved a new price of 13 cents a whole, expected strong quarterly performance per cubic meter for the natural gas feedstock of which could result in positive adjustments to the petrochemical companies in reviewing the gov- earnings of listed companies. However, this ernment’s draft budget for the next Iranian year st news showed that even though the political cli- starting from March 21 . While previous rumors [ mate and international relations has improved suggested the proposition of a xed price for nat- over the last few months, it still has not had a ural gas, the committees were linking the cost of Iran Investment Monthly 2 Market Overview Volume 8, No. 89 the natural gas feedstock to the performance of Base Metals the petrochemical companies which use this com- The slowdown of the past 6 months or so in many modity in their production processes. The budget industries has taken its toll on demand for basic review committee had included a comment that metals. Even an average decline of 20% in the the natural gas feedstock prices should be such price of metals has failed to stimulate demand. that the IRRE of these petrochemical companies For example, the average price of steel products not exceed 25 percent. Aside from the lack of on the Iran Mercantile Exchange (IME) has fallen clarity of this comment, it was also unclear how by around 12% over the past 3 months. Nonethe- such a policy would be implemented for different less, major steel producers were only able to sell companies. Overall, the stocks of petrochemi- half of their supplies on the IME. Consequently, cal [rms experienced dif[cult days, especially in stock prices of most companies in this sector ex- the last two weeks of January. This resulted in perienced price declines. Khouzestan Steel, Iran’s the petrochemical sector index to fall by 4.5% on second largest producer, was down 21% this past the Tehran Stock Exchange. This was the worst month. Similarly, stock prices of National Iranian monthly performance of this sector in the last 12 Copper Industries Co (NICIC) and Iran Aluminum months. Co (IRALCO) fell by 15% and 24% respectively. IRALCO was the worst performer of this sector. Iron Ore Production Reduced demand and declines in the prices of The stocks of companies which are exposed to base metals have put signi[cant pressure on the global prices have seen a gradual reduction in revenues and the pro[t margins of companies in pro[tability due to the strengthening of the Rial this sector. Latest earnings reports reveal that net against foreign currencies. In accordance with pro[ts of the companies in this sector have, on av- this trend, iron ore producers have reduced their erage, fallen by 10% in the fourth quarter of 2013 anticipated income by an average of 6% for this in comparison to the previous quarter. year. The main reason behind this has been the reduction of the price of steel ingots offered on Overall, the sector index lost 11.6% of its value in the Iran Mercantile Exchange to which the price of January. iron ore is pegged. Aside from the above mentioned factors, the de- cision in regards to increasing excavation duties of iron ore companies to 30% of the sale price of concentrates was passed and approved by the parliamentary committees. As a result of this de- cision, the pro[tability of iron ore companies will decrease by an average of 10% during next year in comparison to this year’s [gures. These fac- tors resulted in a 12% drop in the index of iron ore companies on the Tehran stock exchange during January which placed this sector amongst the worst performing sectors of the market. Con- sidering the above mentioned [gures, the pro[t- ability of iron ore companies will be faced with challenges in the short term given the higher ex- cavation duties and lower sale prices; however, development projects place these companies in the category of stocks with growth potential in the long term. Iran Investment Monthly 3 Market Overview Volume 8, No. 89 Performance of TSE AllRShare Index (January) 92,000 90,000 88,000 86,000 84,000 82,000 80,000 78,000 76,000 Market Statistics Average P/E 7.5 Trade Volume ($ Billion) 3 Trade Value Monthly Change (%) - 33 Market Cap ($ Billion) 163 Top 5 Traded by Value Rank Company Name Turnover Value ($Million) % of Total Turnover 1 Isfahan Oil Re[ning Co. 300 10 2 Iran Khodro Industrila Group 158 5 3 Power Plant Project Management Co. 150 5 4 Tamin Petrochemical Co.
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