PSX benchmark index up 7.6pc wow
Pakistan Stock Exchange (PSX) continued its bullish momentum throughout the week, leading to a major increase in the benchmark index, registering its highest ever weekly point gains of 7,697 and market closed at a record high of 109,054 points, up 7.6%WoW on Friday, December 06, 2024.
The bullish momentum was fueled by November 2024 inflation recorded at 4.9%YoY, lowest in nearly six and half years, fueling expectations for continued monetary easing in the upcoming Monetary Policy Committee scheduled for December 16, 2024.
Major contributing sectors to this rally were commercial banks, followed by Fertilizer, and Oil & Gas Exploration. Interest in the banking sector continued to rise, with gross advances increasing by 21%YoY as of November 15, 2024, taking the ADR to 46.9%, with expectations of crossing the 50% threshold before the year-end to avoid ADR-based taxation.
Meanwhile, fertilizer sector advanced on ENGRO’s agreement to acquire the Jazz Tower business, coupled with the Lahore High Court’s approval of the FFC-FFBL merger.
Saudi Fund extends term of US$3 billion deposits for another year.
Trade deficit for November 2024 was reported at US$1.6 billion, down 19%YoY.
Total debt dropped by 1%MoM to PKR69 trillion in October 2024.
Foreign exchange reserves held by State Bank of Pakistan (SBP) increased by US$620 million, following a US$500 million loan disbursement from the Asian Development Bank (ADB), taking total reserves held by SBP to US$12.0 billion as of November 29, 2024.
Market participation increased by 21.5%WoW to 1.7 billion shares, as compared to 1.4 billion shares traded in the earlier week.
PKR remained stable against the greenback, closing the week at PKR278.01 to a US$.
Other major news flow during the week included: 1) Saudi crown prince accepted invitation to visit Pakistan, 2) Oil sales surged to 25-month high, 3) Cement dispatches increased 5.58%YoY, 4) FBR decided to put more curbs on FATA/PATA steel sector and 5) Prime Minister hinted towards cut in policy rate.
Vanaspati & Allied Products, Transport, Refinery, Cable & Electrical goods and Engineering were amongst the top performing sectors.
Major selling was recorded by Individuals, Insurance companies, and foreigners with a net sell of US$26.0 million, US$21.0 million, and US$14.2 million, respectively. Mutual funds and companies absorbed most of the selling with a net buy of US$44.0 million and US$10.7 million, respectively.
Top performing scrips of the week were: CNERGY, Airlink, PABC, NML, and PAEL, while laggards included: EFUG, JVDC, HBL, AKBL, and PSEL.
Continuation of monetary easing due to disinflationary environment and improving macroeconomic environment would make investment in equities more appealing, currently trading at P/E of 5.0x and DY of 10.2%. Moving forward, upcoming MPC meeting would remain in investor’s focus, also keeping cyclical sector attractive. Aforementioned factors, along with declining external financing requirement under the IMF program, would keep foreigners’ interest alive.
Top picks of AKD Securities include: OGDC, PPL, MCB, FFC, PSO, LUCK, MLCF, FCCL and INDU.
ENGRO has acquired Jazz tower business. Under the agreement, ENGRO will guarantee the repayment of Deodar’s debt amounting to US$375 million and provide an additional cash payment of US$187.7 million to PMCL. This translates to a total acquisition cost of US$563 million (PKR156 billion) or PKR14.9 million per tower. The cost of a new tower is estimated at US$60,000 to US$75,000 or PKR17 million to PKR20 million per tower).
According to the official statement, Jazz (PMCL) will continue to lease Deodar’s extensive infrastructure under a long-term partnership agreement.
As of June 30, 2024, ENGRO’s tower network comprised 4,063 towers with a tenancy ratio of 1.23x. Following this significant expansion, increasing the tower number to 15,000 may slowdown the tenancy growth.
AKD Securities expects the tower addition to turn Engro Connect profitable by CY25, contributing PKR2.6 to PKR7.6 per share to ENGRO’s consolidated earnings for CY25 and CY26, respectively, and target price impact of positive PKR51/ share. To recall, Engro Connect reported a loss of PKR2.2 billion (LPS: PKR4.1) in CY23 and PKR1.3 billion (LPS: PKR2.5) in 1HCY24.
TPLP has incurred a loss of PKR3.6 billion (LPS: PKR6.47) for FY24, reflects a decline of 15%YoY due to the issuance of 337.5 million units by REIT Fund I at par value, which led to NAV dilution, consequently resulting in an unrealized loss of PKR3.01 billion.
TPLP REIT Fund I achieved an NAV per unit of PKR17.90 as of September 30, 3024, up from PKR10.0 at financial close at end June 2022. Despite this growth, the share price continues to trade below its NAV, suggesting a potential undervaluation.
TPLP’s flagship project, One Hoshang, is 39% complete. Sales for the first six units was scheduled to commence on December 07, 2024, with full project completion is expected by FY26. The fund will be able to payout dividends by FY26, as per management.
TPLP plans to exit the current project of Technology Park, originally intended for leasing to generate steady cash flows, by selling the land with cash realization to be distributed to REIT unit holders. This is expected to result in earlier dividend payouts compared to initial projections.
TPLP plans to incorporate a larger Technology Park within Mangrove development, spanning 10,000 square yards. The proceeds from the sale of this park will be utilized to fund dividends and enhance the IRR of the overall project.
Construction for Phase 1 of the Mangrove project is scheduled to begin in 1QCY25, with an expected completion timeline of 2032-33. Currently, the project is 15% complete, with additional phases planned for subsequent years.
TPLP plans to construct a 4MW data centre on the outskirts of Karachi, which will be powered by an 18MW wind power project developed in partnership with the Gul Ahmed Group. With an estimated value of around US$58 million, the initiative will rely primarily on wind energy, enabling TPLP to transfer cost savings to end users.
Looking ahead, TPLP is well-positioned for future growth, driven by strategic initiatives like the development of the Mangrove project, One Hoshang and the Technology Park. With expected improvements in real estate market condition, declining interest rates and planned dividends, AKD Securities believes the company to receive renewed investor interest.