PSX benchmark index up 5%WoW
Pakistan Stock Exchange (PSX), despite experiencing volatility recorded a hefty increase of 5,248 points in benchmark index. Market closed at another high of 114,302 points, marking an increase of 5%WoW on Friday, December 13, 2024.
With the CPI remaining below the 5% threshold and T-Bills yields in the recent auction dropping to 12% for the 3-months and 6-months paper, down 100bps and 89bps respectively, investors’ optimism has been bolstered, fueling expectations for continued monetary easing in the upcoming (MPC) meeting scheduled for December 16, 2024. The news about potential imposition of additional tax on banks put the sector under pressure.
Automotive industry sales for November 2024 were reported at 13,856 units, up 37%YoY.
Workers’ remittances grew to US$2.9 billion, up 29.1%YoY.
Foreign exchange reserves held by the State Bank of Pakistan (SBP) increased by US$13 million to US$12.0 billion as of December 06, 2024.
Average daily trading volume declined by 19.0%WoW to 1.4 billion shares, from 1.7 billion shares traded in the earlier week.
PKR remained stable against the greenback, closing the week at PKR278.12 to a US$.
Other major news flow during the week included: 1) assets under management mutual funds exceeded PKR3 trillion mark, 2) Petroleum Division will soon start issuing notices to CPPs for disconnecting gas supply, 3) Punjab government to give free solar panels to 100,000 households, 4) National Savings reduces profit rates by up to 250bps and 5) PAF announced to buy PIA engineering unit for PKR6.5 billion.
Oil & Gas Exploration companies, Mutual Funds, Oil & Gas Marketing Companies, Refinery and Miscellaneous were amongst the top performers, while Commercial Banks, Modarabas, Textile Spinning,
Synthetic & Rayon and Automobile Parts & Accessories were amongst the laggards.
Major selling was recorded by Brokers with a net sell of US$3.3 million, while Mutual Funds absorbed most of the selling with a net buy of US$8.6 million.
Top performing scrips of the week were: MARI, SHEL, ATRL, NML, and PSO, while laggards included: ABL, BAFL, MEBL, BAHL and BOP.
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 5.7x and DY of 8.7%.
Aforementioned factors, along with declining external financing requirement under the IMF program, would keep foreigners’ interest alive.
AKD Securities recommends sectors that benefit from monetary easing and structural reforms. However, modest economic recovery may limit the upside for cyclicals.
Top picks of the brokerage house include, OGDC, PPL, MCB, HBL, FFC, PSO, LUCK, MLCF, FCCL and INDU.
ENGRO – Acquisition of Jazz tower business to enhance valuation. 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. For reference, the cost of a new tower is estimated at US$60-75,00 or (PKR17-20 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 2024, ENGRO’s tower network comprised 4,063 towers with a tenancy ratio of 1.23x. Following this significant expansion, which will increase the tower network to 15,000, which may slowdown the tenancy growth.
AKD Securities expects this tower addition to turn Engro Connect profitable by CY25, contributing
PKR2.6/ PKR7.6/ share to ENGRO’s consolidated earnings for CY25F and CY26F, respectively, and target price impact of positive PKR51/ share. To recall, Engro Connect Pvt Ltd. reported a loss of PKR2.2 billion (LPS: PKR4.1) in CY23 and PKR1.3 billion (LPS: PKR2.5) in 1HCY24.
In FY24, TPLP incurred a loss of PKR3.6 billion (LPS: PKR6.47/ share), reflecting 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 2024, up from PKR10.0 at financial close in 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 will commence on December 7, 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 center on the outskirts of Karachi, which will be powered by an 18MW wind power project developed in partnership with the Gul Ah-med Group. With an estimated value of around US$58mn, 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, we believe the company to receive renewed investor interest.