LAHORE - The week started off on a positive note with the benchmark KSE-100 index making a fresh high of 35,538. However, political uncertainty and sell-off in oil stocks amid falling international oil prices (at 3-month low) wiped-off early gains. Hence, the KSE-100 index closed the week down 1% WoW at 35,112 with average trading volumes improving by 6% WoW to 378m shares/day. Foreigners remained net sellers worth US$22.4mn during the week, with crisis in Greece potentially playing on their minds. That said, cement sector continue to outperform others on strong June 2015 dispatches, while insurance stocks (+4% WoW) also attracted investors interest during the week. Other key highlights of the week were: (1) Sindh government extending Rangers special policing powers by one-month, (2) Government reducing 0.6% WHT on banking instruments of non-filers to 0.3% till Sept 30, 2015, (3) Foreign exchange reserves hitting record US$18.7bn mark, (4) Pakistan missing cotton sowing target by ~10%, (5) Banking deposits growing by 10% YoY in 1H2015 & (6) tariff for K-Electric (KEL) domestic users rising by 20-80%.

According to experts, index declined to close at 35,112 points, as investors remained apprehensive of further foreign selling. Major gain was seen in life insurance (5.0%), non life insurance (4.3%) and cement (3.5%), while major decline was witnessed in oil & gas (3.9%) and telecom (3.2%), during the outgoing week. Foreigners were net sellers of $22.8m during the week. Major net selling during the week was seen in sectors like chemicals ($11.0m), cement ($4.2m) and oil & gas ($3.7m). However, net buying by foreigners was witnessed in banks ($8.6m). Local banks were net sellers of $10.0m during the week, while local mutual funds were net buyers of $17.5m. During the week, Pakistan foreign exchange reserves climbed to all time high of $18.7b as country received $500m under 7th IMF tranche, as part of the Extended Fund Facility (EFF). Last week, govt has decided to reduce 0.6% withholding tax (WHT) on bank transactions of non-filers to 0.3% for a period of three months up to Sep 30, 2015. Govt has also decided to fix turnover tax on sector to sector basis and provide an opportunity to non-filers traders to file their returns. Finance Minister Ishaq Dar said that after Sep 30, non-filers would be required to pay full tax if they did not file their tax returns. In T-Bill auction held during the week, Govt raised Rs103bn against the target of Rs150bn. Cut-off yields maintained status quo as 3-month T-Bill settled at 6.93% (amount accepted Rs49.3bn), 6-month T-Bill at 6.95% (amount accepted Rs36.4bn) and 12-month T-Bill at 6.97% (amount accepted Rs17.3bn). In a notice sent to KSE, Masood Textile (MSOT) announced that Zheijang Xinao Industry of China has acquired 7.6mn shares (12.7%) of the company’s ordinary shareholding in a privately negotiated deal. Philip Morris (PMPK), in a KSE notice, stated that its board of directors (BoD) has approved an equity injection of up to Rs11bn in the form of non-voting, non-cumulative, irredeemable, convertible preference shares, without rights offering to Philip Morris Investments BV or Philip Morris Brands SARL. The BoD has also approved an increase in authorized share capital from Rs1bn (100mn ordinary shares) to Rs12bn (1.2bn ordinary shares).

Experts said that PSMC prints exciting 1QCY15 results on the back of incremental unit sales and sliding JPY, wherein the listed carmaker (PSMC) reported 1.1x YoY earnings hike to PKR946mn (EPS PKR11.5). On sequential basis, profitability of PSMC advanced 2.0x QoQ on the account of i) 56% QoQ surge in revenues to PKR19.6bn and ii) 4.3pps expansion in gross margins. Experts expect the strong profitability to continue in 2QCY15 as well, owing ‘Apna Rozgar Scheme’ which is likely to post its impression till February 2016 along with prolong positive impact of JPY devaluation. For CY15, they estimate company to post EPS of PKR54.7/share while dividend payout could be in tune of PKR11.0/share. We maintain our BUY call on PSMC at our TP of PKR489/share and the stock is currently trading at CY16F PE of 10.8x.

As per the data published by Oil Companies Advisory Committee (OCAC), total sales volume of Pakistan OMC sector grew by 4% YoY during FY15 to 22.2mn tons compared to 21.3mn tons in FY14. Furnace oil sales of the sector declined by 4% to 9.1mn tons during FY15 due to liquidity constraints faced by energy chain. Within this, Furnace oil sales by PSO witnessed major decline of 12%.

On retail fuels front, volumes of MOGAS and HSD rose by healthy 22% and 7% in FY15 to 4.7mn tons and 7.4mn tons, respectively. We link the growth to the lower prices of POL products and shortage of natural gas in the country.