LAHORE - Investor sentiment at the KSE turned positive after SBP’s decision to cut the discount rate by 150bps against market’s expectation of a 50-100bps rate cut. The buoyant mood of the market drove the KSE-100 Index pass the 15,000 level for the first time since April 30, 2008. On a WoW basis, KSE-100 index gained 1.6 per cent to close at 15,000. Average volumes rose by 158 per cent WoW to 155m shares. Foreigners were net buyers of $35.6m during the week (inflated by one-off $30m COLG transaction). With Jun’12 result season still ongoing, specific stocks remained in the limelight following their results.

Macro indicators showed a mixed trend as trade deficit (increase by 4.77 per cent YoY) and foreign direct investment (down by 50 per cent YoY) portrayed a weak picture, while remittances (up by 9.9 per cent YoY) remained among the few bright spots on the macro landscape.

In the 1st PIB auction after the discount rate cut, cut-off yields decreased by up to 137bps taking their cue from the SBP’s 150bps rate cut to 10.5 per cent. Cut off rates for 3, 5 and 10 year PIB are now at 11.30 per cent, 11.70 per cent and 12.05 per cent respectively.

Experts said that relative calmness on the political front, signs of further improvement in Pak-US relationship coupled with above expectation cut in the discount rate created positive vibes amongst the investors. Overall, index gained 238pts during the week to close at 63-months high level, with average traded volume improved by a significant 104 per cent to Rs4.6b. Major activity was witnessed in cement stock while KESC also remained in the lime light.  

During the week, Allied Bank Limited (ABL) announced above expected profit after tax of Rs6.7bn (EPS: Rs7.03) in 1H2012 – an increase of 32 per cent YoY. In 2Q2012, ABL posted an impressive 19 per cent QoQ growth in the bottom line to Rs3.6b. Also, the company announced a second interim cash dividend of Rs1.5 per share, consequently taking the cumulative cash dividend payout to 3.5 per share for 2012 so far.

Net interest income remained under pressure posting a decline of 20 per cent YoY in 1H2012. Nevertheless, huge gains on sale of securities (up 5x QoQ) in 2Q helped supported the decline in the topline. Resultantly, non interest income jumped by a massive 129 per centYoY in 1H2012. In addition, lower provisions and write offs of Rs281m (down 72 per cent YoY) also helped shore up the earnings.

These earnings contribute 58 per cent to our current full year earning estimates of Rs12.2 per share. During the week, National Bank of Pakistan (NBP) also announced its 1H2012 earnings in line with  expectations, posting unconsolidated PAT of Rs8.2b (EPS: Rs4.43), an increase of 1 per cent YoY. In 2Q alone, the bank’s earnings dipped by 23 per cent QoQ and 8 per cent YoY to Rs3.6b (EPS: Rs1.92). The bank did not announce any payout with the result.

Despite declining net interest income (down 7 per cent YoY to Rs21.1b) in 1H2012, NBP managed to post a meager growth of 1 per cent YoY in the bottom line. The growth was led by lower provisions and write offs (down 45 per cent YoY) and healthy non interest income of Rs10.5b (up 7 per cent YoY). Nevertheless, substantial increase in operating expenses (up 12 per cent YoY) somewhat curtailed the growth in the bottom line.

These earnings contribute 41 per cent to our full year’s earning estimates of Rs10.79. At current levels the stock is trading at 2012E PE and PBV of 4.1x and 0.6x, respectively.