LAHORE - Despite delay in announcement of a caretaker PM that played on investor’s nerves, bulls had their upper hand at the local bourse. Resultantly, the KSE 100-index closed the week at the 17,963 level, a gain of 1.7 per cent WoW with improved average daily turnover of 186 million shares.

The major highlights during the week included SBP’s directive to banks to pay 6 per cent p.a. on average monthly balance; court decisions relating to ICH and LDI operators; and decline in forex reserves to $12.4b.  Naveed Tahsin, an analyst from JS, stated that despite all odds facing the economy, including severe power cuts, deteriorated law & order and fresh investments being at historic lows alongside political transition being underway, Pakistan equities are on the go, and so for sure amid undeterred corporate earnings growth of the listed sector. The KSE-100 companies, representing over 70 per cent of the benchmark, have recorded a massive growth of 31 per cent on a QoQ basis (Oct-Dec12 over Jul-Sep012). Major sectors driving this QoQ earnings growth were telecom, fertilizer cement despite heavyweights like E&P, OMC and banking being key drags. However, on a YoY basis, 1HFY13 as well as full-year CY12 (Banking, chemical, fertilizer), profits were marginally up by 1 per cent. Following is provided a table highlighting reasons underpinning corporate profitability growth in mentioned periods.

Post 2012 results, experts raise earnings estimates for Lafarge Pakistan Cement (LPCL) by 19 per cent/11 per cent/6 per cent over 2013F/14F/15F, building in higher margins given firm cement prices and weak international coal prices.

They also roll forward valuation and raise target price to Rs7.10 (from Rs6.10). Given LPCL is trading at a slight premium to sector peers despite a less efficient cost structure (Dec quarter gross margin is 200bp below sector average), they maintain ‘Hold’ call on the stock.

LPCL posted 2012 PAT of Rs 1,488 million (EPS: Rs1.13) vs loss of Rs118 million (LPS: Rs0.09) in the same period last year. The company also announced a cash dividend of Rs0.3/share. The impressive result was due to the 1) upswing in sector margins and 2) a tax reversal.

Though an awful year for the fertilizer sector came to an end, clouds of uncertainties still roam around the sector. Among key issues, with respect to the fertilizer sector, gas remains on top. Companies on the SNGPL’s network suffered the most, with complete gas shutdown for almost 290 days in CY12. Since a long-term gas plan has been on the cards, for the plants operating on the SNGPL network, the new ray of hope has eventually spelled out new soul into the fertilizer sector scrips once particulars of the long-term plan were approved by the ECC.  CY12 was a miserable year for Engro Corporation, as its fertilizer arm (Enven) only managed to operate for 45 days during the entire year. This was the prime factor in dragging company’s bottom-line by a heft hefty 77 per cent YoY in CY12. Silver lining appears on the horizon with the approval of long term gas plan, which will enable ENGRO to operate both of its plants though at a higher gas price of PKR 426/mmbtu, expected to be materialized by 2QCY14.

Meanwhile, ENGRO is expected to receive gas from SNGP’s network as and when available on the agreed price of PKR 70/mmbtu. FFC remained the biggest beneficiary in terms of gas curtailment to peers in CY12, thanks to Mari’s gas network, which faced least gas curtailment (~12 per cent-15 per cent).

FFC remained the market leader in urea sales, as the company managed to cater 46 per cent of total urea offtake with capacity utilization at 120 per cent. FFBL’s plant remained shut on numerous occasions due to persistent gas curtailments during CY12. We expect CY13 not to bring any major turnaround in terms of gas availability.