Trade Policy Review
The GoP announced the trade policy for FY10 in the backdrop of a deteriorating trade position, with the trade deficit rising to US$1.8bn in Jun’09. We are of the view that the export targets of US$18.86bn (6%YoY growth), US$20.68bn (10%YoY) and US$23.5bn (13%YoY) for FY10, FY11 and FY12 set by the Trade Policy FY10, are quite realistic considering that a likely weakening of the PkR exchange rate in the current year will improve export competitiveness. This process will be assisted by the recent hike in international commodity prices, where cotton and rice prices have risen by 46% and 4% respectively from their lows in Feb’09. However, in light of the skewed import structure where the share of inelastic items like fuel, machinery and raw materials has a weight of 86% in total imports, we think that the endemic external deficits will most likely worsen if either PkR depreciates or international commodity prices increase.
Telecom Sector: Annual Update Overweight
Telecom statistics recently released by the Pakistan Telecommunication Authority (PTA) show cellular teledensity improving to 58.2% in FY09 compared with 54.7% in FY08. Total Fixed Teledensity (Fixed Line Density and WLL Density) has meanwhile declined to 3.6% in FY09 compared with 4.1% in FY08. Total cellular subscriber base has increased by 7.18% to reach 94.3mn in FY09 against 88.0mn in FY08. Cellular growth in FY09 was negatively impacted by a general downtrend in the economy and PTA’s directives to curb illegal SIMs. During FY09, Mobilink reported a 9.04%YoY decline in its overall subscriber base, whereas Ufone, China Mobile, Telenor and Warid reported YoY net additions of 10.52%, 61.65%, 15.27% and 15.47% to their respective cellular bases. On the WLL front, total subscriber base has increased by 16%YoY to reach 2.61mn in FY09 against 2.26mn in FY08. Within the sector, we continue to rate PTCL as a Buy, which offers exposure to landline, WLL and the cellular market (Ufone).