AAKASH CAPITAL LIMITED

Weekly Newsletter from Aakash Capital Limited for the week ending on 19th April, 2019

NEPSE UPDATE

Indicators 15th April, 2019

18th April, 2019

(+)/(-) %

NEPSE 1188.71 1232.26 3.66% SENSITIVE 254.77 265.56 4.24% FLOAT 87.37 90.98 4.13% BANKING 1058 1121.69 6.02% HOTELS 1752.01 1784 1.83% DEVELOPMENT BANKS 1483.3 1508.66 1.71% HYDROPOWER 1133.42 1132.73 -0.06% FINANCE 616.12 622.76 1.08% NON LIFE INSURANCE 5442.67 5468.89 0.48% MANU. & PRO. 1992.09 1996.7 0.23% OTHERS 700.42 704.26 0.55% MICROFINANCE 1437.02 1471.38 2.39% LIFE INSURANCE 5980.28 6073.65 1.56%

Market Summary Statistics (15th April to 18th April)

Total Turnover (Rs) 2,620,205,307.00

Total Traded Shares 8,642,026.00

Total Number of Transactions 33,021.00

Scrips Traded 171.00

Market Cap at Week start 1,468,438.06 Millions

Market cap at Week end 1,528,200.22 Millions

Floated Market Cap at Week start 516,784.54 Millions Floated Market Cap at Week end 540,475.63 Millions

Bullion Update

As on 19th April, 2019 Hallmark Gold Rs.59,100/tola

Worked Gold Rs.58,800/tola

Silver Rs.725/tola

Quote for the week

“The secret to investing is to figure out the

value of something, and then pay a lot less”

-Joel Greenblatt

The market jumped 3.66% or 43.55 points in the

trading week between April 15 and April 18. Along

with Nepse index, the sensitive index which measures

the performance of blue chip companies also inclined

4.24% or 10.79 points. Similarly, float index also went

up 4.13% or 3.61 points.

The market index started the first trading day of the

New Year in green zone. The secondary market had

opened at 1184.22 points on Sunday and went up

4.49 points to end the day at 1188.71. The index

continued to see strength in the remaining trading

days too. On Monday the market index grew by 23.34

points, supported by a good turnover of Rs 742.72

million. The index added a modest 4.99 points on

Wednesday, while the turnover grew to Rs 821.70

million. Further, the index soared by 15.22 points on

Thursday to end the trading week at 1232.26.

In the review period, all the sub-indices except for

hydropower posted gains. The commercial bank, the

heavyweight sub-index, escalated 6.02% or 63.69

points. It was followed by microfinance that went up

2.39% or 34.36 points. The stocks in hotels,

development banks, finance and life-insurance all

managed to add at least 1% return. Hydropower, on

the other hand, lost -0.06% or 0.69 points.

As was the case in previous trading week, the market

witnessed an enthusiastic trading volume. The total

turnover during the review period stood at Rs 2.62

billion. Daily turnover averaged Rs. 655.05 million.

The total market value increased by Rs 59762.16

million as the market capitalization increased by

4.07% during the trading week.

The fourth quarter of this FY is approaching. With this,

the government usually accelerates its spending to

meet its budgeted target for the fiscal year. This will

add up the much needed liquidity cushion in the

banking channel. Similarly, with the third quarter

results in the offing, investors have anticipated good

financials of the listed companies. These must be the

reason of rising optimism in the market.

.

News Update

Inflation currently at 4.2pc

Consumer price inflation (CPI) in mid-March stood at 4.2 per cent, as per Nepal Rastra Bank’s Macroeconomic Update. The

mountain region witnessed 5.5 per cent inflation followed by 4.6 per cent in hilly region, 4.6 per cent in Inflation at 4.2pc the

Valley and 3.6 per cent in Tarai…Read More

Exports to China drop by 27 per cent

The country’s exports to China have come down by a whopping 27.6 per cent in the first eight months of the current fiscal

year, because of significant drop in the export of pashmina and woolen carpets. The country could export goods worth only Rs

1.35 billion to China during the first eight months of fiscal 2018- 19 though goods worth Rs 1.86 billion were exported during

the same period in the previous year…Read More

Nepse makes PAN compulsory for big share investors

With an aim to encourage transparency in the country’s sole secondary market, Nepal Stock Exchange (Nepse) has made

Permanent Account Number (PAN) mandatory for high-volume share investors from this year. Traders conducting daily

transactions of above Rs 500,000 should submit their PAN…Read More

External sector position continues to worsen

Balance of Payments (BoP) deficit widened in the eighth month of the current fiscal year, indicating the worsening external

sector position of the country. The BoP has slipped into a deficit of Rs 58.99 billion in the review period compared to Rs 24.73

billion in the same period of the previous fiscal year...Read More

Market Announcements

19,443,082 units 18% bonus shares of Nepal Investment Bank Limited has been listed by NEPSE.

3,80,938 Units Rights Shares of Synergy Finance Ltd.(now Best Finance Company Ltd.) has been listed in NEPSE.

Nepal Bank Limited has announced its 59th AGM going to be held on 22nd Baishakh, 2076

Civil Bank Limited has announced its 7th & 8th AGM going to be held on 27th Baishakh, 2076.

Kumari Bank Limited has announced it's 17th & 18th AGM going to be held on 26th Baishakh, 2076

Nadep Laghubitta Bittiya Sanstha Limited has announced its 4th AGM going to be held on 26th Baishakh, 2076.

Jebils Finance Limited has announced its 8th & 9th AGM going to be held on 20th Baishakh, 2076.

Development Bankers Association Nepal has announced its 13th AGM going to be held on 27th Baishakh, 2076.

National Hydro Power Company Limited has announced a book closure date for its upcoming 22nd AGM from Baisakh 15

to Baisakh 20, 2076.

Everest Insurance Company Limited has announced a book closure date for its upcoming 1:3 ratio right share on 8th

Baishakh, 2076.

Nabil Investment Banking Limited issuing 120 million units of Rs 10 face value each mutual fund scheme worth Rs 1.2

billion Nabil Balance Fund- 2 to the general public from 5th Baishakh, 2075.

Himalaya Urja Bikas Company Limited has allotted its 14,85,000 unit IPO shares to the general public on 3rd Baishakh,

2076.

NMB Bank Limited has allotted its 16,84,505 units @ Rs.1000 per unit "10% NMB Debenture 2085" to the general public on

29th Chaitra, 2075.

Unnati Microfinance Bittiya Sanstha Limited has allotted its 5:1 ratio 1,10,000 units of ordinary right shares on Baisakh 03,

2076.

NEPSE - TECHNICAL ANALYSIS

The Nepalese stock market declined continuously after it made its top on 27th of July, 2016. Currently, the index is in a short

term bullish trend after it made its bounce back from the low of 1098.95 on 5th March, 2019. This week the market closed at

1232.26. All four candles during the trading period were bullish. This week NEPSE opened at 1184.22 and formed a bullish

candle by closing at 1188.71 which was 4.69 points higher than the previous day’s closing value. On second day, a bullish

marubozu was formed, breaking the psychological resistance level of 1200. This is a strong indication of bullish sentiment in

the market. A bullish three white soldiers pattern can be observed in the last three trading days Overall, the sentiment in the

market remained bullish throughout the trading week along with the increase in volume.

Taking the Fibonacci retracement from 1131.14 to 1232.26, the 0.618 Fibonacci ratio lies at 1169.74. So, the market holds a

psychological support level at 1169.74. The immediate support of the Nepse index lies at 1166 whereas a strong support level

is at 1098. In this trading week, the market continued its bullish momentum, breaking the resistance level of 1200.

Along with the change in momentum, the market witnessed enormous increase in volume this week. Although there were

sellers in the market, bulls ultimately won over the bears. The Nepse Index is likely to continue its bullish momentum with

some corrections in between as it has crossed a strong psychological resistance level of 1200.

With the overall sentiment remaining bullish, the market index made a satisfying closing during the review trading week.

Relative Strength Index (RSI) Analysis

RSI is a moment indicator that measures the magnitude of recent price changes to evaluate overbought or oversold conditions

in the price of a stock. RSI is typically used on a 14-day time frame, measured on a scale from 0 to 100, where a value above 70

represents overbought and below 30 represents oversold condition.

Current RSI value of NEPSE is 79.49 which implies the market is at overbought zone. This indicates a bullish signal. There isn’t

any kind of RSI divergence seen in the market as the rise in Price and RSI is somewhat similar.

Moving Average Convergence Divergence (MACD)

MACD is a momentum oscillator formed by using two different moving averages, typically a 26 day EMA and 12 day EMA,

which provides specific buy/sell signal. When the MACD line crosses signal line from above, it is considered bearish, indicating

a sell signal and vice-versa.

Currently MACD and signal line is at 19.78 and 6.20 respectively. Both are above the base line, and MACD line is above the

signal line after the golden cross on 1st April, 2019. This represents a bullish signal and hence a buy signal.

Moving Average Analysis

Moving average is a technical analysis tool that smooths out price data by creating a constantly updated average price. It is

used to identify the trend direction, support or resistance levels and also to generate potential buy/sell signals. Price crossover

and MA crossover are some of the strategies that can be used to buy/sell a stock.

The EMA (5, 0) is at 1211.48 and EMA (20, 0) is at 1178.96. After making a golden cross on March 10, 2019, currently the gap

between the two lines is widening. The market is currently trading above both 5 days and 20 days Exponential Moving Average.

This indicates that the index is at a short term bullish momentum and gives buy signal in the market.

Bollinger Band

Bollinger band is a technical indicator that consists of a set of lines plotted two standard deviations up and below a 21-day

simple moving average. The bands are an indication of volatility; a widening gap indicates higher volatility and vice-versa.

Prices are relatively high when above the upper band and low when below the lower band.

The upper, middle and the lower bands are at 1226.59, 1170.19 and 1124.92 respectively. The market is trading in the upper

band which indicates that the market is at overbought zone.

Stock Analysis: Prabhu Insurance Limited (PRIN)

Introduction

Prabhu Insurance Limited (PRIN) is a non-life insurance company incorporated in July 1995 as Alliance Insurance Company Ltd.

(AICL). The company obtained regulatory approval to undertake general insurance business on July 16, 1996 from the

Insurance Board of Nepal. The name was changed to Prabhu Insurance Limited with effect from 9th April 2015, following the

acquisition of majority stake in Alliance Insurance by individuals/private companies affiliated to Prabhu Management Group.

The company has been offering a range of general insurance covers for businesses and individuals and has a comprehensive

range of general insurance products for fire, marine, motor, aviation, accidental, medical, micro, agriculture and cattle etc.

It has a paid-up capital above Rs 1 billion by the end of fiscal year 2074/75.

Board of Director

The Board of Director of PRIN consists of 3 from promoters group, 3 from public shareholders and 1 representative from

Employee Provided Fund. The Board of Director is chaired by Ms. Kusum Lama, a major shareholder and a very prominent

figure in diverse areas of business such as remittance, banking & finance, and Mr. Sanchit Bajracharya, who has worked in

managerial capacity for last 21 years in governmental sector, international organization and service industry, is the current

CEO of the company.

Name Designation

Ms. Kusum Lama Chairman, BOD

Mr. Rajendra Malla Member, BOD

Mr. Krishna Bahadur Kunwar Member, BOD

Mr. Ashok Khadgi Member, BOD

Mr. Kedar Nath Gautam Member, BOD

Mr. Ranakeshav Pradhan Member, BOD

Mr. Raj Gopal Rajbhandari Member, BOD

Current Share Holding Composition

PRIN has 51:49 promoter-public shareholding ratios with major shareholding from Prabhu Group. Along with Prabhu Group,

Employees Provident Fund is also one of the major shareholders of the company with 15% shareholding.

Shareholders Percentage

Promoters

Nepalese corporate bodies 15

Nepalese citizens 36

Total 51

Ordinary share holders 49

Financial Highlights

16.23 18.26

29.3832.91

57.75

6.70 6.068.19 10.40

14.69

0.00

10.00

20.00

30.00

40.00

50.00

60.00

70.00

2012/13 2013/14 2014/15 2015/16 2016/17

Paid up capital and Reserve (crores)

Paid up Capital Reserve & Surplus

96.22

125.47

173.46

248.15

330.52

0.00

50.00

100.00

150.00

200.00

250.00

300.00

350.00

2012/13 2013/14 2014/15 2015/16 2016/17

Insurance Fund(crore)

594.84632.75

731.46761.79

837.49

0.00

100.00

200.00

300.00

400.00

500.00

600.00

700.00

800.00

900.00

2012/13 2013/14 2014/15 2015/16 2016/17

Total Premium(crore)

71.10

58.50

95.97

149.37

164.76

0.00

20.00

40.00

60.00

80.00

100.00

120.00

140.00

160.00

180.00

2012/13 2013/14 2014/15 2015/16 2016/17

Net Profit(crore)

32.59%

24.76%

31.01%

36.94%

28.47%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

40.00%

2012/13 2013/14 2014/15 2015/16 2016/17

Return on Equity

10.85%

7.38%

9.65%

12.66%

11.31%

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

2012/13 2013/14 2014/15 2015/16 2016/17

Return on Asset

Company Financials

Yearly Analysis

The following table presents the trend of financial performance of PRIN from the FY 2013/14 to 2016/17:

Particulars 2012/13 2013/14 2014/15 2015/16 2016/17

Paid up Capital 162,325 182,621 293,811.10 329,073.30 577,523.64

Reserve & Surplus 67,049 60,615 81,931.49 104,000.45 146,885.98

Insurance Fund 96,222 125,472 173,459.40 248,145.89 330,523.78

Net Profit 71,097 58,501 95,974.11 149,372.98 164,755.77

Net Profit Margin 15.24% 13.43% 18.40% 26.74% 29.69%

Total Premium 594,844 632,754 731,459 761,793 837,493

Net Premium 376,303 346,322 365,545.63 435,895.16 391,500.59

Net premium to Gross premium 63.26% 54.73% 49.97% 57.22% 46.75%

Net Claim Payment 161,290 224,206 230,180 195,061.28 165,636.67

Re-Insurance Commission Income 50,166 54,084 57,873.26 78,234.57 128,140.26

Return on Asset 10.85% 7.38% 9.65% 12.66% 11.31%

Return on Equity 32.59% 24.76% 31.01% 36.94% 28.47%

Net Worth per Share 200.58 208.77 194.46 218.28 191.94

Earnings per Share 43.8 32.03 32.67 45.39 28.53

Dividend per Share - - 12 17.73 20.21

P/E 3.06 18.2 10.71 32.38 35.05

Solvency margin - - 2 3 5

Particulars 2012/13 2013/14 2014/15 2015/16 2016/17

Total no. of Policies 60,262 68,677 72,215 71,346 72,874

Total no. of Claims 1,463 1,357 1,624 3,120 1,720

No of staffs 112 108 114 116 128

No of office 11 11 19 19 19

Based on the data presented above, it can be seen that the company has been growing at a slow pace. The total revenue as

well as net profit of the company has been somewhat erratic; the profit declined in FY 2013/14, then increased at a declining

rate in the following 3 years. Having said that, the net profit margin has improved in recent years. This shows the company

has been able to generate more revenue and contain its expenses.

The insurance business of the company is also increasing in a steady pace. The total number of policies sold has grown by

CAGR of a mere 3.87% in the last five years. As a result, the total premium collected has also grown at a slow pace. During

2016/17, the company’s premium increased by 10% y-o-y in contrast with the industry average of 27%. The net premium

declined 10.19% in the recent year on the back of increase in reinsurance business. As a result, the retention ratio of the

company declined to 46.75% from 57.22% a year ago. Because of this, the reinsurance commission of the company improved

substantially. Income from investment, on the other hand, has been in a declining trend. On the back of slow increase in

business, the net claim payment has also stayed somewhat constant in the five year period.

The company has been gradually building up its balance sheet by slowly increasing its reserve and surplus and life insurance

fund. Similarly, the company has also been injecting capital to meet the regulatory requirement of Rs 1 arba. The earning per

share of the company declined in recent years following the increasing proportion of outstanding shares in comparison to the

increase in earnings. So, the net worth and earning per share can be considered descent. The return on assets and return

on equity has been satisfactory. The return on assets and return on equity has been satisfactory. The company has

been using its assets and equity properly in generating income.

Quarterly Analysis

The following table presents 2nd Quarter analysis of the company for the FY 2074/75 to 2075/76.

Particulars (‘000) Q1 17/18 Q1 18/19 % change Industry avg

Paid up Capital 577,524 1,005,076 74.03% 684,840.51

Reserve & Surplus 157,525 190,078 20.67% 372,379.47

Insurance Fund 342,435 458,189 33.80% 508,749.88

Net profit 23,823 30,491 27.99% 41,512.10

Net premium 151,395 174,236 15.09% 190,430.51

Total premium 253,499 272,015 7.30% 408,313.07

Net premium to gross premium 59.72% 64.05% 7.25% 46.63%

Reinsurance Commission income 41,497 43,680 5.26% 55,170.29

Income from loan, investment and other 7,575 9,636 27.21% 17,542.98

Claim payment (net) 61,678 62,173 0.80% 89,123.85

EPS 16.5 12.13 -26.48% 25.99

Net worth per share 187 164 -12.30% 263.72

P/E 71.51 40.71 43.95

ROE 8.82% 7.4% -16.10% 10.56%

ROA 4.4% 4.99% 13.41% 5.85%

Even though PRIN has been able to strengthen its balance sheet position quarter to quarter, it is clear from the data

presented above that the company has reserve and surplus and insurance fund below the average industry. During the first

quarter of 2018/19, the company’s gross premium increased by 7.3% to Rs 272 million compared to the corresponding period

of previous year. It reported a net profit of Rs 30.49 million, which increased by almost 28% on the back of increased income

from insurance commission and investment. It can be seen that the income form investment, however, is still well below the

industry average. The net premium increased by 15.09% and the retention ratio of premium stands at 64.05%.

It is clear from the quarter-to-quarter analysis that even though the company has done fairly well in comparison to previous

quarter, the company is still behind the industry average in almost all variables.

Dividend History

Dividend 2014/15 2015/16 2016/17

Dividend Per Share 12 17 20.21

Bonus % 12 17 19.2

Cash % 0 0 1.01

It can be seen that the bank has been providing regular dividend to its shareholders for past three years. Moreover, over the

last five years, the company has focused more on stock dividend.

Technical Analysis of PRIN as on 18th April, 2019

Day Candle

Open 412

High 424

Low 411

Close 423

Pattern Analysis

Chart Pattern Downtrend

Resistance R1: 441 R2: 477

Support S1: 400 S2: 380

Higher Breakout Level 503

Particulars Points Remarks

Volume 6,277 The daily volume and weekly volume of the

stock is higher than that of the month. Avg. Volume (1 week) 5,866.40

Avg. Volume (1 month) 5,048.86

No. of Transaction 30 The daily number of transactions is higher than that of average transaction of the week and month.

Avg. no. of Transaction (1 week) 26.60

Avg. no. of Transaction (1 month) 28.48

180 days Average 451.82 The price of the stock is trading below 180 days and below 360 days average. 360 days Average 587.94

52 Weeks High Price 825 The stock is currently trading closer to 52 weeks low price. 52 Weeks Low Price 380

Nepse Index 1 year Change -9.59% The overall market in the least 12 months is in a downtrend and so is the industry. But, the one year downfall of the stock is very high than that of the market.

Industry Index 6 months Change -5.46%

Stock 1-Month Change 1.20%

Stock 1-Year Change -43.22%

Monthly Beta 1.302 The monthly and quarterly beta of the stock is higher than the market. Quarterly Beta 1.556

Total Holdings of Mutual Funds (Falgun) 120,556 The Mutual Funds are not holding much shares of the company.

Stock Holdings of Top Broker (from June, 2018) 19,154 The sum of Stock holdings of 5 Brokers is shown with the average of their average buying and selling price. The holding period is taken after the price adjustment for 46% right share.

Top Broker Avg. Buy Price 794.66

Top Broker Avg. Sell Price 781.63

Concluding Remarks

The company has long track record and shared brand name with Prabhu Group and has an institutional promoter support in

Employee Provided Fund. However, the company has a modest business growth; growth of gross premium has a CAGR of

7.08% during FY 2013-17. The company has a very low market share in the insurance industry in terms of total premium

collection, accounting to just 4.44% of the total industry. With new non-life insurance companies entering the market, the

way forward for the company would be to tackle competition by scaling up the operations while maintaining the solvency

ratio, investment quality, profitability ratio and diversifying its business from the currently motor-insurance concentrated

business.

Indicators Points Remarks

RSI (14) 55.19 PRIN is at moderate zone.

MACD (12,26,9) 0.9459 The MACD line is slightly above baseline and the signal line. The MACD line above the signal line gives buy signal. Signal Line (12,26,9) -0.4826

Histogram (12,26,9) 1.4286

EMA (5,0) 418.91 EMA 5 is slightly above the EMA 20 after the recent golden cross, and the price is just above both the EMAs. EMA (20,0) 415.55

+DMI(13,8) 31.21 The +DMI is dominant over –DMI and ADX is above 25 which gives support to current trend. The indication of ADX isn’t proper in sideways trend.

-DMI(13,8) 16.63

ADX (13,8) 27.02

Chaikin Money Flow (20) -0.0583

CMF is below the baseline which shows some selling pressure for the stock in the market.

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Disclaimer and important information: This document has been prepared by Aakash Capital Limited for information and

illustration purpose only. The information provided in this document is subject to change. While this information has been

obtained from sources believed to be reliable, Aakash Capital Limited is not liable for erroneous information obtained from the

sources. Aakash Capital Limited, its directors and employees are not liable/responsible for any direct, indirect or consequential

loss arising from use of this document or its contents. Past performance is no indication of future results. Aakash Capital is

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