AAKASH CAPITAL LIMITED

Weekly Newsletter from Aakash Capital Limited for the week ending on 12th April, 2019

NEPSE UPDATE

Indicators 7th April, 2019

11th April, 2019

(+)/(-) %

NEPSE 1182.36 1184.02 0.14% SENSITIVE 252.98 253.64 0.26% FLOAT 86.7 86.91 0.24% BANKING 1052.98 1052.12 -0.08% HOTELS 1747.19 1729.52 -1.01% DEVELOPMENT BANKS 1476.79 1479.7 0.20% HYDROPOWER 1150 1138.74 -0.98% FINANCE 617.68 618.12 0.07% NON LIFE INSURANCE 5338.65 5435.73 0.11% MANU. & PRO. 2046.54 1981.75 -3.17% OTHERS 708.04 705.7 -0.33% MICROFINANCE 1371.38 1395.16 1.73% LIFE INSURANCE 5885.31 5991.53 1.80%

Market Summary Statistics (7th April to 11th April)

Total Turnover (Rs) 2,992,968,530.00

Total Traded Shares 10,491,374.00

Total Number of Transactions 38,797.00

Scrips Traded 170.00

Market Cap at Week start 1,445,062.37 Millions

Market cap at Week end 1,462,507.74 Millions

Floated Market Cap at Week start 510,241.07 Millions Floated Market Cap at Week end 514,021.46 Millions

Bullion Update

As on 12th April, 2019 Hallmark Gold Rs.59,600/tola

Worked Gold Rs.59,300/tola

Silver Rs.720/tola

Quote for the week

“Games are won by players who focus on the

playing field – not by those whose eyes are

glued to the scoreboard.” -Warren Buffet

The market gained a negligible 0.14% or 1.66 points in

the trading week between April 7 and April 11. Along

with Nepse index, the float index and sensitive index

also went up by 0.24% or 0.21 points and 0.26% or

0.66 points respectively.

The secondary market had opened at 1164.94 points

on Sunday and went up 17.42 points to end the day at

1182.36; the gain was backed by a good turnover

amount of Rs. 543.96 million. On Monday too the

market witnessed active trading as the total turnover

rose to Rs. 906.93 million; on the backdrop of raising

volume, the index gained 9.32 points during the day.

Selling pressure prevailed in the market on Tuesday as

investors opted for profit-booking; nonetheless,

investors continued to trade enthusiastically as

turnover stood at Rs. 735.16 million. The market

gained a modest 3.51 points on Wednesday and lost a

minimal 0.59 points on Thursday to end the trading

week at 1184.02.

In the review period, the development banks, finance,

non-life insurance, microfinance and life insurance

subgroup ended in green, while banking, hotels,

hydropower, manufacturing and processing and

others subgroup landed in red. The stocks in life

insurance sub-sector gained the most this week as it

gained 1.80%, or 106.22 points. On the other end was

manufacturing and processing that lost 3.17%, or

64.79 points during the trading week.

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 2.99

billion. Daily turnover averaged Rs. 598.59 million, a

rise of 43.23% compared to previous week. The total

market value increased by Rs 17445.37 million as the

market capitalization increased by 1.21% during the

trading week.

The market witnessed a surge in trading volume this

week. The investors traded with optimism reflected in

an increase in trading volume as Q3 results approach.

.

News Update

Nepal is 19th largest receiver of remittances with $8.1 billion

Nepali migrant workers sent home $8.1 billion in 2018, making it the 19th biggest beneficiary of funds sent by migrants around

the world, according to a report released by World Bank. The remittances were up 16.39 percent year-on-year despite a drop

in the number of departures…Read More

Government targets 50 percent insurance coverage in 5 years

The government has targeted to bring half of the population under the coverage of health and life insurance in the next five

years. The government said its main focus will be on promoting the health and micro insurance at the grass roots level. The

government released the target in its concept paper of the 15th Five Year Plan…Read More

NRB simplifies bank account opening process to support financial inclusion campaign

Nepal Rastra Bank (NRB) has simplified the process of opening bank account as part of its effort to help the government in

increasing people's access to finance. The new rule introduced by the central bank not only requires bank and financial

institutions (BFIs) to use simplified know-your-customer (KYC) form under 'Lets Open Bank Account Campaign, 2076', but also

paves the legal way for allowing them to deposit Rs 100 on those accounts from the bank's side…Read More

Co-ops to be restricted from charging exorbitant interest rates

Cooperatives will now be restricted from charging exorbitant interest rates on loans as the government has approved the

regulations to the Cooperative Act 2017 that envisage a separate mechanism to fix the interest rate. As of now, there are no

restrictions on the interest rate being offered by the cooperatives to the depositors. Similarly, the cooperatives have also been

charging hefty interest rate from the borrowers in absence of the related law…Read More

Market Announcements

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

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

Shree Ram Sugar Mills Limited has cancelled its 24th AGM going to be held on 28th Chaitra, 2075.

Sanjen Jal Vidhyut Company Limited has published an offer letter to issue 54,75,000 units IPO shares to the general public

from 6th to 10th Baishakh, 2076.

Rasuwagadhi Hydropower Company Limited has published an offer letter to issue 1,02,63,150 units IPO shares to the

general public from 6th to 10th Baishakh, 2076.

Nepal Agro Laghubitta Bittiya Sanstha Limited has published an offer letter to issue 1,61,778 units IPO shares to the

general public from 8th to 11th Baishakh, 2076.

Ganapati Microfinance Bittiya Sanstha Limited has published an offer letter to issue 3,35,000 units IPO shares to the

general public from 9th to 12th Baishakh, 2076.

Global IME Bank Limited has allotted its 6,00,000 units "10.25% Global IME Bank Limited Debenture 2080/81" to the

general public on 28th Chaitra, 2075 and is refunding money to non-allottee investors from 2nd Baishakh, 2076.

Gurans Life Insurance Company Limited is issuing it's 2:1 ratio 29,70,000 units right share to its shareholders from 28th

Chaitra, 2075.

Asian Life Insurance Company Limited is issuing it's 1:0.6 ratio 75,40,352.73 units right share to its shareholders from 25th

Chaitra, 2075.

NEPSE - TECHNICAL ANALYSIS

The Nepalese stock market is in bearish trend after the market made its top on 27th of July, 2016. This week the market closed

at 1184.02 making a red doji type candle on the last trading day of the week. This week NEPSE opened at 1164.94 and formed

a larger bullish candle on the first day by closing at 1182.36 which was 17.16 points higher than the previous day’s closing

value. 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 1197.88, the 0.618 Fibonacci ratio lies at 1156.72. So, the market holds a

psychological support level at 1156.72. The immediate support of the Nepse index lies at 1166 whereas a strong support level

is at 1098. In this trading week, the market couldn’t continue its bullish momentum and couldn’t break the resistance level of

1200.

Along with the change in momentum, the market witnessed enormous increase in volume this week. However, the market

couldn’t sustain its bullish momentum at the end of the very week. The Nepse Index will make a strong trend and continue its

bullish momentum only if it crosses the 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 66.126 which implies the market is at moderate zone. 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 12.77 and 8.59 respectively. MACD line is above the signal line which gives 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 1181.09 and EMA (20, 0) is at 1161.6. The market is currently trading above 5 days but 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 1193.65, 1158.57 and 1123.49 respectively. The market is trading in the upper

band which indicates that the market is at overbought zone. The red candle on the last trading day is giving signal of fall

towards the support of middle band.

Stock Analysis: Asian Life Insurance Company Limited (ALICL)

Introduction

Asian Life Insurance Company Limited (ALICL) is a life insurance company that started its operation from April 03, 2008 after

registering as public limited company as on November 13, 2007 and received operating license as per Insurance Act 2049 from

Insurance Board of Nepal on February 27, 2008. ALICL, the fifth life insurance company to be licensed by Beema Samiti, has

established itself as a mid-sized life insurance company in Nepal over the period. The company has been offering an extensive

range of insurance products as money back, endowment, whole life, joint life, term life, micro life insurance products etc.

through its strong and diversified sales network.

The authorized capital of the company is Rs 2 billion and the paid up capital is Rs 1.25 billion. With the 60% right already

approved from SEBON, the paid up capital is set to reach Rs 2.01 billion, which is slightly more than the regulatory

requirement.

Board of Director

The board of director of ALICL consists of 4 from promoter group and 2 from public shareholders. The board is chaired by Mr.

Dipak Kumar Shrestha, who possess experience in various bank and financial institutions and hydropower sector. Mr. Rajesh

Kumar Shrestha is the CEO of the company. He has been handling the company since August 2012 and has overall work

experience of more than two and half decades in Insurance and banking sector.

Name Designation

Mr. Dipak Kumar Shrestha Chairman, BOD

Mr. Sushanta Chachan Member, BOD

Mr. Surendra Kumar Goyal Member, BOD

Mrs. Shilpa Pradhananga Member, BOD

Mr. Ravi Kumar Gupta Member, BOD

Mr. Saurav Rungata Member, BOD

Current Share Holding Composition

ALICL has 70:30 promoter-public shareholding ratio with 93 promoters of the company-2 institutional and remaining 91

individual promoters. These two institutions are Mahalaxmi Development Bank and Guheshwori Merchant Banking and

Finance.

Shareholders Percentage

Promoters

Nepalese corporate bodies 2.23

Nepalese citizens 67.25

Total 69.48

Ordinary

Nepalese corporate bodies 7.51

Nepalese citizens 23.02

Total 30.53

Financial Highlights

49.71 52.13

67.13 67.13

80.56

25.4530.43

19.36

28.2018.98

0.00

10.00

20.00

30.00

40.00

50.00

60.00

70.00

80.00

90.00

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

Paidup Capital and Reserve (crores)

Paid up Capital Reserve & Surplus

3.15

4.43

5.85

7.74

10.00

0.00

2.00

4.00

6.00

8.00

10.00

12.00

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

Insurance Fund (arba)

1.151.38

1.65

2.00

2.29

0.00

0.50

1.00

1.50

2.00

2.50

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

Total Premium (arba)

12.54

7.51

5.47

9.92

5.09

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

Net profit (crore)

3.59%

1.58%

0.51%

1.34%

0.46%

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

3.50%

4.00%

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

Return on Asset

18.22%

9.53%

3.70%

11.67%

5.12%

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

16.00%

18.00%

20.00%

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

Return on Equity

Company Financials

Yearly Analysis

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

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

Paid up Capital ('000) 497,128.40 521,296.90 671,327.70 671,327.70 805,593.24

Reserve & Surplus ('000) 254,502.96 304,317.61 193,642.78 282,039.25 189,849.95

Insurance Fund ('000) 3,145,653.35 4,429,657.21 5,854,822.81 7,744,325.44 10,000,111.40

Net Profit ('000) 125,427.32 75,125.33 54,673.77 99,166.26 50,925.59

Total Premium ('000) 1,152,392.94 1,381,682.71 1,651,309.46 2,003,363.81 2,293,953.49

Net Premium ('000) 1,148,580.33 1,375,990.81 1,641,197.96 1,999,500.49 2,278,504.88

Net premium to Gross premium 99.67% 99.59% 99.39% 99.81% 99.33%

Net Claim Payment ('000) 59,901.51 81,778.73 111,062.37 116,508.04 166,070.04

Re-Insurance Commission Income ('000) 3,697.55 1,483.43 1,341.99 - -

Return on Asset 3.59% 1.58% 0.51% 1.34% 0.46%

Return on Equity 18.22% 9.53% 3.70% 11.67% 5.12%

Net Worth per Share 204 158 132 147 128

Earnings per Share 25.23 14.41 8.14 14.77 6.32

P/E 10 87 124 116 231

P/BV 1.22 7.9 7.67 11.63 11.39

Solvency margin 3.18% 1.65% 1.65% 1.56% 2.36%

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

Total no. of Policies 207,523 195,862 183,243 195,862 177,861

Total no. of Claims 2,622 2,263 1,869 1,473 1,108

No of staffs 273 298 295 302 299

No of office 86 93 93 95 95

Based on the data presented above, it can be seen that the company has a moderate track record. The company has been

able to grow its insurance business, shown by its increase in total premiums collected, albeit in a moderate pace. The CAGR of

the growth of total premium collected stands at 14.76%. Of the total premium collected, the company has been retaining

almost all of the premiums by itself as shown by the net premium to gross premium ratio. This is to say that the company has

been taking an astounding risk. The impact of this is seen in the reinsurance commission income, which is negligible. The

company has also been able to attract new policy holders year by year (shown by the increasing trend in first premium) but

declined slightly in the FY 2016/17.

The company has been gradually increasing its paid up capital. The insurance fund has also been growing healthily. Similarly,

the investment income of the company is also in an increasing trend over the period. Further, the investment portfolio is

expected to grow post the right issue and the recent uptick in the interest rate prevailing in the banking industry is likely to

add to investment income as majority of its investment are in fixed and interest bearing deposits.

However, the worrying sign for the company is its net profit. The company has an erratic net profit, which further declined in

the FY 2016/17. The net profit declined by almost 49% in the FY 2016/17 over FV 2015/16 mainly because of the provision it

created for investment loss. The net profit has not been satisfactory. The result of erratic income profit is clearly seen on the

return on equity and return assets, which clearly follows the net income.

Another weakness of the company lies on its concentration on endowment policies. The company has not diversified to other

policies such as Foreign Employment Term Policies; other life insurance companies source large business from the same.

On the price multiple front, the company’s price to earnings ratio has increased rapidly. The company has not be able to

increase its earnings per share in a constant manner, despite the fact that outstanding share quantity has not increased

rapidly. The same is the case with price to book value ratio.

Quarterly Analysis

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

Particulars Industry average Q2 17/18 Q2 18/19 % change

Paid up Capital('000) 1878399.11 805593 1256726 56.00%

Reserve & Surplus('000) 1025523.82 254322 263446 3.59%

Insurance Fund('000) 23001171.71 11324200 15001327 32.47%

Net profit('000) 113167.69 25862 28928 11.86%

Net premium('000) 3410403.15 1214420 1734888 42.86%

Total premium('000) 16713687.57 12980100 17734808 36.63%

Net premium to gross premium 97.61% 99.18% 99.93% 0.76%

Reinsurance Commission income 5145.81 - - 0.00%

Income from loan, investment and other('000) 930887.15 40796 59732 46.42%

Claim payment (net)('000) 1195374.25 79407 150114 89.04%

EPS 12.02 6.42 4.6 -28.35%

Net worth per share 146.56 131.57 120.96 -8.06%

P/E 80.29 214.15 132.94 -37.92%

ROE 16.44% 4.88% 7.61% 55.94%

ROA 2.72% 0.40% 0.70% 75.00%

The company hiked the capital and the reserve and surplus increased slightly in the second quarter of this year compared to

the corresponding period of previous year. The life insurance fund has also increased from Rs 11.32 arba in Q2 of previous

year to Rs 15 arba this year, representing a growth of 42.86%. The company’s net profit improved slightly from Rs 25.86 crore

to Rs 28.92 crore this quarter. It represents an 11.86% growth compared to previous quarter. On the revenue side, the net

premium collected grew by 42.86% from Rs 1.2 arba to Rs 1.73 arba. Likewise, the income from loan, investment and other

grew by a satisfactory 46.42% from Rs 4.07 crore to Rs 5.97 crore. Because of the rise in capital and relatively slow increase in

profit, the earning per share has declined to Rs 4.6 from Rs 6.42.

The company has a below industry average performance in most of the important variables. This shows that the company has

room for improvement.

Dividend History

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

Dividend Per Share 28.42 8.29 30 21.05 4.21

Bonus % 27 8.29 28.5 20 4

Cash % 1.42 - 1.5 1.05 0.21

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

company has focused more on stock dividend.

Technical Analysis of ALICL as on 11th April, 2019

Day Candle

Open 400

High 418

Low 403

Close 409

Pattern Analysis

Chart Pattern Sideways

Resistance 445 538

Support 370 290

Higher Breakout Level 445

Particulars Points Remarks

Volume 5,452 The daily volume and weekly volume of the

stock is higher than that of the month. Avg. Volume (1 week) 7,296.60

Avg. Volume (1 month) 4,185.67

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

Avg. no. of Transaction (1 week) 42.60

Avg. no. of Transaction (1 month) 26.90

180 days Average 558.14 The price of the stock is trading below 180 days and below 360 days average. 360 days Average 777.52

52 Weeks High Price 940 The stock is currently trading near to 52 weeks low price. 52 Weeks Low Price 370

Nepse Index 1-Year Change -2.76%

The overall market is at the downtrend and so as the industry. But, the one year downfall of the stock is higher than that of the market.

Industry Index 6-month Change 7.3%

Stock 1-Month Change 2.25%

Stock 1-Year Change -41.57%

Monthly Beta 1.297 The monthly and quarterly beta of the stock is higher than the market. Quarterly Beta 1.474

Total Holdings of Mutual Funds (Poush) 166,650 The Mutual Funds are holding good no. of shares.

Stock Holdings of Top Broker (from 23rd Dec, 2018)

24,478 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 10% bonus share.

Top Broker Avg. Buy Price 395.09

Top Broker Avg. Sell Price 399.34

Concluding Remarks

The company has a decade long experience in the life insurance fund with an experienced board and management team,

diversified and adequate geographical coverage through its branches and health growth in gross premium. However, the

company lacks institutional backing in the promoters’ front. The company also has a modest business growth; growth of gross

premium has a CAGR of 14.76% 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 6% of the total industry. With new 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 endowment focused

business.

Indicators Points Remarks

RSI (14) 42.39 ALICL is at moderate zone.

MACD (12,26,9) -19.54 The MACD line is below the baseline but above the signal line. The MACD line above the signal line gives buy signal. Signal Line (12,26,9) -29.42

Histogram (12,26,9) 9.89

EMA (5,0) 403.87 The EMA 5 is below and EMA 20 is closer the price line. As EMA 5 is moving upward, chances of a golden cross is higher in coming days. EMA (20,0) 409.82

+DMI(13,8) 27.56 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) 22.99

ADX (13,8) 32.49

Chaikin Money Flow (20) -0.157

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

60% right share of ALICL

Asian Life Insurance Company Limited is issuing the right shares in the ratio of

1:0.6 or 60% 75,40,352.73 units to its existing shareholders at par value.

Eligible shareholders can apply for the right from Chaitra 25, 2075. The last

day to apply is on Baisakh 29, 2076.

The eligible shareholders for the right issue are recommended to subscribe to

the right shares so as to maintain their proportionate holding in the company

and prevent from dilution of their share holdings. In addition, they can

subscribe the shares at par value i.e. Rs. 100, whereas the shares are currently

trading at market at Rs. 409.

Investing Solutions

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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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