AAKASH CAPITAL LIMITED

Weekly Newsletter from Aakash Capital Limited for the week ending on 10th May, 2019

NEPSE UPDATE

Indicators 5th May, 2019

9h May, 2019

(+)/(-) %

NEPSE 1277.68 1291.96 1.12 SENSITIVE 273.96 276.52 0.93 FLOAT 87.19 87.94 0.86 BANKING 1148.26 1161.18 1.13 HOTELS 1925.00 2000.80 3.94 DEVELOPMENT BANKS 1546.22 1549.01 0.18 HYDROPOWER 1178.36 1162.35 -1.36 FINANCE 622.89 618.50 -0.70 NON LIFE INSURANCE 5799.34 5844.79 0.78 MANU. & PRO. 2184.65 2379.14 8.90 OTHERS 718.87 730.10 1.56 MICROFINANCE 1523.42 1524.58 0.08 LIFE INSURANCE 6741.93 6764.65 0.34

Market Summary Statistics (5th May to 9th May)

Total Turnover (Rs) 3,468,143,423

Total Traded Shares 12,401,838

Total Number of Transactions 38,525

Scrips Traded 176

Market Cap at Week start 1,583,157.29 Millions

Market cap at Week end 1,603,591.17 Millions

Floated Market Cap at Week start 556,657.62 Millions Floated Market Cap at Week end 562,918.53 Millions

Bullion Update

As on 10th May, 2019 Hallmark Gold Rs.60,000/tola

Worked Gold Rs.59,700/tola

Silver Rs.720/tola

Quote for the week

“An important key to investing is to remember

that stocks are not lottery tickets”

-Peter Lynch

The market increased by 1.12% or 14.28 points in the

trading week between May 5 and May 9. The

sensitive index, which measures the performance of

blue chip companies, also increased by 0.93% or 2.56

points. Similarly, float index also went up 0.86% or

0.75 points.

The secondary market had opened at 1294.53 points

on Sunday and went down 16.85 points declining to

1277.68.04 points. However, on Monday, the market

index increased by 21.73 points reaching to 1299.42.

The trend continued on Tuesday increasing by modest

1.87 points but decreased with 3.68 and 5.64 points

on Wednesday and Thursday respectively, closing the

trading week at 1291.96.

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

hydropower and finance posted gains. The

manufacturing & processing experienced highest gain

with 8.90%, mainly because of the rise in price of

Shivam and Himalayan Distillery. The hotels

experienced second highest gain with 3.94% or 75.80

points. The other sector and banking increased by

1.56% and 1.13% respectively. The development

banks, non-life insurance, life insurance and

microfinance all increased by less than one per cent.

Hydropower and Finance, on the other hand, lost

1.36% and 0.70% respectively.

The trading volume has been quite satisfactory for

several trading weeks now. The total turnover during

the review period stood at Rs 3.47 billion. Daily

turnover averaged Rs. 693.63 million. The total

market value increased by Rs 20433.88 million as the

market capitalization increased by 1.29% during the

trading week.

Currently, the index is hovering around the

psychological resistance level of 1300, without

significantly breaching this level. Bears slightly won

over the bulls this trading week.

.

News Update

Government raising Rs 86 billion in domestic debt in final quarter

The government is raising Rs 86 billion in domestic debt in the last quarter of the current fiscal year – FY2018/19, departing

from the practice of mobilizing internal loans in multiple phases by publishing calendar typically at the beginning of a fiscal

year..Read More

National Reconstruction Authority allocates Rs 156 billion budget for upcoming fiscal year

The National Reconstruction Authority has allocated Rs one hundred 56 billion budget for the fiscal year 2019-2020 to expedite

reconstruction and rehabilitation works…Read More

MoPIT budget set to increase by 35 percent

Budget allocation for Ministry of Physical Infrastructure and Transport will grow by 35 percent to Rs 137 billion for the next

fiscal year which starts from mid-July… Read More

Remittance inflow keeps increasing

Appreciation of the US dollars against the Nepali currency, tightening of informal trade and presence of Nepali banks abroad

are major factors that have helped increase remittance inflow in the nation…Read More

Firms asked to register details by this fiscal year

The government has asked firms based in Kathmandu Valley to mandatorily register the details of their firms and their

employees and make regular deposits at the Social Security Fund (SSF)…Read More

Trade deficit balloons to Rs 992 billion in Q3

Nepal's trade deficit widened by 21.42 percent in the first nine months of the current fiscal year to Rs 991.79 billion. The trade

deficit of the country widening at an alarming rate in last few years has been a major concern for the government…Read More

Ncell tax issue prolongs as court upholds order not to collect dues

The legal battle between the tax authorities and Ncell and its parent firm, Axiata, over capital gains tax is set to prolong as the

Supreme Court continued its interim order to the government to not collect the dues from the mobile company…Read More

Market Announcements

Shree Ram Sugar Mills Limited has announced it's 24th AGM going to be held on 30th Baishakh, 2076.

NLG Insurance Company Limited has announced it's Special General Meeting going to be held on 14th Jestha, 2076.

Panchakanya Mai Hydropower Limited has announced its 2nd & 3rd AGM on 20th Jestha, 2076.

Sanjen Jal Vidhyut Company Limited has allotted its 54,75,000 units IPO shares to the general public on 19th Baishakh,

2076.

Union Hydropower Company Limited has allotted its 34,10,310 units IPO shares to the general public on 19th Baishakh,

2076

Rasuwagadhi Hydropower Company Limited has allotted its 1,02,63,150 units IPO shares to the general public on 19th

Baishakh, 2076

Ganapati Microfinance Bittiya Sanstha Limited has allotted its 3,35,000 units IPO shares to the general public on 20th

Baishakh, 2076.

Mero Microfinance Laghubitta Bittiya Sanstha Limited has allotted its 1:1 ratio 30,79,351 units right share to its

shareholders on 17th Baishakh, 2076 and refunding money to non-allottee investors from 23rd Baishakh, 2076.

Civil Bank Limited is selling its 17, 53,598 unit promoter shares in an auction to the general public from 26th Baishakh to

9th Jestha, 2076.

Gurans Laghubitta Bittiya Sanstha Limited had closed its 2,50,000 units IPO shares to the general public from 20th

Baishakh, 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 correction after continuous bull candle last week and short term positive trend after Nepali new year. This week the

market closed at 1291.96 forming red candles on last two trading days. This week NEPSE opened at 1294.53 and formed a red

candle by closing at 1277.68 losing 16.85 points during the day. There was stable and quiet supportive transaction turnover

from Rs. 650,378,454 to Rs. 947,347,776 on the last trading day of the week.

Taking the Fibonacci retracement from 1098.95 to 1296.92, the 0.618 Fibonacci ratio lies at 1174.48. So, the market holds a

psychological support level at 1174.48.

As mentioned in our previous newsletter, immediate support was at 1280. The market has returned from support zone of

1280 but it failed to touch the resistance zone of 1314 instead it has returned from 1301. Next support might be again at 1280.

Looking at the weekly chart, market is in downtrend after it made its top on 27th July 2016. Downtrend market has

shown short term bull basically in the month of March and April in last three years. Currently, market is trying to

break the trend line supported by good volume. It might be the situation of wait and watch for the investors.

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 has fallen to 65.82 which implies the market is trying to fall towards oversold zone. This indicates a

strong seller dominance in the market. Regular bearish divergence has seen in the market and it is moving towards a support

zone.

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 31.36 and 32.71 respectively. MACD has already crossed the signal line which indicates

high chance of fall towards base line however, both the signal lines are above the base line.

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 1260.60 and EMA (20, 0) is at 1264.12 After making a golden cross on March 10, 2019, currently the gap

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

This indicates that the overall market is trying to come at support zone after a short term bullish momentum.

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 1348.79, 1262.88 and 1176.98 respectively. The market is trying to fall towards

the support of middle band after continuous trading in the upper band for few weeks.

Stock Analysis: Global IME Bank Limited (GBIME)

Introduction

Global IME Bank Limited (GBIME) was established in 2007 as an ‘A’ class commercial bank in Nepal. The bank emerged after

successful merger of ‘A’ class commercial bank, Global Bank Ltd; ‘C’ class financial institution, IME Finance and another ‘C’

class financial company, Lord Buddha Finance Ltd in year 2012. In the following years, it merged with other development and

commercial bank on numerous occasions to come where it is today. Today, it has 136 branches, 10 extension counters, 15

revenue collection counters and operates 142 ATMs throughout the country strategically placed for the convenience of

customers.

GBIME has been conferred with “The Bank of the Year Award 2014” for Nepal by the Bankers Magazine (Publication of the

Financial Times, UK), “Best Internet Bank 2016- Nepal” by International Finance Magazine, London and “Best Employer Award

2018” by World HRD Congress, India.

The bank has an asset size of Rs. 133.67 billion as on mid-January 2019. It has a market share of 4.26% in terms of deposit base

and 4.33% in terms of total loans and advances in Nepal as on mid-January 2019.

Board of Director

The bank is promoted by individual promoters who have great history of success in various different sectors like finance,

remittance, trading, export, automotive services, manufacturing, media services and hydropower and is managed by a team of

experienced bankers and professionals.

The Board of Director of GBIME consists of 2 from promoters group, 3 from public shareholders and 1 independent director.

Mr. Chandra Prasad Dhakal, who is the Executive Chairman of IME Group of Companies, is the chairman of the board and Mr.

Mahesh Sharma Dhakal is the acting CEO of the bank.

Name Designation

Mr. Chandra Prasad Dhakal Chairman, promoter group

Pawan Kumar Bhimsaria Director, promoter group

Mr. Sudarshan Krishna Shrestha Director, public shareholder group

Mr. Suman Pokhrel Director, public shareholder group

Mr. Krishna Prasasd Sharma Director, public shareholder group

Mr. Numanath Poudel Director, Independent

Current Share Holding Composition

Global IME Bank has authorized capital of NPR 16 billion and paid up capital of NPR 10.31 billion. The promoters hold 51.18%

while 48.82% is floated for the public. Current shareholder structure of the bank is as below:

Particulars Percent Capital Invested(million)

Promoter shareholders 51.18 NPR 5,276.92

Public Shareholders 48.82 NPR 5,033.59

Total 100 NPR 10,310.51

Financial Highlights

4.98

6.167.15

8.89

10.31

1.15 1.16 1.562.42

3.23

0.00

2.00

4.00

6.00

8.00

10.00

12.00

2070/71 2071/72 2072/73 2073/74 2074/75

Paidup capital and reserve and surplus( in arba)

Paid up Capital Reserve and Surplus

52.2960.18

74.68

101.91 104.85

43.0250.23

59.22

78.9788.88

0.00

20.00

40.00

60.00

80.00

100.00

120.00

2013/14 2014/15 2015/16 2016/17 2017/18

Deposit and Loans and advance (in arba)

Deposit Loans and Advance

97.40 96.06

138.22

200.62

210.14

0.00

50.00

100.00

150.00

200.00

250.00

2070/71 2071/72 2072/73 2073/74 2074/75

Net Income (in crore)

19.57

15.58

19.33

22.57

23.64

0

5

10

15

20

25

1 2 3 4 5

EPS

1.62%

1.39%

1.58%

1.75%1.67%

0.00%

0.20%

0.40%

0.60%

0.80%

1.00%

1.20%

1.40%

1.60%

1.80%

2.00%

2070/71 2071/72 2072/73 2073/74 2074/75

ROA

16%

13%

16%

18%

15%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

2070/71 2071/72 2071/73 2073/74 2074/75

ROE

Company Financials

Yearly Analysis

The following table presents the trend of financial performance of GBIME from the FY 2070/71 to 2074/75:

Particulars 2070/71 2071/72 2072/73 2073/74 2074/75

Paid up capital 4,976,640 6,164,268 7,150,550.34 8,888,375.83 10,310,517

Reserve and surplus 1,149,657 1,159,226 1,555,166.95 2,416,446.12 3,229,470

Deposits 52,292,058 60,175,984 74,682,917.22 101,910,484.60 104,850,510

Loans and advances 43,018,763 50,226,650 59,219,296.99 78,965,101.10 88,878,096

Total assets 61,357,915 70,600,537 87,701,310.35 116,592,269.10 125,847,432

Revenue 3,810,202 4,660,874 4,988,276.77 7,366,045.63 11,481,732

Gross profit ( crore) 1,758,400 2,289,779 2,889,553.74 3,566,783.51 3,876,883.95

Operating profit ('000) 922,185 1,240,405 1,850,339.59 2,698,119.44 3,061,072

Net profit ('000) 974,036 960,608 1,382,224 2,006,159.46 2,101,363

Capital fund to RWA 12.38% 12.69% 12.35% 12.50% 11.74%

Non-performing loan 2.55% 2.23% 1.87% 1.57% 0.77

Base rate 7.92% 7.59% 6.15% 10.40% 10.55%

Return on equity 16.00% 13.00% 16.00% 18.05% 15.00%

Return on asset 1.62% 1.39% 1.58% 1.75% 1.67%

Earnings per share 19.57 15.58 19.33 22.57 23.64

Net worth per share 123.1 118.81 121.75 127.19 133.99

P/E ratio 35.51 30.16 81.78 17.19 12.26

P/B ratio 5.64 4.03 12.98 3.05 2.16

From the time series data presented above, it can be seen that the bank has performed sound business growth. Most of the

major indicators such as deposits, loans and advances, operating profit and net profit are in increasing trend. Moreover,

followed by merger with different financial institution on various levels, thereby increasing the paid up capital, GBIME has

diversified interests in various other sector.

Though in the recent years return on equity has decreased, it has provided more than 15 per cent on average return on

equity over the past five years. So, the company has been able to use its shareholders’ equity efficiently. Similarly, it has fairly

stable return on assets over couple of years. Earnings per share have been on continuous rise since last 4 years with more

than 20 per cent on an average. In fact, bank has improved its non-performing loan decreasing to 0.77 percent from 2.55 per

cent. So, it can be said that the bank has been able to improve its asset base.

On the revenue side, the revenue of the bank is on continuous rise with all-time high of Rs. 11.48 billion in 2074/75. Similarly,

the operating as well as net profit of the bank has been increasing in the past five years, which is a good sign. It has reached

Rs. 3.06 billion and Rs. 2.1 billion respectively in 2074/75. However, the growth rate in gross profit, operating profit and net

profit in the latest fiscal year has declined compared to past years. Now, looking at its capital side, the bank has a capital

adequacy ratio of 11.74%, which is marginally higher than the mandatory requirement of 11%. This is set to increase as the

bank has already floated debenture worth of NRs. 1.5 billion. On its pricing multiples, both the P/E and P/B has declined

notably, meaning that the stock has become fairly cheaper.

Quarterly Analysis

The following table presents 3rd Quarter analysis of the company for the FY 2074/75 to 2075/76.

Particulars Q3 74/75 Q3 75/76 Growth (%)

Paid-up capital ('000) 8,888,375.8 10,310,515.96 16.00%

Reserve and surplus ('000) 3229470.3 2,731,178.9 -15.43%

Deposits ('000) 104,850,510.39 116,943,164.91 11.53%

Loans and advances ('000) 92,352,355.13 107,057,527 15.92%

Net profit ('000) 1,412,291.9 1,872,124.5 32.56%

Non-performing loan 1.29% 0.76% -40.09%

CCD ratio 75.29% 78.76% 4.61%

Capital fund to RWA 11.72% 12.05% 2.82%

Cost of fund 8.22% 6.97% -15.21%

Base rate 11.68% 9.60% -17.81%

Return on equity 15.11 12.12 -2.99%

Return on asset 1.58 1.3 -0.28%

Earnings per share 21.67 24.21 11.72%

Net worth per share 143.44 149.72 4.38%

P/E ratio 14.35 11.19 -3.16%

Year-to-year growth of the bank has been quite sound as noted in the above sections. Now, looking at quarter to quarter

growth in various variables, these indictor buttress the above conclusion as well. The bank has paid up capital of above Rs. 10

billion as against the minimum requirement of Rs. 8 billion. It’s paid up capital grew by 16% in the third quarter of 2018/19 as

compared to the corresponding period of the previous year. Its net profit, which is the bottom line, has increased by more

than 32 per cent as compared to similar period in previous year, which is more than satisfactory.

However, reserve and surplus has been decreased by more than 15.43 per cent in the third quarter. The deposit base as well

as the loans and advance has increased by more than 20 per cent while comparing to corresponding quarter of previous year

but loans and advance have increased in faster pace in comparison to growth in deposit with more than 15 percent which is

quite unpleasant for the banking industry. The bank has been able to decrease its cost of fund, which in turn helped to

decrease the base rate. In a “base rate plus” business, this can prove to be beneficial in the upcoming periods. Both returns

on equity, return on assets have decreased than corresponding quarter of previous year. Followed by this, P/E ratio has also

decreased meaning the stock has become cheaper.

Dividend History

We can say from above dividend distribution history that bank has been providing dividend to its shareholders regularly. It

has mostly focused on the distribution of bonus share as a return. It has paid 25 per cent dividend in 2013/14 and lowest 16

per cent in the year 2015/16 and 2017/18 but has provided dividend 20 per cent on average over the five years.

Dividend 2013/14 2014/15 2015/16 2016/17 2017/18

Dividend Per Share 25 23 16 20 16

Bonus % 21 23 16 10 16

Cash % 4 10

Technical Analysis of GBIME as on 9th May, 2019

Day Candle

Open 314

High 314

Low 309

Close 310

Pattern Analysis

Chart Pattern Short term Uptrend

Resistance R1: 320 R2: 329

Support S1: 268 S2: 254

Higher Breakout Level 360

Particulars Points Remarks

Volume 33,941.00 The daily volume and weekly volume of the stock

is lower than that of the 1 month. Avg. Volume (1 week) 28,896.80

Avg. Volume (1 month) 51,556.24

No. of Transaction 101.00 The daily and weekly number of transactions is lower than that of 1 month average transaction. Avg. no. of Transaction (1 week) 125.60

Avg. no. of Transaction (1 month) 163.19

180 days Average 292.86 The price of the stock is trading above both 180 days and 360 days average. 360 days Average 301.06

52 Weeks High Price 336.00 The stock is currently trading closer to 52 weeks high price. 52 Weeks Low Price 255.00

Nepse Index 1 year Change -4.25% The overall market in the last 12 months is in a downtrend and so is the industry. However, the stock has gained in the past one year and even more so in the 1 month’s period.

Industry Index 1year Change 0.33%

Stock 1-Month Change 13.97%

Stock 1-Year Change -1.59%

Monthly Beta 1.183 The monthly and quarterly beta of the stock is higher than the market. Quarterly Beta 1.061

Total Holdings of Mutual Funds (Chaitra) 509,482.00 The Mutual Funds are holding good number of

shares of the company.

Stock Holdings of Top Broker (from Jan, 2019) 134,846.00 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 16% bonus share.

Top Broker Avg. Buy Price 291.678

Top Broker Avg. Sell Price 295.258

Concluding Remarks

From the above analysis, it is clear that the company has enjoyed a healthy growth in business and its operations, which

further grew at a tremendous pace followed by the merger. So, the company is fundamentally sound. The bank has a good

capital adequacy ratio, which it can use to further improve its business. The cost to income ratio stands at 41.96%, with an

industry average of 38.72%, which is quite high. The way forward for the bank should be to diversify its income from its

current interest concentrated income. With the industry average of 77.69%, the bank has a net interest income to total

operating income of 76.25%. The way forward for the company would be to maintain the quality of its assets, and its capital

base and diversify towards increasing its non-interest incomes. Overall, the balance sheet size and business has quite

increased in recent time and it can do better if it can keep up its growth momentum.

Indicators Points Remarks

RSI (14) 63.54 GBIME is moderating towards moderate zone .

MACD (12,26,9) 10.54 The MACD line is above baseline and the signal line. However, MACD line has crossed the signal line from above, giving a sell signal. Signal Line (12,26,9) 12.17

Histogram (12,26,9) -1.63

EMA (5,0) 311.82 EMA 5 is above the EMA 20 and the price is above EMA 20, meaning that the stock is in bullish trend. EMA (20,0) 302.34

+DMI(13,8) 30.94 The +DMI is dominant over –DMI and ADX is at 52. This indicates that the current uptrend is significant. -DMI(13,8) 12.93

ADX (13,8) 52.56

Chaikin Money Flow (20) 0.064 CMF is slightly above the baseline which shows slight buying 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

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