Weekly Market Report

Trading Week: 16 – 20 December 2017

Summary

Main Topics

· TSE Overall Index rises 2.4% in broad-based rally

· Rial strengthens against dollar, narrowing gap with official rate

· IMF visits Iran and raises its estimate for 2017/18 GDP growth

· Inflation rate may “temporarily” rise above 10% on higher fuel prices

 

Tehran Stock Exchange

The TSE Overall Index (TEDPIX) rose 2.4% to close the week at 95,508 after setting a new record high of 95,785 on December 17. The average daily trading value increased 9% to USD 74 million. Almost all major indices advanced, although commodity producers were responsible for most of the gains in the index. A steadily increasing dollar against the rial and stable global prices have boosted the profitability of commodity companies. 

 

The Chemicals index rose 4.1%, lifted by Persian Gulf Petrochemical Co. (PKLJ) which gained 10%. PKLJ is the largest TSE listed company with a market cap of USD 6.2 billion accounting for 6.8% of total TSE capitalization. Tamin Petroleum and Petrochemical In­vestment Co. (PTAP), an investment arm of the Social Security Organization with a mar­ket cap of USD 2.8 billion, rose 3.3% after gaining nearly 7% last week. PTAP owns 49% of Persian Gulf Star Oil Refining Co., whose refinery is under construction and set to be­come Iran’s largest with a capacity of 360,000 barrels per day. The plant will use conden­sate from new phases of the South Pars fields and is expected to end gasoline imports. PTAP was surprised this week when National Iranian Oil Refining and Distribution Co. (NIORDC) sacked the CEO and two other board members of Persian Gulf Star Oil Refin­ing Co., apparently without informing PTAP. NIORDC represents the government’s 51% ownership in the project.

 

Oil Products rose 2.2%. The government has proposed a substantial increase in fuel pric­es, although this has no direct effect on refineries as they trade with the government based on global prices and the official exchange rate. The increase in the fuel price how­ever puts the main customers of refineries in a better financial position.

 

Base Metals rose 4.2%, mostly due to a 12.2% jump in National Iranian Copper Industries Co. (MSMI). By far the largest copper producer in Iran, MSMI closed with a P/S and P/E of 1.77x and 9.25x respectively based on the company’s own projections. MSMI’s assumed dollar exchange rate of IRR 38,500 for the second half of the year is well below the pre­vailing market exchange rates. Large steel makers traded slightly higher. The World Steel Association reported that Iran produced 1.95 million tonnes of crude steel in November, up 24.4% from the same month last year. World steel production rose 3.7% in the same period to 136.3 million tonnes.

 

The Automotive sector climbed 3.7%, with investors encouraged by reports of increases in import tariffs and domestic car prices. The government is expected to raise tariffs for all cars and may totally ban imports of cars costing more than USD 40,000.

 

Omid Investment Bank (OMID) held its IPO and was valued at USD 186 million on the last trading day of the week, becoming the first investment bank listed on the TSE. Indices for a number of other industries rose between 1% and 4%, including Metallic Ores, Banks, Conglomerates, Investment, Engineering, and Insurance. Sectors closing weaker included Telecommunications, Sugar, and Foods ex. Sugar.

 

Iran Fara Bourse

The IFB Overall Index rose 3.8%, boosted by two large cap companies - Middle East Mines & Mineral Industries Development Holding Co (KHMZ) which climbed 20%, and Marun Petrochemical Co. (PMRZ) which added 6%. Esfahan Steel Co. (ZOB) gained 6.7%.

 

KHMZ, which had been falling for some weeks, is a large holding company with exposure to raw steel production materials. The CEO of Pasargad Bank, the main shareholder in KHMZ, said KHMZ has invested in a project that could reduce the cost of copper cathode production to a quarter of global prices. He gave no further details or time frame. The Min­istry of Industry, Mines, & Trade also mentioned this new venture at a separate event but without details.

 

Foreign Exchange Market

The rial strengthened against the US dollar this week after weeks of depreciation. The dollar slipped 0.3% to IRR 41,809 while the official rate rose 0.7% to IRR 35,859, reducing the gap between the two rates. The government has assumed a dollar rate of IRR 35,000 in the budget for the next fiscal year (Apr-Mar). In a separate development, the Presiden­tial Office rejected rumors that Central Bank of Iran Governor Valiollah Seif would be re­placed. Some sources suggested that the rumors came from high-profile figures subject to a crackdown on unregulated financial institutions.

 

Economic Development

Following a visit to Iran this month, the IMF has raised its estimate for Iran’s real GDP growth rate to 4.2% for the current year ending March 2018. This compares with a previ­ous forecast of 3.5% made in the IMF’s World Economic Outlook in October. It said infla­tion is projected to “pick-up temporarily in 2018/19 from 9.9 percent in 2017/18 if a fuel price increase is approved”. The IMF team also pointed to “near-term challenges” and urged Iran to implement financial sector reform and take fiscal measures to cut debt and unify the exchange rate while moving towards a market-based monetary policy framework. The IMF praised the government’s plan for cutting subsidies under the “universal cash transfer”.

 

Addressing financial sector reform, the IMF raised the challenges faced by the banking system and the need for recapitalization of banks. Its recommendation is to finance the restructuring plan by issuing long-term debt and, in order to manage the level of debt and interest payments, it suggests using a portion of oil revenues, raising taxes and imple­menting pension reform. The IMF package has many features of an austerity plan that it almost always suggests in similar situations.

 

As the IMF noted, an increase in fuel prices is likely to add to inflation. The government has reportedly proposed to raise gasoline to IRR 15,000 per liter from IRR 10,000, and diesel to IRR 4,000 from IRR 3,000. Iran’s daily gasoline consumption is around 80 million liters.

FX Information

Description

21 December 2017

14 December 2017

% Change

Official USD - IRR

35,859

35,599

0.7

Market USD - IRR

41,809

41,920

(0.3)

Official EUR - IRR

42,551

42,117

1.0

Market EUR - IRR

49,721

50,076

(0.7)

Official GBP - IRR

47,917

47,823

0.2

Market GBP - IRR

56,747

57,600

(1.5)

Market Information

Index Info

Close

Unit Change

% Change

%  Change from March 20, 2017

TSE Overall Index - TEDPIX

95,508

2,224

2.4

24.5

TSE30 Index

4,165

135

3.4

35.4

Iran Fara Bourse Overall Index

1,081

39

3.8

23.6

Description

This Period

Last Period

Market P/E

7.3

7.1

Trade Statistics

Description

This Period

Last Period

% Change

TSE Average Daily Trade Vol­ume (Million USD) **

74

68

9

IFB Average Daily Traded Val­ue (Million USD) **

123

70

76

Industry Index Information

Description

Close

% Change

Printing & Publishing

219,212

13.7

Agriculture

6,786

5.7

Rubber & Plastics

21,067

4.7

Base Metals

56,941

4.2

Coal Mining

1,424

4.1

Chemicals

5,714

4.1

Industrial Conglomerates

9,188

3.9

Automotive

18,102

3.7

Utility Service Providers

227

3.2

Investment

2,122

2.8

TSE All-Share Index

95,509

2.4

Metallic Ore

19,318

2.3

Oil Products

340,492

2.2

Construction

701

2.2

Engineering Services

787

1.7

Banking

583

1.5

Insurance

4,689

1.0

Machinery & Equipment

16,129

0.3

Non-Metallic Ores

2,311

0.3

Machinery & Electric Equipment

486,827

0.2

Pharmaceuticals

8,926

0.1

Cement

626

0.1

Medical & Measurement Products

10,244

0.0

IT & Communications

231

0.0

Mining

12,058

(0.0)

IT

12,048

(0.1)

Transportation & Logistics

3,959

(0.2)

Textile

1,280

(0.2)

Other Financial Services

2,116

(0.3)

Telecommunication

1,105

(0.7)

Wooden Products

50,773

(0.7)

Metallic Products

24,229

(0.7)

Oil Drilling & Services

465

(0.9)

Leather Production & Products

2,032

(0.9)

Sugar

9,079

(1.6)

Ceramics & Tiles

2,043

(1.8)

Foods excluding Sugar

3,498

(2.9)

Paper Products

12,705

(2.9)

TSE Top 5 Gainers

Company

Close **

(USD Cents)

% Change

MSTI

Motorsazan Iran Tractor Mfg. Co.

12.0

20.8

NKOL

NiroCholor Co.

10.5

18.8

MSMI

National Iranian Copper Ind. Co.

5.6

12.2

GNBO

Neyshabour Sugar Co.

7.4

10.3

TAYD

TideWater Middle East Co.

7.3

8.5

TSE Top 5 Value Leaders

Company

Close **
(USD Cents)

Trade Value **

(Million USD)

FOLD

Esfahan Mobarakeh Steel Co.

6.9

27.3

PNES

Esfahan Oil Refining Co. 

11.2

13.5

IKCO

Iran Khodro

7.4

12.8

GOLG

Golgohar Mining and Ind. Co.

7.7

6.9

SAND

Civil Pension Fund Inv. Co.

3.7

4.2

** All figures in USD are converted from IRR at the free market rate

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