AAKASH CAPITAL LIMITED

Weekly Newsletter from Aakash Capital Limited for the week ending on 16th August, 2019

NEPSE UPDATE

Indicators 11th Aug,

2019 15th Aug,

2019

% change

NEPSE 1233.71 1224.03 -0.78%

SENSITIVE 267.6 264.68 -1.09%

FLOAT 90.61 89.96 -0.72%

SEN. FLOAT 84.94 84.16 -0.92%

BANKING 1113 1102.45 -0.95%

HOTELS 2047.25 2047 -0.01%

DEVELOPMENT BANKS 1590.78 1592.73 0.12%

HYDROPOWER 1102.7 1084.11 -1.69%

FINANCE 622.02 623.28 0.20%

NON LIFE INSURANCE 4925.9 4894.03 -0.65%

MANU. & PRO. 2561.35 2576.34 0.59%

OTHERS 711.24 698.86 -1.74%

MICROFINANCE 1517.39 1517.15 -0.02%

LIFE INSURANCE 5805.11 5802.69 -0.04%

MUTUAL FUND 9.96 9.96 0.00%

Market Summary Statistics (11th to 15th August, 2019)

Total Turnover (Rs) 1,787,761,488.00

Total Traded Shares 7,538,105.00

Total Number of Transactions 51,321.00

Scrips Traded 171.00

Market Cap at Week start 1,561,295.37 Millions

Market cap at Week end 1,551,599.38 Millions

Floated Market Cap at Week start 559,672.85 Millions

Floated Market Cap at Week end 556,697.31 Millions

Bullion Update

As on 15th August, 2019 Hallmark Gold Rs. 70,300/tola

Worked Gold Rs. 70,000/tola

Silver Rs. 820/tola

Quote for the week

“Wide diversification is only required when

investors do not understand what they’re doing”

- Warren Buffet

The market declined 0.78% (9.68 points) in the trading

week between 11th August and 15th August 2019. The

sensitive index, which measures the performance of

the companies classified under group “A”, also

registered a fall of 1.09% (2.92 points). Similarly, float

index which measures the performance of securities

which are floated to public also went down by 0.72%

and sensitive float followed the suit by falling 0.92%.

This week the market opened at 1263.87 on Sunday

and went down 2.91 points to sit at 1233.71. The

market gained a very negligible point the next day and

slipped down further for the rest of the days. The

market gained 0.14 point on Monday. On the other

hand, it shed 2.78, 5.17 and 1.87 points the rest of the

days to end the trading week at 1224.03.

In this review period, almost all the sectors except for

development banks, finance and manufacturing and

processing closed lower, mirroring the market.

Manufacturing and processing sub-index gained the

most as it went up 0.59%. Similarly, finance and

development banks gained 0.59% and 0.12%. Mutual

fund sub-index remained neutral this trading week.

Others sub-index fell the most and closed 1.74% lower.

Hydropower followed the suit as it gave up 1.69%. The

Banking sub-index, the heavy weight sub-index, also

fell 0.95%. Similarly, Non-life insurance, Life insurance,

Micro-finance and Hotels also surrendered 0.65%,

0.04%, 0.02% and 0.01% respectively.

The market witnessed inactivity as the total turnover

stood at just Rs. 1.79 Billion. This represents a decline

of 18.26% from the previous trading week. The average

daily transaction which was Rs. 417 million a day also

declined to Rs. 357 million a day. The total market

value declined by Rs. 9695.99 million as the market

capitalization went down 0.62%. Similarly, floating

market cap saw a rise of 0.53% this trading week.

.

News Update

NEA’s profit soars 148 pc to Rs 7.2 billion

Nepal Electricity Authority (NEA)’s profit surged by an eye-popping 148.27 per cent as the state power utility earned Rs 7.20

billion in profit in the last fiscal year.....Read More

Cement factories are violating standard manufacturing practices: Bureau report

A large number of cement factories are violating standard manufacturing practices and selling products that are not on a par

with international standards, the Nepal Bureau of Standards and Metrology said in its recent report.....Read More

Mandatory PAN Provision faces challenges

The government’s decision to implement the PAN provision is being met with numerous ‘practical challenges’, with the

private sector — the major stakeholder for implementing this provision — expecting to face problems in doing business.....

Read More

China's economy worsens in July, industrial growth at 17-year low as trade war escalates

China’s economy stumbled more sharply than expected in July, with industrial output growth cooling to a more than 17-year low, as the intensifying U.S. trade war took a heavier toll on businesses and consumers. Activity in China has continued to cool despite a flurry of growth steps over the past year, raising questions over whether more rapid and forceful stimulus may be needed, even if it risks racking up more debt.....Read More

Market Announcements

Siddhartha Bank Limited has published an offer letter to issue (2,500,000 units @ Rs.1,000 per unit) 10.25% SBL Debenture 2083 to the general public from (5th to 9th Bhadra, 2076).

Nabil Bank Limited has posted a net profit of 4.29 billion and published its 4th quarter company analysis of the fiscal year 2075/76.

Standard Chartered Bank Nepal Limited has posted a net profit of 2.49 billion and published its 4th quarter company analysis of the fiscal year 2075/76.

Taragaon Regency Hotel Limited has posted net profit of Rs 352.43 million and published its 4th quarter company analysis of the fiscal year 2075/76.

Oriental Hotel Limited has posted a net profit of 297.83 million and published its 4th quarter company analysis of the fiscal year 2075/76.

Shangri-la Development Bank Limited has posted a net profit of 352.65 million and published its 4th quarter company analysis of the fiscal year 2075/76.

Deporsc Laghubitta Bittiya Sanstha Limited has posted a net profit of 430.20 million and published its 4th quarter company analysis of the fiscal year 2075/76.

Pokhara Finance Limited has posted a net profit of 107.28 million and published its 4th quarter company analysis of the fiscal year 2075/76.

Ajod Insurance Limited has posted a net profit of 367.69 million and published its 4th quarter company analysis of the fiscal year 2075/76.

Lumbini General Insurance Company Limited has posted a net profit of 259.8 million and published its 4th quarter company analysis of the fiscal year 2075/76.

Butwal Power Company Limited has posted a net profit of 778.21 million and published its 4th quarter company analysis of the fiscal year 2075/76.

Upper Tamakoshi Hydropower Limited has posted a net loss of 53.94 million and published its 4th quarter company analysis of the fiscal year 2075/76.

Upper Tamakoshi Hydropower Limited has published its 11th AGM minute.

Rasuwagadhi Hydropower Company Limited has published a notice regarding lock in period of its promoters, local

residents and employees shares.

Grameen Bikas Laghubitta Bittiya Sanstha Limited has allotted its 3,92,393 unit promoter shares and 1,90451 unit ordinary shares in auction to the general public on 29th Shrawan, 2076 and refunding money to non-allottee investors from (30th Shrawan, 2076).

NEPSE - TECHNICAL ANALYSIS

The Nepalese stock market declined continuously after it made its top on 27th of July, 2016. The market had shown short term

bull in the month of March-April (during Nepali New Year 2076 BS) and reached the height of 1349 on 30th May 2019 but could

not close above the resistance level of 1340. Currently, the index is in at short term support zone. However, in a weekly line chart

support zone might be at around 1215 level. This week the market closed at 1224.03 forming a red candle on last trading day.

This week NEPSE opened at 1236.62 and formed a red candle by closing at 1233.71, losing 2.91 points during the day. The overall

market lose 14.53 points during the week. This week transaction was not that supportive as the market was unable to cross the

turnover of Rs.500 not even in a single trading day. This week the average turnover has decreased to Rs.357.55 from 438.27

million of previous week. As of weekly line chart the short term resistance might be at around 1272. Taking the Fibonacci

retracement from 1105 to 1319, the 0.5 Fibonacci ratio lies at 1211 level.

Technical Indicators

Indicators Value Signal

Support (S1) 1215 -

Resistance (R1) 1272 -

Relative Strength Index (RSI) 30.61 Oversold zone

Moving Average Convergence Divergence (MACD) -9.51 Bearish

5-Day Exponential Moving Average (EMA) 1229.71 Bearish

20-Day Exponential Moving Average (EMA) 1253.23 Bearish

180-Day Exponential Moving Average (EMA) 1209.79 Bullish

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 30.61 which indicates that the market is at oversold zone. There is no any short term divergence

as fall in price and RSI chart is 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 -9.51 and -5.41 respectively. MACD has already crossed the signal line and both are below

the base line which indicates the negative signal for the market. MACD has shown bearish signal for the overall market.

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) green line is at 1229.71 and EMA (20, 0) red line is at 1253.23 The index is currently trading below 5 days and

below 20 days Exponential Moving Average. This indicates that the overall market is at correction phase.

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 1287.48, 1253.23 and 1218.99 respectively. The market is trading around lower

band which indicates the market is at oversold zone.

Stock Analysis: Everest Insurance Company Limited (EIC)

Everest Insurance Company has served for over 2 decades ensuring on world-class property and casualty insurance products

and services. Our insurance policies are varied in nature, and we have a wide range of non-life insurance schemes, which will

ensure that you have a life of comfort.

With an ambition of safekeeping Nepal, Everest Insurance Company was established in 1994, after the privatization of insurance

sector as a public limited company and has come a long way in winning wider customer trust . The strength of the Company lies

in its smooth management, dynamic staff members and agents.

Board of Directors

Name Designation

Mr. Rajiv Sapkota Chairman

Mr. Bhubal Rai Director

Mr. Ram Prasad Khanal Director

Mr. Hem Raj Thapa Director

Mrs. Anjila Bista Giri Director

Mrs. Samjhana Sharma Independent Director

(Source: https://www.everestinsurance.com )

Chief Executive Officer: Mr. Kamal Gautam

Capital Structure

Particulars F.Y. 2073/74 F.Y. 2074/75

Authorized Capital 2,000,000,000 2,000,000,000

Paid-up Capital 121,500,000 133,650,000

Shareholding Pattern (As of 31st Asad 2074)

Shareholders Holding units

Percentage

Promoter Domestic Institutions - -

Nepalese Citizen - -

Foreigner - -

Ordinary Share (Public) 1,215,000 100.00%

Total 1,215,000 100.00%

Major Shareholders (As of 31st Asad 2074)

S.N. Shareholders Holding amounts (Rs.) Percentage

1 Laxmi Bank Ltd. 17,970,120 14.79%

2 Sneha Khetan 14,407,200 11.86%

3 Anju Khetan 10,481,400 8.63%

4 Ratan Lal Sangai 4,080,900 3.36%

5 Birendra Kumar Shah 3,230,880 2.66%

6 Linu Tuladhar 2,430,000 2.00%

Financial Highlights

Yearly Analysis

The following table presents the trend of financial performance of EIC from the FY 2070/71 to 2074/75* BS.

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

Paid-up Capital (Rs.000) 101,250 101,250 101,250 121,500 133,650 7.19%

Reserves & Surplus (Rs.000) 65,749 63,068 86,784 75,034 108,449 13.33%

Insurance Fund (Rs.000) 99,265 120,848 152,337 175,915 194,561 18.32%

Long term Investment (Rs.000) 118,304 214,044 165,558 167,893 160,291 7.89%

Total Revenue (Rs.000) 89,505 54,224 81,089 80,084 69,667 -6.07%

Total Expenses (Rs.000) 40,105 11,057 18,111 32,929 32,375 -5.21%

Gross Premium (Rs.000) 107,876 107,382 178,690 262,052 604,848 53.88%

Net Profit (Rs.000) 49,399 43,167 62,979 47,154 37,292 -6.79%

Year on year change (%) -12.62% 45.90% -25.13% -20.92% -

Net Profit to Gross Premium (%) 37.36% 39.62% 29.33% 16.53% 17.40% -

ROE (%) 23.47% 13.56% 8.76% 10.38% 7.29% -

ROA (%) 8.33% 5.14% 3.33% 5.21% 3.90% -

EPS (Rs.) 48.79 42.63 62.2 38.81 27.9 -

MPPS (Rs.) 1,144 750 1,860 2,450 2,470 -

Price Earnings ratio 23.45 17.59 29.90 63.13 88.52 -

Book Value per Share (Rs.) 249.96 277.74 338.89 371.62 382.72 -

Solvency Margin (%) 0.95 1.17 1.32 1.72 - -

Total no. of Policies 3,894 9,754 14,351 18,558 55,962 -

No. of Claims Paid 1,384 833 1,042 1,380 1,909 -

No. of Unpaid Claims 2,056 1,039 940 656 409 -

No. of Claims/Total No. of Policies (%) 34.08% 19.19% 14.00% 10.97% 4.14% -

Total Employees 74 77 70 87 - -

Total No. of office 6 9 9 9 - -

Insurance Agents 47 51 24 44 - -

Based on the data presented above from 2070 to 2075 BS, the company has not shown consistent growth, as most of its

fundamentals have shown negative growth. As per the unaudited report of 2074/75 (Q4), its paid up capital was Rs.133.65

million. The company was unable to meet the paid-up capital of Rs.1 billion as directed by Insurance Board. Most of the non-

life companies are still unable to meet their minimum paid-up capital directed by the regulatory body. The company has

reported the growth of 44.53% in its Reserves and Surplus in 2074/75*, 10.60% in Insurance Fund, and outstanding growth of

130% in Gross premium to Rs.604 million. However, the company had negative growth in long term investment, revenues, net

profit and other fundamentals. As like of other companies, the company was affected by the devastating earthquake of 2072

B.S. which resulted in negative growth of most of the fundamentals. Company tried to become stable in 2072/73 but it fail to

make its fundamentals strong as compared to other non-life insurance companies.

The company had comparatively better growth in premium collection (CAGR of 53.88%) but it fail to generate better results as

net profit has decreased by 20% in 2074/75* and 25.13% in 2073/74. The company had Net profit of Rs.49 million with the help

of 107 million gross premium in 2070/71 but in 2074/75* its net profit was 37 million with gross premium of 604 million. This

indicates that the company needs to focus on its operation and systematic allocation of premium. Most of the fundamentals

are operating below industry average which indicates the company is lacking competitive advantage in the market where

market penetration is just 18%. As of 2073/74 the company is providing non-life insurance service through 9 offices mobilizing

its 44 agents.

Dividend History

Year

Dividend

Total % Bonus %

Cash

%

2072/73 20.00% - 20.00%

2073/74 10.00% - 10.00%

The company has paid dividend twice till the date in the form of bonus share. Shareholder hasn’t not tested the cash

dividend. In overall the company has poor dividend payment history

Snapshot of performance

10.13 10.13 10.1312.15

13.37

6.57 6.31

8.687.50

10.84

0.00

5.00

10.00

15.00

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

Paid-up Capital and Reserves & Surplus

Paid-up Capital (Rs.crores) Reserves & Surplus (Rs.crores)

9.9312.08

15.2317.59

19.46

0.00

5.00

10.00

15.00

20.00

25.00

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

Insurance Fund (Rs.crores)

8.95

5.42

8.11 8.016.97

4.01

1.11 1.813.29 3.24

0.00

5.00

10.00

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

Revenue vs Expenses

Total Revenue (Rs.crores)

Total Expenses (Rs.crores)

4.01

1.111.81

3.29 3.24

4.944.32

6.30

4.723.73

0.00

2.00

4.00

6.00

8.00

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

Expenses vs Net Profit

Total Expenses (Rs.crores)

Net Profit (Rs.crores)

Quarter to Quarter Comparison

Particulars Q3 2074/75

Q3 2075/76

Change (%)

Paid-up Capital (Rs.000) 133,650 273,983 105.00%

Reserves & Surplus (Rs.000) 104,975 130,839 24.64%

Insurance Fund (Rs.000) 191,087 216,951 13.54%

Long term Investment & Loans (Rs.000)

170,291 209,196 22.85%

Gross Premium (Rs.000) 427,360 604,760 41.51%

Net Premium (Rs.000) 78,471 294,899 275.81%

Total Expenses (Rs.000) 24,239 33,798 39.44%

Net Profit (Rs.000) 30,345 40,166 32.36%

Net Premium to Gross Premium (%) 18.36% 48.76% 165.57%

Net Profit to Gross Premium (%) 7.10% 6.64% -6.46%

EPS (Rs.) 30.27 14.66 -51.57%

MPS (Rs.) 1,380 953 -30.94%

P/E ratio 45.58 65.01 42.63%

Book Value per Share (Rs.) 377.53 230.77 -38.87%

ROE (%) 8.02% 8.47% 5.61%

ROA (%) 3.90% 4.54% 16.41%

As per the unaudited report of Q3 2075/76, the company is still unable to meet the paid of Rs.1 billion directed by Insurance

Board. There seems a significant growth in most of the fundamentals like Reserves & Surplus grew by 24.64%, Insurance fund

by 13.54%, Long term investment & loans by 22.85%, Gross premium by 41.51% and Net profit by 32.36%. However, EPS has

decreased by 51.57% which have reflected 30.94% decline in market price to Rs.953.

4.94 4.32 6.30 4.72 3.734.94 4.32 6.30 4.72 3.73

48.7942.63

62.2

38.8127.9

0.00

20.00

40.00

60.00

80.00

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

Net Profit vs EPS

Net Profit (Rs.crores) Net Profit (Rs.crores)

EPS (Rs.)

48.79 42.63 62.2 38.81 27.9

1,144750

1,860

2,450 2,470

0

500

1000

1500

2000

2500

3000

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

EPS vs MPPS

EPS (Rs.) MPPS (Rs.)

Technical Analysis of EIC as on August 15th, 2019

Day Candle

Open 332

High 335

Low 332

Close 335

Pattern Analysis

Chart Pattern Short term Uptrend

Resistance R1: R2:

Support S1: S2:

Higher Breakout Level

Particulars Points Remarks

Volume 125 The daily volume of the stock is lower than that of

1 week and 1 month average volume. Avg. Volume (1 week) 689.20

Avg. Volume (1 month) 795.24

No. of Transaction 2

The daily number of transactions is lower than that of average transaction of the week and month.

Avg. no. of Transaction (1 week) 8.80

Avg. no. of Transaction (1 month) 8.71

180 days Average 636.39 The price of the stock is trading in below 180 days and 360 days average. 360 days Average 976.86

52 Weeks High Price 1,326 The stock is currently trading around 52 weeks low price. 52 Weeks Low Price 328

Nepse Index 1 year Change 1.18% The overall market has increased by 1.18% but the industry has fallen by 18.17%. The stock has fall in the past one year and 1 month’s period.

Industry Index 1year Change -18.17%

Stock 1-Month Change -7.20%

Stock 1-Year Change -73.52%

Monthly Beta 0.86 Both the monthly and quarterly beta of the stock is below the market. Quarterly Beta 0.54

Stock Holdings of Top Broker (since July, 2019) 6,459 The sum of Stock holdings of 5 Brokers is shown with the average of their average buying and selling price.

Top Broker Avg. Buy Price 358.39

Top Broker Avg. Sell Price 358.86

Concluding Remarks

Insurance business contributing 2.04% to the domestic GDP is considered as a forced selling business in Nepal. Due to its low

market penetration of just 18%, this industry is facing a lot of criticism as compared to other industry. Most of the people are

unaware about insurance and even educated people are reluctant to buy insurance policy. Most of the people underestimate

the return of insurance and lacks knowledge how insurance protects an individual financially. If companies can convince their

customers about the risk and reward of their policies, they can do better in this emerging economy.

The company has long record of operation in Nepal but it seems unable to create market attention as compared to other

companies. It is operating below industry average which indicates that the company is lacks competitive advantage. As of Q3

2075/76 company is moving towards stable position. In last two years company was unable to perform well as most of the

fundamental showed negative growth. The company has significant growth in premium collection but seems unable to utilize

those funds in right place. Company can perform better in this emerging market with efficient operation and management.

Indicators Points Remarks

RSI (14) 36.82 EIC is at moderate zone.

MACD (12,26,9) -10.19 Both the MACD and signal line are below the baseline.

Signal Line (12,26,9) -8.40

Histogram (12,26,9) -1.79

EMA (5,0) 336.80 The price is below EMA 5 and EMA 20.

EMA (20,0) 349.38

+DMI(13,8) 24.25 The -DMI is dominant over +DMI and ADX is at 16.25.

-DMI(13,8) 30.86

ADX (13,8) 16.25

Chaikin Money Flow (20) -0.53 CMF is below the baseline which shows buying pressure for the stocks in the market.

Auction Notice

The company is selling its 146,575 units’ promoter shares and

383,205 units’ ordinary shares through auction to the general

public from 14th to 25th August 2019. Both the promoter and

ordinary shares are unsubscribed right shares by the existing

shareholders. Eligible candidates can place bid above Rs.100

with minimum application for 100 units.

Investing Solutions

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Growing our hard-earned money should be simple and accessible to everybody, so that each of us is able to live the life we

desire. With this objective, we ensure we gain an in-depth understanding of each individual’s aspirations and ambitions so that

we are able to recommend the right investment solution. We encourage people to link their investments to specific life goals so

that they are able to realize these goals meticulously and with ease.

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Portfolio Management Services is the Portfolio Management division of Aakash Capital that helps you access the equity market

in Nepal.

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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

regulated by Securities Board of Nepal. This document may not be reproduced, distributed or published by any person for any

purpose without Aakash Capital Limited’s prior written consent.

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