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A weekly review of fundamentals enjoyed by the blue chips

By SHABBIR H. KAZMI
Updated Jul 10, 2000

For a number of weeks the daily trading volume has remained low. Both institutional and large retail investors have preferred to remain at sideline. This phenomena is expected to prevail for a few more weeks. The interest in textile sector, despite the GoP announced policy, has not been witnessed. There seems to be a vehement resistance against withdrawal of export re-financing facility on yarn and grey cloth. Many textile sector experts say that the GoP must come out with specifics rather than a blanket policy.

Despite firm prices crude oil, prices of most of petrochemicals have declined over the past couple of months in the international markets. The reason was not weak demand but rather a change in buying behaviour, particularly that of China. MEG prices have been falling in Asia since April. Prices of Paraxylene have also remained flat despite higher prices of crude. More capacity is expected to come on line and Paraxylene price is expected to come down. PSF prices at present are around US$ 50 per tonne. China has cut its PSF imports. Therefore, PSF prices are not rising despite higher demand from other countries.

The local PSF manufacturers are not expected to gain or lose due to prevailing international scenario. However, their profit margin is expected to improve due to higher capital utilization resulting from stronger domestic demand for PSF. The consumption of PSF is expected to increase further due to export re-finance facility on polycotton yarn.

PAKISTAN TELECOMMUNICATION

Daily trading volume of the scrip has come down considerably after the crisis in the equities market. Earnings of the Company are not expected to improve because there has not been any announcement regarding hike in the charges of services provided by the Company so far. Rather, a marginal decline in revenue is expected due to reduction in tariff on Internet related services. However, the current buying in the scrip has been driven by the belief that the GoP will announce the hike any time.

KESC

Due to the increase in furnace oil and gas prices, its fuel bill is expected to be higher for the year 2000-2001 but will not reflect in the profit and loss statement for the year 1999-2000. As fuel price is expected to adversely impact WAPDA also, hike in electricity tariff, around 20 per cent, cannot be ruled out. However, tariff hike is not going to improve the financial health of WAPDA and KESC. Reportedly the T&D losses of KESC have touched new heights — 60 per cent. Unless KSEC is able to contain its T&D losses to at least half its financial position will remain weak. Some analysts strongly believe that all these factors will cause delay in the privatization of power generation companies. They also suggest that GoP must take immediate steps to curb electricity theft.

FAUJI FERTILIZER

The scrip price has not witnessed any surges lately. The point which could trigger buying/selling pressure was the hike in gas price. However, the increase in gas (fuel) tariff is not the issue. All the urea manufacturers in the country have piles of inventory and they will not be in a position to pass on the additional cost to farmers. Fauji still enjoys an edge over other urea manufacturers due to lower cost of feedstock.

ENGRO CHEMICAL PAKISTAN

The share price has come down due to a forecast that the earnings of the Company will be lower in 2000 as compared to the previous year. However, it will continue to enjoy the benefit of overall low cost of production. Like Fauji, Engro will also be unable to pass on the increase in gas cost to farmers. It faces even lower off-take in Sindh, its main market. At the same time, the Company faces virtual closure of LPG facility of Engro Paktank Terminal — a joint venture of Engro with a Dutch company. The facility is not in operation due to lack of interest in LPG import for the time being. While the GoP policy, at the face value, makes LPG import unattractive, LPG is virtually being black marketed due to its limited availability. The GoP must look into the policy to avoid black marketing of LGP during winter.

SUI SOUTHERN GAS COMPANY

The SSGC will be a major beneficiary of hike in gas tariff. The increase is expected to improve its cashflow as well as reduce financial cost. It has an immediate plan to upgrade and expand its distribution network to ensure larger gas supply to its two large-scale consumers, KESC and FFC-Jordan, located at Bin Qasim port area near Karachi.

SUI NORTHERN GAS PIPELINE

While SNGPL is also expected to benefit from increase in gas price, the benefit will be lower as compared to SSGC. SNGPL has a larger network to improve and to add on. Besides, bulk of its future supply will go to domestic consumers and a fertilizer unit which get gas at a discounted tariff.

MOVEMENT AT A GLANCE

SCRIP

HIGH

LOW

TURNOVER (SHARE MN)

CLOSING PRICE

PTCL

27.30

26.65

55.50

27.30

KESC

10.65

9.95

9.49

10.05

Fauji Fertilizer

39.55

39.10

7.31

39.50

Sui Southern Gas

15.95

15.50

3.55

15.50

Sui Northern Gas

15.80

15.10

32.70

15.10

Engro Chemical

59.00

55.25

10.38

55.25

Source: IP Securities