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THE KASB REVIEW
STOCK MARKET AT A GLANCE

  1. FINEX WEEK
  2. STOCK WATCH
  3. STOCK MARKET AT A GLANCE

An exclusive weekly Stock Market report by Khadim Ali Shah Bukhari & Co.

Updated on Sep 04, 2000

The market registered sharp fluctuations in volumes throughout the week. The KSE 100 Index, which was at 1500.70 levels at the start of the trading week, slumped to an intra week low of 1472.35, before staging a comeback to close at the level of 1518.27, posting a gain of 1.16% WoW.

Trading began on a negative note with psychological support weakening amidst panic selling from jobbers and retailers. PSO and PTCL faced straight losses as they succumbed to an intra week low of 24.45 and 170.50. Institutions that had held back from the market for cheaper levels returned to the rings identifying values. Noticeable was the price behaviour of fertilizer sector player. Fauji held strongly at the support level of 38.50 while Engro posted a gain of almost 8% for the week. The corporate results continued to be neutral to positive. Packages Limited declared a 40% final cash dividend and 10% bonus shares. Developments continue to take place on the Hubco front; Wapda's Chairman is expected to leave for London to hold talks with the company. The price of this scrip remained firm throughout the week after showing slight weakness in the initial days. Its support of 16 has held well.

Foreign investors remain on the sidelines for now, but are monitoring macroeconomic developments closely, primarily with regard to IMF assistance and the privatization. A new trading band seems to have emerged with a cap and floor of 1550 and 1470.

SECTOR REVIEW

ICI Pakistan Limited: (ICIP PA)

Earnings potential brightening up

With PTA operations likely to be the main breadwinner for the ICI group in Pakistan, our focus is primarily on its operational and earnings potential going forward.

At the same time, we recognize the possibility that ICI plc may sell off its PTA stake in Pakistan over the next 12-18 months, as this business does not fit into the parent's new strategic positioning in specialty chemicals. For minority shareholders in ICI (Pak), the question then becomes at what price would the PTA operations be sold, whether it would be sold lock stock and barrel or if there be a joint venture with current management remaining at the helm. While such a sale would dramatically improve ICI (Pak)'s capital structure by reducing the present high level of debt, we are concerned that shareholder value may not be optimized by the sale of the PTA operations. This is because we believe that the PTA project cost has been relatively high in Pakistan compared to similar plants in the Asia-Pacific region. As a result, potential buyers may demand a large discount to acquire part or all of the local PTA facility.

Regardless of the developments at the corporate structure level, the earnings outlook for ICI (Pak) appears to brightening up. Half-year 2000 results confirm that PTA operations have moved into the black at the operating level. With the PTA cycle on an upswing, primary margins are expected to continue expanding right through to 2003 when new capacities come on line in the region. This should enable ICI (Pak) to post a modest net profit in 2001 with a major boost to our earnings forecast in 2002. Even without the sale of or a joint venture in the PTA business, we are forecasting gross margins to stabilize at between 26-28% over the next two years versus 14% in 1998 and 19% in 1999. Similarly, ROE is forecast to improve from -13% to +2% in 2001. Given ICI (Pak)'s multinational status and expected dominance of the PTA market in Pakistan we believe there is a high probability of continued re-rating of the stock as the earnings picture improves over the next 12- 18 months.

Indian PTA likely to be a non-issue

On the flip side, in the absence of any planned capacity increases in the PTA business in the region, we believe that rising PTA prices will discourage imports of PTA, as associated costs such as transportation, storage and handling rise correspondingly. Therefore, while ICI (Pak)'s PSF business may remain lackluster in the intermediate term, its PTA business should continue to strengthen. Recent news reports have suggested the probability of Indian made PTA to enter Pakistan. Though we could not rule out the possibility of some produce trickling in, this is only a short-term threat, albeit a very minimal one.

With global PTA supply likely to tighten up, domestic PSF players have indicated their intentions to stick with their old suppliers rather than tap new sources. The reason for this is simple. In the event of any wide fluctuations, unrecognized sources of PTA could eventually back out of earlier commitments thus causing severe inventory related problems, which could have severe repercussions for earnings growth in domestic PSF producers.

The stock has re-rated upwards on the above expectations and outperformed the KSE 100 by 23.7% YTD. Currently trading at a 2002E PER of 11 x, ICI (Pak) remains a commodity play. Maintain Accumulate.

MARKET ROUNDUP

..

LAST WEEK

THIS WEEK

% CHANGE

Mkt. Cap (US $ bn)

7.23

7.26

0.37

KSE 100 Index

1500.79

1518.27

1.16

Total Turnover (mn shares)

440.34

586.88

33.28

Value Traded (US$ mn.)

326.90

403.71

23.50

No. of Trading Sessions

5

5

 

Avg. Dly T/O (mn. shares)

88.07

117.38

33.28

Avg. DlyT/O (US$ mn)

65.38

80.74

23.50

MSCI Pakistan Index:

     

Pak Rs.

104.22

105.66

1.38

US$

49.02

49.77

1.52

.Source: KSE, MSCI, KASB


.
ASIA PACIFIC & AUSTRALIA
EXCHANGE INDEX lEVEL CHANGE EXCHANGE

Bombay

BSE

4477.31

+65.46

1.48%

Hong Kong

Hang Seng

17333.61

+236.1

1.38%

Singapore

Straits Times

2160.7

+12.93

0.6%

Sydney

S&P ASX 200

3331.7

+33.9

1.03%

Tokyo

Nikkei

16739.78

-121.48

-0.72%

.


.
EUROPE & UNITED STATE OF AMERICA
EXCHANGE IINDEX LEVEL CHANGE EXCHANGE

Frankfurt

DAX

7367.51

+151.06

2.23%

London

FTSE

6809.5

+136.8

2%

Paris

CAC

6822.93

+197.51

2.98%

Dow Jones

Industrial

11238.78

23.68

 

NASDAQ

Composite

4234.33

27.98