An exclusive weekly Stock Market report for PAGE
by Khadim Ali Shah Bukhari & Co.
Updated on Feb 07, 2000
The KSE 100
Overview: The Correction Continues
This was a week for consolidation for the KSE 100, which continued to
form base at 1750. Though it was comfortably able to cross the 1780 levels, but major
resistance was witnessed at the 1800 levels, which caused the market to slump below the
During the week, the KSE 100 continued to hold its ground moving up by
2.88% points to close the week at 1799.73.
Major thrust for the upside consolidation were the encouraging six
monthly results by PTCL. We focus on the 52% growth in pre-tax earnings. This impressive
growth is exactly in line with our estimates, which were based on the back of rapid
expansion in the subscriber base. Going forward, we expect the customer count to keep
rising rapidly for PTCL, which sets up the company nicely for operating in a fully
competitive environment by the time its monopoly ends in 3 more years.
With the announcement of Engro's results, the anticipated earnings
decline is now in the open. The previous uncertainty regarding the share price has
subsided as the share price has discounted the earnings drop. Now consolidation has
started at 102 levels.
The fate of the Hubco issue continues to hang in the balance. We feel
that the prospects of the KSE 100 staying above the 1800 levels would require a positive
clarification regarding Hubco, in the absence of which we might see current investor
hesitance to continue with this stock.
The rise in tension on the LoC continues to be contained by the
inherent liquidity in the market. For the coming week, we believe that the band of
1650-1750 is likely to hold causing the market to remain range bound within these
Earnings growth continues
Earnings growth continued at 5% despite dwindling economic condition.
With Primary sector growth at 0.35% for the last year, the ensuing effects of the drop in
demand has been felt in the limited earnings growth. However with government efforts aimed
at stimulating demand through fiscal discipline and by reducing interest rates to
invigorate supply, we foresee a 2.4% growth in the primary sector, whereby the paper and
board industry would be able to take advantage of increase in demand.
During 1HY 00, we saw a marginal drop in the production of paper and
board dropping to 31005 tons as against 31593 tons produced in the corresponding six
months of last year. However on the flip side, conversion activities continued to be
robust increasing to 89% of total paper being utilized for conversion activities as
opposed to 82.5% witnessed during the same period of last year.
Imported raw material prices strengthen
Though almost 80% of the current raw material demand is met through
local means, the imported raw material i.e wood pulp prices has strengthened considerably
by almost 30%. Due to the favourable exchange rate, major imports of wood pulp have been
restricted to the Far East Asian region. With strong demand continuing from China and
South Korea, spot prices of wood pulp rose from $475/tonne levels in June 99 to $610/tonne
in December 99. Hardwood pulp, which is normally priced at a discount to the softwood
variety, is being priced at parity, reflecting the tightness in supplies.
Lower Interest Rates
With a dramatic reduction in real interest rates over the past 12
months we believe the government is looking forward to initiate an economic revival. This
is being done to stimulate private and public spending. Any increase in consumer spending
directly affects the sales growth of Packages. With private consumption set to start
inching upwards, we see Packages sales growth of 5-6%.
Imported Paper prices have also increased
Prices in general have started to move upwards, main reason being
Drop in production in Dec-99 for millennium preparations
Increase in demand for paper as companies increase paper and
printing advertising expenditures as Southeast Asian economies start to make a turnaround.
Paper prices in China remain under pressure as more capacities come
We believe that with the price consolidation continuing in the near
future, Packages is likely to benefit in terms of margins growth. Demand is likely to
remain robust with capacity utilization expected to increase in the foreseeable future due
to a government driven effort to stimulate economic activity. Due to its economies of
scale and wide product line up, any increase in industrial activity will result in volumes
growth as well.
Packages performance has been largely inline with the KSE 100
As evident packages has been slightly lagging the KSE 100. With strong fundamentals and
robust demand, Packages has under performed the market by only 5% during the last six
months. With the recent change in economic ground realities and operating conditions we
foresee Packages to continue its strong foray in to further value added service, adding to
the shareholder value, both in terms of capital gains and hefty dividends as well. Remain
|Cost of Good Sold
|Soiling, Ad. &
|Income on Foreign
|Rental & Other
Taxation - Current
|Profit after taxation