An exclusive weekly Stock Market report for PAGE
by Khadim Ali Shah Bukhari & Co.
Updated on Feb 14, 2000
The KSE 100
Overview: The Correction Continues
The Karachi Stock Exchange remained under pressure on account of profit
taking on a large number of counters. On Monday the first day of the clearing it retained
its momentum developed a week earlier and breached through the 1800 index barrier.
However, from Tuesday onwards we saw a gradual sell off in a large number of stocks such
as Pakistan Telecom, Hubco, Pakistan State Oil, Fauji Fertilizer, Adamjee Insurance and
Engro Chemicals. On the last day of the week the index witnessed a sharp 81 points or 4.5%
of its value.
The week also saw some active institutional activity in all the major
stocks. Buying was also witnessed from foreign institutional investors in stocks such as
Hub Power Company and ICI Pakistan and some commercial banks.
The recent announcement that the Supreme Court of Pakistan will hear on
daily basis from February 15, 2000 all petitions and cases filed by Hub Power and Wapda
against each other has helped to sustain the stock price around the Rs. 27 levels. We
strongly believe that the Hubco resolution is not about the charges imposed by the
government but about Wapda ability to repay its liabilities under the current tariff
The Government of Pakistan also announced that all importers of Urea
will be required to seek approval of the Ministry of Food and Agriculture before opening
any letters of credit for the commodity. This move is expected to provide some respite to
the domestic urea manufacturers as domestic prices have been under considerable downward
pressure due to cheap imports. It will also provide relief to plants like Fauji Jordan
that has recently started production.
The KSE 100: PSF Consumption stays strong
5 month Polyester Staple Fibre (PSF) and Cotton consumption
numbers show robust growth of 10.95% and 8.26% y-o-y respectively.
Overall textile-manufacturing activities remain strong.
Yarn manufacturing has increased by 9.24% y-o-y for the period
between Jul-Nov 99, however overall cotton production still continues to account for
nearly 75% of total yarn produced.
The remaining is accounted by man made fibre
Cotton prices have bottomed out. Strength in global cotton
prices and aggressive purchasing by domestic mills for inventory build up has tightened
local cotton prices.
Demand for PSF usage still remains strong, increasing y-o-y by
almost 11% for first five months of FYOO.
Local prices continue to remain at a premium of 12% to imported
PSF despite the inclusion of PSF in the no duty no drawback scheme.
Yarn exports are up 14.75% for 1H FY 00
After the rapid decline in cotton prices during the current season,
there was an anticipated massive shift towards cotton yarn production and a resulting drop
in blended yarn production. However that has not been the case.
The raw material usage has continued to remain strong. Instead of a
shift in raw material considerations, there has been an overall increase in yarn
production resulting in a uniform increase in both raw materials, cotton and man made
fibre, 8.64% and 11% respectively y-o-y.
This increase in the whole size of the pie is an encouraging
development for the entire textile sector. Going forward in order to maintain current
margins, we again reiterate our earlier stance that value addition is likely to allow
further penetration in the regional markets. Though the export growth of 14.75% is quite
commendable, future performance is linked to moving up the value added chain rather than
continuing catering to the lower of the textile market.
Given the strong demand for PSF, we maintain our overweight stance in the sector. Ibrahim
Fibre (Buy, D1-1-7) remains our top pick of the sector based on better then industry
earnings. We expect slight pressures in margins for 1H FYOO, a result of not lagging
demand but rather an upside cap due to weak regional prices and strong oil prices.