Updated on May 12, 2001

Starting out at the 1374.31 level, the KSE-100 Index continued to chase last week's negative trend in direction and volume. The market moved erratically within a narrow range throughout the week, and slithered down further to close for the week at the 1350 level 23.31 points or 1.70% down wow.

The introduction of six more stocks (Adamjee Insurance, Fauji Fertilizer, KESC, FFC-Jordan Fertiliser, WorldCall Payphones, and Nishat Mills) to the T+3 system, with the settlement procedure already in place for Ibrahim Fibres and Telecard was purportedly a negative force driving market sentiment this week. Speculation having been the overriding factor dictating past trading activity, is now being overthrown by the new system that is aimed at restricting manipulation, and this has become a prime concern for rumor-driven investors. Even though the move is in the general interest of the investors, the sudden unscheduled notices to this regard have created uncertainty in the investors' mind.

Noteworthy corporate reports included announcement of Hubco's internal meeting scheduled for May 15, and its board meeting in Istanbul on May 16 announcing an interim dividend. BOC Gas 15% dividend payout failed to cheer up investor mood. Engro's lQ01 results were above consensus expectations but the company's view of a relatively poor 2Q01 dampened enthusiasm and the scrip slipped down a bit. Institutions showed great reluctance to fresh commitments even at the currently attractive valuations. In fact, they appear to be focused primarily on the money markets. Retail investors and traders on the other hand, seem more interested in the forex and gold markets at the moment than on equities, thus causing a sharp decline in volumes. As a result, in the absence of genuine investors, the market went limp in the hands of jobbers, and average daily volumes dwindled to around a record low of 37mn since the inception of KATS.

Going forward, as noted last week, we do not expect any major joy unless the "old-guard" at the stock exchanges stops quibbling about T+3 and moves its position from not wanting to enter modern times. We believe this may actually be good for the market if this lot gradually loosens its grip and speculation declines so that genuine investors, both retail and institutional, can invest on the basis of real corporate and economic fundamentals. Unfortunately, for existing investors, this means no joy in the immediate future. We expect the market to move in the range of 1322 to 1350 in the near term before any clear direction materializes.

Leasing Sector: Value Galore!

The half-year results of the leasing sector have now been announced. We believe that the leasing sector as a whole currently offers attractive investment opportunities and several quality stocks within the sector appear to have significant potential upside along with above average dividend yield prospects.

We have studied the summary results for Top-10 leasing companies by asset size. These make up 81% of the leasing industry's total assets and, in our opinion, are a good representative for the sector. Total Assets of the Top-10 (T-10) leasing companies grew by 17.1% in Dec00 vs. Dec99. Total Income of the T-10 rose by 14.6%. However, there is a large range between the top tier and the bottom tier in this group. For example, at the top ORIX and Askari grew Assets by 42% and 25% YoY respectively, while at the bottom, PICL and First Leasing showed negligible or even slightly negative asset growth. The same is true for Total Income. Both ORIX and Askari came out with 30% Y0Y growth in Total Income while a slight decline was witnessed in the case of PILCL and First Leasing.

The Common Size analysis for T-10 is useful to assess the half-year financial performance of the leasing sector. We find that while the T-10's NPAT has risen by 16.1% YoY to PkR266million in lH01 versus PkR229 million in lH00, Operating Profits grew by only 5.2% during this period. Although the sector did well to keep a tab on operating expenses (which remained at more or less the same levels as in the previous half year), the Gross Profit Margin was significantly squeezed. It fell to 29.2% in lH01 versus 32.5% in lH00. No doubt, the key reason would be the rise in interest rates during this period thus inflating the cost of funds.

The Role of Business Model

At the same time, different business strategies have likely affected the Gross and Operating Margins of different players. Looking at Operating Profit Margins in lH01 for example, one finds that ORIX comes out on top with an Operating Profit Margin of almost 30%, followed by PILCORP at 29%, then NDLC at 28% and Dawood at 21%.

At the Net Profit Margin levels, ORIX again takes the lead — and a big lead at that — with lH01 Net Profit Margin of over 22%. Dawood moves up the ranks to second place with 20.1% Net Margin, with Paramount a distant third at 17.1 %

The Business Models of major leasing companies play a major role, in our opinion, in the firms' recurring core income generation. ORIX has a well-diversified business base with focus on medium to small industrial/commercial business and has significantly raised exposure in installment, consumer loans with emphasis on vehicle leasing. Its international diversification in the Middle East is an added advantage in ensuring reduced volatility of future earnings and cash flows. Dawood, a relatively smaller but quality conscious player, has focused on specific sectoral growth strategy that includes not only traditional industries such as textiles and cement but also new ones such as I.T, education and health care. Its focus on credit quality appears to have paid off in low provision requirements. Askari has specialized on its retail focus, particularly consumer durables, while continuing to participate strongly on the industrial leasing side. NDLC, one of the oldest players in the industry has come through an entire business and earnings cycle and now appears to be poised for better times with focus on small and medium ticket items in the industrial and retail segments.

MARKET ROUNDUP
..	LAST WEEK	THIS WEEK	% CHANGE
Mkt. Cap (US $ bn)	5.60	5.52	-1.43
Total Turnover (mn shares)	229.11	285.32	24.53
Value Traded (US$ mn.)	120.10	179.99	49.87
No. of Trading Sessions	4	5
Avg. Dly T/O (mn. shares)	57.28	57.06	-0.37
Avg. Dly T/O (US$ mn)	30.03	36.00	19.89
KSE 100 Index	1370.79	1346.65	-1.76
KSE All Share Index	868.84	856.26	-1.45

.Source: KSE, MSCI, KASB

ASIA PACIFIC & AUSTRALIA EXCHANGE INDEX LEVEL CHANGE EXCHANGE Bombay BSE 3559.77 -8.50 -0.24 Hong Kong Hang Seng 13636.61 31.81 0.23 Singapore Straits Times 1703.35 14.45 0.86 Sydney S&P ASX 200 3389 2.50 0.07 Tokyo  Nikkei 14043.92 26.13 0.19

.

EUROPE & UNITED STATE OF AMERICA EXCHANGE INDEX LEVEL CHANGE EXCHANGE Frankfurt DAX 6141.02 -24.16 -0.39 London FTSE 5896.8 -67.20 -1.13 Paris CAC 5567.25 -39.21 -0.70 Dow Jones Industrial 10821.31 -89.13   Nasdaq Composite 2107.43 -21.43