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THE KASB REVIEW

STOCK MARKET AT A GLANCE

Updated on Oct 06, 2001

The KSE - Overview: A (momentary?) uplift in outlook

After several weeks of a declining trend, this week the market showed signs of a turnaround as it broke out of its downward spiral and climbed 0.68% to 1141.20 from last weeks' close at 1133.44 levels.

In isolation the increase seems hardly significant, however, it must be remembered that although the market gained 6 points on Monday closing at 1139.64, it lost almost 34 points on Tuesday closing at 1105.04 levels. On Wednesday the market remained stable at 1105.04 levels. Last week we mentioned that one of the domestic investment banks had offloaded its equity holdings in the market, which increased stock liquidity pulling down prices. The movement of the market in the first three days of the trading week can be explained by the fact that the big five banks had gone long on the excess liquidity that had resulted from the sale of the PkR1.6bn portfolio on September 26. Delivery was taken on Monday and Wednesday, which boosted up the market on those days and, particularly on Monday.

On Thursday the market perked up to 1112.32 levels. It was Friday though that really notched up the week closing by 28 points. Volumes, which have been at 46 million one-week average, increased to 78 million on Friday. Now that the excess exposure issue has been resolved the COT rates, which were capped at 26% to exert control over the rising badla rates, have fallen to around 16%-17% of their own accord. This means that funds have been freed up for further investment in the market since the taking of delivery by the big five banks has pulled scrips, primarily PTCL and Hubco, out of badla transactions.

Furthermore foreign funds began to take advantage of the low valuations on stocks with strong fundamentals and entered the market on the last two trading days of the week.

The market's depression over the last week or so has been attributed to the excess liquidity that we mentioned earlier and the threat of a US attack on Afghanistan. The one issue of liquidity having been resolved this week, the market began to give positive signals. This uncertainty is expected to prevail over the next few weeks and at this time it is difficult to foretell the intensity of the fallout of the political developments in the region on the market. However, at present we feel that the negative repercussions will be limited.

Sector Review

Hot Stock-Picks ... anyone interested?

This time around we have decided to focus on specific stocks instead of covering a particular sector of the market. We strongly believe that the already low prices of scrips in the stock market provide attractive investment opportunities to our existing and potential clients.

Kohinoor Energy Limited

We expect net sales of Kohinoor Energy to increase by over 7% in FY01 on the basis of higher demand of thermal power by WAPDA due to low hydel energy generation during the last fiscal year. In FY01, operating expense is likely to be reduced by over 47% (last year's rise of operating expense was due to a one time non recurring charge - provision for doubtful debts of around PkR77.326mn). KEL, in our opinion, has over PkR1.0bn in cash and we believe that as a result of the rising cash reserves its other income is likely to grow by over 48% in FY01.

Hub Power Company Limited

Hubco's sales revenue increased by over 39% YoY in 1H01. This was driven both by higher oil prices (which are a pass-through item) as well as an 18.7% increase in electricity generated, to 2,693GWh in the first six months of FY01. First half (1H01) results have shown a considerable improvement in the financial health of the company - an increase of 48% in NPAT. We expect to see a similar rise in sales revenue and profits going forward. The restructuring of the power sector by the GoP with support from the World Bank has resulted in normalization of payments from WAPDA to Hubco during FY01 - raising cash and thus interest income, which in our opinion is likely to result in an improved bottom line in FY01.

Sui Southern Gas Company Limited

SSGC showed a 20% YoY rise in sales in 1H01 and we expect to see a similar increase for FY01 sales on the basis of higher gas sales volume and increase in gas prices. The massive jump in net other income of 132% in 1H01 and an expected decline in financial charge by over 17% in FY01 as a result of resolution of circular debt problem of public utilities would result in a rise of over 110% in the EAT figure in FY01.

Pakistan Oilfields Limited

POL has recently announced a final dividend of 150% for 1H02 thus making for a total annual dividend of 230% or PkR23/share with an EPS growth of around 52% for FY01. The stock is currently trading at a FY01 PER of 2.7x - a discount of over 37% to the FY01 market PER making this stock ideal for a long-term portfolio.

Paramount leasing Ltd

At current price of PkR4.50, Paramount Leasing Ltd. is trading at an EPS of PkR1.01 leading to a PER of 4.47x. This is a steep discount of more than 40% from the sector PER of 7.8x, with a reduced price-to-book value of 0.38x compared to the historic PBV of 0.40x and 0.39x for FY98 and FY99 respectively. FY00 results reflect a topline growth of 24% to PkR150mn in FY00 from PkR121mn in FY99, mainly attributable to a healthy increase in the capital gains on the short term investments to PkR19mn in FY00 from PkR0.4mn in FY99.

First Habib Bank Modaraba

At the current price of PkR8.70 FHBL is trading at an EPS of PkR2.63, with EPS change of 139%. The PER improved from a historic 4.61x (FY99) to 3.31x for FY00, almost at par with the sector PER of 3.02x. After a steady 3-year payout history of PkR1.50 per share, First Habib Hank Modaraba (FHBM) increased its FY00 payment to PkR2.15, which judging by its recent run-up, appears to have pleased investors. With a highly stable sponsorship by Habib Bank Ltd. and a well-diversified portfolio of quality clients, we believe that going forward, the company will continue to maintain its present stream of earnings, and hence its payout.

Atlas Honda Limited

At current price of PkR27.95 Atlas Honda Ltd. (AHL) is trading at an attractive PER of 4.85x on FY01E, which is at a discount of around 17.8% to the sector PER of 5.91x. The company's PBV is also at a discount of around 6.3% at 0.89x compared to the sector PBV of 0.95x. Historically, AHL has displayed good dividend payout, with dividend yield above 7%. We have become increasingly positive in our outlook for AHL, as the company's FY01 results reflect an impressive topline growth of 38% to PkR4, 705mn in FY01 from PkR3, 397mn in FY00.

Pakistan Telecommunications Company Limited

Our valuation multiples indicate that PTCL is currently trading at a 5% discount to the market PER on FY02E earnings. Although, the GoP has declared that the privatization timeline may be somewhat delayed however, our future earnings forecasts are based on the assumption that the management is retained in the hands of the public sector. Furthermore, the planned aggressive capacity addition and upgradation could potentially translate into a potential increase in our base case EPS forecast by about 2.5% in FY01 and 7.9% in FY02.

Lever Brothers Pakistan Limited

We have gone overweight on Levers since the prospect of higher rural incomes seems to have become brighter following the proposed increase in developmental projects and an imminent reduction in smuggled goods following the closure of several diplomatic warehouses. Currently Levers' share has been following a downward price trend as the market factors in depressed earnings for FY01 into its share value.

MARKET ROUNDUP

..

LAST WEEK

THIS WEEK

% CHANGE

Mkt. Cap (US $ bn)

4.44

4.56

2.70

Total Turnover (mn shares)

228.03

230.65

1.15

Value Traded (US$ mn.)

84.03

85.25

1.45

No. of Trading Sessions

5

5

 

Avg. Dly T/O (mn. shares)

45.61

46.13

1.15

Avg. Dly T/O (US$ mn)

16.81

17.05

1.45

KSE 100 Index

1133.44

1141.20

0.68

KSE All Share Index

739.00

742.48

0.47

.Source: KSE, MSCI, KASB



ASIA PACIFIC & AUSTRALIA
EXCHANGE INDEX LEVEL CHANGE EXCHANGE

Bombay

BSE

2812.9

+23.93

0.86%

Hong Kong

Hang Seng

10277.4

-9.01

-0.09%

Singapore

Straits Times

1385.45

+7.71

0.56%

Sydney

S&P ASX 200

3179.1

+48.20

1.54%

Tokyo

Nikkei

10205.9

+0.39

0.00%

.



EUROPE & UNITED STATE OF AMERICA
EXCHANGE INDEX LEVEL CHANGE EXCHANGE

Frankfurt

DAX

4487.69

-60.44

-1.33%

London

FTSE

5036

+19.80

0.39%

Paris

CAC

4164.76

-31.04

-0.74%

Dow jones

Industrial

9119.77

58.89

 

Nasdaq

Composite

1605.30

7.99