THE KASB REVIEW

STOCK MARKET AT A GLANCE

 

 

By SHABBIR H. KAZMI
Updated Jan 18, 2003

 

MARKET REVIEW: APPROACHING NEW HEIGHTS
MARKET THIS WEEK

The KSE-100 Index rose by 2.98% to close the week just shy of 3000 points at 2,955 points as

 

 

 

compared to 2,869 points last week. In line with our expectations, the Index was very volatile with large gaps between intra-day highs and lows. These all indicate, that although the bulls remain strong, the risk level of the market is rising.

The star performers this week were Pakistan Oil Fields and SNGPL, the former rose by PkR28 per share (14.67%) while the latter not only reflected historical volumes but also rose by 13.02%. The OMC stocks also performed very well this week in the wake of a positive revision in oil prices.

Average daily turnover increased by 12.25%, indicating that even at these levels the market continues to remain upbeat.

OUTLOOK FOR THE FOLLOWING WEEK

Although we believe that the Index will continue to rise next week the pace of increase is likely to be slower. We expect some decline in the stock price of Hubco after news of a delay in the dividend declaration. However, since earnings season is right around the corner and positive results are expected from most companies, we believe that the negative impact of Hubco is most likely to be offset by positive movements in these stocks. We continue to recommend a cautious strategy, as movements are likely to be increasingly volatile as the Index rises.

FUNDAMENTAL CHANGES

The major fundamental factors affecting the market this week were:

•News that the government would be charging Hubco PkR820mn as first fill charge. The market reacted negatively to this news initially, but panic was abated when the management of Hubco refuted this news, by quoting from the fuel agreement.

•POL prices were marginally revised and fuel oil prices were raised by 5%. The stocks responded positively to inventory gains as a result of this upward revision.

•The 49% growth in net credit to the private sector is a favorable development for the financial sector. After over year and a half of negative credit growth, rising loans indicate that the institutions are not only attempting to optimize their asset mix but are also responding to the prevailing low interest rates.

TECHNICAL OUTLOOK

After closing at a high for the seventh consecutive week, the index faced resistance at 3,000 a key level to overcome. A double attempt was made keeping historic high at 2,991 intact. The key point about last week's levels was the test of channel resistance around 2945 and sustainability above it. Albeit, a marginal close above it, heavily overbought conditions may require the market to correct itself before continuing with the rapture. Immediate support is around 2,900 and immediate risk area, while reactive supports are placed at 2,833 and 2,754. Above 3,000 the index makes headway for 3,300.

SECTOR REVIEW: AUTO SECTOR

Due to the significant interest from investors in the auto sector, we have covered the two top companies in our weekly this time. Though both the stocks have performed exceptionally well, we feel there is still significant upside in the stock prices. While we will be covering the two stocks in details once we finish our detailed earnings models on these, here are the key highlights.

INDUS MOTORS

•Indus Motors witnessed a tremendous growth of 77% in profitability during FY02 mainly due to the improved margins. The growth in profits reflects improvement in the operations on the back of the successful launch of the new model of its sedan car. The stable Rupee against the Japanese Yen during the second half of the year also helped the company in improving its margins.

•1QFY03 numbers are more encouraging as the company earned a net profit of PkR231mn with a quarterly EPS of PkR2.93. For the full year we are expecting earning to grow by more than 100% with EPS of PkR9.4 of Indus if all goes well. The recent run up in the share price has its strings attached with this earning improvement.

•Detailed analyses of FY02 results shows that the company revenue declined by 10% during the year as compared to last year numbers. The reason for this decline was introduction of new Corolla Model due to which the company was in process of phasing out old model of Corolla of 1993. Introduction of the new model is likely to increase the market share of the company in 1300cc- 2000cc category and hence is likely to improve the profitability of the company, in our opinion.

•Another interesting segment to look at is the other income account which has improved by 73% YoY from PkR51mn in FY01 to PkR88.8mn in FY02. This increase is attributable to the cash deposit for the new model given by the customers on the delivery after 6-9 months. This has also increased the cash in hand of the company from last year's PkR94.4mn to PkR2.9bn this year. The cash balance on 1QFY03 end was PkR3.5bn (PkR44/share).

 

 

HONDA ATLAS CAR

•With a 37% increase in car production on a YoY basis, a 45.3% growth in sales revenue, over 151% and 111% rise in operating and net profits respectively, Honda continues to remain the star performer of Pakistan auto sector by a wide range.

•The company performance during 1Q03 also speaks volumes in which revenues for the quarter increased by 16.7% YoY and gross margins improved to 11.9% against 8% last year. This is mainly due to the depreciation of the US Dollar and Yen against the rupee by 7.0% and 6.1% respectively as compared to the same period last year. This trickled down to the bottom line and resulted in an increase of more than 80% in the net profitability of the company during 1Q03 as compared to the corresponding period last year.

•Further, growth in FY03 is likely to come from launch of new models for City and 1000cc cars. However, being conservative we have just assumed a 15% growth in top line for the year.

•Currently trading at a FY03 PER of 4.5x expected earnings, to say that it is attractively valued scrip would be an understatement. With a book value per share of almost PkR30, Honda Atlas is currently trading at P/BV ratio of 1.4x. Given its focused market positioning and contained growth strategy we expect sustained earnings growth momentum in FY03 and beyond.

•For income oriented investors, current dividend yield of 9.7% should be sufficient attraction along with the possibility of positive earnings surprise if Yen continues to remain weak in FY03. We recommend a Buy on Honda Atlas Car.

MARKET ROUNDUP

..

LAST WEEK

THIS WEEK

% CHANGE

Mkt. Cap (US $ bn)

10.79

11.15

3.34

Total Turnover (mn shares)

2089.00

2345.00

12.25

Value Traded (US$ mn.)

2189.00

1964.00

-10.28

No. of Trading Sessions

5

5

 

Avg. Dly T/O (mn. Shares)

417.80

469.00

12.25

Avg. Dly T/O (US$ mn)

437.80

392.00

-10.28

KSE 100 Index

2869.24

2954.63

2.98

KSE All Shares Index

1763.45

1814.88

2.91

 

 

Source: KSE, MSCI, KASB