THE KASB REVIEW

STOCK MARKET AT A GLANCE

 

 

By SHABBIR H. KAZMI
Updated Feb 22, 2003

 

The KSE-100 Index had a somewhat lackluster performance, rising marginally by 1.89% (47 points) this week to close at 2,528 points as against 2,481 points last week. The Index tested 2500 levels repeatedly during the week and in our opinion, the market is consolidating its position at these levels.

 

 

 

The stock of interest this week was Pakistan State Oil, with speculation relating to its privatization was a major market mover. The Pakistan Air Force plane crash, killing 17 people, caused some panic in the market. Hence, the week was plagued with various rumors and conflicting news, but the strength of some key stocks like Fauji kept the market largely positive.

The range bound market is resulting in the volumes drying up. Average daily volume declined by 4.95% to 168mn shares per day as compared to 176mn shares during the last week.

OUTLOOK FOR THE FOLLOWING WEEK

We expect the market to stay in of the consolidation phase during the following week, where the market is expected to continue trading with in the range of 2450 and 2500 levels. Two important fundamental factors, which are likely to influence performance, are the results of PTCL and Pakistan Oil Fields. However, the uncertainties on the international front are likely to place a damper on performance and we believe that market will remain range bound until the Iraq issue is solved.

FUNDAMENTAL CHANGES

The major fundamental factors affecting the market this week were:

•Pakistan State Oils pre bid meeting held on the 19th of February. There was considerable speculation earlier in the week whether the meeting would be held at all. Optimistic and pessimistic interest caused some volatility in the stock and the market by and large responded to it. The meeting decided on a bidding date of April 26th, which we believe is realistic largely because it is expected that the Iraq crisis will more or less be settled by that time. We believe that the setting of a bidding date and the possibility of privatization of the company will play a major role in the performance of the stock going forward and hence have a significant influence on the market.

•The Securities and Exchange Commission issued the first Electronic Communication Network license. Although, this move met with considerable criticism from the broker community, we believe that it is a positive development for the investors.

 

 

•Latest numbers pertaining to foreign direct investment and remittances were released which shows a 163% and 117% increase, respectively, in these inflows. This in turn strengthened the foreign exchange reserves and hence the Pak Rupee, which broke the PkR58 per US dollar barrier on the downside. Furthermore, the US Congress approved a waiver of US$1 bn loan and the World Bank is also considering lending US$1.8bn in the next three years for poverty alleviation. Strengthening on the foreign front, we believe, is likely to play an important role in maintaining investors' confidence in a turbulent international economic and political situation.

TECHNICAL OUTLOOK

The market is in the process of developing a short-term bottom around 2440-2500. Volume dryness has led to the recent congestion from 2440-2600 facing firm resistance around 2600. Ability to move above this resistance would enable the market to expand into a broader trading range from 2500-2800. The index has defined further risk potential below 2440, break of which would make headway towards 2250.

THIS WEEK'S TOP STORIES

Monday, February 10, 2003

SECP'S RECENT INITIATIVES TO SAFEGUARD INVESTORS INTERESTS

We like SECP's recent initiative to safeguard the retail investors' interest in the market. Reportedly, the regulator has issued guidelines to the brokers to strengthen their code of conduct in the market. The guidelines include i) prohibitions to the broker for recommending any fundamentally poor stock to the investors; ii) brokers have been restricted from giving assurances to their investors about the stock price targets or fixed returns to their clients; and iii) The brokers have also been barred from conducting discretionary trading on clients behalf unless directed by clients in writing. Though all these guidelines are not new to the market, however, their dissemination to the brokers was essential at this juncture. We also suggest the regulator to come up with some guidelines for the print media about publication of their market sensitive reports as in the recent market fall, media has also some contribution.

Monday, February 17, 2003

MCB: FY02 RESULTS — AS GOOD AS IT GETS

When the management is focused and takes prudent, albeit difficult steps it definitely shows on the bottom line. MCB has undergone major changes since privatization and as a result administrative costs are steadily declining and so are provisions against impaired loans. Both these factors played an important role in the NPAT of MCB rising by a phenomenal 57% in FY02. The management declared a final bonus issue of 15%, making the total payout for the year of PkR2.5 per share cash and 25% bonus. We are Neutral on the stock at the current price.

 

 

Tuesday, February 18, 2003

PSO: BACK IN FAVOR!

An increase of 47% in domestic POL prices along with positive news flow on the privatization front helped the stock price hit the circuit breaker on the upside yesterday to close at PkR191. Another trigger for today would be the 5.8% increase in the Furnace Oil prices, which have increased to PkR14,340/ton. This is likely to result in substantial inventory gains for PSO where our conservative estimates for inventory gain for the oil giant are PkR439mn on a pre tax basis. We maintain that these inventory gain estimates are conservative in our opinion, as we have taken average inventory levels at 10-15 days. In actual, these inventory levels are being maintained at 15-20 days, which point out that the actual inventory gain could be higher. We maintain our positive stance on PSO, where we believe that the war hype is likely to positively impact the company in the form of higher POL prices, and resultantly, higher inventory gains.

Wednesday, February 19, 2003

LUCKY CEMENT RESULTS — LUCKY STAR SHINES

Lucky announced its half yearly results last week, in line with our expectations, where it announced a net profit of PkR123mn as against PkR86.8mn in 1HFY02. The growth of 42% is mainly due to I) tremendous growth of 19.6% in sales as a result of higher volumes; II) 650bps improvement in gross margins due to the plant conversion from furnace oil to coal; and III) decline in operating expense ratio in sales from 3.2% to 2.4% resulting in a YoY drop of 7% in operating expenses. Lucky is currently trading at a discount of 29% from our DCF based fair value of PkR12.9/share due to which we recommend a BUY for the company. BUY Lucky.

Thursday, February 20, 2003

PSO-BIDDING DATE ANNOUNCED

As per our expectations, the pre-bid meeting for PSO held yesterday turned out to be the last of the series and the Privatization Commission has announced April 26 as the bidding date for the sale of 51% government stake in PSO. The meeting was attended by all the three prospective bidders in the running for PSO, and reportedly, discussed the terms and conditions of the sale. We are of the opinion that the bidding date announced is realistic given the present political situation in the Middle East. The bidders would like the situation in Middle East to stabilize before the bidding, and hence the long time frame is justifiable. We believe that the market's initial reaction to this might be negatively owing to the time frame involved. The announcement also mentioned resolution of certain issues before the bidding. We believe that these issues are related to the outstanding receivables and payables of PSO for which the government is yet to formally announce a resolution. We maintain our Neutral stance on PSO.

Friday, February 21, 2003

MAPLE LEAF RESULT EXPECTATIONS

Maple Leaf (ML) is expected to announce its half yearly results for financial year 2003 today, where we are expecting the company to announce a net profit of PkR77.2mn as against PkR13mn during corresponding period last year. The expected jump of more than 450% is likely to be due to YoY expected growth of 5% in sales and reduction in production cost on account of partial use of coal in place of furnace oil. Based on our forecasted EPS of PkR1.1 for FY03, ML is currently trading at more or less par with the sector PER of 6x. We recommend a HOLD for Maple Leaf Cement Ltd at current price.

MARKET ROUNDUP

..

LAST WEEK

THIS WEEK

% CHANGE

Mkt. Cap (US $ bn)

9.47

9.62

1.58

Total Turnover (mn shares)

705

837.66

18.82

Value Traded (US$ mn.)

521.12

717.95

37.77

No. of Trading Sessions

4

5

 

Avg. Dly T/O(mn. Shares)

176.25

167.53

-4.95

Avg. Dly T/O (US$ mn)

130.28

143.59

10.22

KSE 100 Index

2481.44

2528.31

1.89

KSE All Shares Index

1543.29

1571.85

1.85

 

 

Source: KSE, MSCI, KASB