THE KASB REVIEW

STOCK MARKET AT A GLANCE

 

 

By SHABBIR H. KAZMI
Updated Mar 08, 2003

 

MARKET THIS WEEK

The market remained shrouded with uncertainty during the week, with the single largest factor being the Iraq situation. The KSE-100 Index remained choppy throughout the week trading within the range of 2407-2540. The market opened on a bullish note 

 

 

 

on Monday with the Index gaining 121 points. However, the trend was immediately reversed on Tuesday and the market lost 73 points, losing almost 60% of the gains on Monday. The market remained lackluster for the remaining part of the week. On a weekly basis, however, the volumes exhibited some strength as the average weekly volumes rose to 127mn shares as compared to 90mn shares in the previous week.

Hubco remained the most active stock during the week, mainly on the back of dividend announcement. However, majority of the blue chips lost their value on a weekly basis.

OUTLOOK FOR THE FOLLOWING WEEK

We believe that the market is likely to carry on with its choppy in to the next week where we do not expect any major activity. The uncertainty over Iraq is likely to play an overbearing role on market sentiments. As witnessed in the previous weeks, we expect bullish sentiment over any positive stock specific news to be short-lived.

While the market is attractive for long-term investments, we are of the opinion that the sentiments are likely to remain depressed. In such a situation, trading with a short-term view of the market is the ideal strategy, where any dip should be taken as an opportunity to accumulate while strength should be capitalized on by booking profits.

FUNDAMENTAL CHANGES

The major fundamental factors affecting the market this week were:

•Yield on the six-month T-Bill declined further in the auction held this week. The weighted average yield on the T-Bill declined by 120bps to 2.09%. The weightedaverage yield on the six-month T-Bill has declined by 175bps since the beginning of this year. The market reacted positively to this, however, this positive development was short-lived.

•The continued strength in the international crude oil prices resulted in yet another increase in domestic POL prices. In the latest price revision by the OCAC, the prices of POL products were raised in the range of 3-7%. This resulted in a renewed interest in OMC stocks, which are likely to book inventory gains due to the upward price revision.

•Hubco announced a PkR3.30/share (33%) interim dividend on Wednesday. The dividend announcement was in line with the market expectations. The announcement came in the early hours of the day, however, it failed to creat much excitement among investors.

COMPANY REVIEW: FAYSAL BANK LIMITED

FAYSAL BANK: FY02

FY02 was an eventful year for Faysal Bank as the institution merged with Al-Faysal Investment Bank Limited and as a result total assets of the institution increased by 33%, while paid up capital rose by 75%, making it one of the highest among the private banks. The merger was effective January 1, 2002 and the bank is now owned by subsidiaries of Shamil Bank of Bahrain E.C.

 

 

On the back of the merger Faysal Bank also expanded its branch network by adding 6 new branches and converted three of the acquired branches. As a result the total branch network amounts to 23 branches in Sindh and Punjab.

Faysal Bank has been assigned a medium to long-term rating of AA- and a short term rating of A1.

BALANCE SHEET ANALYSIS

As a result of the merger total assets grew by 41% YoY to PkR36.67bn at FY02 as compared to PkR26.03bn at FY01 funded by 116% growth in equity and a 33% increase in deposits. The bank's loan book increased by 48%, while investments of the bank increased by 176%.

On the other hand the comparison of the merged accounts of the two institutions reflects a 12% decrease in total assets during the period. This decline in largely due to a 23% decline in deposits, almost completely as a result of a 77% decline in deposits from financial institutions from PkR14.37bn at FY01 to PkR3.23bn at FY02. In our opinion, the 74% decline in cash YoY can be linked to the decrease in deposits from financial institutions.

The slowdown in overall credit off-take during FY02 can be cited as the main reason for the decrease in loan YoY. In spite of the decline total loans to deposits increased from 82% at FY01 to 100.1% at FY02, largely because the decline in deposits was higher than the decrease in loans.

Non performing loans decreased by 22% in FY02 to PkR3.4bn from PkR4.4bn.

Consequently, NPLs to gross loans declined from 17% at FY01 to 15% at FY02.

Although this ratio is high according to international standards the constant improvement is a positive development.

Investments on the other hand rose by 60% YoY primarily due to the increase in the value of the fixed income investments as well as that of the equity investments caused by the decline in the interest rates in the economy and the improvement in the stock market, respectively, in the latter half of the year. This is indicated by a PkR1.14bn surplus on the revaluation of fixed investments at FY02.

INCOME STATEMENT ANALYSIS

Improvement in net markup margin during the year from 2.81% in FY01 to 3.36% in FY02 resulted in an increase of 44% in income during the year. The overall declining interest rates in the economy coupled with the decrease in loans resulted in a 32% decline in markup earned. However the decline of 44% in markup expenses lead to an increase of 21% of net markup income. Consequently net markup margin rose by 2.81% in FY01 to 3.36% in FY02.

Improvement in the economy as hence the performance of most of the industrial units resulted in an 88% increase in dividend income during the year. Although we are concerned about the decline of 15% in fees and commission income we are optimistic that the economic growth will result an improvement in new transactions etc in the industrial sector and hence fees and commission income should increase going forward.

Intermediation costs for Faysal Bank are fairly low at 33% of total revenue net of markup expenses. During FY02 provisions against loans amounted to PkR82mn as against a write back of PkR137mn last year. The decline in the provisions against investments resulted in a PkR21mn write-back in provisions.

Hence, profit before tax rose by 36% YoY to PkR1,225mn in FY02 from PkR925mn in FY01. Decline in effective tax rate from 55% in FY01 to 47% in FY02 resulted in a 60% increase in NPAT during the year.

MARKET ROUNDUP

..

LAST WEEK

THIS WEEK

% CHANGE

Mkt. Cap (US $ bn)

9.44

9.64

2.12

Total Turnover (mn shares)

451.03

633.34

40.42

Value Traded (US$ mn.)

378.61

628.80

66.08

No. of Trading Sessions

5

5

 

Avg. Dly T/O (mn. Shares)

90.21

126.67

40.42

Avg. Dly T/O (US$ mn)

75.72

125.76

66.08

KSE 100 Index

2399.15

2448.66

2.06

KSE All Shares Index

1497.48

1524.91

1.83

 

 

Source: KSE, MSCI, KASB