SBP's effort to maintain the current monetary situation intact whereby
the bank has mopped up around PkR75bn from the market while the market
remained liquid after this action;
The withdrawal of the no trust move against the Deputy Speaker of the
National Assembly was another factor which provided comfort to the
(iii) Continuous increase in
the capacity utilizations of the cement companies to 75% has upgraded
investors hopes from this commodity sector.
The exceptional performance of PTCL, FFC, POL and
Engro is a clear indicator of this shifting phenomenon. Three
developments that fueled the market bull rally were:
OUTLOOK FOR THE FOLLOWING WEEK
The shifting of interest from the 2nd tiers to 1st
tires has disturbed our earlier assumption where we were expecting the
market to take a correction after an exceptional performance of the
2nd tiers. However, strong liquidity side pressures and market's total
"ignorance" to the ongoing political crisis has compelled the
investors to stay tuned to the equities. At the same time, continuous
warning signals from most of the brokerage houses regarding the price
run ups in the 2nd tiers has also influenced the investors' opinion
and has forced them to look for the stars again. Since most of the
tier companies are fundamentally undervalued, we expect the bull rally
to stretch a bit further. Having said this, the risk attached with
equity investments is rising to a significant level. The price
volatility is likely to see its extreme values in the days to come.
Our advice to the long-term investors is that they should keep
increasing their cash ratios at the moment. An exit from the 2nd tiers
is recommended whereas the strategy for the 1st tiers needs some due
diligence. The investors need to go back to the basic working of their
desired rate of returns where they should be incorporating a higher
risk premium for equity investments at this point in time, in line
with the rising price volatility of the market.
THE MAJOR DEVELOPMENTS THIS WEEK WERE:
• The trade data for FY03 was released over the
last weekend. The 20.76% increase in exports to US$11.03bn is by far
the most impressive achievement of the country during the year. Thanks
to a relatively lower increase in imports (17.85%) to US$12.18bn, the
trade deficit has slightly declined to US$1.155bn.
• The Privatization Commission (PC) hinted on the
announcement of the bidding date for PSO. The Minister for
Privatization and Investment, Dr. Hafeez Shaikh stated in a press
briefing that the bidding date would be announced in the next 10 days.
• National Credit Consultative Commission (NCCC)
approved an 11% expansion in monetary assets for FY04. Out of the
total PkR230bn expansion, the net foreign assets are likely to see an
expansion of PkR130bn. The government is aiming to get PkR15bn from
next years expansion for fiscal support.
• The State Bank of Pakistan issued a monetary
policy statement for next six months. The SBP maintained its earlier
stance that it will continue its existing monetary policy initiatives
during the next six months.
• National Investment Trust Limited (NIT) issued a
statement stating that it will be reinvesting its sale proceeds of PSO
back into the stock market
• The commencement of commercial operations of
Bosicor Refinery Ltd. (BRL) appears to be just around the corner with
the company signing a PkR200mn working capital financing agreement
with the local banks.
• The Supreme Court has suspended the decision of
the Election Tribunal regarding the suspension of one of the MNA from
• Following the footprints of Karachi Stock
Exchange, the Lahore Stock Exchange (LSE) is also considering to offer
its membership to the financial institutions and banks. Reportedly,
the LSE will soon be announcing its offer.
• With the pending 50% rights issue, Pakistan
Industrial Credit and Investment Corporation (PICIC), which has the
management rights for ICP-SEMF, submitted a financial plan for
ICP-SEMF up to FY06. In line with our expectations, the rights issue
has its strings attached to the impending privatization of PSO.
• The first Independent Power Producer to convert
to gas, Rousch Power (Pakistan) Ltd (RPPL) is to receive 85mmcfd gas
from SNGPL. The conversion to gas is likely to reduce the cost of
fuel, and consequently the tariff. However, concern remains over the
availability of gas during the winter season.
• The central bank has been able to mop around
PkR75bn against its target amount of PkR70bn from this week's T-bill
auction. The enthusiasm of the participating banks can be gauged from
the fact that SBP received PkR150bn worth of bids in this auction,
though a part of this huge amount was also speculative in nature.
• The urea manufacturers raised urea price by PkR10
per bag to PkR425-430 per bag.
THIS WEEK'S TOP STORIES
PRIVATIZATION — THE NEW HOPES!
The privatization theme at the KSE is likely to see
a revival today after the minister's detailed interview with the media
on the privatization process. Reportedly, the minister has touched
upon almost all the currently active transactions. For most of the
transactions, the Privatization Commission seems to be restarting the
entire privatization process for all those transactions where it has
yet to see any concrete results. While PSO is likely to be the largest
beneficiary Way, PTCL is also likely to attract some interest from
POL CONSUMPTION — MODEST DECLINE
A modest decline in POL consumption should not be
view negatively. The major factor responsible for this has been the
decline in Furnace Oil consumption, which is primarily due to the
increased water availability this year. We are of the opinion that
there has been some increase in gas supply to electric utilities,
particularly in case of KESC. However, as long as IPPs remain on FO,
we do not expect any major decline in FO consumption going forward.
Within the oil sector, PSO remains our top pick, which is trading at a
21% discount to our DCF based target price of PkR2851 share.
FERTILIZER POLICY — A CASE FOR REVISIT
We do not expect any significant change in the
fertilizer policy of 2001 even if government opts for a review of this
policy. Given the existing macro and sector specific conditions,
government has very little to offer. The sector players need to be
involve to buy growth in future. Engro was the first one to realize
this and the Oman project is one such effort, which will change the
existing profile of the company. Fauji will have to focus on
de-bottlenecking within its own plants, which the management is
CEMENT PRODUCTION — ANOTHER UPWARD REVISION
Revision of cap on production level of the cement
industry is now becoming a day-to-day matter for the cartel. This is
the fourth time during this month that the cartel has revised capacity
utilization rate for the industry and now it is again 75%. Reasons
given by All Pakistan Cement Manufacturers Association (APCMA) for
this capacity hike are:
temporary closure of Dandot Cement;
certain measures taken by the cartel to keep a check on cement units
to stay within the prescribed capacity limits,
increase in cement demand owing to monsoon season (high repairs), and
(iv) APCMA is not accounting recent upgradation and de-bottlenecking
in the actual capacities of the cement units, thus keeping the
capacity utilization rate on a higher side, in our opinion.
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