THE KASB REVIEW

STOCK MARKET AT A GLANCE

 

 

By SHABBIR H. KAZMI
Updated Aug 02, 2003

 

MARKET THIS WEEK

We are definitely going through the KSE's most exciting times. The current bull-run which started from 2300+ doesn't seem to be stopping anywhere. In the current bull-run all the traditional theories of over-bought conditions, corrections after 40-50% run ups and exceptional performances from the 2nd and 3rd tiers have failed. The biggest feature of the current week was the market crossing the 4000-index level. Exceptional performances from PSO, POL and Unilevers were the key factors behind this 212 points improvement.

 

 

 

The speculation over bidding date and a possible bonus issue in the upcoming result announcement triggered the rise of PSO to its new recent highs of PkR301.85. Even though out of the four important corporate results, two, namely Fauji and Unilever were below market expectations, the abundance of cash liquidity and positive market sentiment ensured that the share prices of these stocks were not seriously damaged. Moreover, positive news flow regarding political deadlock in Islamabad also helped the market sustain its upward trend.

OUTLOOK FOR THE FOLLOWING WEEK

Given the current market momentum and the exuberance of most of the participants, we feel that the index will keep making new highs during next week. Though no important results are expected next week; we feel that speculations over PSO's bidding date and the bonus hypes in PSO and POL will keep the market up. Since corporate announcements from these two companies are still at least a month away, we may see extreme price volatilities in these counters as well. In our view punters need to be extra careful in carrying over positions into next day in view of rising badla volume and value. As far long-term investors are concerned, cash ratios of 40-50% should be maintained and invested once the market moves into a correction phase. These investors may also make adjust their portfolios on the basis of the relative performances of their holdings.

FUNDAMENTAL CHANGES

THE MAJOR DEVELOPMENTS THIS WEEK WERE:

•Shaukat Aziz has asked cement manufacturers to reduce prices. The Finance Minister has also suggested that failure to do so would result in the government allowing the Trading Corporation of Pakistan to import cement.

•The Ministry of Commerce has reportedly set an unofficial export target of US$13.5bn for FY04. The Finance Minister in his budget speech earlier had announced a target of US$12.1bn for exports during FY04.

•The Prime Minister has stated that he would like automakers to reduce their prices and sort out the delivery schedules over the next six months. However, the Minister for Industries in a recent convention of one of the domestic automobile manufacturers clearly ruled out the import of used cars and said that pricing would be left to market forces.

•PSO unveiled plans to set up a refinery with a processing capacity of 150,000 bpd crude oil. Whilst the project is expected to cost US$1.4bn, the company has not defined any specific time frame for its implementation.

•The Karachi Stock Exchange has reportedly asked the top three bidders, apart from Pak-Kuwait Investment Co., to raise their bid price for the four memberships. The exchange authorities have asked Bank AL Habib, Orix Investment Bank and MI Securities to raise their bid price to match PKIC's bid of PkR34.75mn for KSE membership.

•Sui Southern Gas Company has reportedly doubled its gas supply facility over a period of three years. The company's transmission system capacity has been raised to 1200mmcfd from 600mmcfd in July 2003. The company is currently in the process of finalizing its 5-year investment program according to which it plans to invest a total of PkR35bn, mainly to expand its transmission and distribution network. Furthermore, the company intends to increase its gas supply to power generation units. It is already supplying around 200-220mmcfd of gas to KESC, which has enabled the KESC to convert a major chunk of its generation capacity to gas.

 

 

•The government has invited Expressions of Interest from firms and companies to provide financial advisory for the privatization of National Refinery Limited (NRL). The government is aiming to divest its 51% stake in the refinery along with management control. NRL has a processing capacity of 2.4mn tons per annum for fuel and 681,000 tons per annum for lube.

•A Saudi-based consortium is reportedly considering setting up a US$1.4bn coastal refinery in Pakistan. The refinery is likely to be a joint venture between the Saudi group and State Petroleum Refining and Petrochemical Corporation (PERAC) or the National Refinery Limited.

•The revenue collection figures for FY03 have been finalized at PkR460.589mn, showing an improvement of 14% YoY. Collections for the month of Jun-03 stood at PkR68.561mn compared to PkR60.562mn in Jun-02. The biggest contribution to the growth in revenue collection has come from sales tax which have increased by 16% YoY to PkR194.76mn. The strong improvement in revenue collections has raised the level of optimism of the government which has projected a revenue collection target of PkR510bn for FY04. However the month of July was disappointing since the government was only able to collect PkR23bn, 2.6% lower YoY.

• In line with our expectations, the Finance Ministry has finally put a restriction on the pledging of National Saving Certificates by banks. According to the notification, banks have been restricted to pledging PkR1mn worth of NSCs and are required to seek approval from the Directorate of National Savings in order to extend financing against NSCs.

•The Economic Coordination Committee has given its approval to a single wellhead gas pricing formula for both the gas distribution companies operating in the country. The government had in the recent past also approved a single tariff for both the gas utilities. The change in the wellhead pricing formula is the next step in removing the disparities in the tariffs of both SSGC and SNGPL. However, the profitability of both the companies remains unaffected as a result of this change.

•Hubco's Finance Director stated that the company would be paying out a final dividend of around PkR2.00/share for FY03. Another interesting part of his statement is that Hubco is planning to bid to set up a new power plant to meet the power generation requirements of Karachi. The Private Power Infrastructure Board recently invited interested parties to bid for the setting up of 900MW of additional thermal power capacity.

•Against general expectations, POL prices did not witness any material change from last fortnight. Apart from a 3% increase in kerosene price, there was no noticeable price change.

FAUJI FERTILIZER — 1HFY03 RESULT ANALYSIS

Our fears about a YoY decline in the profitability of Fauji Fertilizer Company Limited materialised when FFC reported a 22% decline in its 1HFY03 profits. The results were in fact far below our expectations. The subsidy removal in 1HFY03 along with a 132% increase in financial charges were the causative factors. Moreover, FFC's usual cushion i.e. Other Income, proved to be quite fragile this time with the company reporting a 53% YoY decline in this segment. Despite the numerous shortcomings, management has shown its confidence in the business by declaring a second interim cash dividend of 22.5%. We are in the process of revising our earnings expectations for the company and will soon come up with a detailed report. Meanwhile, we maintain our Buy recommendation on the stock with a target fair value of PkR99 per share.

 

 

FAUJI REPORTED A 22% DECLINE IN ITS PAT

Our fears about a YoY decline in profitability of Fauji Fertilizer Company Limited materialized when FFC reported a 22% decline in its 1HFY03 profits. The results were also well below market expectations of around PkR1350mn for lHFY03. However, the stock did not get the deserved price beating owing to the currently strong market bull run. Management also kept its tradition alive by declaring another cash dividend. This time the payout is PkR2.25 per share, which brings the total payout for the current FY to PkR5.25 per share.

MARKET ROUNDUP

..

LAST WEEK

THIS WEEK

% CHANGE

Mkt. Cap (US $ bn)

14.67

15.45

5.29

Avg. Dly T/O (mn. shares)

402.49

466.53

15.91

Avg. Dly T/O (US$ mn.)

276.91

411.68

48.67

No. of Trading Sessions

5

5

 

KSE 100 Index

3807.67

4019.52

5.56

KSE ALL Share Index

2441.37

25.74.33

5.44

 

 

Source: KSE, MSCI, KASB