THE KASB REVIEW

STOCK MARKET AT A GLANCE

 

 

By SHABBIR H. KAZMI
Updated Aug 16, 2003

 

Finally the much-awaited correction hit the market with a bang. The benchmark index went down to 4142, almost 4.2% lower than the closing figure of the last week. Average daily turnover also went down by over 24% to 559mn shares. Five factors were responsible for this correction:
•Against expectations, PSO's result announcement could not generate any positive wave owing to absence of stock dividend. The market was expecting a 15-20%

 

 

 

bonus on the back of humongous earnings growth during FY03, while management of the company has skipped the payment owing to privatization related timing issues.

•The Independence Day holiday also played a major role in the passive behavior of the market punters whereas most of the public was not in an active mood after PSO's result announcement.

•The increase in badla rate was the third reason whereas most of the weak holders preferred to book losses rather than paying over 16% cost of funding to the badla financiers.

•The Karachi Stock Exchange has sought explanations from about 7 of its members on two issues: (I) their exposures in badla in terms of their maximum capital limits and (II) the names of the clients for whom they have taken these exposures. At the time of filing of this report, the market was full of rumors that the stock exchange authorities have withdrawn these explanations from the brokers.

•The central bank has issued a circular to get two sets of information from all the banks and development financial institutions on a weekly basis: (I) their level of exposures in the stocks and (II) their level of exposures in the carry-over transactions where these institutions have to disclose the names of the brokers with whom they have placed their funds to the tune of over PkR10mn.

OUTLOOK FOR THE FOLLOWING WEEK

Next week seems to be the time of consolidation for the market. The current correction drive may take another day to settle down whereas after that market will be consolidating at around 4000 levels. The exchange notices or so-called explanations are unlikely to make any significant impression over the investors. However, SBP's more stringent supervisory role in the badla financing may check the unlimited participation from the financial institutions in the carry-over financing in the market and lead to a gradual increase in the rollover rates in the market. In the short term, there are at least four trigger factors that can inject some bullish sentiment into the market after an initial consolidation.

1. A few of the corporate result announcements are expected next week, which will attract investors interest in the market.

2. PSO's bidding date announcement is also due in the last week of the current month. The market is already filled with the rumors of August 22nd in this regard.

3. The board meeting date announcement from Hubco is the third factor that can bring back investors in this market mover.

4. Quite a few institutional investors who have been waiting for a correction to re-enter the market may find it appropriate to go on an accumulation drive at this juncture.

 

 

LUCKY CEMENT RESULT EXPECTATIONS

Lucky cement is expected to announce its full year financial results for FY03 on August 16th. We expect the company to announce a net profit of PkR265.1mn as against last year's profits of PkR272.5mn, down by 4.8%. The company may also announce a dividend of PkR0.65-0.70/share for the year. The drop in the profits is mainly due to depress cement prices during November-March, where the prices slipped by more than 25% to PkR165/bag. Major cushion was provided by demand, which also picked up during the period. However, due to squeezed margins the company is likely to witness a marginal decline in its profits. We recommend HOLD on Lucky at its current price. Result expectations

CEMENT SECTOR UPDATE

During FY03, cement sector has witnessed sharp ups and downs where 1HFY03 was marred with the cartel violations by two large cement manufacturers. This resulted in a sharp drop of more than 25% in the cement prices, which fell to PkR165/bag from PkR225/bag in November-02. This situation coincided with the government's unfreezing of the old development projects, which created a temporary surge in the cement demand. The manufacturers' consistent efforts to re-formulate cartel also gave a hint to the stockists to pile up their inventories before the cartel restarts its price monitoring function. This resulted in more than 26% growth in cement dispatches during November-02 to March-03. In the last quarter cartel recovered, however, the cement dispatches remained strong owing to exceptional rains and the government's efforts to revive the construction industry.

HIGHER SALES VOLUME TO PARTIALLY OFF-SET THE LOWER PRICE IMPACT

Lucky witnessed a 36% YoY growth in cement dispatches in the local market to 1.06mnt and has also exported around 46.7kt to Afghanistan through Chaman and Turkham route. Combining this factor with the average lower price effect, Lucky is likely to witness an 18% YoY increase in its revenues in FY03. However, lower price effect may result in squeezing the gross profit margin by 370bps to 16.3%. This drop is likely to flow to the bottom line where we expect Lucky Cement to post a net profit of PkR259.6mn as compared to PkR272.5mn last year, down by 4.8%. We also expect the company to announce a dividend of PkR0.650.70/share for the year.

Investment Perspective

Our DCF based value for the stock is PkR24.90. At present the stock is trading at a 22% discount to this value. Despite its high level of discount, we expect Lucky to give a market equivalent performance. We maintain our Hold on the stock.

MARKET ROUNDUP

..

LAST WEEK

THIS WEEK

% CHANGE

Mkt. Cap (US $ bn)

16.61

15.91

-4.21

Avg. Dly T/O (mn. shares)

731.85

559.10

-23.60

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

735.67

493.13

-32.97

No. of Trading Sessions

5

4

 
KSE 100 Index

4322.93

4142.46

-4.17

KSE ALL Share Index

2755.78

2638.28

-4.26

 

 

Source: KSE, MSCI, KASB