THE KASB REVIEW

STOCK MARKET AT A GLANCE

 

 

By SHABBIR H. KAZMI
Updated Sept 06, 2003

 

The week started on a positive note with the index showing gains for the first two days. However, this positive growth turned negative during the rest of the week, owing primarily to the SBP's signals with regards to interest rates through the increase in cut-off yields on 3 month and 12 month T-Bills. HubCos expected results announcement on Thursday also played a role as people tried to predict the company's final dividend payout. Even though the index fell during the majority of the week, it still registered 0.04% growth when compared to last weeks close. Furthermore, market capitalization was up by 1.11% WoW and average daily trade volumes crossed 530mn shares, an increase of 2.45% over last week.

 

 

 

OUTLOOK FOR THE FOLLOWING WEEK

The POL board meeting is likely to be the key trigger for the market in the short term. And we feel that this will keep the market volatile, and to a certain extent in the positive frame of mind. Meanwhile, the broader market is likely to stay neutral to weak on account of uncertainties attached to the liquidity side.

In fact liquidity is the primary reason why the market looks quite risky over short to medium term. Whilst the market has been boosted by massive excessive liquidity, the slowdown in inflows from overseas coupled with interest rate hike indications from the SBP and continued government divestment will probably result in this excess liquidity disappearing. Add to this the economic slowdown witnessed in the first two months of the year, less than stable political environment, continuous privatization delays, worsening domestic law and order situation and the volatile situation on the Durand Line and LoC and you have a recipe for potential disaster.

Whilst there may be some excitement left, with the result announcements of some of the larger companies expected in the next few weeks (PTCL, SNGPL, SSGCL), the market seems to have already discounted these results, with most of the companies operating at the upper end of their PER bands.

CEMENT SECTOR UPDATE

With new development projects picking up in the Southern region, cement demand growth has now tilted towards the lower half of the country. According to the data released by APCMA, during August total cement dispatches witnessed a YoY growth of 17.4% to 1,044,228 tonnes, where local demand increased by 10%. Interestingly, growth in local dispatches was comparatively much higher in the Southern region, which we believe was due to the strong construction activity that picked up after the launching of housing finance schemes by the large banks. Cement units in the Northern region concentrated more on the export market, which compensated them for slowdown in the local demand growth during the month. Cement prices remained within the range of PkR215-225/bag where the cement manufacturers promised the government to lower the prices up to PkR200/bag with the growth in demand. Going forward we expect cement demand to pick up considerably in the Southern region while growth in the Northern region is likely to come through exports to Afghanistan. We maintain our Underweight stance for the cement sector as a whole where we believe that market has already discounted the potential impacts of increase in the demand side.

DISPATCHES: GROWTH IS EVIDENT

According to the data released by APCMA for August-03, total cement dispatches witnessed a 17.4% YoY growth to 1,044,228 tonnes, where local demand increased by 10% to 950,857 tonnes. Remaining growth came from exports, which increased by 271% to 93,371 tonnes during the period. Interestingly, growth in local dispatches was comparatively higher in the Southern region, which we believe, was due to the strong construction activity that picked up after the launch of housing finance schemes by various banks. Construction of Gawadar Port and other development projects are now in full swing, which is another major reason behind the increased growth rate, in our opinion. We believe that, until any new development projects from the government get started in the upper half of the country, growth is likely to flow from the Southern region. Meanwhile, the cement manufacturers in the Northern region seem to be more focused towards the export market in Afghanistan where construction activities are in full swing. However, owing to pricing differential between the export and the domestic market (despite tax adjustments), we believe that Southern manufacturers will be making slightly higher profit margins vis-a-vis Northern manufacturers.

 

 

PRICES: SETTLING DOWN AT PKR225-215/BAG

In an effort to boost the construction industry, the government is making continuous efforts to bring cement prices down. In this regard, the Finance Minister Shaukat Aziz had a meeting in August with cement manufacturers. The cement manufacturers promised the government to reduce cement prices once the demand side of the cement starts picking up. Due to this, cement prices remained within the range of PkR215-225/bag during the month. We are of the opinion that with new housing schemes and new development projects coming online, these prices may come down in the medium term to around PkR200/bag.

SUPPLY STABLE AGAIN

During August, all 22 cement units were operational and maintained capacity utilization rate of 72%. We expect cement demand to pick up till October, which may improve the utilization rate further. No new capacity addition has been reported by the APCMA.

NEW HOUSING SCHEMES

During July-August most of the large banks introduced new housing schemes at quite reasonable rates. National Bank presented its house-financing proposal for government employees against government guarantee. The features of this scheme were more or less in line with the measures announced by the government in the current year budget. HBL and Bank Al-Falah also introduced similar schemes for general public. We are of the opinion that these schemes will bring positive impact on the demand side in the medium term.

DEVELOPMENT PROJECTS:

Apart from housing schemes, new development projects are also likely to bring major boost to the cement demand within the country. The PkR29bn Karachi uplift plan, which includes major development activity in the city over next four years, is also likely to provide a boost to the demand in the Southern region.

INVESTMENT PERSPECTIVE

We maintain our Underweight stance over the cement sector as we believe that market has already discounted most of these positive developments.

MARKET ROUNDUP

..

LAST WEEK

THIS WEEK

% CHANGE

Mkt. Cap (US $ bn)

17.09

17.28

1.11%

Avg. Dly T/O (mn. shares)

517.80

530.46

2.44%

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

529.09

545.34

3.07%

No. of Trading Sessions

5

5

 

KSE 100 Index

4461.47

4463.10

0.04%

KSE ALL Share Index

2842.46

2851.61

0.32%

 

 

Source: KSE, MSCI, KASB