Banks had hoped for a rise in interest rates and
had placed an opening bid for a yield of 1.7397%, as compared to the
last weighted average of 1.6072%.By rejecting all bids, the State Bank
sent a clear message that it would not allow the rates to rise.
However this news was not able to carry the bullish trend for long and
trading at the end of the week was dominated once again by rumors
about PSO, leading to a further drop in the index.
OUTLOOK FOR THE FOLLOWING WEEK
The negative effects of PSO's news are likely to be
the main driver of the first one or two trading sessions of next week.
However, as the week moves forward, the focus of the investors will
shift towards the announcement of results by a number of important
companies. This list of companies includes Nestle, Shell, PSO,
Colgate, ICI, PTA, Unilever, Engro Chemicals, Pakistan Oilfields, KESC,
D.G. Khan Cement, Bank AL Habib and Hubco. We feel that the results of
most companies will be in line with the expectations of the market,
while we might see some negative surprise in PSO. Thus, while
pre-result anticipation might initially drive the market higher, we do
not expect any significant movements in the market. On a net basis, a
bearish sentiment is likely to prevail in the market.
The major developments this week were:
•IMF approved two tranches under PRGF. The IMF
board is scheduled to meet on the 27th of this month whereas Pakistan
is likely to sign the required LOI before that.
•National Bank offered 3.2% of its shares in the
market. The issue was oversubscribed.
•The Meezan Islamic Fund (MIF) was also offered
to the public this week. MIF is an open-ended mutual fund that aims to
invest in investments that conform to Islamic principles.
•KSE decided not to de-list PIA for non-payment
of dividends after its management assured KSE that it would announce a
dividend with 1QFY04 results.
•The Sindh Assembly indicated that it would be
willing to accept Kalabagh Dam as a carryover Dam.
•The Government issued notices to the World Bank
and Asian Development Bank for prepayments of around US $1.078bn. This
debt is carrying relatively higher interest rates and the Government
wants to repay these loans under its strategy to improve its debt
•A road show for the divestment of Oil and Gas
Development Ltd. (OGDCL) was held earlier this week. On this occasion,
the Minister for Privatization, Dr. Hafeez Sheikh spoke about on-going
strategic sale transactions, including PSO and Habib Bank. He revealed
that the privatization of PSO is likely to be delayed from this month
•Cotton prices touched an all time high of
PkR3,200 per maund. Textile manufacturers asked for an immediate ban
on export of cotton but Karachi Cotton Exchange asked the Government
to reject the request, particularly if the official cotton production
targets will be met.
MAPLE LEAF CEMENT: POST RESULT REVIEW
Maple Leaf announced its quarterly results, which
were close to our expectations. The company posted a net profit of
PkR201mn (EPS: PkR1.12) for 1QFY04 as against PkR26mn (EPS: PkR0.14)
in 1QFY03. The main reasons behind this increase were (i) 26% growth
in revenues on the back of (a) 13% increase in grey cement volumetric
sales, and (b) reduction of 25% in excise duty, impact of which was
not passed on to the end consumer, (ii) almost 60% coal conversion of
the grey cement manufacturing plant due to which fuel cost has
reduced, resulting in considerable improvement in gross margins to 36%
from 21% in 1QFY03 and (iii) 19% decline in financial and other
charges. We are of the opinion, that the company is likely to witness
exceptional growth during the current fiscal year due to the above
reasons where we expect company to post a net profit of PkR861mn (EPS:
PkR4.8) for the full year. We recommend a BUY on Maple Leaf at current
Maple Leaf announced net profit of PkR201mn (EPS:
PkR1.12) for 1QFY04 as against PkR26mn (EPS: PkR0.14) in 1QFY03. The
results were in line with our expectations. The following table shows
the financial results of the company for the quarter:
REASONS BEHIND THE SCENE
•Revenue increased by almost 26% during the
quarter under review as compared to the corresponding period last
year. The reasons behind this increase were:
1. Sales of
gray cement increased by 13% to 279,094t during the period under
review in 1QFY04 as compared to 246,946t in 1QFY03.
2. Impact of
25% reduction in the excise duty also improved the revenues of the
company, in our opinion, since prices remained stable at last year's
level of PkR225/bag during the quarter and the manufacturers did not
passed on the impact of reduction to the end consumer.
•Almost 60% conversion of the grey cement
manufacturing plant to coal firing system resulted in YoY reduction of
almost 14% in per tonne cost of production, in our opinion. Due to
this gross margins improved considerably to 36% in 1QFY04 as compared
to 21% in 1QFY03.
•At the end of FY03, the company restructured
most of its expensive loans by replacing them with cheaper loans from
the local banks. As per our estimates the financial cost of the
company has declined by around 293bps to 8.6% from 11.5% last year.
This in our opinion is the major reason behind reduction of 29% in the
financial charges during 1QFY04 as compared to 1QFY03.
•Compounding the above, net profits witnessed an
exceptional YoY growth of 673% during the quarter under review where
the company booked profits of PkR201.8mn.
We are of opinion that FY04 is likely to bring
exceptional growth for the cement sector, where Maple will be one of
the top gainers in the cement sector due to the above-mentioned
developments. We expect company to book net profits of PkR861mn (EPS:
PkR4.8) for the full year. At current prices the stock is trading 5x
to its earnings, which is quite lower than the sector PE. We recommend
a BUY on Maple Leaf. BUY!
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KSE 100 Index
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