THE KASB REVIEW

STOCK MARKET AT A GLANCE

 

 

By SHABBIR H. KAZMI
Updated February  14, 2004

 

MARKET THIS WEEK

The stock market took somewhat of a roller-coaster ride during the week and ended marginally lower than last week's closing. The index closed at 4,875.16 at the end of Friday's session, 0.27% lower than last week's close of 4,888.45. The week started with slight pruning of the index on account of negative news regarding the nuclear issue and high badla rates, 

 

 

 

 

but Tuesday's session saw strong support from institutional investors, which helped push the index over the 4900 mark, creating yet another record high. Wednesday witnessed some profit taking by investors, leading to a slight dip in the index. Thursday's session aggravated the losses mainly in response to President Bush's negative remarks regarding the nuclear proliferation issue and indications that the Federal Cabinet will allow conditional import of reconditioned cars. Friday's session, however, returned some of these losses as investors saw an opportunity to buy stocks at cheaper levels due to the losses of the two previous days.

OUTLOOK FOR THE FUTURE

With banks and a few other companies reporting their results in the coming week, news from the corporate sector is likely to continue to drive the market. We continue to believe that the market has factored in the expected results and barring any surprises, these results should not have a significant impact on the shortterm direction of the market. The start of talks at second tier level between Pakistan and India could also provide additional stimulus to the market.

FUNDAMENTAL CHANGES

The major developments this week were:

•PTCL signed a US$500mn contract with a Chinese firm for the supply of WLL equipment.

•Nestle reported a 14% jump in sales to PkR10.461bn (2002 restated: PkR9.181bn) and a 15% jump in profits to PkR759mn (2002 restated: PkR660mn) for FY03. The company declared a final dividend of PkR4/share taking total dividends for the year to PkR14/share.

•State Bank allowed Banks and DFIs to set up brokerage companies as separate subsidiaries. The rule also allows banks/DFIs to use their distribution channels for selling the products of their subsidiaries.

•Consumer Price Index continued to hover above 5%.

•The State Bank auctioned 6-month T-bills this Wednesday. The central bank accepted bids worth PkR29.32bn against a pre-auction target of PkR15bn.

•Askari announced a profit of 1,103mn (EPS: PkR9.66), about 61% higher YoY.

•The three-day long public offering of Sui Southern Gas Company Limited came to an end on Wednesday. The Privatization Commission handed out the details of the process according to which the PC plans to announce the results of the subscription by Feb 21.

•The Ministry of Petroleum and Natural Resources has reportedly asked National Refinery Limited to prepare a feasibility study for setting up a Naphtha cracking unit in Pakistan.

•Pakistan's Eurobond issue that is to mature in 2009, was rated B2 by Moody's Investor Services, in line with Pakistan's B2 sovereign rating.

•For the first 7 months of the current fiscal year (July-January), as per figures released by the Federal Bureau of Statistics, exports grew by 13.5% YoY to $6.97bn (Jul-Jan FY03=$6.14bn) whist imports grew 16.2% YoY to $7.95bn (Jul-Jan FY03=$6.84bn) on the back of strong growth in textile exports to the USA, EU and Turkey.

•The possibility of oil trade between India and Pakistan hinges on a policy decision of the Pakistani government.

•The Federal Cabinet announced that it planned to set up a committee to recommend conditions under which the import of new and used cars will be allowed and by how much import duties on small car CKD kits and CBU units would be reduced.

•Unilever received 7 non-binding indicative bids for "Dalda".

 

 

1QFY04 RESULTS: A SIGN OF THINGS TO COME FOR THE TEXTILE SECTOR?

The results for 1QFY04 seem to indicate that the current year will not be as bad for the textile as was initially feared. In fact, if the first quarter's results are any guide, this year could possibly see better results for a number of firms than last year. Improved YoY results, and even improved gross margins in the case of companies like Nishat Mills and Kohinoor Textile Mills, lead to the question of how much luck had a part in this improvement. While the textile companies have little to do with increased dividend income they received, or will receive, this year the ability to renegotiate financial charges to significantly lower levels reflects well on the management.

The current fiscal year started with a horrible outlook for the textile sector. Sky rocketing cotton prices led many to believe that this would be a terrible, if not the worst, year for the whole industry.

SAVVY MANEUVERING OR PLAIN LUCK?

The healthy results posted by textile companies lead to the question of whether these gains are reflective of the ability of management to tackle tough situations or just plain luck. As we have mentioned previously, savings on financial charges and additional other income, particularly dividend income, will be the key drivers of this year's results. While textile companies have little influence over dividend income, and thus are lucky that the companies they have invested in have performed well, the ability to drive down financial charges to significantly lower levels reflects well on the management.

IMPLICATIONS FOR THE INVESTORS

The financial results for the current year could serve as a good indicator for companies that are likely to do well in the post 2005 scenario. Companies such as Nishat Mills, which have the reputation and financial muscle to tackle difficult situations should be the focus of investors once quotas are removed. In addition, companies like Nishat Chunian, that are willing to rapidly adjust according to changing situations, are also likely to fare well. Investors would thus be well advised to closely scrutinize current year's results for future investment decisions in textile sector. We maintain our Neutral rating for Nishat Mills.

MARKET ROUNDUP

..

LAST WEEK

THIS WEEK

% CHANGE

Mkt. Cap (US $ bn)

22.33

22.13

-0.83%

Avg. Dly T/O (mn. shares)

368.37

322.64

-12.41%

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

290.73

281.98

-3.01%

No. of Trading Sessions

5

5

 

KSE 100 Index

4888.50

4874.20

-0.29%

KSE ALL Share Index

3105.97

3092.29

-0.44%

 

 

Source: KSE, MSCI, KASB