Updated March 27, 2004



The index continued to make history during the current week and closed at an all time high of 5,118.52 on Friday. This translates into a WoW gain of 2.35 percent. Monday was the only day in the shortened week that witnessed a marginal decline in the index. The three remaining days experienced a mini rally instigated by OGDCL. Speculation that OGDCL will be added to the index during its next revision in early April





led institutions to add the stock to their portfolios. The stock was further boosted by news of the discovery of oil and gas reserves by the company in Lala Jamali. The resulting improvement in market sentiment also helped push up index related stocks, which led to the index rising by 0.95 percent on Wednesday. Removal of democracy related sanctions by the United States further fueled investors' positive sentiments and pushed the index up by another 1.33 percent on Thursday. PTCL, the largest stock in the index was also a major gainer. Trading on the last day of the week continued on this positive trend and raised the index by yet another 0.12 percent. Overall, the market posted stronger gains during the current week than it has for a number of weeks. Furthermore, volumes also spiked during the current week and touched levels not seen since September 2003.


As mentioned above, investors are of the opinion that OGDCL will be added to the KSE-100 index from the first week of April. Consequently, OGDCL could give the market an upward boost in terms of investor sentiment again next week as institutions continue to add the stock to their portfolio. On the negative side, the market does not appear to have taken the developments in Wana into account yet. If the situation in the tribal area drags longer than expected, or worsens further, the market could react negatively to the situation. Moreover, while we stated last week that the crossing of the index over the 5000 mark would boost investor sentiment, the same argument can apply in the opposite direction. Some investors and analysts seem to be on the jittery side because of the fact that the index is above the 5000 mark. Any unexpected negative news could result in bears becoming the dominant force in the market. Thus we expect a mixed outlook for next week.


The major developments this week were:

•The Chairman of Board of Investment (BoI) announced that BoI has received 33 Expression of Interests (EoIs) for setting up 5,500MW power plants in Pakistan. The EoIs were called by Pakistan Power and Infrastructure Board (PPIB) a few months ago which generated a good response from the corporate sector. Among the majors, Engro Chemical and Hub Power also submitted EoIs for setting up power plants.

•Reportedly Bank Al-Falah is coming up with a PkR1.2bn IPO and has applied for the local listing.

•PTCL placed advertisements for various positions, most notably Chief Information Officer and Corporate Business Analyst positions, indicating the proactive attitude of the new management.

•Urea prices were raised by PkR5 per bag.

•Commerce Minister Humayun Akhtar is reportedly having trouble in coming up with a quick solution to the dispute between APTMA members due to his personal ties with the parties involved.

•United States withdrew democracy related sanctions on Pakistan.

•The Planning Commision criticized PIA's purchase of Boeing-777s.

•A newspaper report indicated that the cellular subscriber base in Pakistan has crossed 4mn.

•The Federal Cabinet approved an increase in the support price of seed cotton (phutti) from PkR850 per 40 kg to PkR925.

•PSO sought offers to import 110,000 tons of furnace oil during April-May, indicating that restriction on the import of furnace oil has been lifted temporarily.

•Pak Suzuki declared a profit of PkR1.57bn for FY03, translating into EPS of PkR32/share, along with a dividend of PkR3 per share.

•Reportedly General Musharraf presided a meeting with his technology advisors on the corporate split of PTCL. While these advisors have advocated a split, the President has passed the decision on to the new management of PTCL. As per the Presidential decision, the new management will take an in-depth view of the pros and cons of the proposal within three months and will make their recommendations to the President.


The Pak Suzuki Motor Company Limited as expected reported strong revenue and profit growth for FY03. The company reported an 85% jump in profits to PkR1.57bn on the back of a 68% jump in revenues to PkR18.48bn for FY03. However, the company chose to pay out a ridiculously low cash dividend of PkR3/share against earnings of PkR32/share. With the stock trading at a 47% discount to the sector PER, at a 71% discount to the market PER and at a 17% discount to our fair value, we issue a BUY call on the stock.

After an extended board meeting, Pak Suzuki finally released its FY03 results on Thursday March 25, 2004. The company declared profits of PkR1.57bn, which were marginally below our expectations of PkR1.61bn, on the back of PkR18.48bn worth of sales. The company also declared a final cash dividend of 30%. Strong Revenue Growth



Pak Suzuki's revenues grew by 68% YoY to PkR18.48bn on the back of the 68% YoY jump in unit sales to 49,465units during the year ended December 31, 2003. As is evident, revenues per unit remained virtually constant YoY as the company's sales mix remained nearly the same.


As is evident from the table, the company's cost of sales rose slower than its sales revenues, possibly due to increased production efficiency and increased deletion levels. At the same time, operating expenses shot up 20% YoY on the back of increased advertising expenses as the company sought to improve the sales of the Baleno during the year.


Dividends proved to be the biggest surprise. Given the company's payout last year, we were expecting the company to declare PkR6/share as cash dividends for FY03. However, the company stuck to the same payout that it made last year, even though profits nearly doubled. The declared payout of PkR3/share resulted in a ridiculously low payout ratio of just over 9%. What makes this payout seem even more ludicrous is that at the end of the 3QFY03, the company reported cash holdings of PkR7.6bn on its balance sheet.






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