THE KASB REVIEW

STOCK MARKET AT A GLANCE

 

 

By SHABBIR H. KAZMI
Updated Aug 21, 2004

 

The market remained range bound during the first trading day of the week owing to the lack of interest shown by investors on account of higher badla rates. Tuesday was positive on the back of rumors of the removal of CVT on intra-day trade which pushed the index up by 0.9%. OGDCL led the market for the second consecutive day on the back of increasing international oil prices. On Thursday, the market underwent a correction where big players exploited the good news factor. This pulled the index down by

 

 

 

 

0.74%. Friday was positive but trading volumes remained low. On the whole, the index gained 1.37 percent WoW and closed at 5,409.05 on Friday as opposed to 5,343.52 in the previous week.

OUTLOOK FOR THE FUTURE

Shaukat Aziz is likely to take the charge as Prime Minister within the coming week, which may create some excitement in the market. Speculation in Oil and Gas Exploration and distribution sectors is likely to continue during the week owing to the continuous strengthening of international oil prices. PPL results are expected next week, which may trigger stock-specific activity. Politics will remain a net positive factor for the market owing to the market's liking for Shaukat Aziz. We expect the market to stay range bound with a trading range of 5350-5450.

FUNDAMENTAL CHANGES

The major developments this week were:

•A Chinese firm, Shen Hua, has indicated that it will be setting up two thermal power plants in Thar with a combined capacity of 300MW.

•World Bank has once again insisted that the government raise domestic gas tariffs.

•President Musharraf did not announce any mega project on Aug 14, when he was expected to make an important announcement regarding the construction of at least 2-3 mega water and power projects including the decision regarding Bhasha or Kalabagh Dam.

•As per figures released recently by the Pakistan Automotive Manufacturers Association (PAMA), car sales in July shot up 80% YoY to 10,249units from the 5,629units that was reported in July 2003.

•The Indian authorities are considering removing/lowering CVT.

•PC awarded LDI license to WiseComm.

•The State Bank rejected all bids in this week's PIB auction. Total bids worth PkR4.3bn were received against a pre-auction target of PkR3.0bn.

•The Economic Advisor to the Ministry of Finance indicated that the current subsidy being provided on oil prices cannot continue forever and rising oil prices will eventually be passed on to the end consumers.

•The government has hinted that the construction of Bhasha dam will start from June 2006 as against the previous target of 2007.

•As per figures released by the State Bank of Pakistan, remittances received in July rose by 10% YoY to US$329.9mn from the US$300.2mn.

•On compilation of the final figures for the economy, it is being indicated that GDP growth for FY04 could exceed the earlier estimates of 6.4%.

•Pakistan Exploration (Private) Limited (PEL) signed a pricing agreement for Badar gas field with the Government of Pakistan.

•The cut-off yield on 6-month T-bills witnessed a small increase of 6 basis points in Wednesday's auction.

•Shell beat all expectations by announcing PkR1,508mn (EPS: PkR43.01) after tax profits for FY04.

•Ufone has issued 0.4mn free connections to the general public earlier this week.

•PTCL awarded a contract to a Chinese firm for automating its billing system.

 

 

MAPLE LEAF — FY04 RESULTS REVIEW

The results announced by Maple were much below market expectations. The company posted after tax profits of PkR487mn (EPS: PkR2.70) for FY04 with a token cash dividend of 15% to please investors. A 225% improvement in the bottom line is not surprising as FY04 has been the best year for most of the cement companies owing to: (I) 20% cement demand growth; (II) Healthy price retention levels; and (III) Improved margins due to coal conversion. We maintain our BUY rating for Maple with a price objective of PkR43.98/share for the next 12 months.

FY04 RESULTS - 225% RISE IN PROFITS

Maple Leaf announced its FY04 results today. The company declared a PkR1.5/share cash dividend for FY04. The company has posted after tax profits of PkR487mn (EPS: PkR2.70) for the period as compared to PkR150mn (EPS: 0.83) for the same period last year. The announced results are well below market expectations as well as our forecasts for the company. The difference between our expectations and the actual numbers is primarily due to: (I) deferred taxation and (II) higher cost of sales.

A 225% improvement in bottom line is not surprising as FY04 has been the best year for most of the cement companies owing to: (I) 20% healthy demand growth; (II) Healthy price retention levels; and (III) Improved margins due to coal conversion. In addition to these three industry wide factors, there are two company specific factors that enabled Maple Leaf to post this growth. These factors include: (I) Financial restructuring exercise, which brings a turnaround for MLCF as it has been able to show a 27% decline in financial charges; (II) conversion of wet process grey cement plant to dry process cement plant which boosted company's gross margins to a level higher than that of its peers in the industry.

Though we are not very bullish on the cement sector, we have a soft corner for Maple Leaf owing to its cheaper valuations. Maple Leaf can be an ideal play if the government decides to go ahead with any mega size dams particularly Kalabagh Dam. Our price objective for Maple Leaf over the next 12 months is PkR43.98/share. The stock offers a 15% upside from current levels. We suggest a Buy at current price.

TOP STORY

ICI PAKISTAN — 1H04 RESULTS PREVIEW

ICI Pakistan is scheduled to announce its 1H04 results on 19 August. We expect the company to post after tax profits of PkR406mn (EPS: PkR2.93) for the period. We expect ICI's top line to witness a decline, which is mainly attributable to the absence of volumes in Furnace Oil business. ICI's FO business volumes have virtually come down to zero with the decline witnessed in FO business over the last 12 months. We expect margins of PSF and Soda Ash businesses to be under pressure owing to inability to pass on hike in raw material cost to end consumer. Paints business on the other hand is expected to continue its robust growth. A 32% reduction in financial charges is however expected to provide support to the bottomline. ICI is also scheduled to hold an Annual General Meeting to seek approval for divestment of its 25% stake in Pakistan PTA. We recommend a Neutral stance on ICI Pakistan.

PAKISTAN PTA — 1H04 RESULTS PREVIEW

Pakistan PTA is scheduled to announce its 1H04 results on 18th August. We expect the company to post after tax profits of PkR477mn (EPS: PkR0.33) for the period. Rising PTA prices on the back of high crude oil prices is likely to result in a 25% rise in the net sales revenues of the company. The profitability of the company is likely to improve on the back of improving PTA margins, reduction in financial charges, and balance sheet restructuring which will reduce the depreciation and amortization expenses. At current prices, Pakistan PTA is trading at almost 17.5x FY04E earnings, 9x Price to Cashflow, 4.5x Price to Book, and 8.8x EV/EBITDA. We maintain our sell recommendation.

UNILEVER PAKISTAN — 1HFY04 RESULTS PREVIEW

Unilever Pakistan Limited is expected to release its 1HFY04 results on Thursday, August 19, 2004. We expect the company to report a 21% YoY drop in earnings to PkR679mn (EPS= 51.1) on the back of a 3% YoY drop in revenues to PkR10.3bn. The company's margins are expected to shrink relative to last year as a result of increased raw materials costs, advertising costs and continued inventory adjustments. We expect the company to declare an interim cash dividend of PkR46/share. We will be back with a more detailed note shortly.

 

 

PAKISTAN PTA — 1H04 RESULTS REVIEW

Pakistan PTA announced after tax profits of PkR692mn (EPS: PkR0.46) for 1H04. The results were above our expectations, primarily due to better than expected margins and higher proportion of domestic sales volume. In 1H04, the domestic sales of the company accounted for 98% of total sales as compared to 75% in 1H03. We were expecting higher margins on account of improved PTA margins over paraxylene, which is the primary raw material for PTA. As expected, lower depreciation, decline in financial charges and absence of amortization charge were the other factors contributing to the improved profitability of the company. We will be revising our earning estimates for the company and will be back with a detailed note.

ICI PAKISTAN — 1H04 RESULTS REVIEW

ICI Pakistan announced after tax profits of PkR339mn (EPS: PkR2.44) for 1H04, an almost 19% decline as compared to the same period last year. According to ICI Pakistan, it has booked PkR96mn in restructuring charges, which has been the ma jor factor behind the decline in the profitability of the company. Net Sales Revenue recorded a decline of 12%, which was mainly attributable to the absence of any contribution from the Furnace Oil business of the company. According to the company, the positive impact of restructuring is likely to start accruing from March 2005. We maintain our Neutral recommendation on the stock.

 

 

MARKET ROUNDUP

..

LAST WEEK

THIS WEEK

% CHANGE

Mkt. Cap (US $ bn)

24.50

24.92

1.71%

Avg. Dly T/O (mn. shares)

215.37

201.96

-6.23%

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

177.37

180.28

1.64%

No. of Trading Sessions

5

5

23

KSE 100 Index

5335.80

5409.05

1.38%

KSE ALL Share Index

3502.96

3549.57

1.33%