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.
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
•The Indian authorities are considering
•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
•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
•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
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
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