THE KASB REVIEW

STOCK MARKET AT A GLANCE

 

 

By SHABBIR H. KAZMI
Updated Sep 04, 2004

 

The week started with a negative note owing to lower than expected earning announced by the leading banks, which pulled the index down by 1.19% during the first trading day of the week. Tuesday was however, positive on the back of institutional support. Increase in cut-off yield on T-bills eroded the market the next day pressurizing financial institutions to offload their holdings. The market remained range bound and dull on Thursday owing to lack of investors' interest. 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Meanwhile the speculation about CVT removal helped the market to coup up the losses and pushed the index up by 0.13%. Trading volume remained low on Friday. On the whole, the index lost 1.4 percent WoW and closed at 5,318.73 on Friday as opposed to 5,393.99 in the previous week.

OUTLOOK FOR THE FUTURE

The market is likely to stay remain range bound during the next week owing to lack of investors' interest. Trading volumes are also likely to remain low on the back of CVT. POL is likely to take a lead in the E&P sector whereas we expect the market punters to start speculating about the possibility of bonus issue in the upcoming results. Fauji Cement results are also expected next week, which in our opinion is likely to trigger stock-specific activity. We maintain our disliking for the stock. Politics will remain a net positive factor for the market owing to the market's liking for Shaukat Aziz. On a net basis, the continuation of range bound consolidation in the market is likely next week.

FUNDAMENTAL CHANGES

The major developments this week were:

•In the absence of the agitating opposition, Shaukat Aziz took charge of the PM office over the weekend.

•The European Commission has decided to review the anti-dumping duty on bedlinen exports from Pakistan.

•As per figures released by the Federal Bureau of Statistics, the weekly Sensitive Price Index of 53 items registered a 0.14% WoW decline last week.

•Reportedly, the IMF has approved the payment of the last tranche of its Poverty Reduction and Growth Facility (PRGF) of US$253mn to Pakistan.

•If oil prices continue the same trend as has been witnessed during the last few days, the government would no longer be required to provide a direct subsidy when the time comes for the next price revision.

•National Bank reported PAT of PkR 2.2bn (EPS: PkR4.45) for 1HFY04.

•MCB posted PAT of PkR1.3bn (EPS: PkR3.82) for the first half of FY04 against PkR1.2bn (EPS: PkR3.59) for the corresponding period of the previous year.

•The Indus Motor Company has revoked the price increase that it announced last week.

•The domestic prices of petroleum products once again remains unchanged for the coming fortnight.

•The Privatization Commission (PC) has set up a committee for the pre-qualification of bidders for PakArab Fertilizer.

•Realizing the potential power demand-supply gap, the government is considering to relax conditions for setting up thermal power plants in the country.

•PSF manufacturers have announced a PkR4.0/kg increase in PSF prices for the month of September-04.

•SBP raised cut off yield by 48bps and 30bps on 3-month and 12-month T bills in a T-bill auction on Wednesday.

•New cabinet took oath on Wednesday.

•Hubco announced its FY04 results on Friday. The company announced an EPS of PkR4.72/share and declared a final cash dividend of PkR1.60/share.

•Portfolios allocated to new Ministers on Thursday.

•PTA has barred all major players from making significant tariff cuts.

•Paktel is likely to start its GSM operations very soon. The last hurdle in its commencement was removed on Thursday when Paktel, the third GSM operator informed the bench of the superior court about their settlement with the PTA.

•As per data released by the APCMA, cement sales registered 24% YoY growth during August to 1.292mt as opposed to the 1.044mt that was recorded during the same period last year.

HUB POWER CO. LTD — FY04 RESULTS REVIEW

Hub Power Company Limited announced its FY04 results in the early trading hours of Friday. The company announced after tax profits of PkR5,463mn (EPS: PkR4.72/share) for FY04. The results show a 10% decline in the profits of the company which is in line with our expectations. The company also announced a final dividend of PkR1.60/share for the year, which is also in line with our expectations. Apart from the impact of declining tariff and low load factor, FY04 results also showed a significant change in interest based income as well as other charges. The decline in other income is mainly attributable to the declining interest rates. The significant increase in other charges, in our opinion, relates to the expenses related to the breakdown of Unit 4 in April-04. We maintain our neutral recommendation on the stock with a price objective of PkR35.4/share.

FY04 RESULTS TO BE ANNOUNCED ON SEPT 2

Hubco announced its FY04 results in the early trading hours of Friday. The company announced after tax profits of PkR5,463mn (EPS: PkR4.72/share) for FY04, a decline of 10% YoY. The company also announced a final dividend of PkR1.60/share for FY04. The results and dividend announcement were in line with our expectations.

THE HUB POWER COMPANY LIMITED
FY04 RESULTS (PKRMN)

 

FY04A

FY03A

D%

Net Sales

16,003

19,514

-18%

Operating Costs

8,107

11,022

-26%

Operating Profit

7896

8492

-7%

Administrative Expenses

231

214

8%

Other income

125

471

-73%

Other Expenses

104

21

395%

EBIT

7686

8728

-12%

Financial Charges

2223

2,626

-15%

Net Profit

5463

6,102

-10%

Earnings Per Share (PkR)

4.72

5.27

-10%

Operating Margin

49%

44%

13%

Net Margin

34%

31%

9%

Source: Company Announcement

 

 

RESULT ANALYSIS

Sales revenue drops by 18%. Net sales of the company declined by almost 18% YoY. In our opinion, two factors are responsible for this decline: (i) Hubco's tariff, as set out initially, was to decline in the later years. This decline is primarily due to decline in debt servicing charges, which are accounted in the Capacity Purchase Price component of the tariff; (ii) Improved hydel situation during Jul-Dec 2004 resulted in low reliance on Independent Power Producers. Hence, IPPs operated on a low load factor, which has also resulted in a decline in net sales.

73% decline in other income. Other income of the company primarily represents interest income earned on deposits of the company. In this case as well, we believe that two factors have been responsible for the drastic decline in the interest income of the company — (i) a decline in interest rates has generally affected the interest income of all companies, and (ii) a decline in cash reserves of the company, as the company paid out all excess cash available to it in dividends in FY03.

Significant increase in other expenses. Other expenses mainly include the loss on sale of the old Generator Transformer. Hubco sold off the GT that was damaged last year, which has resulted in a loss on sale.

15% decline in financial charges. The decline in financial charges is in line with our expectations. As stated earlier, Hubco's debt servicing charge has been on the decline. Hubco will be retiring majority of its senior debt by FY2006. Thus, we expect financial charges to continue posting declines in the coming years as well.

THIS WEEK'S TOP STORIES

PAKISTAN PETROLEUM LTD — FY04 RESULTS REVIEW

Pakistan Petroleum Limited announced its FY04 results on Friday. The company posted after tax profits of PkR6,617mn (EPS: PkR9.65) for the year, a 58% YoY improvement. The company also announced a final cash dividend of PkR2.50/share for FY04, taking the full year's cumulative dividend to PkR4.50/share. The improvement in profitability has been driven mainly by the increase in gas prices of Sui and Kandhkot under the revised Gas Price Agreement between the government and PPL. In addition, the commencement of production from the Sawan Field has more than offset the decline in Sui's production during FY04. The results for FY04 have been above our expectations. We will be revising our earnings estimates for PPL after meeting with the management. We maintain our Neutral recommendation on the stock.

PAK SUZUKI — 1HFY04 — STRONGER THAN EXPECTED

Pak Suzuki recently released its 1HFY04 results, where as expected, it reported a 13% YoY decline in profits to PkR706mn (EPS: PkR14.4) on the back of a 34% YoY rise in revenues to PkR11,571mn. The decline in profitability came primarily on the back of squeezed margins as a result of a weak Rupee that offset the slower growth in operating expenses and the decline in financial charges. With the stock trading at a 6% discount to our fair value of PkR138.9/share, we recommend a HOLD.

HUB POWER CO. LTD. — FY04 RESULTS PREVIEW

The Board of Directors of the Hub Power Company Limited (Hubco) is scheduled to meet in London on Sept. 2 to announce the FY04 results. Due to timing differences, we expect the results to be received by KSE on Sep. 3. We expect Hubco to post after tax profits of PkR5,590mn (EPS: PkR4.83) for FY04. We also expect the company to announce a final dividend in the range of PkR1.60-1.70/share for FY04. We maintain our Neutral rating on the stock with a price objective of PkR35.4/share.

ICI PAKISTAN — PAKISTAN PTA STAKE DIVESTED

ICI Pakistan has divested its entire 25% stake in Pakistan PTA. According to the announcement, 18.9% of Pakistan PTA's stake has been sold through private placement while the remaining 6.1% has been acquired by ICI Omicron. According to the announcement, the new investors will have to retain these shares for a minimum period of 6 months. ICI Pakistan has realized almost PkR4bn through this divestment, which will mainly be used for debt retirement and capacity enhancements.

PAKISTAN OILFIELDS LTD — FY04 RESULTS ON SEPT. 11

Pakistan Oilfields has announced that the board of directors of the company will be meeting on Sept. 11 to announce FY04 results. We expect the company to post after tax profits of PkR2,384mn (EPS; PkR18.14) for FY04, and announce a dividend in the range of PkR10.50-11.00/share. We believe that high oil prices and increasing production rates are two factors that are likely to raise the profitability of the company going forward. We maintain our Buy recommendation on POL, with a 12-month price objective of PkR261/share.

MARKET ROUNDUP

..

LAST WEEK

THIS WEEK

% CHANGE

Mkt. Cap (US $ bn)

24.81

24.45

-1.45%

Avg. Dly T/O (mn. shares)

169.94

156.55

-7.88%

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

156.89

143.93

-8.26%

No. of Trading Sessions

5

5

 

KSE 100 Index

5393.40

5318.70

-1.39%

KSE ALL Share Index

3542.72

3490.68

-1.47%