THE KASB REVIEW

STOCK MARKET AT A GLANCE

 

 

By SHABBIR H. KAZMI
Updated Sep 18, 2004

 

The bearish spell continued throughout the week, except Thursday that saw the market recovered by 1.15%. On a weekly basis, the KSE-100 Index lost 126 points or 2.4% to end the week at 5045.91. During the week, the KSE-100 index went below the 5000 mark twice. Volumes showed a slight recovery. Average daily volumes stood at 185mn shares, 17% up from 158mn shares during last week. The week also saw results announced by Cherat Cement, DG Khan

 

 

 

 

Cement and Indus Motors, all of  which failed to create any positive impact in the market. Rumors on removal of Capital Value Tax (CVT) on shares also continued, with investors hopeful of a positive outcome from the meeting between PM Shaukat Aziz and a delegation of brokers on Friday. However. Investors reacted negatively when the meeting ended without any announcement on removal of CVT.

OUTLOOK FOR THE FUTURE

As we feared, the market continued its downtrend throughout the week. While individual stock prices look attractive on absolute valuation multiples, investor interest is not very visible. We are of the opinion that the market is likely to see some support around the 5000 index level. The market heavyweight, OGDCL, is also scheduled to announce its results in the coming week, which if positive, should provide some support to the market. On overall basis, we expect the market to remain in a consolidation to bearish spell in the coming week. The delegation of stock brokers that met PM Shaukat Aziz on Friday, have been invited to Islamabad in the next week to discuss the issues pertaining to the stock market, with CVT also being reportedly on the agenda. We expect speculation on CVT to continue in to the coming week.

FUNDAMENTAL CHANGES

The major developments this week were:

•During the period Jul-Aug 2004, Pakistan's oil import bill has risen by almost 35% YoY to US$639mn, relative to the US$472mn recorded during the same period last year.

•The US$481mn White Oil Pipeline is expected to commence operations by the end of Nov-04 according to an official of the Ministry of Petroleum.

•The visiting mission of the IMF continued to press the CBR for a PkR10bn increase in the revenue collection target for the year to PkR590bn.

•POL has announced a dividend of PkR12.50/share for FY04.

•The Punjab Assembly passed majority resolution to support the Presidential uniform.

•As per figures released by the FBS, CPI inflation shot up by 9.25% YoY during August, thus causing inflation during July-August to rise to 9.29%.

•As per sources, approximately US$900mn was exported out of Pakistan during the first 8 working days of September, while about US$10-15mn is still leaving via the Karachi airport everyday for Dubai.

•According to the notification from KSE, Shahtaj Sugar, Southern Electric and East West Insurance has been deleted from the index whereas Shakarganj Sugar, JOV and Prime Bank are the new entrants into the KSE 100 Index.

•Reportedly, Minister of Industries and Production has set up a committee to lay down the procedure for import of 0.1mn tons of Urea by TCP.

•Punjab rejected IRSA's water sharing formula. The province has opted for this stance after IRSA's unilateral change in the formula agreed among the provinces in the meeting held on September 4th.

•Cut off yield on 6 monthly T bill increased by 38bps to 3.003%.

•Pakistan State Oil has awarded contract for the import of 220,000 tons of High Sulphur Furnace Oil to Fal Oil and Petro Plus.

•Cherat Cement announced after tax profits of PkR426mn (EPS: 8.00/share) for FY04 along with PkR4.00/share cash dividend and a 25% bonus.

•Government released a statement regarding continuation of Presidential uniform.

•Workers' Remittances for the month of Aug-04 recorded a jump of almost 21% over the same period last year.

•The official donor agency of the UK, Department for International Development (DFID), has written off £19mn (PkR1.97bn) of Pakistan's debt.

•Indus Motor Company Limited announced its FY04 results yesterday, posting after tax profits of PkR1,473mn (EPS: PkR18.74), an increase of 17% over last year.

SECTOR OUTLOOK

DG KHAN CEMENT — FY04 RESULTS REVIEW

DG Khan Cement announced its results for FY04 yesterday. The company has posted after tax profits of PkR830mn (EPS: PkR4.95) for the period as compared to PkR483mn (EPS: 2.88) for the last year. The company announced 15% cash and 10% bonus dividend. The announced results came in slightly above our forecasts mainly due to reduction in financial charges and higher other income. We maintain our Sell recommendation for DG Khan with a price objective of PkR48.11/share.

DG KHAN CEMENT FY04 RESULTS ANNOUNCED

DG Khan Cement announced its results for FY04 yesterday. The company has posted after tax profits of PkR830mn (EPS: PkR4.95) for the period as compared to PkR483mn (EPS: 2.88) for the last year. The company declared PkR1.50/share cash and 10% bonus dividend for the year. The announced results are slightly above our forecasts for the company. The difference between our expectations and the actual numbers is primarily due to: (I) Lower financial charges, and (II) Higher other income as opposed to our expectations.

 

 

DG KHAN FY04 RESULTS
PkR in mn

 

2003A

FY04A

2004E

% Change

Net Sales

2,992

3,883

3,798

30%

Cost of Sales

2,314

2,497

2,325

8%

Gross profit

678

1,385

1,473

104%

Operating Expenses

79

107

116

36%

Operating Profit

599

1,278

1,357

113%

Other Income

185

128

101

-31%

Other expenses

19

62

54

225%

EBIT 

765

1,345

1,404

76%

Financial Charges

410

189

212

-54%

EBT 

355

1,156

1,192

226%

Taxation

(128)

326

392

-355%

Net Profit (Loss) after tax

483

830

800

72%

Source: Company Announcements, KASB Estimates 30% Rise in Sales Revenue

 

 

DGKC registered a 30% rise in sales revenues owing to 20% increase in sales volume and better retention prices for both domestic sales and exports. DGKC reported a 315% increase in exports volume including the exports to UAE during the 4QFY04, which offers higher margins as opposed to other venues to export.

54% REDUCTION IN FINANCIAL CHARGES

DGKC reported a 54% drop in financial charges during FY04 owing to 500bps reduction in average interest rate through replacement of its expensive foreign currency loans with local currency loan.

LOSS OF POTENTIAL BENEFITS FROM COAL CONVERSION

DGKC's plant was converted into 100% coal firing system during 3QFY03, which enabled the company to improve its gross profit margin to 36% during FY04 as opposed to 23% last year. However, the impact could be higher if the coal prices would have been stabilized over the period. As per the company sources, the net advantage from coal conversion is gradually vanishing owing to 100% increase in international coal prices to $68/ton during the FY from $33/ton last year.

VALUATION

The stock is currently trading at a 12% premium to our DCF based fair value of PkR48.11/share. We maintain our SELL recommendation for DGKC. We expect DGKC to continue its underperformance in the long run.

THIS WEEK'S TOP STORIES

CHERAT CEMENT — FY04 RESULTS PREVIEW

Cherat Cement is due to announce its results for FY04 on September 15. We expect Cherat to post after tax profits of PkR362mn (EPS: PkR6.80) for the period. However, we do not rule out a positive surprise in earnings owing to a relatively better 4QFY04. We expect the company to announce a PkR2.00/share cash dividend for the said period. The growth in Cherat's earnings came from: (I) a 12% increase in sales volume; (II) relatively higher margins during FY04 owing to cost savings from the conversion to coal from furnace oil, and (III) healthy retention prices during the year. We maintain our Hold recommendation on the stock with a price objective of PkR76.93/share.

PAKISTAN OILFIELDS LTD — FY04 RESULTS REVIEW

POL announced its FY04 results on Monday. The company declared after tax profits of PkR1,895mn (EPS; PkR18.99) for the year, a 3% YoY improvement. The company also announced a PkR12.50/share cash dividend. The results was slightly above our expectations. We maintain our Buy recommendation on POL.

DG KHAN CEMENT — FY04 RESULTS PREVIEW

DG Khan to announce PkR1.00-1.50/share cash dividend for the said period. The growth in DGKC's earnings are likely to accrue from: (I) a 27% increase in sales revenue, (II) relatively higher margins during FY04 owing to cost savings as a result of conversion to coal from furnace oil, (III) healthy retention prices during the year, and (IV) PkR198mn pre-tax saving through financial restructuring. We maintain our Sell recommendation on the stock with a price objective of PkR48.11/shareCement (DGKC) is due to announce its results for FY04 on September 16. We expect DGKC to post after tax profits of PkR800mn (EPS: PkR4.77) for FY04 as compared to after tax profits of PkR484mn (EPS: PkR2.84) during last year.

PETROLEUM PRICES — UNCHANGED

The decision to maintain oil prices did not come as a surprise. We maintain that domestic oil pricse are unlikely to come down significantly as government will be increasing PDL on the petroleum products as international oil prices decline. Meanwhile, the government is estimated to have incurred an almost PkR810bn revenue loss by subsidizing oil prices. We maintian our Neutral stance on OMCs.

CHERAT CEMENT — FY04 RESULTS REVIEW

Cherat Cement announced its results for FY04 on Wednesday. The company has posted after tax profits of PkR426mn (EPS: PkR8.00) for the period as compared to PkR10mn (EPS: 0.18) for the last year. The company announced 40% cash and 25% bonus dividend. The announced results came in above the market expectations as well as our forecasts mainly due to reduction in financial charges. We maintain our Hold recommendation for Cherat with a price objective of PkR76.93/share.

 

 

MARKET ROUNDUP

..

LAST WEEK

THIS WEEK

% CHANGE

Mkt. Cap (US $ bn)

23.71

24.36

2.74%

Avg. Dly T/O (mn. shares)

158.32

185.25

17.01%

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

136.03

170.66

25.46%

No. of Trading Sessions

5

5

 

KSE 100 Index

5172.21

5045.91

-2.44%

KSE ALL Share Index

3392.10

3318.58

-2.17%