THE KASB REVIEW

STOCK MARKET AT A GLANCE

 

 

By SHABBIR H. KAZMI
Updated Sep 25, 2004

 

The bearish spell that was witnessed in the market during the current week saw a turnaround as the market recovered by almost 190 points during the last two days of the week. As we had mentioned earlier, with the downtrend in the market witnessed during the last couple of weeks, individual stocks looked very attractive on valuation multiples. Finally, the market saw some interest from investors, and institutions were fairly active during the week as well. With the market 

 

 

 

 

rising, retail investors also joined the bandwagon as a result of which market volumes recovered significantly over the last two days. The KSE-100 Index ended the week at 5,080 level, which represents a 1% rise only on a weekly basis, but it has risen by almost 3.8% from its low of 4,890 recorded during the week. Average daily volumes also improved by 5% to 193mn shares as compared to an average daily volume of 185mn shares during the last week.

OUTLOOK FOR THE FUTURE

For the time being, the market seems to have recovered from the continued bearishness that had been ongoing throughout the last week. The fact that volumes have also improved suggests that there is once again interest among investors. We expect this positive trend in the market to continue into next week. Another heavyweight on the KSE-100 Index, PTCL, is due to announce its results next week. While the results are likely to be good, we are of the opinion that the market has already discounted the positive of the result announcement to a large extent, which is suggested by the significant rally witnessed in PTCL on Friday. We advise investors to stick to a daily trading strategy for the next week.

FUNDAMENTAL CHANGES

The major developments this week were:

•Total oil consumption in Jul-04 recorded a 23% rise to 1.39mn tons, as compared to 1.13mn tons in Jul-03.

•According to a press release issued by the KESC, Saudi Kunooz Al Watan Group has completed its first phase of technical due diligence of the company.

•Revenue collection was recorded at PkR64.9bn during Jul-Aug.

•As per industry sources, Urea offtake for the forthcoming Rabi season will remain stable despite the water shortages in the country.

•Shaukat Aziz announced the development of small dams, a grid station and road network in Thar on Friday.

•According to the Advisor to the Finance Minister, the government will be passing on the impact of high prices to end consumers, if oil prices continue to remain on an uptrend.

•According to news sources, the government is considering another debt to equity swap for KESC whereby the government would be converting PkR9.6bn worth of government debt into equity.

•Reportedly Ufone has signed an agreement with Nortel of Canada.

•The telecom minister issued a clarification in the National Assembly stating that PTCL is not considering any tariff cuts in near future.

•PTA is delaying the commencement of Paktel's GSM operations under the influence of government authorities.

•Despite the fact that a consensus has not been developed on Bhasha or Kalabagh dam, Wapda had invited Expressions of Interest (EoIs) for the construction of Bhasha Dam, which has attracted 4 applications.

•The Ministers of Oil and Petroleum Sector for India and Pakistan plan to meet by the end of the year to discuss the Iran-Pakistan-India gas pipeline project.

•Malaysian construction firm and shipbuilder, PSC Industries Bhd, announced that it has won a contract to set up a Wind Power Project in Pakistan.

•Oil and Gas Development Company Limited posted after tax profits of PkR22,415mn (EPS: PkR5.21) for FY04.

•The Hub Power Company Limited announced on Thursday that currently three of its units are out of service and only one unit is currently operational.

•According to an official, KESC will continue to utilize the services of defense forces post privatization.

•Shell Pakistan recorded a drop in volumes by 11% to 3.23mn tones for FY04.

•As per the Indus River System Authority (IRSA), water supply to the provinces for agricultural purposes would be cut by 37% due to the shortage of stored water.

 

 

AUTO SECTOR

RISING REVENUES, FALLING PROFITS

Our analysis of 2QCY04 reveals that while the auto assemblers have reported a strong (38% YoY) rise in revenues, they have reported a 14% fall in profits on the back of squeezed margins. With the impact of the NTN requirement expected to be reflected in sales in the coming months and with the continued weakness of the rupee, we expect the assemblers to continue feeling a margin squeeze.

While the auto assemblers reported strong revenue growth in 2QCY04, they also reported a fall in profits during the period on the back of squeezed margins. While our analysis excludes Dewan Farooque Motors, whose results for the period have yet to be announced, we expect that DFML's performance will also follow the characteristics displayed by the other three assemblers.

RISING REVENUES

During 2QCY04, the three auto assemblers reported a 38% YoY increase in revenues to PkR16.5bn from the PkR11.9bn that was recorded the year before on the back of a 61% YoY rise in volumetric sales.

FALLING PROFITS

While revenues shot up strongly in 2QCY04, profits fell by a drastic 14% YoY to PkR879mn from PkR1,028mn reported the year before as the companies faced a massive margin squeeze. The main reason for this squeeze was the weakness in the rupee, which caused cost of sales to rise by a rapid 46% YoY to PkR14.9bn. Even though a part of the increase in cost of sales was offset by the relatively slow rise in operating expenses, average net margins fell to 5% from the relatively stronger 8% reported last year. Margins to Remain Squeezed

With the effect of the NTN requirement likely to be felt on revenues in the coming months and with the continued weakness of the rupee, we expect the assemblers to report weak revenue and profit growth in the future.

Table: INDUS MOTOR COMPANY LIMITED
Fair Value (PkR) 102.39

 

4QFY03

4QFY04

Change %

Revenues (PkRmn)

5385

6703

24%

Cost of Sales

4,569

5,943

30%

Operating Expenses

110

134

23%

PAT (PkRmn)

457

395

-14%

Net Margin

8%

6%

-3%

Source: Company Information, KASB Estimates

 

 

 


 

Table: HONDA ATLAS CARS LIMITED
Fair Value (PkR) 77.40

 

1QFY04

1QFY05

Change %

Revenues (PkRmn)

2011

3524

75%

Cost of Sales

1,754

3,325

90%

Operating Expenses

33

51

53%

PAT (PkRmn)

143

103

-28%

Net Margin

7%

3%

-4%

Source: Company Information, KASB Estimates

 


 

Table: PAK SUZUKI MOTOR COMPANY LIMITED
Fair Value (PkR) 138.9

 

2QFY03A

2QFY04E

Change %

Revenues (PkRmn)

4,516

6,262

39%

Cost of Sales

3,845

5,584

45%

Operating Expenses

51

77

51%

PAT (PkRmn)

429

382

-11%

Net Margin

9%

6%

-3%

Source: Company Information, KASB Estimates

 

 

 

THIS WEEK'S TOP STORIES

BROKERS' MEETING WITH PM AZIZ — NO RESULTS

Friday's meeting of brokers with the PM Aziz could not generate any positive wave in the market. The government's rigidity on CVT is though understandable, the brokers appear to be unhappy with this. The PM will be meeting the same team this week in Islamabad to work on other confidence boosting measures for the exchange. We are of the view that brokers must not disturb the current consolidating market behavior. It's a healthy sign and investors need to alter their portfolio strategies accordingly.

LUCKY CEMENT — FY04 RESULTS PREVIEW

Lucky Cement is due to announce its results for FY04 on Wednesday. We expect Lucky to post after tax profits of PkR639mn (EPS: PkR2.61) for FY04 as compared to after tax profits of PkR228mn (EPS: PkR0.93) during last year. We expect the company to announce PkR1.00/share cash dividend for the said period. The growth in Lucky'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, and (III) healthy retention prices during the year. With the stock price trading at a 15% discount to our DCF based price objective of PkR40.60/share, we recommend Buy for Lucky at current levels.

BESTWAY CEMENT — FY04 RESULTS PREVIEW

Bestway Cement is due to announce its results for FY04 on Thursday. We expect Bestway to post after tax profits of PkR736mn (EPS: PkR3.80) for the period, a 53% YoY improvement. However, we do not rule out a positive surprise in earnings owing to a relatively better 4QFY04. We expect the company to announce a PkR1.00-1.25/share cash dividend for the said period. The growth in Bestway's earnings is likely to come from: (I) a 164% increase in exports volume; (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, (IV) a 41% drop in financial charges, and (IV) PkR89mn dividend income received from UBL. We maintain our Hold recommendation on the stock with a price objective of PkR38.9/share.

LUCKY CEMENT — FY04 RESULTS REVIEW

Lucky Cement announced its results for FY04 yesterday. The company has posted after tax profits of PkR686mn (EPS: PkR2.80) for the period as compared to PkR228mn (EPS: 0.93) for last year. The company announced a 7.5% bonus dividend. The announced results came in slightly above market expectations as well as our forecasts mainly due to higher sales revenues and lower deferred tax. Lucky has also announced 2 expansion plans of 8400tpd each with an estimated cost of PkR12bn. We maintain our Buy recommendation for Lucky with a price objective of PkR40.60/share.

ATTOCK CEMENT — FY04 RESULTS REVIEW

Attock Cement recently announced its results for FY04. The company posted after tax profits of PkR280mn (EPS: PkR3.88) for the period as compared to PkR132mn (EPS: 1.83) for last year. The company announced a 12.5% cash dividend. The 125% growth in net profits came from a 30% rise in sales volume, better retention prices and cost savings from coal conversion. The company also announced a 3000tpd expansion plan with an estimated cost of PkR3.5bn. We maintain our Sell recommendation for Attock with a price objective of PkR38/share.

MARKET ROUNDUP

..

LAST WEEK

THIS WEEK

% CHANGE

Mkt. Cap (US $ bn)

24.36

24.38

0.08%

Avg. Dly T/O (mn. shares)

185.25

193.36

4.38%

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

170.66

168.38

-1.34%

No. of Trading Sessions

5

5

.

KSE 100 Index

5045.91

5080.67

0.69%

KSE ALL Share Index

3318.58

3336.74

0.55%