after which buying interest was seen in all core
stocks. Friday's activity was mainly led by energy stocks where OGDCL
and POL were major gainers. There were rumors in the market that the
government is considering to do away with the US$36/bbl oil price
ceiling used for the calculation of gas prices.
OUTLOOK FOR THE FUTURE
The KSE-100 Index has recovered majority of the
losses witnessed during the first three weeks of Sep-04 and continues to
remain strong. Market volumes have also improved, though a continued
bull run from here would require further buildup in volumes. The KSE-100
Index has risen by 7.3% (356 points) from its low of 4890 recorded on
22-Sep-04. We there fore are of the opinion that the market is likely to
take some breather during the coming week. On an overall basis, we
expect the market to remain in a consolidation phase during the next
week. We advise investors to stick to the core stocks of the Index,
which include OGDCL, PTCL, PSO, FFC and SNGPL.
The major developments this week were:
•As per a source in the Ministry of Finance, the
government is unlikely to make the previously announced US$500mn
prepayment on its expensive foreign debt in Dec-04.
•President Musharraf is likely to make a final
decision on the construction of the mega dams on his return from the US.
•According to the statement issued, India and
Pakistan agreed to explore the prospects of the proposed US$3.5bn gas
pipeline from Iran.
•The government has refused to provide a subsidy
amounting to PkR14.09bn per annum to 3 power units.
•The government claims of a truce in Wana appears
to be misleading after Monday's attack on the law enforcement agencies..
•As per data released by the NFDC, overall DAP
offtake reported a 203% jump to 106k tonnes in August as opposed to 35k
tonnes during the same period last year, while the urea offtake
registered a 13.5% rise to 449k tonnes as opposed to 396k tonnes during
•The Asian Development Bank's Board of Directors
approved Pakistan's Country Strategy and Uplift Program (CSP) under
which it is to offer Pakistan US$1.96bn over 2 years for infrastructure
•The SBP would sell PkR60bn worth of 6month and 1
year T-Bills on Tuesday-Wednesday to offset the PkR86bn inflow expected
•In the 21-year history of NYMEX, for the first
time the price of US Light Crude crossed the US$50/bbl mark.
•Bestway Cement announced after tax profit of
PkR679mn (EPS: 3.51) for FY04 compared to PkR113mn (EPS: 0.58) for last
•Sui Southern Gas Company Limited (SSGC) plans to
re-submit a review petition with Oil and Gas Regulatory Authority (OGRA)
for an increase in gas tariffs for FY04.
•As per a source in the Finance Ministry,
remittances are expected to cross US$4bn during FY05 based on the strong
growth in remittances witnessed during Jul-Aug 2004.
•Central Board of Revenue is forecasting a PkR10bn
increase in revenue collection on oil imports.
•The KSE management announced PTCL results with 10
•The Federal Cabinet enhanced the wheat support
price for the forthcoming Rabi season to PkR400 per 40kg bag from PkR350
per 40kg bag.
•The SBP in Wednesday's auction, deferred the
purchase of 1year T-Bills and picked up PkR17.45bn worth of 3 month
T-Bills. The cut off yield on the 3month T-Bills was raised by just over
31bps to 2.975%.
•SBP will pay PARCO US$100mn in order to allow the
company to make its US$100mn payment due on October 4 without putting
pressure on the rupee in the interbank market.
•SSGC reported after tax profits of PkR996.7mn
(EPS: PkR1.49), showing a decline of 31% YoY. The company also announced
a cash dividend of PkR1.50/share.
•For yet another fortnight, domestic petroleum
prices remains unchanged.
•Domestic prices of PSF, which are primarily driven
by PSF prices in international markets, were raised by PkR4/kg to
PkR88/kg for Oct-04.
•As per the recently released provisional
collection figures, the CBR collected PkR111.5bn in 1QFY04, 18.5% YoY
more than the PkR94.1bn that was collected during the same period last
•Reportedly, the KSE has issued a show cause notice
to PTCL for failing to provide its FY04 financial results in the
SSGC: FY04 RESULTS REVIEW
SSGC announced its FY04 results, posting after tax
profits of PkR997mn (EPS: PkR1.49). The company also announced a
PkR1.50/share cash dividend. The profits of the company have declined by
almost 31% as compared to last year. While revenues of the company
increased by 29%, inadmissibility of certain expenditure by OGRA
resulted in a decline in profits. SSGC has announced that it will be
re-submitting a petition with OGRA for determination of its revenues for
FY04. We believe that this is the worst that could happen to the
company, and the stock price has already reacted to it. We expect
substantial growth in the profitability of the company going forward and
maintain our Buy recommendation on SSGC.
Sui Southern Gas Company Limited announced its FY04
results earlier in the week. The company reported after tax profits of
PkR997mn (EPS: PkR1.49) for the year, a decline of 31% as compared to
last year. The company also announced a PkR1.50/share cash dividend for
the year, which is also lower compared to the cash dividend of
PkR1.80/share announced in FY03.
PROFITABILITY NOSE DIVES IN 4Q04
SSGCs profitability crashed to PkR69mn (EPS:
PkR0.10/share) in 1Q04 as against an average of almost PkR309mn per
quarter during the first 3 quarters of the year. The decline is visible
at the gross profit level of the company. According to news reports, the
Oil and Gas Regulatory Authority has penalized SSGC for not meeting the
line losses target of 6.5%. Hence, the company has not been allowed the
adjustment of line loss in excess of the target. The following
adjustments were made to the accounts of SSGC:
ACCOUNTS AMOUNT IN
Additions to fixed assets (vehicles)
Reduction in depreciation expense
Increase in operating income
Reduction on account of Unaccounted for Gas
227 Reduction in T&D Expenses
Reduction in other charges
STOCK PRICE HAS ALREADY REACTED TO THE BAD NEWS
We are of the opinion that this is the worst that
could have happened, and the stock price has already reacted to it. SSGC
has also announced that it has re-submitted its petition for increase in
gas tariffs. We maintain our Buy recommendation on the stock with a
target price objective of PkR35/share.
THIS WEEK'S TOP STORIES
SSGC — FY04 RESULTS PREVIEW
SSGC will be announcing its FY04 results on 30
September. We expect the company to post after tax profits of PkR1,481mn
(EPS: PkR2.21), 2% YoY higher. We also expect the company to announce a
cash dividend in the range of PkR1.80-1.90/share. One negative
development for SSGC has been the higher line loss figure for the year,
which can significantly impact the company's earnings. We recommend a
BUY on SSGC, which is trading at a 38% discount to our price objective
PTCL PRE-RESULT COMMENT (I)
While we will be covering the quantitative side of
PTCL's FY04 Pre-result tomorrow, today's article is about the
qualitative side of these results and the changes taking place in
investors' perceptions about the company. Our comment will cover the
change in the nature of the company's profile; emerging competition;
confusion regarding the demerger of the company and the sensational
research flow in the company. With the company's changing fundamentals
we are not very hopeful about PTCL going towards our earlier DCF based
fair value of PkR49.5 per share. We are in the process of downgrading
our fair value and will be back with a new recommendation tomorrow.
PTCL PRE-RESULT COMMENT (II)
PTCL is scheduled to announce its FY04 results today.
The company is likely to post a 11% growth in earnings to PkR25,527mn.
We also believe that the likely reported numbers are about 10% higher
than our earning forecasts owing to more than expected volume growth and
reduction in the effective depreciation rate for FY04. The company is
also expected to declare a PkR4.0/share cash dividend along with the
results. We are downgrading our DCF based fair value of the company by
nearly 11% to PkR44 per share and are changing our BUY call on PTCL to a
PTCL FY04 RESULTS — ANALYSIS
Apparently, a 26% improvement in the bottom line
along with a super PkR5 per share dividend is something what the
weakening KSE required the most at this juncture. The result
announcement proved to be a key trigger and changed the market
sentiment. Almost 10% of the reported profits of PTCL is of lower
quality compared to the rest. There are at least two factors which
helped the company in achieving this, apart from the fact that reported
growth in top line is a bit inflated owing to a downward revision in
last year's revenues, the rest of the operating highlights of PTCL are
very much in line with our expectations. PkR5 per share is definitely a
one time development in PTCL. Given the fact that the company will be
posting a decline in its profitability in the future, we feel that a
PkR4 per share dividend is a sustainable future dividend. We reiterate
our new stance on the company that the growth argument in PTCL is no
more valid. Thus PTCL seems to be maturing in terms of its business in
the medium to long term. And this is why we are using a zero percent
terminal growth factor for the company in our discounted cash flow
valuation. We still prefer a DCF based valuation model over DDM for PTCL
on account of the technical superiority of the former over the latter.
This model suggests a fair value of PkR44 per share to the company. We
maintain our Hold on PTCL.
PIONEER CEMENT — FY04 RESULTS REVIEW
Pioneer Cement is due to announce its results for
FY04 on Monday. We expect Pioneer to post after tax profits of PkR288mn
(EPS: PkR3.02) for FY04 as compared to after tax profits of PkR5mn (EPS:
PkR0.47) declared in FY03. We are not expecting the company to announce
any dividend for the said period. The growth in Pioneer'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 the conversion to coal from furnace oil, and (III)
healthy retention prices during the year. Owing to high long-term
solvency risk, we recommend a Sell for Pioneer Cement with a price
objective of PkR12.83/share.
Mkt. Cap (US $ bn)
Avg. Dly T/O (mn. shares)
Avg. Dly T/O (US$ mn.)
No. of Trading Sessions
KSE 100 Index
KSE ALL Share Index