THE KASB REVIEW

STOCK MARKET AT A GLANCE

 

 

By SHABBIR H. KAZMI
Updated Oct 16, 2004

 

MARKET THIS WEEK

The market continued its upward momentum throughout the week. The KSE-100 Index gained almost 90 points (1.7%) during the week. The KSE-100 Index closed the week at 5434. The last day of the week saw some profit booking, while the market remained in the positive zone for the remainder of the week. The energy sector remained the focus of the

 

 

 

 

 

 

 

week, as most of the upstream oil and gas stocks, as well as gas utilities recorded healthy gains. With international crude oil prices continuing to soar, the stock prices of the refining sector also recorded healthy gains. Apart from the energy sector, Fertilizer stocks also saw some increased activity as both Fauji Fertilizer and Engro Chemical recorded gains during the weak.

OUTLOOK FOR THE FUTURE

With the onset of the holy month of Ramazan, we expect a marginal decline in activity at the KSE, which is traditionally the case. In the coming two weeks, the majority of the companies will be announcing their quarterly results, which in our opinion is likely to be the key driving factor for the market. We expect the energy sector stocks to report healthy profits on the back of high oil prices. In addition, the fertilizer companies are also expected to post decent results on the back of increased fertilizer offtake during the last quarter. We advise investors to remain overweight on the energy related stocks.

FUNDAMENTAL CHANGES

The major developments this week were:

•Sui Northern Gas Pipelines Limited has been appointed to lead the inter-state gas pipeline project.

•The Minister for Petroleum and Natural Resources maintained that the government would not be passing on the impact of high oil prices to end consumers.

•The government is working at devising plans to meet the imminent shortage of electricity supply during the winter season and is planning to import 450,000 tons of furnace oil during Nov-Dec 2004 period.

•As per figures released by the Federal Bureau of Statistics, CPI inflation rose 9% YoY and 0.4% MoM in September 2004, thereby causing annualized July-September 04 inflation to fall to 9.2% from the 9.3% recorded during July-August 04.

•The Hub Power Company Limited has announced that three of its four units have resumed operations and the company's 900MW net production capacity is available for dispatch to WAPDA.

•The International Finance Corporation has expressed its willingness to finance the expansion plan of KESC post privatization.

•Reportedly, the Privatization Commission is in the process of getting the Presidential nod for the privatization of PTCL and PSO.

•As per sources, the government estimates that PkR154.4bn of the PkR160bn that was allocated for the Public Sector Development Program (PSDP) was utilized during FY04.

•In an effort to further expand its subscriber base, the largest mobile company of Pakistan, Mobilink, has announced the launch of the Village Phone Program.

•Reportedly the management of PTCL has reached an agreement with its employees' unions. The company is giving a 15% salary increase to the unionized staff.

•As per figures released recently by the Federal Bureau of Statistics, the manufacturing sector grew 19.6% YoY in July-August, versus the 18.1% YoY growth recorded last year.

•The State Bank injected about US$500mn in the foreign exchange market in order to stabilize the value of the fast depreciating Pakistan Rupee.

•The SBP raised PkR1.25bn through the sale of 6 month T-bills against its target of PkR5bn, with the cut off yield rising by 20bps.

•The rupee continued its decline versus the US dollar, when it lost 12paisas against the US dollar in the interbank market, causing it to cross PkR60/US$ in the open market.

 

•As per figures released recently by the State Bank of Pakistan, private sector credit offtake shot up by 139% YoY to PkR37.3bn for the period July 1 to September 18, 2004 versus the PkR15.6bn recorded during the same period last year.

•Crude oil prices are continuing with their record-making run. Crude oil prices jumped above US$54/bbl and touched a high of US$54.80/bbl on Thursday.

•The National Assembly approved the Uniform bill on Thursday. With the requirement of a mere simple majority for its clearance, it was evident from the beginning that the government would not face any difficulty in getting it through the legislature.

THIS WEEK'S TOP STORIES

RECKITT BENCKISER PAKISTAN LIMITED

The 13% rise in Reckitt's stock price on the back of the 1% rise in the KSE100 Index during the last 3 months, is an indication that the market has built the company's improved profitability into its share price. Furthermore, the rumors regarding the eventual de-listing of the company has also created a lot of excitement in this stock. On a PER valuation basis therefore, we find that Reckitt Benckiser trades at a PER of 12.5x versus a consumer sector PER of 15.6x. On a DCF valuation basis, we find that the stock trades at an 8% premium to our DCF based fair value of PkR100/share. However, we suggest that our readers hold their investments till the end of the EGM. The delisting of the company may bring some extra value for them in the immediate term.

CEMENT SECTOR — WITH OR WITHOUT DAMS

Some of the cement investors are still hoping to see the materialization of the two dams, Bhasha and Kalabagh, which will eventually change the cement companies' fortune by eating up the entire supply surplus without realizing the basic facts that: (I) the present government is unlikely to develop a national consensus on these projects and (II) these dams can utilize up to a maximum of 3mn tons of cement spread over the construction period of 5-8 years as against the excess supply of more than 21mn tons by FY08 and (III) the government has yet to make feasibilities of these projects. We maintain our Negative stance on the Cement sector and our Buy recommendation on Maple Leaf Cement at current levels.

INFLATION DROPS 9% IN SEP-04

While the recently released figures from the Federal Bureau of Statistics indicate that inflation has slowed marginally since August, CPI inflation still remains at 9.2% during July-September. At the same time, core inflation continues to accelerate, rising to 6.4% in July-September mainly as a result of the continued rise in house rents. With domestic petroleum prices likely to rise after Ramazan and with food prices likely to rise during Ramazan, we expect inflation to come in cross 6% versus the government's target of 5% in FY05.

PAKISTAN OILFIELDS LTD. — BENEFICIARY OF HIGH OIL PRICES

Oil prices have remained on an uptrend for the major part of the current calendar year. Initially supply fears and now demand growth, owing to the start of the winter season, are the two factors that have triggered the hike in oil prices. While it is difficult to predit how high oil prices might go, they are unlikely to come down very quickly. From a domestic perspective, we see Pakistan Oilfields Limited (POL) as the biggest beneficiary of the oil price increase. With almost 51% of POL's revenues coming from crude oil, we expect the impact of high oil prices to flow much more quickly to POL as oil prices are revised on a monthly basis whereas gas prices are revised semiannually. At current prices, POL is trading at 9.6x FY04E earnings. We maintain our Buy recommendation on POL with a price objective of PkR261/share.

OMCS — RECENT TRENDS

The Oil Marketing Companies have been unable to realize the full impact of the rising oil prices. While the impact on profitability is likely to be positive despite the domestic petroleum prices remaining constant, we expect a negative impact on the cashflows of the company. The government's insistence on maintaining oil prices has resulted in the Petroleum Development Levy turning negative. And OMCs have been asked to create receivables against the PDL. We expect receivables to rise substantially in 1QFY05 and expect them to continue soaring for as long as domestic petroleum prices are maintained at current levels. We maintain our Neutral stance on the OMCs.

MARKET ROUNDUP

..

LAST WEEK

THIS WEEK

% CHANGE

Mkt. Cap (US $ bn)

25.57

25.86

1.13%

Avg. Dly T/O (mn. shares)

324.70

269.96

-16.86%

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

308.64

251.18

-18.62%

No. of Trading Sessions

5

5

 

KSE 100 Index

5342.90

5433.48

1.70%

KSE ALL Share Index

3511.58

3570.63

1.68%