THE KASB REVIEW

STOCK MARKET AT A GLANCE

 

 

By SHABBIR H. KAZMI
Updated Oct 23, 2004

 

The market failed to continue its upward momentum during the first trading day of the week. The KSE-100 Index gained almost 24.34 points (0.45%) during the week. The KSE-100 Index closed the week at 5458. Tuesday was positive on the back of positive hopes from the quarterly results of the fertilizer and power companies. The Fertilizer sector remained the focus of the week, as Engro's results surprised everyone with a drastic jump in earnings and 20% cash dividend,

 

 

 

 

signaling the market to develop similar expectations from FFC. However the selling pressure generated from higher COT rates forced the market to close below the 5500 mark.

OUTLOOK FOR THE FUTURE

In the coming week, the major quarterly results including that of OGDCL, PTCL, FFC, DGKC are expected to be announced, 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 and cement companies are also expected to post decent results on the back of increased fertilizer and cement sales during the last quarter. However the trading activity will remain low owing to the Ramadan factor. We advise investors to remain overweight on the energy related stocks. Meanwhile we suggest investors to stay away from the cement sector owing to the riskiness of investment in the sector as against the market.

FUNDAMENTAL CHANGES

The major developments this week were:

•PTCL's management has submitted its report to the President regarding its recommendations over the basic question about whether the company should be sold in its existing form or whether it should be split up before divestment.

•As per the State Bank of Pakistan, remittances received rose 10% YoY to US$981.5mn from the US$890.3mn reported during the same period last year.

•Car sales during July-October shot up 37% YoY to 28,777units from the 20,944 units recorded last year.

•Government losses due to subsidizing oil prices have increased to PkR20bn.

•The US Dollar crossed the PkR60 mark on Monday in interbank trading.

•The Privatization Commission (PC) has requested the federal government to waive a surcharge of PkR345mn owed by KESC to Sui Southern Gas Company.

•Pakistan Oilfields Limited announced its 1QFY05 results yesterday posting after tax profits of PkR660mn (EPS: PkR5.02).

•As per data released by the NFDC, DAP Offtake during the month of September 2004 registered a 107% YoY jump from 74k tones to 148k tonnes while Urea offtake reported a 44% rise during the month.

•Unilever Pakistan reported a 153% YoY jump in profits to PkR1,021mn on the back of a 14% YoY decline in revenues to PkR4,768mn for 3QFY04.

•As per the Economic Advisor to the Ministry of Finance, Pakistan yesterday appointed HSBC and Citibank N.A. as lead managers for the issue of Pakistan's Islamic Bonds (Sukuk).

•As per figures released by the SBP, foreign investment in Pakistan shot up 127% YoY in 1QFY05 to US$201.8mn, compared to the US$88.1mn recorded during the same period last year.

•Fauji Cement posted after tax profits of PkR136.243mn (EPS: 0.37) for the quarter as opposed to PkR57.29mn (EPS: 0.15) during the same period last year.

•Hubco announced net profits of PkR1,370mn (EPS: PKR1.18) for 1QFY05.

•According to data released by the State Bank, private sector credit offtake during July-October, shot up by 103% YoY to PkR64.5bn from the PkR31.8bn recorded during the same period last year.

•The Rupee hit three year lows of PkR61.7 against the US Dollar on Thursday before the State Bank intervened and sold US Dollars thereby allowing the Rupee to recover to close at PkR60.4 after trading hours.

PAK OILFIELDS LTD — 1QFY05 RESULTS REVIEW

Pakistan Oilfields Limited announced its 1QFY05 results, posting after tax profits of PkR660mn (EPS: PkR5.02). As per our expectations, net sales revenue of the company recorded handsome growth of 11%. However this growth could not filter down to the bottom line owing to high exploration costs. Exploration costs rose by almost 50% Q0Q and almost 12 times when compared to the same period last year. The high exploration costs are mainly attributable to the aggressive exploration activity being carried out by the company since last couple of years. And the exploration efforts have already paid off as oil and gas discovery was made in Tal block last year. We maintain our Buy recommendation on POL.

POL'S 1QFY05 RESULTS

Pakistan Oilfields Limited announced its 1QFY05 results earlier this week. The company posted after tax profits of PkR660mn (EPS; PkR5.02) for the period, which represents an 8% decline when compared to the profits for the same period last year. However, the results are not very comparable due to the fact that the company's exploration costs were exceptionally low during 1Q04.

REVENUES RISING WITH INCREASING OIL PRICES

As expected, the rising oil prices had an impact on the top line growth of the company. Net sales revenue of the company was recorded at PkR1810mn, which represents a 11% growth over the same period last year.

We were expecting this handsome growth in topline owing to rising crude oil prices. Given the pricing mechanism of oil and gas in the upstream sector, companies with higher percentage of revenues coming from crude oil is likely to benefit more quickly from the rising trend in crude oil prices.

 

 

SURGE IN EXPLORATION COSTS

While the topline growth was as per our expectations, it could not flow down to the bottom line owing to high exploration costs. The company wrote off exploration costs of PkR270mn during 1Q05, which is almost 12 times higher than the cost recorded in the same period last year. The higher costs are mainly attributable to the aggressive exploration activity of the company, which has picked up pace over the last one year.

WE MAINTAIN OUR BUY RECOMMENDATION ON POL

At current prices, POL is trading at 9.5x FY05E earnings and an EV/EBITDA of 4.9x. We also expect POL's dividend payout pattern to normalize this year and expect the company to announce dividends along with its semi-annual and full year's result. At current prices, POL's dividend yield stands at almost 7%. We maintain our Buy recommendation on POL with a price objective of PkR261/share.

THIS WEEK'S TOP STORIES

MAPLE LEAF 1QFY05 RESULTS — PREVIEW

Maple Leaf Cement is expected to announce its 1QFY05 results today. Maple Leaf is likely to report PAT of PkR189mn (EPS: PkR1.05) for 1QFY05 as compared to PkR202mn (EPS: 1.12) reported during the same period last year. While Maple is likely to report a 6% decline in its bottom line owing to the change in the effective taxation rate for the company, we expect a 41% YoY improvement in EBT to PkR291mn during the quarter. The company is likely to report a 19% rise in sales revenue, which can be attributed to 16% growth from the volumetric side. We maintain our concerns over aggressive capacity expansion plans of the company. We also maintain our Buy recommendation on Maple Leaf with a target value of PkR42.64 per share. 15% upside from current price.

UNILEVER PAKISTAN — 3QY04 RESULTS PREVIEW

Unilever Pakistan Limited is expected to announce its 3QFY04 results today, wherein we expect the company to declare profits of PkR1,044mn on the back of sales of PkR4,458mn. While margins are expected to remain depressed, we expect the company to report a PkR864mn as the gain on sale from the sale of Dalda. While an extraordinary dividend is possible, we expect the dividend to be paid at the end of the year. With the stock trading at a 5% discount to our DCF fair value of PkR1624/share, we issue a HOLD on Unilever Pakistan.

ENGRO CHEMICAL 3QCY04 RESULTS — PREVIEW

Engro Chemical is expected to announce its 3QCY04 results today. Engro is likely to match its last year's 3Q earnings of PkR2.37 per share during the period under review. We rule out any possibility of a cash dividend. A 16% decline in Engro's bottom line can be mainly attributed to the gas subsidy shock, while there is a likelihood of a positive surprise from a significant jump in DAP sales. We maintain our liking for the Fertilizer sector and recommend a Hold on Engro with a target value of PkR106.03 per share.

MAPLE LEAF 1QFY05 RESULTS — REVIEW

Maple Leaf Cement announced its 1QFY05 results on Monday. The company posted after tax profits of PkR147mn (EPS: PkR0.82) for 1QFY05 as compared to PkR202mn (EPS: 1.12) reported during the same period last year. The company has also announced a 50% rights issue and 30% Preference shares issue.

The 27% decline in Maple's bottom line may be attributed to higher cost of sales attached with the additional units produced through the wet process. The numbers reported by the company are deflated by PkR0.44/share on account of deferred tax during the period. We are in the process of revising our target price for Maple Leaf. Meanwhile we withdraw our existing Buy recommendation for the company. We will be back with a detailed comment on Maple shortly.

ENGRO CHEMICAL 3QCY04 RESULTS — REVIEW

Engro Chemical announced its 3QCY04 results yesterday. The company posted after tax profits of PkR532mn (EPS: 3.42) as opposed to PkR362mn (EPS: 2.37) during the same period last year. The company surprised everyone with a 45% jump in profits and PkR2.00/share interim dividend. The results came in above our as well the market expecta tions owing to an exceptional growth of 58% in Sales revenue which minimized the impact of the subsidy shock. We maintain our liking for the Fertilizer sector and recommend a Hold on Engro with a target value of PkR106.03 per share.

CHERAT CEMENT 1QFY05 RESULTS — PREVIEW

Cherat Cement is due to announce its results for 1QFY05 on October 25th. We expect Cherat to post after tax profits of PkR121mn (Diluted EPS: PkR1.82) for the period as opposed to PkR104mn (EPS: 1.56) reported during the same period last year. The growth in Cherat's earnings is likely to accrue from: (I) a 10% increase in sales volume; (II) a 20% reduction in financial charges, and (III) healthy price retentions for exports. Owing to a 20% discount to our revised DCF based target price of PkR81.81/share.

MARKET ROUNDUP

..

LAST WEEK

THIS WEEK

% CHANGE

Mkt. Cap (US $ bn)

25.86

25.09

-2.98%

Avg. Dly T/O (mn. shares)

269.96

202.91

-24.84%

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

251.18

203.42

-19.01%

No. of Trading Sessions

5

5

 

KSE 100 Index

5433.48

5458.32

0.46%

KSE ALL Share Index

3570.63

3582.28

0.33%