THE KASB REVIEW

STOCK MARKET AT A GLANCE

 

 

By SHABBIR H. KAZMI
Updated Oct 30, 2004

 

 

 

The market remained negative throughout the week despite the positive announcements. The KSE-100 Index lost almost 126.08 points (2.31%) during the week. The KSE-100 Index closed the week at 5332.24. Monday was positive on the back of speculation about the results of the fertilizer and power companies. OGDCL and FFCL surprised everyone with drastic earnings jumps and 12.5% and 40% cash dividend announcements respectively. PTCL on the other hand disappointed investors by announcing lower than 

 

 

expected results, which eventually pulled the index down. Friday remained negative owing to the Islamabad blast and interest rate fears.

OUTLOOK FOR THE FUTURE

The results season is over but it largely failed to drive the market upward. However, core stocks including OGDCL, FFC, POL, PTCL are likely to support the index during the next week. We are not expecting any news flow or results during the next week, which would fundamentally drive the market. The market is likely to remain volatile with dry volumes during the last half of the month of Ramazan. We expect the market to stay range bound with a trading range of 5250-5450.

FUNDAMENTAL CHANGES

The major developments this week were:

•Orascom signed an agreement with the Chakwal Group of Industries for the purchase of a 51% stake in Chakwal Cement.

•According to the statement released by Lucky Cement's Director, Cement manufacturers will increase cement prices by PkR3/bag to adjust for the impact of increasing electricity charges.

•A 22% increase has been recorded in the production of Natural Gas during the first two months of FY05.

•Cherat Cement posted after tax earnings of PkR151mn (Diluted EPS: 2.84) for the quarter as opposed to PkR104mn (EPS: 1.95) during the same period last year.

•Indus Motors reported a 19% YoY jump in revenues during 1QFY04 to PkR6,521mn.

•The CBR is expecting revenue collection to surpass the PkR580bn target set for the current year, and expect it to reach PkR605-610bn.

•Shell Pakistan Limited announced its 1QFY05 results yesterday, posting after tax profits of PkR651mn (EPS: PkR18.56), almost 76% higher when compared to net profits of PkR370mn (EPS: PkR10.53) during 1QFY04.

•FFBL announced after tax earnings of PKR454mn (EPS: 0.43) for the 3Q as opposed to PkR136mn (EPS: 0.17) during the same period last year along with a PkR1.00/share cash dividend.

•The SBP accepted bids worth PkR20.193bn in the auction for 3-month and 12-month T-Bills held on Wednesday versus a targeted amount of PkR50bn.

•As per the Government Advisor on Finance, the government will be reviewing the economic situation in Dec-04 and will likely be making changes in sectoral allocations and projections in Budget '05 in Jan-05.

•Lucky Cement posted net profits of PkR253mn (EPS: PkR1.03) for 1QFY05 as compared to PkR123mn (EPS: PkR0.50) for the same period last year.

•As per the Governor of the State Bank, the current pressure on the value of the Rupee would ease from next month on the back of receipts from Pakistan's bond issue and inflows from the ADB and the WB.

•Reportedly consultants prefer OGDCL's GDRs issue over strategic privatization.

•According to the Advisor to Prime Minister on Finance, the government decision to cap oil prices could cost up to PkR70bn.

•Pakistan Petroleum Limited announced its 1QFY05 results, posting after tax profits of PkR1,998mn (EPS: PkR2.91) for the period.

SECTOR OUTLOOK

PAKISTAN STATE OIL CO. LTD — 1QFY05 RESULTS REVIEW

Pakistan State Oil Company Limited (PSO) announced its 1QFY05 results, posting after tax profits of PkR1,211mn (EPS: PkR7.06). Net sales revenue of the company recorded handsome growth of 42%, primarily driven by high oil prices and increased product volumes. On average, oil prices and OMC margins remained 20% YoY higher during 1QFY05. With the government appearing firm in its decision to maintain oil prices, we believe that OMC margins are likely to remain stable throughout the year. PSO is also likely to be the main beneficiary from the recovering Furnce Oil demand in the country. We are in the process of revising our earnings estimates for the company and curently maintain a Neutral recommendation on PSO.

PSO 1QFY05 RESULTS

Pakistan State Oil Company Limited (PSO) announced its 1QFY05 results earlier this week. The company posted after tax profits of PkR1,211mn (EPS; PkR7.06) for the period, which represents a 21% YoY jump when compared to the profits for the same period last year.

PAKISTAN STATE OIL CO. LIMITED — 1Q05 RESULTS

(PkRmn)

1Q05A

1Q04A

D %

Gross Sales

59,633

41,892

42%

Govt. Levies

10,695

6,911

55%

Net Sales

48,938

34,981

40%

Cost of Products Sold

46,170

32,888

40%

Gross Profits

2,768

2,093

32%

Operating Expenses

96

1,751

28%

Operating Profit

1,807

1,342

35%

Other Income/(charge) - net

158

210

-25%

WPPF

98

78

27%

Profit Before Tax

1,866

1,474

27%

Taxation

655

472

39%

Profit After Tax

1,211

1,002

21%

Source: Company Accounts

 

 

MARGINS REMAINED HIGH, AND ARE LIKELY TO REMAIN STABLE

Oil prices remained on an uptrend throughout the last quarter. Resultantly, margins were also high during the period, which in our opinion is the single largest factor contributing to the handsome growth in profits. Domesti c petroleum product prices have remained constant since May-04, as the government has absorbed the impact of rising international oil prices instead of passing it on to end consumers. The government appears to be firm in its decision to keep domestic petroleum product prices at these levels. While the government is losing revenues from the downstream petroleum sector, higher import duty collection on the import of crude oil and refined petroleum products is likely to compensate for this loss in revenue. According to government officials, the current petroleum prices are based on crude oil prices of US$41/bbl, we do not expect any significant change in prices during the year as we expect crude oil prices to continue hovering around US$40/bbl.

PETROLEUM PRODUCT PRICES & OMC MARGINS
OIL PRICES (PKR/LITRE) OMC MARGINS (PKR/LITRE)

Jul-Sep

FY05

D%

Jul-Sep

FY04

D%

Mogas

36.92

31.50

17%

1.29

1.10

18%

HSD

24.35

20.65

18%

0.85

0.72

18%

Kerosene

24.00

19.68

22%

0.84

0.69

23%

LDO

21.05

16.59

27%

0.73

0.58

27%

Source: KASB Estimates, OCAC

RECOVERY IN FO VOLUMES

Another boon for PSO has been the strong recovery in Furnace Oil. Low water availability at the dams has constrained the hydel generation capacity of WAPDA. On the other hand, low gas throughput during the winter season has also resulted in the major portion of electricity generation shifting to oil. We believe that PSO is likely to be the major beneficiary of the recovering Furnace Oil demand, as it remains the largest player in this business.

THIS WEEK'S TOP STORIES

DGKC 1QFY05 RESULTS — PREVIEW

We expect DG Khan Cement to post after tax profits of PkR258mn for 1QFY05 (Diluted EPS: PkR1.40) as opposed to PkR246mn (EPS: 1.39) recorded last year. The growth in DGKC's earnings is likely to accrue from: (I) a 37% increase in sales volume, and (II) healthy price retentions for exports. The company is likely to come up with a rights issue to partly finance its expansion plan. We maintain our disliking for the Cement sector including DG Khan Cement. With the stock trading at a 9.5% premium to our revised DCF based target price of PkR46.50/share, we recommend a Hold for DG Khan Cement.

PIONEER CEMENT 1QFY05 RESULTS — PREVIEW

We expect Pioneer Cement to post after tax profits of PkR52mn for 1QFY05 (Diluted EPS: PkR0.36) as opposed to PkR20mn (EPS: 0.22) recorded last year. The growth in Pioneer's earnings is likely to accrue from: (I) a 44% increase in sales volume, and (II) 35% decline in financial charges. We maintain our disliking for the Cement sector including Pioneer Cement. With the stock trading at a 27% premium to our DCF based target price of PkR12.83/share, we recommend a Sell for Pioneer Cement.

FFCL 3QCY04 RESULTS — PREVIEW

Fauji Fertilizer is expected to announce its 3QCY04 results on Wednesday. FFCL is likely to come up with 30% YoY growth in its 3QFY04 profits. We expect the company to post after tax earnings of PkR1,016mn (Diluted EPS: PkR3.44) for the 3Q as opposed to PkR779mn (Diluted EPS: PKR2.64) during the same period last year. A 30% improvement in FFCL's bottom line can be mainly attributed to (I) 9% increase in Urea prices; (II) Increase in FFCL's market share; (III) 34% improvement in other income from sale of FFBL's products, and (IV) a 34% decline in financial charges. We maintain our liking for the Fertilizer sector and FFCL. We also maintain our BUY recommendation for FFCL with a target value of PkR127.45 per share.

FFCL SELLING GOLD... BUY

Wow! FFCL surprised everyone with a PkR4.00/share cash dividend and a 97% jump in earnings. The company posted after tax profits of PkR1,531mn (Diluted EPS: PkR5.19) for the 3QCY04 as compared to PkR779mn (Diluted EPS: PKR2.64) during the same period last year. The results came in well above our as well as market expectations. The difference arising in actual numbers and our expectations is mainly due to: (I) higher other income, (II) higher sales revenues and, (III) cost efficiencies. We maintain our liking for the Fertilizer sector and FFCL. We are in the process of upgrading our earning expectations from FFC for FY04. Even at our existing valuation, stock offers a decent upside of 10%. We maintain our Buy recommendation on the stock.

DGKC 1QFY05 RESULTS — REVIEW

DGKC announced its 1QFY05 results on Thursday. The company posted after tax profits of PkR282mn (Diluted EPS: PkR1.43) for the 1QFY05 as compared to PkR246mn (Diluted EPS: PKR1.39) during the same period last year. The results came in close to our expectations. The difference arising in actual numbers and our expectations is mainly due to taxation. We maintain a Hold for DGKC at current levels with our price objective of PkR46.62 per share.

MARKET ROUNDUP

..

LAST WEEK

THIS WEEK

% CHANGE

Mkt. Cap (US $ bn)

25.09

24.15

-3.75%

Avg. Dly T/O (mn. shares)

202.91

168.46

-16.98%

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

203.42

158.09

-22.28%

No. of Trading Sessions

5

5

 

KSE 100 Index

5458.32

5332.24

-2.31%

KSE ALL Share Index

3582.28

3495.12

-2.43%