THE KASB REVIEW

STOCK MARKET AT A GLANCE

 

 

By SHABBIR H. KAZMI
Updated Dec 04, 2004

 

The week started with a positive note where major activity remained confined to the blue chips. OMCs and POL exhibited strong performance on Tuesday owing to the rumors about an increase in domestic oil prices in response to the rise in international prices. However, the announcement by Oil Companies Advisory Committee stating that domestic oil prices have been maintained proved to be a disappointment. Fertilizer 

 

 

 

 

sector remained positive through out the week. The Prime Minister's visit to the KSE for the Top Companies Award distribution ceremony was partly responsible for the positive sentiment prevalent at the KSE on Friday. KSE-100 gained 19.09 points to end the week at 5575.96 levels.

OUTLOOK FOR THE FUTURE

We expect the market to continue its upward trend after successfully crossing the psychological barrier of 5555 where the overall economic indicators will remain a net positive factor for the market. We are not expecting any stock specific fundamental news, which could possibly trigger some profit taking during the next week. Investors would be looking ahead towards the progress of India-Pakistan talks scheduled during the month end. We advise investors to maintain exposure in key stocks only, which in our opinion are likely to be the key drivers for the Index performance from this point onwards. Fertilizer and Energy stocks are our picks in the market. On a net basis, the continuation of neutral to positive consolidation is likely to continue next week.

FUNDAMENTAL CHANGES

The major developments this week were:

•The tax collection during the Jul-Oct 2004 is higher by 27% YoY when compared to PkR130.6bn tax collected during the same period last year.

•According to the World Bank, the subsidy to the power sector is likely to rise to PkR60bn during the current financial year.

•Foreign Direct Investment (FDI) in the country rose by 62% in the first four months of current fiscal year.

•As per the survey conducted by Pakistan Telecommunication Authority during the 2003-04, the number of cellular phone subscribers has crossed 7mn in Nov '04 from 6.8mn in Oct '04. .

•According to recently released report by Ministry of Finance (MoF) for the period July-Oct FY05, a bumper cotton crop and a good rice crop are likely to help the ailing agriculture sector to achieve its 4.0% growth rate target despite severe shortage of irrigation water.

 

 

•As per the statement released by the Chairman, Association of Builders and Developers, construction of private sector housing projects has come to halt with the current upsurge in steel prices. ???Privatization Commission (PC) is now targeting to hold the Initial Public Offering of Kot Addu Power Company (KAPCO) by end of December 2004.

•Acting President, Mohammadmian Soomro signed a bill allowing President Musharraf to retain the position of Army Chief along with the office of the President of Pakistan.

•The Oil Companies Advisory Committee (OCAC) announced that the Oil Marketing Companies would maintain oil prices at their previous levels.

•According to provisional figures issued, the CBR has collected PkR199.32bn during July-November FY05 as compared with PkR169.8bn during the same period last year.

•According to the figures released, SBP has made payments amounting to US$408mn for oil import.

•Oil and Gas Development Company Limited (OGDCL) announced that it has discovered oil and gas well on drilling of second well in the Sonjhoro block.

•The State Bank of Pakistan released a report entitled "Financial Market Review", in which it has reviewed the performance of the financial markets during FY04.

•According to SBP Financial market review issued on Wednesday, Pak rupee had lost only 0.25% of its value against dollar during FY04.

•International oil prices witnessed a decline of almost US$3/bbl in a day, with US Light Crude closing at 45.85/bbl.

•As per the data released by APCMA, Cement Sales reported a 17% decline on MoM basis to 1.104mn tons during Nov '04 from 1.339mn tons during the last month.

•Chinese company has shown its reluctance to resume work on Gomal Zam Dam.

•According to data released by the State Bank of Pakistan, Pakistan's forex reserve have gone down to US$11.987bn on the eve of November 27th 2004

•International Monetary Fund (IMF) has completed its ninth and Final review under Pakistan's three-year Poverty Reduction and Growth Facility (PRGF) arrangement and has approved Pakistan's request to waive the condition of post-program monitoring due every six month.

FINANCIAL SECTOR ASSESSMENT 2003

Privatization of state-owned commercial banks such as HBL, UBL and ABL, alongwith relentless regulation & monitoring by SBP and SECP have made the financial sector more formidable than ever before. According to Financial Sector Assessment report for 2003, financial sector grew by over 15% in 2003 and overall share of private sector has risen to 52% in the entire financial sector during 2003 from 40% at the end of CY02. We believe that the transfer of ownership from public to private in the banking sector will bring the technological change, product diversification, competitive environment and growth within the banking system.

ROBUST FINANCIAL SECTOR PRODUCED IMPRESSIVE GROWTH IN 2003

According to State Bank of Pakistan's (SBP) press release, country's financial sector grew by 15.3% during 2003 over the asset base of 2002. In addition, financial sector added PkR542bn worth of assets to its balance sheet and increased its asset base to 84.7% of the FY03 GDP. According to SBP Financial Sector Assessment report for 2003, private sector enjoyed 52% share of entire financial sector (Excluding Allied Bank Ltd privatization) compared to 40% share of private sector at the end of 2002. On the other hand, the banking sector specifically has seen some changes where the share asset base share of private domestic and foreign bank share have grown to 74.4% in 2003 as compared to 56.1% at 2002 end. We believe that the reshuffling of ownership in the financial sector has been the driving force for dynamic growth in financial sector and current growth trend will continue. The completion of the restructruing process in HBL, UBL and ABL will provide further impetus to the banking sector.

FINANCIAL SECTOR OWNERSHIP STRUCTURE BANKING SECTOR OWNERSHIP STRUCTURE

GLANCE OF FINANCIAL SECTOR

Corporate sector was the major beneficiary of the financial system credit with 54% share followed by SME sector 19%, agriculture 8% and consumer financing almost 8%. Moreover, consumer finance has increased by 128% in FY04 and the largest share has gone to personal loans to finance consumer durables and automobiles etc. Lending to SMEs has increased to PkR250.6bn by June 2004 from PkR145.5bn. At the same time, capital adequacy of the financial sector has also strengthened, equity to liability ratio has gone up to 7.5% from 6.8% in 2002, liquid assets to total asset ratio has declined to 43.5% in 2003 from 44.9% a year earlier. Intermediation cost has also come down significantly during 2003 for the financial sector with the average spread for the financial sector declining to 4.4% in 2003 from 5.1% in 2002.

VIABILITY OF FINANCIAL SECTOR

Country's financial sector is more sound and stable than ever before. Both SBP and SECP are working to align their regulatory profile in a rapidly changing domestic and global financial environment. During 2004 SBP has set up Institutional Risk Assessment Framework (IRAF) to ensure active monitoring of risk profiles of individual institutions. Furthermore, SBP has made mandatory for all banks engaged in consumer finance to become a member of at least one consumer credit information bureau.

BANKING SECTOR PROSPECTS

In the last couple of years, commercial banks have successfully increased their share in agriculture and consumer credit. In addition, banking sector advances to private sector have increased to PkR123.5bn during the first four months of FY05 against PkR70.8bn during the same period in FY04. Going forward, automated and electronic means of financial transaction are gradually replacing the paper based system and with the introduction of credit, debit and ATM cards it is evident that the banking sector in Pakistan has entered in to the era of product diversification.

THIS WEEK'S TOP STORIES

POL — STRONG PRICE PERFORMANCE

Pakistan Oilfields Limited's strong share price performance was only a question of time. After languishing for a considerable time around the PkR200mark, the stock gained almost PkR9.95/share (5%) on Friday. Start of operations from Tal oilfield is likely to be a key trigger for the stock price. We expect test production from this field to start soon, whereas commercial production is likely to start from begining of FY06. POL is also likely to be the first beneficiary of the rising oil and gas prices compared to its peers owing to heavy tilt of its revenues to oil. We maintain our Buy recommendation on POL with a price objective of PkR260/share.

OIL PRICE REVISION — TO BE OR NOT TO BE?

The Governor State Bank of Pakistan indicated in a recent interview that the Ministry of Finance is considering to pass on the impact of rising international oil prices to end consumer. With the Oil Companies Advisory Committee meeting today, this statement has raised the speculation that the increase might come through in the current price revision. We however are of the opinion that the government might opt to maintain oil prices at current levels atleast in the near term. However, with oil prices maintaining their strength, the government will eventually have to pass on the impact to the end consumer. Should oil prices increase, Oil Marketing companies are likely to benefit in the form of inventory gains and increase in margins. Also, this would put an end to the import price differential that the OMCs are currently bearing themselves.

PSF PRICES — COST DRIVEN INCREASE

Prices of Polyester Staple Fibre has been increased by PkR3/kg to PkR95/kg. We expect a positive impact on the entire PSF industry as a result of this price increase. The price increase is likely to serve to reduce the squeeze in margins being face by PSF manufacturers on account of hike in raw material prices. Being derivatives of the oil price chain, the raw materials of PSF (PTA & MEG) have witnessed a substantial increase in prices, which is in line with the hike in crude oil prices. We maintain that PSF manufacturers have been unable to completely pass on the impact of rising raw material prices to the end consumer.

PSO — BOUNCING BACK

We are revising our earning estimates and price objective for PSO. While earnings growth is likely toi continue on account of higher oil prices, and growth in sales volume, a high receivable issue has been a negative fallout of the current government policy to maintain a cap on oil prices. We recommend a Neutral stance on PSO with a price objective of PkR290/share.

MARKET ROUNDUP

..

LAST WEEK

THIS WEEK

% CHANGE

Mkt. Cap (US $ bn)

25.74

26.07

1.28%

Avg. Dly T/O (mn. shares)

268.51

218.95

-18.46%

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

274.23

215.72

-21.34%

No. of Trading Sessions

5

5

 

KSE 100 Index

5556.87

5575.96

0.34%

KSE ALL Share Index

3656.77

3668.31

0.32%