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.
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
•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
•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
•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
•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
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
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
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
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
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.
Mkt. Cap (US $ bn)
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KSE 100 Index
KSE ALL Share Index