THE KASB REVIEW

STOCK MARKET AT A GLANCE

 

 

By SHABBIR H. KAZMI
Updated Jan 01, 2005

 

KSE-100 index continued its strong performance during the week and breached the psychological barrier of 6200. On Monday, The market started on defensive note on account of high badla rates. As the week progressed however, the market continued its upbeat trend. Initially, market reacted very positively to hopes of early privatization of PTCL. The Cement sector finally performed owing to the rumor of possible announcement of construction of dams. Interestingly, Engro was the pick of stocks during the week as punter rushed to accumulate the stock on account of 

 

 

company's takeover news. Buying in fuel, gas and banking sectors ignited the rally in the last trading day of the year. The KSE-100 index gained 173 points to end the week at 6218.40.

OUTLOOK FOR THE FUTURE

While high badla volumes and high badla rates have remained a cause of concern, the market continues to maintain its bull trend. A technical correction seems to be inevitable, however the timing remains unpredictable. Given the volatile behavior of the market, which is likely to continue, we advise investors to restrict themselves to intra-day trades and avoid carryover positions. Investors should also stick to the core stocks of the Index, which include PSO, PTCL, Oil and Gas Companies, and Fauji Fertilizer Company Limited.

FUNDAMENTAL CHANGES

The major developments this week were:

•The World Bank has expressed its willingness to provide loans to the corporatised entities of Water and Power Development Authority (WAPDA).

•The total government borrowing, including that of provincial governments has risen to PkR95bn during the current year.

•Driven by high furnace oil consumption during the current year, off take of petroleum products recoded a healthy surge of 19% YoY.

•The Central Board of Revenue (CBR) has collected over PkR249bn during July-December 2004.

•According to the MoF, Pakistan would require to invest almost PkR2.6trillion over 2007-08, around 22% of GDP, to achieve a GDP growth of 8%.

•As per the notice issued by Dawood Hercules, the company intends to buy 22.5mn shares of Engro Chemical Limited @PkR123 per share.

•The Trading Corporation of Pakistan (TCP) has requested Government of Pakistan for an additional PkR12bn credit line to continue its commodity operation.

•Zardari's name struck off ECL.

•The government has finally given its nod to the increase in power tariffs of the distribution companies.

•The State Bank of Pakistna (SBP) has raised its optimism level on the economic growth in the country. SBP is expecting the economy to grow at 6.5-7.1% in FY05.

•Oil and Gas Development Company Limited (OGDCL) and Mari Gas Company Limited (MGCL) have been granted four exploration licenses.

•The government is considering directing Karachi Electric Supply Corporation to finance its system rehabilitation program through borrowing from the commercial banks.

•Musharraf to retain both offices.

•NBP signs MoU with CDGK for housing loans.

•OGRA grants license to OGDCL.

•CCoP to consider new additions to privatization program

KSE-100 — AMONG THE TOP 20

The Karachi Stock Exchange-100 Index once again managed to make its way in to the top 20 best performing Indices of the world. The KSE-100 Index gained 1746 points (39%) during the year to close the year at 6218 level. On a US Dollar Adjusted basis however, the KSE-100 Index recorded a return of 33.97% for CY2004. The major index contributors remained the fuel and energy stocks, which maintained strong performance on the back of rising international oil prices. Domestic liquidity remained as strong as a year earlier, and thus the stock market continued to attract the attention of the investors.

KSE — STRONG PERFORMANCE CONTINUES

The Karachi Stock Exchange-100 Index continued its strong performance in CY2004 as well. The KSE-100 Index managed to make its way in to the top 20 best performing indices in the world. While in absolute terms, the KSE-100 Index registered an increase of 39% in CY2004, on a US Dollar adjusted basis, the KSE-100 Index return was recorded at almost 34% for the year.

MAJOR CONTRIBUTORS TO THE OVERALL PERFORMANCE OF THE INDEX

All the major heavy weight sectors in the Index contributed towards the overall performance of the stock market. The major change in the composition of the KSE-100 Index during 2004 was the inclusion of Oil and Gas Development Company Limited. OGDCL, which was included in the KSE-100 Index on 1-Apr-04, became the heavyweight in the Index with a weight of almost 21% in the overall KSE-100 Index. Fertilizers, Cements, Telecom, Oil Refineries and Upstream Oil and Gas being the major heavyweights, contributed to the overall performance of the stock market.

DOMESTIC LIQUIDITY REMAINED STRONG

Strong domestic liquidity continued to play a major role in the performance of the index. In absence of attractive returns on alternative investments, the stock market continued to remain the focus of attention of the investors. Through interest rates saw a reversal of trend around mid-year, it remained in single digits and not substantial enough to divert funds from the stock market.

THIS WEEK'S TOP STORIES

HUBCO — SEARCH FOR GROWTH OPPORTUNITIES

Declining tariffs and resultantly flat profitability under the existing setup has prompted Hubco to look at potential growth opportunities. The much talked about link up with KESC has been approved and is expected to be operational by end of CY05. However, it is unlikely to have any major impact on the profitability of the company. Hubco's proposal to set up new power plans in the country is unlikely to materialize owing to nonavailability of gas at the proposed site. However, if the proposal to increase the generation capacity of the existing plant goes through, it is likely to have a positive impact on the profitability of Hubco. However, this proposal is still in initial phases and will take time to materialize. We maintain our Neutral recommendation on Hubco with a price objective of PkR35.2/share. In its existing situation, a double-digit dividend yield remains the sole attraction in Hubco.

UREA OFFTAKE — HIGHER AND HIGHER

As per the data released by NFDC urea offtake reported a 7% growth YoY basis during the month of Nov' 04 while DAP offtake registered a 29.3% decline. We are of the opinion that the improvement in urea offtake can be purely attributed to higher purchasing power of farmers as a result of the bumper cotton crop this year as opposed to the pre-buying argument and higher urea prices. We maintain our liking for Fertilizer sector owing to the positive agricultural indicators, which is translating into higher urea consumption in the country. We are in the process of upgrading our earning expectations for FFC and FFB.

IMF REVIEW — FORWARD LOOKING PAKISTAN

IMF concluded its ninth review under the three-year arrangement under the Poverty Reduction and Growth Facility (PRGF) recently and approved the Pakistan's request for waiver of performance criteria (PC). The IMF report hailed Pakistan's strong economic come back owing to the prudent policy making by State Bank of Pakistan (SBP) and the Government of Pakistan. Despite the economic turnaround, IMF believes that poverty remains widespread, social indicators are weak in Pakistan, and Pakistan's debt burden is still relatively high. IMF officials have also stressed on a reduction in the subsidy to the energy sector. We are in total agreement with IMF view that 'Pakistan's near-term economic outlook remains positive'.

 

 

BALOCHISTAN — THE UNEXPLORED FRONTIER

Once again, OGDCL has taken the lead to take the risk of going in to unexplored frontiers, and once again it has been rewarded for taking the risk. OGDCL announced yesterday that the company had discovered gas reserves at Jhal Magsi in the province of Balochistan. While the initial production estimates are not very high, the encouraging element has been discovery of gas reserves in the province of Balochistan. We believe that other oil and gas exploration companies would be encouraged by this discovery and would seriously start considering to undertake exploration activities in the province. As far as the Jhal Magsi discovery is concerned, we expect it to take atleast another 4-5 years before commercial production is commenced from this field. OGDCL and POL with working interest of 65% and 28.5% are the major stakeholders in this discovery.

ICI PAKISTAN — EXPANDING PSF CAPACITY

ICI Pakistan has announced that it will be expanding the production capacity of its existing PSF plant by 10,000 tons per annum. The company has estimated the project to cost US$16mn, which includes debottlenecking and upgrading of the existing plant, as well as installing an additional Staple Fibre Line and ancillary equipment. While on comparison, the cost per ton of the expansion plant seems to be high, we believe that it is on account of the licensing and technical agreements signed by the company with Chemtex Overseas Inc. In our opinion, ICI Pakistan is likely to finance this project through internal resources. While the company's balance sheet has the room to take on further debt, we believe that ICI Pakistan would be primarily utilizing proceeds generated through divestment of Pakistan PTA shares to finance this project. We recommend a Neutral stance on ICI Pakistan with a price objective of PkR85.6/share.

MARKET ROUNDUP

..

LAST WEEK

THIS WEEK

% CHANGE

Mkt. Cap (US $ bn)

28.14

29.02

3.13%

Avg. Dly T/O (mn. shares)

505.52

558.52

10.48%

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

611.53

643.74

5.27%

No. of Trading Sessions

5

5

24

KSE 100 Index

6045.80

6218.40

2.85%

KSE ALL Share Index

3984.87

4104.86

3.01%