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
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
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
•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
•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
•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
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
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
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
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.
Mkt. Cap (US $ bn)
Avg. Dly T/O (mn. shares)
Avg. Dly T/O (US$ mn.)
No. of Trading Sessions
KSE 100 Index
KSE ALL Share Index