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1- FOREX KERB WATCH

2- COT WEEKLY REVIEW

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4. STOCK WATCH
5. STOCK MARKET AT A GLANCE


STOCK MARKET AT A GLANCE


By SHABBIR H. KAZMI
Updated Feb 12, 2005

 

 

Oil stocks stole the limelight this week. On Monday, oil and gas companies led the index, owing to the privatization hype of PSO and on the expectation of a hike in gas tariffs. Earlier in the week, OGDC has triggered the market momentum, on the back of its announcement of oil well discovery and the expectation of higher earning. As expected, PTCL bounced back again as the news related to Malaysian Telekom's participation in the bidding process reinforced the sell-off expectation. Banking sector also remained positive during the week on the backdrop of good earning expectations. On Wednesday, market observed some profit taking and index maintained its previous closing level. Market sentiments remained positive throughout the week on account of good earning expectations in Oil and banking sector. On the whole, KSE index gained 252.28 points over the last week.

OUTLOOK FOR THE FUTURE

The major trigger for the market in the short-term remains the upcoming result announcements by the top market cap companies. Both banking and oil sector companies would remain the focus as far as trading activity is concerned. Much awaited provisional trading of KAPCO will also be starting from Monday. Market sentiment seems positive for the upcoming week, however, we advise our investors to carry on trading with calculated strategy. We expect cement companies to announce the dates for their half yearly results, which may trigger some stock specific activity. On the risk side, small investor may liquidate their holdings to participate in much awaited Initial Public Offering of KAPCO, to be held on Feb 21-24.

FUNDAMENTAL CHANGES

The major developments this week were:

•The Privatization Commission has announced that the Initial Public Offering of Kot Addu Power Company (KAPCO) would be held on Feb 21-24.

•In the bidding held for KESC, the Privatization Commission (PC) received the highest bid of PkR15.860mn (PkR1.65/share) by the consortium headed by the Saudi Kunooz Group.

•To provide benefit to Balochistan, the Federal Government has reportedly proposed an increase in gas tariffs of the Sui Gas field.

•Oil and Gas Development Company Limited announced that it has discovered oil and condensate in its exploratory well Pasakhi Deep No. 1.

•According to the data released by Ministry of Industries and Production, industrial sector grew by 17.12% YoY in 1HFY05.

•The National Electric Power Regulatory Authority has allowed a 10-15 paisa/unit increase in power tariffs for the eight corporatised entities of WADPA.

•The public offering of Attock Petroleum Limited was oversubscribed by almost 18 times.

•According to the company and Privatization Commission, the successful applicants of KAPCO's public offering would also be entitled to any interim dividend that is announced with the half yearly results.

•Net government borrowing has increased to PkR44.77bn till Jan-22.

•World Bank raises official assistance to US$1bn.

•The figure for auto sector loans from banks and leasing companies has reached Rs.22.1 billion.

•Cabinet and Parliament to debate over Kalabagh Dam.

•Current account deficit was recorded at US$885mn in 1HFY05.

•Pakistan Telecom Authority is expecting the telecom industry to fetch around US$2bn in investment by this year-end.

•Askari Commercial Bank announced its FY04 results. The bank posted after tax profits of PkR1,923mn (EPS: PkR15.31/share) for year, 74% YoY higher.

THE IMPACT OF OIL PRICE ON INFLATION

With the recent 5% increase in petroleum prices, it is widely expected that the headline inflation will swell further in months to follow. Since Dec-15, Oil Companies Advisory Committee (OCAC) has increased the POL prices by 15%. We believe that the impact of oil prices is mainly reflected in fuel and transport inflation. Transport and fuel account for 7.33% & 7.29% weight respectively in the CPI index. Our analysis suggests that an increase of PkR1.00 in POL prices results in a 49bps increase in the fuel inflation index, and a 130bps increase in transport inflation index. On the basis of our finding, we believe that the fuel and transport inflation in Jan-05 are likely to be around 2.52% and 6.84% YoY respectively. However, our view on the impact of oil prices on food inflation is slightly different from market consensus. In our view, the impact of oil prices is already accounted for in the transport inflation index. This indirectly represents the marginal increase in the transportation cost of food. Therefore, food prices should be adjusted with marginal change in transportation cost to avoid duplication. Looking forward, we expect, the central bank's "Neutral" monetary stance and high base effect to work their way through to contain inflation in the remaining half of the current fiscal year. Our target for inflation stands at 7.1-7.3% for FY05.

 

 

OIL PRICES — TRANSLATED IN TRANSPORT AND FUEL INFLATION

We believe that the impact of oil prices is mainly reflected in the fuel and transport inflation. Transport and fuel account for 7.33% & 7.29% weight respectively in the CPI index. Our analysis suggests that an increase of PkR1.00/litre in POL prices results in a 49bps increase in the fuel inflation index, and a 130bps increase in the transport inflation index. On the basis of our finding, we believe that the fuel and transport inflation in Jan05 are likely to be at 2.52% and 6.84% YoY respectively. Going forward, in light of recent 5% increase in POL prices, our estimate for Feb-05 fuel and transport inflation stands at 2.995% and 8.825% YoY respectively.

OIL PRICES AND FOOD INFLATION

Our view on the impact of oil prices on food inflation is slightly different from market consensus. In our view, the impact of oil prices is already accounted for in the transport inflation index. This indirectly represents the marginal increase in the transportation cost of food. Therefore, food prices should be adjusted with the marginal change in transportation cost to avoid duplication. To validate our view further, in Dec-04 alone, POL prices have increased by 6.98% but the food inflation index decreased from 127.00 points to 122.78 points.

INTEREST RATE HIKE — ANTI-INFLATIONARY MEASURE

To suppress the inflationary expectations in the system, the State Bank of Pakistan (SBP) has adopted a "neutral" monetary stance. This indicates that the policy accommodation can be moved at a pace that is likely to be measured. The SBP has increased the yield on 6-months T-bill by 264bps to 4.8684% so far this year.

Going forward, we expect that the short-term interest rate will increase to counter the inflationary expectation from the system.

OUTLOOK FOR INFLATION IN FY05

We expect the central bank's "Neutral" monetary stance and high index base effect, will work their way through the system to contain inflation in the remaining half of the current fiscal year. Our target for inflation stands at 7.1-7.3% for FY05.

THIS WEEK'S TOP STORIES

CEMENT DISPATCHES — DECELERATING GROWTH

As per the data released by APCMA over the weekend, overall cement dispatches reported a 7.36% growth in Jan '05 and 21.5% growth during the first seven months of FY05. However the rate of growth has been decelerating. We are expecting a 19% overall growth in cement sales for FY05. Lucky Cement reported a 39% growth YoY basis in cement sales, followed by DGKC (29% growth), Maple Leaf (20%) and Fauji Cement (14%). We maintain our underweight stance on the cement sector owing to our concerns regarding additions on the supply side.

KESC _ PRIVATIZED!

The Privatization Commission has been able to pull off one of the most difficult task in our opinion. The privatization of KESC, though at a substantial discount to the market price, can be termed as a big success as the PC has been able to sell a loss making entity. We are of the opinion that the major concern of the government as far as KESC was concerned was the annual cash injection that the government was required to make to meet the utility's cash shortfall. The other major concern was to transfer the management to the party, which would be able to bring a turnaround in the utility and cut down on its operational losses. We are of the opinion that the new owners initial focus would be to improve the transmission and distribution network of the utility and cut down on the line losses, which alone can result in a substantial improvement in KESC's financial health. However, this is likely to be a long drawn process and in our view would take atleast a couple of months.

ENGRO — STRUGGLING WITH SUBSIDY SHOCK

Engro Chemicals is expected to announce its annual results for CY04. We expect the company to post after tax earnings of PkR1,483mn (EPS: 9.69). We expect the company to announce 35% or PkR3.50/share cash dividend, however, there are low possibilities of bonus dividend owing to lack of growth in earnings. We maintain our underweight stance on Engro with the price objective of PkR107/share. We may expect Dawood group to come up with purchase offers from time to time with an objective to claim takeover of the company with complete management control, which will eventually trigger some activity in the stock. Sell Engro!

GAS PIPELINES – CHANGE IN INDIAN STANCE

The change in Indian stance towards the proposed transnational gas pipeline projects is very significant given that India had been previously out-rightly rejecting the idea of participating in the project. We believe that the change in Indian stance has been primarily driven by the growing energy demand in India. And import of natural gas is the most inexpensive alternative available to meet this demand. Pakistan stands to benefit in the form of transit fees should India opt for gas pipeline either from Turkmenistan or Iran as both these pipelines will have to pass through Pakistan. We are of the opinion that the proposed gas pipeline from Iran is currently being the most seriously considered option owing to lower cost of the project. The Iran gas pipeline should benefit SSGC as the gas pipeline is proposed to be laid through Balochistan and Sindh, both of which are SSGC's franchise areas. We maintain our Buy recommendation on SSGC with a price objective of PkR35.4/share. We have not incorporated the impact of the proposed gas pipeline in to our valuations.

ENGRO — PLOWING ON!

Engro Chemical announced after tax earnings of PkR1,610mn (EPS: PkR10.53) for the year as compared to PkR1,557mn (EPS: PkR10.18) during the same period last year. The company also announced a final cash dividend of PkR4.00/share. The results came in above our expectations as well as market consensus mainly due to lack of availability of information about the dividends from subsidiary companies. On the other hand, a PkR4.00/share dividend by Engro will add PkR2.89/share to Dawood Hercules's EPS.

MARKET ROUNDUP

..

LAST WEEK

THIS WEEK

% CHANGE

Mkt. Cap (US $ bn)

32.45

33.73

3.94%

Avg. Dly T/O (mn. shares)

452.48

589.47

30.28%

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

609.49

829.95

36.17%

No. of Trading Sessions

5

5

 

KSE 100 Index

6968.18

7238.92

3.89%

KSE ALL Share Index

4568.06

4743.86

3.85%