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1- FOREX KERB WATCH

2- COT WEEKLY REVIEW

3- FINEX WEEK

4. STOCK WATCH
5. STOCK MARKET AT A GLANCE


STOCK MARKET AT A GLANCE


By SHABBIR H. KAZMI
Updated Feb 18, 2005

 

 

KSE-100 index is setting new targets every day. Oil & Gas exploration and OMCs stocks stole the limelight this week. Speculations on exceptional growth in OGDC' earning and bonus speculation on PSO were the major trigger for strong performance in these stocks on Monday. The rumors about a possible announcement by the government on construction of dams once gain fueled rally in the cement sector during the week. Progress on gas pipeline projects also triggered the performance in gas distribution companies during the week. Privatization Committee (PC) invited Expression of Interest for selling off 51% stake in PPL on Thursday and the market witnessed strong price performance during the last two trading days of the week. On the whole, KSE index gained 494.44 points over the last week.

OUTLOOK FOR THE FUTURE

Earning season would be at its peak next week as some major companies including PSO, PTC, OGDC, SSGC and DGKC are expected to announce their results, which may trigger speculations in the respective stocks based on their earning growth and cash/bonus dividend expectations. The privatization hype in Pakistan Petroleum (PPL) is expected to trigger strong upside performance in the stock. Meanwhile public subscription of KAPCO would begin from Monday, which will eventually block retail investor funds.

Development in the gas pipeline projects and improving relationship with India will also trigger positive impact of gas distribution companies. We advise investors to remain cautious while making long-term investment decisions as the Index is breaching all the expected targets and its advisable to investors to opt for intra-day trading.

FUNDAMENTAL CHANGES

The major developments this week were:

•Pakistan's import bill registered a growth of 49.31% in th e first 7-months of current fiscal year.

•Oil and Gas Development Company Limited has been granted two more exploration licenses in Multan South and Multan North, with total work commitment of US$6.1mn each.

•The Pak Arab Refining Company's oil pipeline running from Karachi to Machike was blown up near Der Ghazi Khan.

•As per the announcement released by KSE, Elixir Securities has bought 6.133mn shares of Engro Chemicals @PkR125.40 on Friday through cross transactions between the clients.

•Executive Committee of the National Economic Council will meet on Feb 25, 2005 to review approval of 35 mega projects from the Public sector Development Program (PSDP) for FY05.

•Muslim Commercial Bank announced its FY04 results, posting after tax profits of PkR2,540mn (EPS: PkR7.53), 14% YoY higher as compared to last year.

•The Oil Companies Advisory Committee (OCAC) announced that the petroleum prices for the current fortnight would remain unchanged.

•The Privatization Commission has invited Expression of Interests for the sale of 51% stake in Pakistan Petroleum Limited. April 30th has been set as the last date for the submission of Statement of Qualification.

•The State Bank of Pakistan (SBP) increased the yields by 41bps and 50bps for 3 &12 month T-bill respectively.

 

 

•Total worker remittances were recorded at US$2,267mn during July- Jan in FY05, as compared with US$2,256mn recorded during the same period last year.

•According to the data released by State Bank of Pakistan (SBP), Pakistan's external debt increased by US$1.23bn in 1HFY05.

•The Hub Power Company announced its 1HFY05 results yesterday, posting net profit of PkR2,668mn (EPS: PkR2.31).

LSM: LEADING GROWTH

It is very encouraging to note that the industrial data has been very impressive, reflective of much stronger growth. Evidently, Large Scale Manufacturing (LSM) registered a 17.1% growth in FY04. This has made a strong case of high base for LSM in FY05. According to the data released by Ministry of Industries and Production, LSM grew by 17.45% during Jul-Nov 2004. The expansion, in our view, is primarily driving the industrial output to grow above target (12% for FY05). Although the import numbers for the first-half seem huge, the bulk of imports are in the machinery and petroleum groups. Machinery import grew by 37.50% YoY, followed by Petroleum group (41.80%) and metal group (53.35%). The follow up of huge imports in machinery group and petroleum group is also reflected in the LSM growth number. The recently released data by Federal Bureau of Statistics shows that the Textile sector (LSM heavy weight) grew by 11.3% during Jul-Nov 2004. Significant growth in the Petroleum sector (16.2%), and Automobile (34.8%) are also reported. The turnaround in LSM sector has not only driven the GDP growth, but has also changed its share in GDP. Our analysis suggests that if LSM maintains its 15% growth in FY05, then its share in GDP will go up from 11.8% to 12.63%. This also indicates that despite the weak agriculture performance in last couple of years, our resilient Industry is capable of leading GDP growth. Our target for LSM growth stands at 15% in FY05.

LSM- TO DRIVE GDP!

It is very encouraging to note that industrial data has been very impressive, reflective of much stronger growth. Evidently, Large Scale Manufacturing (LSM) registered 17.1% growth in FY04. This has made a strong case of high base year for LSM in FY05. According to the data released by the Ministry of Industries and Production, LSM grew by 17.45% during Jul-Nov 2004. The expansion, in our view, is primarily driving the industrial output to grow above target (12% for FY05). Moreover, monetary overhang and prevailing negative real interest rate have also led to unprecedented growth in private sector credit off-take. Total private credit off-take stood at PkR286bn form 1-Jul-04 to 22-Jan-05, as compared to the full-year target of PkR350bn, growing by 55.5% YoY, so far. In light of recently released data by the Federal Bureau of Statistics, the Textile sector (LSM heavy weight) grew by 11.3% during July-Nov 2004. Significant growth in the Petroleum sector (16.2%), and Automobile (34.8%) are also reported. By and large, growth witnessed in the LSM, is fairly broad based during the period. Our target for LSM growth stands at 15% for FY05. Expansions leading to huge trade deficit

During the year, so far, the rate of import growth has outpaced the rate of export growth. This translates into the huge trade deficit. According to FBS, the country's trade deficit was recorded at US$2.4bn in 1HFY05. Above all, the import bill grew by over 49% in first seven months of current fiscal year. However, the bulk of imports were witnessed in machinery and petroleum groups. Machinery import grew by 37.50% YoY, followed by Petroleum group (41.80%), metal group (53.35%). In summary, although, the huge import number suggests that the country's appetite for consumption is far higher than its production, but this is not the case. It is CAPEX growth that has resulted in a higher import bill.

LSM and composition of GDP

The turnaround in LSM sector has not only driven the GDP, but also has changed its share in the composition of GDP. Our analysis suggests that, if LSM is to maintain its 15% growth in FY05, then its share in GDP will go up from 11.8% to 12.63%.

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 tomorrow. 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. We recommend Hold for Engro with the price objective of PkR107/share while we can expect some hype in stock on any purchase offer by Dawood group.

MARKET ROUNDUP

..

LAST WEEK

THIS WEEK

% CHANGE

Mkt. Cap (US $ bn)

33.73

36.19

7.29%

Avg. Dly T/O (mn. shares)

589.47

830.89

40.96%

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

829.95

1696.36

104.39%

No. of Trading Sessions

5

5

22

KSE 100 Index

7238.92

7733.36

6.83%

KSE ALL Share Index

4743.86

5094.33

7.39%