CAPITAL MARKETS

 

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 Mar 12, 2005

 

 

This week KSE-100 index remained very volatile. On Monday, market opened with the confusion of amendments in exposure rule. This initially dragged the index but later on market has recovered on the back of rally triggered in Oil sector, PTCL and cement sector. On Tuesday and Wednesday, the Index breached previous records gaining 355.20 and 369.79 points respectively, led by PTCL and OGDC. PTCL remained the focus during the first halve of the week, owing to the rumor of US$2 reference price set for its privatization. On Thursday, market witnessed profit taking and the index remained volatile during all day out. On Friday, investors remained cautious and restricted to fertilizer sector. On the whole, KSE-100 index gained 811 points over the previous week.

OUTLOOK FOR THE FUTURE

We believe that National Bank of Pakistan (NBP) would be the focus for investor in the next week. The NBP annual meeting is scheduled to be held on Mar-18. Fertilizer sector is also likely to perform on the back of rising urea prices. We expect the oil sector to remain range bound, whereas we are mpt expecting any major activity in cements as well. We continue to advise our investors to maintain a cautious approach and stick to intraday stock specific activity. On the whole, we expect KSE-100 index to remain volatile during the next week.

FUNDAMENTAL CHANGES

The major developments this week were:

•According to the data released by SBP, total private credit off-take was recorded at PkR309bn from July-04 to Feb-19.

•19 companies express interest in power generation.

•The PSF producers have raised prices by PkR3/kg to settle at PkR93/kg for the month of March.

•Pakistan seeking IDB facility for oil import

•Current account deficit recorded at US$1.06bn in 7-M.

•Commenting on the recent trend in oil prices, the Iranian oil minister has expressed his opinion that the OPEC is satisfied with a higher band of oil prices.

•Saudi group failed to deposit Bid money for KESC.

•Following the road shows held in London and Dubai last week, the Ministry of Water and Power has announced the intention of a US and a UK based firm to invest a total of US$2bn in Pakistan's power sector.

•The figures for domestic Oil and Gas production in 1QFY05 reveal a 3% improvement in oil production (up to 64,000 bpd) and a 22% rise in gas production (3.5 bcf/day).

•According to a report, the government has set a task force to rationalize the corporate tax in the country.

•Telenor Pakistan and Warid Telecom has signed an interconnectivity agreement.

•Improved relationship with India on political front, also strengthen the trade ties with India.

•United Bank Limited is offering the 2nd issue of PkR500mn listed Term Finance Certificates (TFCs) for public subscription out of the total issue of PkR2,000mn.

•According to a report, under the leadership of National Bank of Pakistan, the big five commercial banks have set a price floor of 6% interest rate for wheat procurement in FY05.

•Trading Corporation of Pakistan (TCP) has spent over PkR30bn in different commodity operations to harmonize the commodity prices at sustainable level.

•Gas Pipeline Fate Uncertain Once Again.

AGRICULTURE SECTOR- SET TO HIT 5.5% GROWTH IN FY05

We are revising our agriculture growth target from 4.5% to 5.5% for FY05, owing to the bumper cotton crop received coupled with the expectations of the wheat crop to meet its 20.2mn ton target. In FY05, total cotton crop was recorded at 14.1mn bales (+40.3% year over year growth). Moreover, Pakistan is expecting a bumper wheat crop in FY05, as a result of receiving timely rain during the sowing period. We believe that enhanced share of these major crops could trigger the exceptional growth in agriculture sector. Major crops carry 34.33% weight in the agriculture sector. Characteristically, four major crops, wheat, rice, cotton and sugarcane together account for 91% of value-added in the crop sector. Major Kharif crops (cotton, rice and cane) value-add contributed around 52% of 91% and rest is contributed by wheat (Rabi crop heavy-weight). Looking forward, with improved water conditions, we expect the remainder of the agriculture sector (minus major crops) to grow by 4% in FY05.

DYNAMIC MAJOR CROPS- TO LEAD AGRICULTURE GROWTH

We believe that the share of major crops could trigger exceptional growth in the agriculture sector. Major crops carry 34.33% weight in the agriculture sector. Characteristically, four major crops, wheat, rice, cotton and sugarcane together account for 91% of value-added in the crop sector. Against the backdrop of a bumper cotton crop coupled with the expectation of the wheat crop to meet its 20.2mn ton target, we are revising our agriculture growth target from 4.5% to above 5.5% for FY05.

KHARIF CROP- COTTON CROP IN THE LIMELIGHT

The cotton crop has hit the record-breaking production level of 14.1mn bales in FY05. This is the highest cotton crop recorded in the history of Pakistan. In term of value addition, cotton has dominated the share among all kharif crops. The share of cotton stood at 46.66%, followed by rice (32.03%) and sugarcane (21.33%). In FY05, the total cotton crop was recorded at 14.1mn bales (+40.3% year over year growth). This has not only offset the negative impact of below target production of sugarcane, but is also likely to provide impetus to the growth of the entire agriculture sector.

 

 

WHEAT CROP- THE APPLE OF OUR EYES

We believe that the country is set to achieve 20.2mn ton of wheat output target in FY05, as a result of receiving timely rain during the sowing period. Wheat crop is considered to be the heavyweight in the entire agriculture sector. Wheat is weighted at 15.80% of the agriculture sector.

OUTLOOK- POSITIVE

Looking forward, with improved water conditions, we expect the remainder of the agriculture sector (minus major crops) to grow by 4% in FY05.

THIS WEEK'S TOP STORIES

UPSTREAM OIL & GAS - STRETCHING VALUATIONS

High international crude oil prices are likely to remain sticky at near about current levels in the near term. Strong demand and lack of additional supplies are being cited as the key factors driving international crude oil prices. Driven by high oil prices, domestic upstream oil and gas companies have performed exceptionally well over the last couple of months. However, comparison to the regional oil and gas companies indicated that valuations are getting stretched. Pakistani oil and gas stocks are trading at an almost 30-50% premium to their regional comparables in terms of P/E and EV/EBITDA multiples. To a certain extent, privatization has been also a factor that has led the rise in valuations of stocks. For instance, Pakistan Petroleum Limited is currently trading at almost 20x FY05E earnings. The high valuations of the stock can be purely attributed to the privatization hype. However, as per our information, there are no other oil and gas companies that have been slated for strategic sale in the near term.

FFC - FOCUSING ON CORE BUSINESS

FFC Board of Directors has finally decided not to go for Pak Arab Fertilizer (NFC unit) acquisition as the transaction is turning out to be too expensive. The management believes it would be too expensive to invest more than PkR12bn for the acquisition of PAFL and another PkR2bn in the project after acquisition to address the environmental concerns attached with the project. We believe that it's a wise decision for FFC to focus more on the core business rather than being illogically aggressive for the privatization transaction of PAFL. The company has identified a possible increase in production capacity by 175kt from minor de-bottle necking in the units which is other than the capacity enhancement possibilities in all three units. Meanwhile, FFC has raised the urea prices by PkR15 per bag in response to increase in fuel gas prices. We recommend HOLD for FFC with a target price of PkR165.50/share.

CURRENT ACCOUNT DEFICIT- AT A SUSTAINABLE LEVEL

Pakistan's current account deficit was recorded at 1% of GDP in the first 7-M of current fiscal year. In its recently released investment plan, Ministry of Finance (MoF), disclosed that Pakistan is looking to maintain its current account deficit at 1.9% of GDP by 2009-10. This indicates that at the present level of current account deficit and USD inflows, country's current account deficit is standing at sustainable level. According to the data released by State Bank of Pakistan, country's current account deficit was recorded at US$1.06bn, as compared with the surplus of US$1.93bn during the same period last year. Interestingly, the balance of goods and services account deficit was recorded at US$4.48bn in the first 7-M, as compared to trade deficit of US$2.57bn in the same period. This indicates that the country's services account deficit alone was recorded at US$1.91bn in the first 7-M. We believe that the main triggers behind services account deficit are shipping line services, and personal travel. Looking ahead, as the Haj and Ramadan season is already over, we expect the personal traveling expenditure will be lower in the remaining part of current fiscal year. This would control the services account deficit. Our full-year target for current account deficit stands at US$1.5bn or 1.45% of GDP.

SSGC - LNG TO ADD VALUE IN THE LONGER TERM

The potential demand for natural gas in the country continues to be higher than supply despite the fact that over 1,000mmcfd of gas has been injected in to the system over the past couple of years. With no major addition to gas supply expected over the next two years, Pakistan is looking at various options to meet the rising demand for natural gas in the country. While talks continue on the transnational gas pipeline, SSGC has expressed interest in importing Liquefied Natural Gas (LNG) and setting up a storage plant at Port Qasim to meet the growing demand for natural gas. The project, though still in the initial phases of planning, is likely to add substantial value to the asset base of SSGC, which will lead to higher profitability under the existing asset based return formula. However, we believe that this value would be realized in the longer term, and capex on network expansion is likely to remain the key driver for earnings growth of the company. In the immediate term, we expect control on system losses to lead to a recovery in the profitability of the company. We recommend a Neutral stance on SSGC with our revised 12-month price objective of PkR33.4/share.

CELL MARKET- STELLAR GROWTH BUT RISING COMPETITION

The cellular market in Pakistan has experienced a stellar growth in the last few years. The number of cellular service subscribers has grown at a 5-year CAGR of almost 94%, reaching almost 8.5mn subscribers by Jan-05. With both Warid and Telenor expected to start their operations in the next couple of months, the competition within the cellular market is likely to intensify . While the growth potential for the cellular market remains promising, we believe that the increased number of operators is likely to result in increased competition, with Average Revenue Per Unit likely to come down. We have already seen some benefit accruing to subscribers through lowering of tariffs and provision of free minutes/sms by almost all the cellular service provider. We believe that with more competition in the sector, the tariffs are likely to come down further.

MARKET ROUNDUP

..

LAST WEEK

THIS WEEK

% CHANGE

Mkt. Cap (US $ bn)

39.43

44.55

12.99%

Avg. Dly T/O (mn. shares)

645.94

800.05

23.86%

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

1243.39

1547.63

24.47%

No. of Trading Sessions

5

5

22

KSE 100 Index

8792.70

9603.73

9.22%

KSE ALL Share Index

5768.69

6278.97

8.85%