The KSE-100 index crossed the 10,000 mark this
week. However, the market continued to witness high volatility
throughout the week. On Monday, market breached 10,000 levels on the
back of fertilizer, cement, and oil sector. OGDC remained in the
limelight throughout the week. On Tuesday, OGDC led the index and
the market witnessed the sharp gain. Wednesday saw selling pressure
and most of the profit taking was witnessed in the oil stocks.
However, other sectors like fertilizer, cement and banking also felt
the heat of profit taking. On Thursday, market sentiments were at it
its lower helm and KSE-100 index plunged by a mammoth 441 points. On
Friday, market bullish trend resurfaced during the first trading
session on the back of rumors of a US$2/share reference price for
PTCL. But, below market consensus result of NBP dragged the index in
the negative territory. On the whole, KSE-100 index lost 104.31
points over last week.
OUTLOOK FOR THE FUTURE
We reiterate view of maintaining a cautious
approach for next week. In our view, privatization fever is almost
over in the market. In sum, the sentiments are likely to remain weak
during the next week. We are advising our investors to restrict
their trading on stop loss basis. Fertilizer sector will remain on
the driving seat on the back of higher demand and rising urea
prices. We expect oil sector to remain range bond.
The major developments this week were:
•PIB auction is to be held on Mar-26.
•PkR202bn PSDP is expected to remain under
•Car production up by 24.5% YoY during Jul-Feb.
•Industrial sector grew by 13.91% during the
first seven month of current fiscal year.
•The Ministry of Privatization has undertaken
to float the shares of State Life Insurance Company (Slic) and
United Bank Limited (UBL) before the end of FY05.
•The Bank of Punjab has decided to set up an
asset management company.
•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.
•Telenor Pakistan has launched its postpaid and
prepaid cellular phone service.
•The Karachi Stock Exchange has decided to
change the existing composition of the KSE-100 index, which would be
implemented from April 01, 2005.
•Yields of 3-M and 12-M T-bill increased by
26bps and 46bps.
•Secretary of State, Condoleezza Rice,
discussed US discomfort on the Iran gas pipeline project whilst in
•World Trade Organization (WTO) Council has
deferred Pakistan's request for extension of deletion program for
the local auto- manufacturers
•In a record-breaking spree, crude oil prices
soared to a new high of $57.60/bbl on the New York exchange.
•According to the data released by State Bank
of Pakistan (SBP), country's total worker remittances were recorded
at US$2,606mn in the first 8-M of current fiscal year
•The clash, which involved the Bugti tribesmen
and the Frontier Corps, resulted in the killing of five FC personnel
and as many as fifty Bugti tribesmen whilst injuring another 150.
NATIONAL BANK OF PAKISTAN — CY04 RESULTS REVIEW
National Bank of Pakistan announced its CY04
results, posting after tax profits of PkR6,243mn (EPS: PkR12.68).
The results show a 49% improvement over last years profits of
PkR4,811mn (EPS: PkR8.53). Although the average lending rates
declined during CY04, a corresponding decline in deposit rates
enabled the bank to report a 14% growth in net interest margins.
Another factor driving the growth in the net interest income has
been the rising advances to deposit ratio. Non-interest income of
the bank also showed a 15% growth, which in our opinion has been
mainly driven by the strong growth in fee based income of the bank.
NBP announced a 15% cash dividend and a 20% stock dividend for the
year, which although was handsome fell slightly short of market
National Bank of Pakistan announced its CY04
results. The bank posted after tax profits of PkR6,243mn (EPS:
PkR12.68), 49% YoY higher when compared to last year. The results
show a massive improvement over last year despite a decline in
average lending rates last year. The bank, however, has been able to
curtail the impact of this through a corresponding decline in
A HANDSOME PAYOUT
NBP announced a cash dividend of PkR1.50/share,
and a stock dividend (bonus) of 20% in addition to the cash payout.
For the last three years, National Bank has been maintain a
consistent cash payout of PkR1.25/share. The stock dividend,
although equivalent to last year at 20%, however fell slightly below
market expectations. The bank also informed that it has already
applied for an increase in the authorized paid up capital of the
bank to PkR7.5bn from PkR5.0bn.
STABLE NON-INTEREST INCOME
Income from capital markets made a significant
proportion of last year's profits. Though capital market income has
also been significant this year, its lower than last year. However,
the decline in capital market income has been more than compensated
from the fee based income, which has picked up primarily owing to
higher trade volumes in the last year. We expect the non-fee income
to remain strong in coming year as well. The income from capital
markets should also pick up owing to the strong performance by the
stock market in CY05.
THIS WEEK'S TOP STORIES
PRIVATIZATION — ANOTHER MILESTONE ACHIEVED
With the pre-qualification of parties for the
privatization of Pakistan Telecom Co. Ltd. and National Refinery
Limited, another milestone has been achieved by the Privatization
Commission. Almost all the big names appearing in the expression
list have been pre-qualified by the Privatization Commission.
However, we now expect privatization news flow on these two
companies to dry down, with the pre-qualified parties now getting
busy with the due diligence process. So while the stock prices of
the two companies are likely to react strongly to the
pre-qualification news, there is not much news flow expected for a
couple of months. On the other hand, Pakistan State Oil and Pakistan
Petroleum Limited are likely to see some continued excitement with
their Expression of Interests due on 31-Mar-2005 and 30-April-2005,
INFLATION — RISING INTERNATIONALLY
We are revising our inflation target for FY05,
owing to the rise in both domestic and international oil prices. Our
revised inflation target stands at 8.2% compared to our previous
target of 7.3% for FY05. Although, we are optimistic that inflation
numbers will be moderate from Mar-June 05. We believe that Pakistan
is not the only country, which is encountering inflation. Even
developed countries like US, EU, and country like China is facing
inflation worries. China's CPI inflation rose to 3.9% in Feb-05, up
from 1.9% in Jan-05. According to the data released by Federal
Bureau of Statistics (FBS), inflation rose by 9.95% year over year
in Feb-05, as compared to 4.3% during the same period last year.
Again, food inflation (carrying 40% weight) went up by 12.91%,
followed by housing rent (12.34%) in the month of Feb-05 alone. In
our view, food inflation remained higher because 1) unexpected
rainfall, generally in Pakistan and particularly in upcountry,
caused a disruption in food supplies 2) food supply-bottlenecks by
and large fueled the food prices, 3) food inflation was lower in
Feb-04, and thus the low base affect once again resulted in high
inflation in Feb-05. Looking forward, we expect that food inflation
is likely to come down in the remaining part of the year due to 1)
High base affect will come in to play, and 2) pressure on food price
is likely to ease off as wheat crop is expected to arrive shortly in
the market. Moreover, SBP has invited the tenders for 3, 12-M T-bill
tenders. The outcome for this tender would be exciting to watch,
owing to the recently announced high inflation numbers.
PETROLEUM PRICES — CONTINUING THEIR UPTREND
Domestic petroleum prices continue to move upward
despite rising agitation from masses and opposition parties. Oil
Companies Advisory Committee recently announced an increase in
petroleum prices in the range of 3-4%. The recent increases in
domestic petroleum prices, while mainly fueled by rising
international prices, have also increased on the back of
government's decision to raise revenues from petroleum product
sales. OMC's on the other hand would be pleased with the rising
petroleum prices. We expect a pre-tax inventory gain of PkR246mn for
PSO and PkR102mn for Shell as a result of the latest price increase.
We believe that the government would continue to raise domestic
petroleum prices in line with international oil prices. A decision
to cap petroleum prices would send out a negative signal to
prospective investors of PSO about the intervention of the
government in price setting.
NATIONAL BANK — PRE-RESULT REVIEW
National Bank of Pakistan is scheduled to
announce its FY04 results tomorrow. We expect the bank to post after
tax profits of PkR6,121mn (EPS: PkR12.43) for the year, 46% YoY
higher as compared to last year. In terms of growth in advances and
deposits, National Bank has been lagging the average for the banking
sector, where most of the smaller banks have recorded handsome
growth in deposits and advances. While lending rates have been lower
for the year, the decline has been more than compensated through a
decline in deposit rates, which have resulted in stable net interest
margins. National Bank's payout has been fairly consistent over the
last three years. Cash payout has remained stable at PkR1.25/share
over the last three years, but we expect some improvement in the
payout on the back of rising profitability. While bonus payout has
also been consistent, this year's bonus announcement can be hampered
by the authorized paid capital, currently standing at PkR5.0bn. We
recommend a Neutral stance on NBP as we believe that most of the
positives have already been discounted in the price.
PTCL — GEARING UP FOR COMPETITION
PTCL is likely to continue making the environment
more and more competitive for the new operators in the telecom
market. The Telecom giant has announced that it is considering
reducing NWD and ILD call tariffs by around 15-30% this year. While
there are talks about a reduction in local call tariffs, we believe
that they are already competitive and are unlikely to be reduced
significantly. We do not expect any significant negative
implications for PTCL. Our view is based on: (I) the reduction in
ILD call rates would not have much of an affect on PTCL owing to its
insignificance in total revenues and lower TAR levels; (II) the
reduction in DLD will fuel the growth as it has been doing for the
past many years, however, the growth is unlikely to mitigate the
full impact of this reduction owing to the higher quantum of tariff
cuts and higher competition. We believe that in the medium to longer
term, PTCL would be able to effectively handle the competition by
making the environment more and more competitive. The said reduction
in tariffs does not affect our earning estimates significantly as we
had been anticipating a reduction in tariffs. We believe that the
proposed privatization of PTCL would continue to be the major
trigger for the stock price.
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