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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 WATCH


By SHABBIR H. KAZMI
Updated Apr 02, 2005

 

 

Kot Addu Power Company has become a very attractive pick due to the recent spate of bearish spell. KAPCO's earnings and payout stream are 'relatively predictable' under the terms of power purchase agreement.

Analysts expect KAPCO to report earnings of Rs7,227 million (EPS: Rs8.21) in 2005 and Rs7,624 million (EPS: Rs8.66) in 2006 and payout 7.10/share and Rs7.50/share as cash dividend in 2005 and 2006 respectively. However, following expiry of tax holiday in 2006, analysts expect dividends to adjust down to Rs5.0/share in 2007. The stock currently offers a dividend yield of 14.5% and trades at a 16.5% discount to fair price of Rs52 per share. KAPCO offers a 'relatively predictable' return, as the scalable portion of the capacity payments to KAPCO will be met by WAPDA, provided that: 1) KAPCO makes available a minimum level of 1342MW capacity to WAPDA and 2) Tariff agreement with WAPDA (NTDC) functions smoothly. On both fronts, the risks are mitigated as KAPCO has hedged the risk of plant and business interruption through insurance cover and WAPDA's financial health has improved substantially.

Agreements between WAPDA and KAPCO allow for some 500 hours of regular maintenance and unplanned outages. In case capacity unavailability exceeds these downtime allowances, WAPDA imposes 'Liquidated Damages' (LDs) on KAPCO (In 2003, liquidated damages of Rs740 million were imposed). However, KAPCO has hedged this risk through plant and business interruption insurance and was able to recover Rs314 million from insurance agreements. WAPDA's ability to pay has improved significantly the utility generated a cash surplus of Rs17.5 billion, versus a cash deficit of Rs21.9 billion in 2002. In addition, the government is well aware of the fallout WAPDA-IPP tariff dispute had in terms of damaging investor confidence. It would not want a repeat of the same. As per understanding, the six-year lock-in period, during which International Power was not allowed to dispose off its shareholding in KAPCO, has expired. International Power currently owns a 36% stake in the company and given International Power's 'investment monetizing' history, could sell part of its holdings. This, however, is a secondary market risk and does not impact company fundamentals, cash flows or dividend streams.

Pak Suzuki Motors Company announced 2004 results, posting profit after tax of Rs1,404 million (EPS: Rs28.57) down 11% YoY and 15% lower than market expectations. Despite a 32% increase in revenues (30% increase in volumetric sales), profitability declined due to reduction in gross margins. PSMC announced a 10% bonus issue along with its results. From a sector perspective, analysts expect demand for automobiles to remain robust and expect sales of 125,000 units in 2005 (97,701 units in 2004). PSMC's top line increased by 32% YoY was due to 30% increase in sales. Increase in volumetric sales included 1) 29% increase in sales of Baleno (1300cc) to 4,464 units 2) 21% increase in sales of Cultus (1000cc) to 11,806 units, 3) 58% increase in sales of Alto (1000cc) to 9,486 units and 4) 27% increase in sales of Mehran (800cc) to 29,343 units. Impact of increase in sales, however, was mitigated by lower gross margins, due to 1) 7.96% appreciation of Yen against Pak Rupee in 2004 and 2) increase in steel prices during the year. As a result, cost of goods sold increased by 40% YoY causing profitability to decline by 11% to Rs1,404 million (EPS: Rs28.57). From a sector perspective, analysts expect demand for automobiles to remain robust due to easy availability of car financing by banks/leasing companies and expect sales of 125,000 units in 2005 (+28% YoY).

 

 

D.G. Khan Cement offers one of the best exposures to the growing cement industry in Pakistan. The company is aggressively expanding capacity and is expected to post earnings growth of 6% over the next 9 years. D.G. Khan, along with Lucky Cement, is amongst the very few players in the industry that will not suffer substantially in case of a cartel break-up. D.G Khan is following suite with the industry's trend of expansions and BMR, with capacity debottlenecking from a current 5,500tpd to 6,700tpd. Additionally, the company is installing a green-field capacity in Kallar Khar of 7,000tpd. The new line is of superior technology to most peers and can adjust to a low production level without incurring the substantive costs involved with shutting down and restarting of an entire plant. D.G. Khan's expansion, expected to come-online by 2008, and would further the company's market reach. The location of D.G. Khan's current plant, at the nexus of lower Punjab, Upper Sindh and Balochistan, allows the company access to most parts of Pakistan. The new line, located in Chakwal (nexus of Frontier and Northern Pakistan) would allow easier access to Afghanistan (a lucrative export destination) and further enhance D.G. Khan's market penetration. The economies of scale achieved with a total plant size of 4mtpa by 2008, will make D.G. Khan Cement the most cost-effective producer in the industry (and second largest in terms of capacity).

Company

High

Low

Closing

Week's Turnover

P.T.C.L.AXD

73.90

65.00

66.75

319,580,500

Oil&Gas Dev.

130.05

106.00

106.00

167,544,500

National Bank

122.00

112.55

114.60

84,930,400

P.S.O.XD

422.00

362.55

422.00

70,698,600

Pak PetroleumXD

237.00

213.90

213.90

34,948,100

Pak Oilfields

266.00

240.75

244.50

33,810,000

Hub Power

31.85

27.60

30.30

27,687,000

M.C.B.XBXR

66.90

53.00

66.90

15,739,100

Fauji Fert.

148.25

128.35

141.90

13,277,400

Engro Chem.XD

135.60

121.00

124.00

5,185,600