This week KSE-100 index remained under pressure
owing to the Badla (COT) phase out issue. On Monday, market remained
under stress owing to the discouraging outcome on Badla phase out
issue between SECP and KSE management. The KSE-100 recorded a 277
points decline on Monday. The negative sentiment continued to
dominate on Tuesday as all blue chips recorded decline. On
Wednesday, market opened with a negative note, but the market
recovered owing to rumors regarding extension in Badla freezing date
from April-29 to June-03. PTCL led the index to recover. At the same
time POL, Engro, ATRL performed owing to better than expected
quarterly results announcement. On Thursday, market remained firmed
owing to the final word received regarding badla COT extension from
SECP. Rounding up the week, the KSE-100 index lost 411.53 over the
OUTLOOK FOR THE FUTURE
With phase out of badla, we believe that the
recovery at KSE is unlikely to be strong in the near term. We would
advise investors to avoid cyclicals and stay long in stocks that are
under leveraged, have strong growth prospects, and are inexpensive
on valuations. Our top picks in the market are: Fauji Fertilizer,
Askari Commercial Bank and Pakistan Oilfields.
The major developments this week were:
•In keeping with the wave of positivism that
has surrounded President Musharraf's visit to India, the two
countries have agreed on several trade related CBM's including
closer economic ties and the revival of a joint business council.
•The domestic petroleum prices remained
unchanged for the second consecutive fortnight.
•Export orders for 50,000 tons of cement to Sri
•Securities and Exchange Commission of Pakistan
has finally agreed to extend Badla financing mechanism till
•Fauji Fertilizer Bin Qasim (FFBL) announced
its 1QCY05 results. The company posted an impressive growth of 233%
(YoY basis) in net earnings to Rs375mn (EPS: Rs0.40) for the
•Worker Remittances recorded at USD443.70mn in
•Pakistan Oilfields Limited has announced its
quarterly results, posting after tax profits of Rs999mn (EPS:
Rs7.60/share), taking up cumulative profits to Rs2,401mn (EPS:
•Maple Cement (MLCF) announced its 9MFY05
results yesterday. The company posted after tax earnings of Rs514mn
•Duties on imported cars to be slashed in the
•The private sector credit borrowing has
reached Rs362bn in the first 9-M of current fiscal year.
•The official statement from the KESC is that
the Saudi group, Kanooz Al Watan, will take over the entity in the
first week of May-05.
•Engro Chemical announced its 1QCY05 results
yesterday. The company posted after tax earnings of Rs409mn (EPS:
•Engro Chemical plans to invest RsR2bn in its
new subsidiary company, Engro Foods (Pvt) Limited, primarily engaged
in the milk processing business.
•Pakistan received US$900mn total foreign
investment in the first 9-M of current fiscal year as compared to
US$586.80mn last year.
LUCKY & CHERAT CEMENT
9MFY05 RESULTS PREVIEW
Lucky Cement is due to announce its 9MFY05
results on Monday, 25-Apr-2005. We expect the company to post after
tax earnings of Rs561mn (EPS: Rs2.13) for 9MFY05, 27% lower YoY
compared to Rs442mn (EPS: Rs1.68) in 9MFY04. We recommend a hold for
Lucky Cement with a price objective of Rs48/share.
Cherat Cement is also due to announce its 9MFY05
results on Monday, 25-Apr-2005. We expect the company to post after
tax earnings of Rs338mn (EPS: Rs5.08) for 9MFY05, 18% lower YoY
compared to Rs285mn (EPS: Rs4.29) in 9MFY04. We recommend a hold for
Cherat Cement with a price objective of Rs83/share.
LUCKY CEMENT — 9MFY05 RESULTS PREVIEW
Lucky Cement (Lucky) is scheduled to announce its
9MFY05 results on Monday, 25-Apr-2005. We expect the company to post
after tax earnings of Rs561mn (EPS: Rs2.13) for 9MFY05 as opposed to
Rs442mn (EPS: Rs1.68) during the same period last year. Despite a
32% rise in volumetric sales and 7% increase in average retention
levels, we are expecting a marginal drop in earnings during the
3QFY05 mainly due to 600bps drop in gross margins (YoY basis) and
rising financial charges. We do not expect Lucky Cement to fully
pass on the impact of rising fuel prices to end consumers owing to
increasing dependence on exports, which stand at 20% of total sales
as opposed to 4% last year. Exports offer an average of 38% lower
margins than domestic sales while the margins on exports are
actually dropping QoQ basis. This indicates the inability of the
Pakistani cement manufacturers to pass on the impact of cost
increase to export prices. As Lucky Cement is going ahead with its
expansion plans, we are expecting a substantial increase in the
financial charges of the company, 300% higher YoY during the 9MFY05.
CHERAT CEMENT — 9MFY05 RESULTS PREVIEW
Cherat Cement (CHCC) is also expected to announce
its 9MFY05 results on Monday. We expect the company to post after
tax earnings of Rs338mn (EPS: Rs5.08) for 9MFY05 as opposed to
Rs285mn (EPS: Rs4.29) during the same period last year. Despite a 3%
drop in total dispatches and a 400bps drop in gross margins during
9MFY05, the company has maintained a decent growth of 18% YoY growth
due to better retention levels for both domestic sales and exports.
The company is actually anticipating a plant shut down during 1HFY06
for the BMR plan while it has to maintain the inventory level in
order to continue its sales during the BMR period.
We maintain our underweight stance for the Cement
sector. We recommend HOLD for both Lucky and Cherat Cement with
target prices of Rs48/share and Rs83/share respectively.
THIS WEEK'S TOP STORIES
MAPLE LEAF & FAUJI - 9MFY05 RESULTS PREVIEW
Maple Leaf Cement (MLCF) is scheduled to announce
its 9MFY05 results on Tuesday, 19-Apr-2005. We expect the company to
post after tax earnings of Rs516mn (EPS: Rs1.91) for 9MFY05, 15.8%
higher YoY compared to Rs447mn (EPS: Rs1.65) in 9MFY04. We recommend
a BUY for Maple Leaf with a price objective of Rs35/share.
Fauji Cement (FCCL) is due to announce its 9MFY05
results on Thursday, 21-Apr-2005. We expect the company to post
after tax earnings of Rs392mn (EPS: Rs1.06) for 9MFY05, 54% lower
YoY compared to Rs854mn (EPS: Rs2.30) in 9MFY04. We recommend a Sell
for Fauji Cement with a price objective of Rs12.30/share.
POL _ 3QFY05 RESULTS PREVIEW
The board of Pakistan Oilfields is meeting today
at 2:30pm to approve and announce 3QFY05 results. The results are
likely to be made public tomorrow. We expect POL to post after tax
profits of Rs798mn (EPS: Rs6.08) for 3QFY05, taking cumulative
profits for Jul-Mar FY05 up to Rs2,200mn (EPS: Rs16.74). Production
numbers for 9MFY05 are likely to be disappointing as we expect oil
and gas production to show a decline of 8% and 11% respectively.
However, higher oil prices will continue to be the main driver for
earnings growth for POL. WTI crude oil price has averaged at
US$42.4/bbl while gas prices averaged at US$2.57/mcf during 9MFY05.
We maintain our positive stance on POL, with a price objective of
ENGRO 1QCY05 RESULTS — BE READY FOR A SURPRISE!
Engro Chemical is likely to come up with
surprising results for 1QCY05. We expect the company to post after
tax earnings of Rs386mn (EPS: Rs2.72) for 1QCY05 as opposed to
Rs274mn (EPS: Rs1.79) during the same period last year. The growth
in the company's earning is likely to accrue from 25% growth in urea
sales, 8% growth in urea prices and first-ever dividend from Engro
Asahi Polymer. We have incorporated a dividend income of Rs75mn from
Engro Asahi during the quarter. We rule out the possibility of any
cash dividend along with Engro's 1QCY05 results and maintain a
Neutral rating for Engro with a target price of Rs114/share.
FFC 1QCY05 — EFFICIENCIES PAYING OFF
Fauji Fertilizer (FFC) is to announce 1QCY05
results on Tuesday, 26-Apr-2005, where we expect the company to post
after tax profits of Rs1,068mn (EPS: Rs3.15) 51% growth YoY. This
growth in the profits is likely to come from (I) 4% higher Sona urea
sales; (II) 8% higher urea prices; (III) reduced focus on imported
DAP sales; (IV) improving operating efficiency and (IV) 12% YoY
reduction in financial cost. We expect the company to announce a
cash dividend of Rs3.00/share along with the results (payable out of
the profits of the 2QCY05). We are expecting FFC to outperform Engro
in the 2QCY05 as the company has already gone through plant
turnaround during Mar-05. We recommend BUY for Fauji Fertilizer,
which is currently trading at a 22% discount to our DCF based target
price of Rs168/share.
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