CAPITAL MARKETS

 

1- FOREX KERB WATCH

2- COT WEEKLY REVIEW

3- FINEX WEEK

4. STOCK WATCH
5. STOCK MARKET AT A GLANCE
6. BADLA SYSTEM — GETTING OUTDATED?

 

STOCK MARKET AT A GLANCE

 

By SHABBIR H. KAZMI
Updated Apr 23, 2005

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 last week.

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.

FUNDAMENTAL CHANGES

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 Lanka.

•Securities and Exchange Commission of Pakistan has finally agreed to extend Badla financing mechanism till 3-Aug-05.

•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 quarter.

•Worker Remittances recorded at USD443.70mn in Mar-05.

•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: Rs18.27.

•Maple Cement (MLCF) announced its 9MFY05 results yesterday. The company posted after tax earnings of Rs514mn (EPS-Diluted: 1.91).

•Duties on imported cars to be slashed in the forthcoming budget.

•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: Rs2.67).

•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.

RECOMMENDATION

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 Rs345/share

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.

MARKET ROUNDUP

..

LAST WEEK

THIS WEEK

% CHANGE

Mkt. Cap (US $ bn)

35.02

33.79

-3.51%

Avg. Dly T/O (mn. shares)

235.72

257.62

9.29%

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

347.05

358.09

3.18%

No. of Trading Sessions

5

4

 

KSE 100 Index

7512.91

7101.38

-5.48%

KSE ALL Share Index

4960.04

4703.81

-5.17%