CAPITAL MARKETS

 

1- FOREX KERB WATCH

2- COT WEEKLY REVIEW

3- FINEX WEEK

4. STOCK WATCH
5. STOCK MARKET AT A GLANCE
6. PAKISTAN WEEKLY REVIEW
 

 

STOCK MARKET AT A GLANCE

 

By SHABBIR H. KAZMI
Updated June 18, 2005

 

 

MARKET THIS WEEK

PTCL dominated market proceedings throughout the week contributing on an average 45% of total market volumes. News reports on union issues, possible bid price and rumors on dwindling interest of potential bidders in PTCL continued to drive the market in both directions with the week rounding off with a net decline of 73 points (-1% WoW). Among other scrips interest was also seen in Pakistan Petroleum Limited due to privatization sentiments and speculation on gas discoveries in Gwadar area.

OUTLOOK FOR THE FUTURE

Similar to the week gone by, PTCL privatization is expected to be the key driver for market direction. Monday is likely to mark the beginning of a new era for PTCL, a post privatization era. The outcome of the bidding process should have a major impact on PTCL, and given the market moving status of PTCL in the past few weeks, externalities should flow through to other stocks. An overtly positive surprise in terms of bid price should bode well for the stock and the market in the near term whereas bid price in line with or lower than expectations should see the stock and the market shed some weight. From a fundamental perspective though, we continue to recommend Callmate, Fauji Fertilizer bin Qasim, Fauji Fertilizer, Pakistan Oilfields and Packages as BUY.

FUNDAMENTAL CHANGES

The Major Developments This Week

•PTCL privatization remained in the limelight throughout the week with government announcing a new date for privatization followed by another strike by the workers' union only to be called off later in the week. The week rounded off with resolution of the employees' issue and announcement of the final three bidders for PTCL namely Etisalat, China Mobile and Singtel. Bidding was scheduled for June 18, 2005.

•Chairman, Technical Committee on Water Resources would be submitting a report on the proposed construction of big dams to President Musharraf by 31st Aug instead of the initial deadline of 30th June.

•The first shipment of 60k tons of urea from Saudi Arabia and Bangladesh reached Pakistan during the week while another 35k tons is expected to arrive by next week.

•According to sources at the Central Board of Revenue (CBR), Senate's standing committee for revenue and finance proposed that the rate of import duty on big cars be raised from 75% to 90%.

•In a bid to counter inflation, the government allowed private sector to import wheat. Previously, imported wheat was channeled through government in the country.

•Continuing with debate on proposed budget measures, the government announced withdrawal of withholding tax on payphones and duty on scrap levied in the budget

•Total worker remittances were recorded at US$3,810mn in the first 11M of current fiscal year as compared to US$3,517mn during the same period last year.

•The Oil Companies Advisory Committee, maintained domestic petroleum prices for yet another fortnight. The deadline for payment of bid money for Karachi Electric Supply Corporation (KESC), set at 15th June, passed and the Privatization Commission did not recieve the bid money from Kanooz Al Watan. Alternate course of action is being contemplated upon.

•Kot Addu Power Company Limited announced that it is undertaking a feasibility study to identify prospects of increasing the generation capacity of the power plant.

THIS WEEK'S TOP STORIES

PTCL BIDDING- WHAT'S THE RUSH?

18th June was announced as the new date for bidding of 26% government stake in Pakistan Telecommunication Company Limited (PTCL). Though announcement of privatization date is a good omen, the commotion amidst which the new date has been announced leads us to contemplate whether basic objectives behind privatization (efficiency gains and maximum proceeds to retire expensive foreign debts) have been pushed to the background to a certain extent. The current scenario neither seems ideal to enable realization of efficiency gains post-privatization nor does it seem likely that the transaction at this stage would fetch maximum possible price. The negative impact on the bid price should, however, be muted to a certain extent as international bidders appear to be 'in the loop' regarding proceedings, evident from government's confidence that 6 international bidders will be bidding for PTCL. Nonetheless, these issues are expected to drag the bid price to some extent.

 

 

SSGC - DOWN BUT NOT OUT!

Sui Southern Gas Company's (SSGC) stock price has under performed the KSE-100 Index by almost 72% over the last 12 months. While this was partly due to lower profits reported by the company over the last few quarters, we believe that the worst is over for SSGC and most of the negatives have already been discounted in the stock price. With the capex plan of the company picking up speed, we expect SSGC to report healthy growth in profits going forward. The company is also working on the feasibility of setting up a Liquefied Natural Gas plant at Port Qasim to meet the growing demand for natural gas in the country. The company is working on reducing its transmission and distribution losses, which stood at 7% last year. We recommend a Buy on SSGC with a price objective of PkR33.4/share

PAKISTAN EXPORT GROWTH TO LEAD GDP

We believe that Pakistan's export growth will lead GDP growth in the years to follow. Exports are picking up in the last three months, primarily owing to the post 2004 WTO quota free regime. In our view, the capacity expansion in the textile sector would continue in the wake of rising demand for exports. This is also reflected in the first 11M import statistics. Total imports were recorded at US$18.39bn, out of which US$4.51bn has been spent on machinery imports. This, combined with increase in raw material imports (US$6.0bn) lead us to believe that Pakistan's economy is undergoing major expansion, which will translate into enhanced exports and higher GDP growth going forward.

BUDGETARY IMBALANCES- NO WORRIES, NO PIBS!

With strong revenue collection, both tax and non-tax, in the outgoing fiscal year, we believe that the Ministry of Finance (MoF) is well placed to manage its budgetary deficits without raising further domestic debt through Pakistan Investment Bond (PIB). In FY05, three PIB auctions were held but all of them were rejected owing to a higher rate of return demanded by the participants. In his recent interview, Dr Asfaque Hassan Khan (Director General Debt Management Office) has indicated that the government has no intentions to sell PIBs this month, as it has sufficient funds to finance the deficit. In our view, virtually no supply of PIBs in FY05 has partially disturbed the shape of the yield curve in FY05. This leaves a lot of confusion in the secondary market, especially at a time of high inflation. In the first 11M of current FY, inflation has averaged 9.33% YoY as compared to 4.21% during the same period last year. With a rising inflation trend, we are of the opinion that the government should step forward to conduct PIB auction and set long-term bond yields, instead of leaving it to the market sources

FAUJIS- THE STAR PERFORMERS

Fertilizer industry has reported a 44% increase in urea offtake during the first five months of 2005 where FFC and FFBL have outperformed Engro with 5% & 30% increase in urea production respectively. Taking advantage of the turnaround at Engro, Faujis have successfully captured 2% market share of Engro, leading to an improvement in market share to 63%. We strongly rule out rumors in the market relating to FFC plant shut down yesterday and recommend a BUY for Faujis, FFC and FFBL, which provide investors a defensive shield in a volatile market.

MARKET ROUNDUP

..

LAST WEEK

THIS WEEK

% CHANGE

Mkt. Cap (US $ bn)

34.37

34.52

0.44%

Avg. Dly T/O (mn. shares)

293.18

215.40

-26.53%

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

454.92

373.60

-17.88%

No. of Trading Sessions

5

5

23

KSE 100 Index

7345.29

7398.73

0.73%

KSE ALL Share Index

4814.67

4849.72

0.73%