The week kicked off with rumors of Etisalat
backing out of PTCL transaction, seeing the index shed off 1.29% in
a single day with PTCL hitting its lower circuit. However, sanity
prevailed regarding the issue and the market more than recovered its
losses the following day. Positive news flow in the form of Etisalat
having deposited 10% of the bid money, which injected confidence in
the market while speculation on revival of Badla kept sentiments
tilted towards the positive side. Widely anticipated hike in
petroleum prices contributed to activity in OMCs, especially PSO.
The week ended with a positive change of 1.5% WoW.
OUTLOOK FOR THE FUTURE
While the PTCL euphoria is gradually exiting the
market, we expect other issues to enter the limelight in the weeks
to follow. Any developments on extension in badla financing could
prove to be a positive turning point with far reaching implications
for fortunes of the market. In addition, keenly awaited announcement
of NIT's dividend for financial year 2005 should see interest in
banking scrips - Faysal Bank, BOP and National Bank. Key stocks to
focus on should be Callmate Telips, KAPCO, POL, Faujis and Packages.
The major developments this week were:
•Pakistan's under-water optic fiber link has
been damaged severely impacting internet and phone services. ISPs,
Call centers and LDI license holders (Callmate, Telecard, Worldcall)
are the most affected by the break down. PTCL's operations too are
being affected through international calls and Internet traffic.
Repair has commenced and will be completed within the next couple of
•Privatization Commission held the a pre-bid
meeting today for sell-off of 85% shares of Mustehkam Cement on the
28th of June, while it is expected to hold the final bid meeting
after a week.
•Economic Co-ordination Committee (ECC) met
cement manufacturers to discuss the recent hike in cement prices.
The current upsurge in cement prices is likely to affect CPI
inflation through Housing Rent Index (HRI), which constitutes 23% of
the CPI basket and has already been reported 11.25% higher YoY
during the first 11MFY05. Government has given 2 weeks deadline to
cement manufacturers to bring prices down to the pre-budget level.
•Textile exports have increased by 4.9% to
US$7.63 in the first 11 months of FY05 (11MFY04: US$7.27). We would
point out that in the five months since January 05, textile exports
are up by 9.36% to US$3.76. The breakup of figures reveals that the
greatest growth has been in garments (up 36%) followed by made-ups
(14.3%), and bed wear (12.6%).
•Oil and Gas Development Company Limited (OGDCL)
issued a clarification on the Chanda Field securitization deal,
stating that OGDCL is not a party to the financing arrangement.
Zaver Petroleum, which holds 10.5% Working Interest in Chanda Field
alone is responsible for meeting its financial obligations.
•Natural gas prices have been increased by an
average of 5.81% for domestic, commercial, industrial and power
sector companies. The increase in prices would enable gas utiliites
to maintain their profitability under the guaranteed return formula
but power and fertilizer companies are likely to see an increase in
their cost of production, one they are likely to pass on.
•The government has decided to issue PkR8bn
(inclusive of PkR3bn under green shoe option) through Wapda Bonds to
finance Mangla Dam Raising project. The project is expected to have
a total cost of PkR62bn and its scheduled to be completed by 2009.
•As per newspaper reports quoting Etisalat CEO
Obaid Bin Meshar, Etisalat will soon announce an expansion plan for
PTCL and other measures for overall improvement of the telecom
sector in Pakistan
•US Crude traded at a new high of US$60.95/bbl
early in the week before settling below US$58/bbl by week ending on
news of US Inventory data.
TEXTILES IN PAKISTAN; WHERE WILL IT GO?
The buzzword of the present day appears to be
textile. With the culmination of the quota regime on the 1st of
January 2005, all eyes have turned towards this sector. It is
blatantly clear that a whole new opportunity set has come into play.
As the heavyweight of Pakistan's exports (approximately 65%), the
sector has been on the receiving end of a substantial amount of
investment to avail the quota free regime. Growth in the industry is
augmented by the 'textile friendly' budget released earlier this
month, which makes capital investment in textiles more feasible. The
question everyone is asking is to what extent Pakistan's textile
producers are going to capitalize on these developments and what
sort of growth can be expected.
FFBL-COMFORTABLE ON COSTS
FFBL will be the major beneficiary of continuous
upsurge in domestic urea and international DAP prices. While
fertilizer companies are increasing fertilizer prices in response to
increase in input cost, we are expecting 23% YoY improvement in cash
margins on DAP to PkR378/bag from PkR308/bag, and 10% YoY
improvement in cash margins for urea to PkR243/bag from PkR221/bag
for FFBL during CY05 with 5% increase in urea and 10% increase in
DAP prices where the major cost components for the both urea
(feedstock gas) and DAP (phosphoric acid) remained largely constant
during the remaining part of the year.
We remain bullish on FFBL in the long term with a
target price of PkR45/share.
CHENAB LTD-NEW PLAYER ON THE KSE
Chenab Limited, a well-established name in the
textile industry is being provisionally listed on the KSE today with
the IPO scheduled for 13th and 14th of July. Chenab Ltd is a
sizeable vertically integrated textile producer with an export
driven focus, its primary areas of production being home textile
products and woven garments. With 24mn shares at PkR18/share on
offer, there is an opportunity to gain exposure to the growing
textile sector. With a commendable growth history (four year
earnings CAGR of over 10%), we expect Chenab to continue with the
upward trend and expect NPAT of PkR 244mn (EPS: PkR2.13 for FY05).
CALLMATE- GO LONG, STAY LONG!
Our liking for Callmate Telips Telecom Limited (CTTL)
keeps growing. Be it their successful promotional campaign or highly
impressive future plans, the company is currently scoring on all
fronts. Their international calling cards are on the verge of being
launched, while the "50% extra talk-time" scheme has
exceeded even the management's expectations. Corporate customers and
local loop operations remain the company's short-term priorities.
Coupled with favorable regulatory rulings, our liking for the stock
is further reinforced. While our favorable medium term outlook for
the company is intact, couple of accounting adjustments could
possibly dampen current year earnings. A
"not-too-accommodative" PTCL post privatization however
remains the key threat to Callmate. We recommend a BUY for Callmate
Telips with a target price of PkR68 per share translating into an
upside potential of 79%.
POL PRICES-LIFTING THE CAP
The government has finally lifted the cap on
domestic petroleum prices after almost 3 months as petroleum product
prices were revised upwards by an average of 7%. Despite the hefty
increase, domestic petroleum prices are still at least PkR3-5/litre
below what they should have been had the government passed on the
entire impact to the end consumer.
Mkt. Cap (US $ bn)
Avg. Dly T/O (mn. shares)
Avg. Dly T/O (US$ mn.)
No. of Trading Sessions
KSE 100 Index
KSE ALL Share Index