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
7. RECORD LISTINGS AT THE KARACHI STOCK EXCHANGE
 

 

PAKISTAN WEEKLY REVIEW

 

AlFalah Securities (Pvt) Ltd.
Monday, June 27, 2005-Friday, July 01, 2005

 

 

ODE TO A NEW YEAR

1st of July, it is a new year. The new fiscal year FY06 has begun. Unfortunately instead of Santa giving treats on the New Year eve, the government parceled out increase in domestic POL prices. But then again, the government cannot really control oil prices, especially when internationally the prices are breaching all highs. The global economic disequilibria are to be blamed for some of the ills of our small world. The rise in US interest rates due to a record high US trade deficit, is pulling domestic interest rates as well, while a growing China is pushing up prices of commodities like oil, steel and gold. Our new economist, Haseeb Ahmed, would be discussing this global economic scenario in his upcoming report. The positive omen with the coming of the New Year, is the expectation that institutions would now be entering the market and drafting their market strategies for the next year. This might improve the dwindling volumes, which we have seen over the last couple of weeks. The liquidity risk remains the primal cause of the bearish sentiment. We strongly believe that the SECP needs to resolve this crisis, which has been created due to the phasing out of COT. Either the current system of COT financing should be extended or alternatives should be developed. Sticking to our market strategy, we see a bull run in the market when the corporate earnings start coming in and advice our clients to accumulate undervalued stock before the run. Our model portfolio, which we shall make public in a few days, includes, National Bank of Pakistan, Muslim Commercial Bank, Pakistan Oil Fields, Pakistan Telecom, Fauji Fertilizer, Sui Southern and Bank of Punjab. In order to avoid, the risks, equity-cash distribution should be 70-30 (as compared to 20-80, which we were recommending in 1st June). We have given largest share in the portfolio to National Bank of Pakistan (20%) and Pakistan Oil Fields (30%), while the other five stocks have been assigned 10% share each. The market seems apprehensive regarding a possible increase in NSS rates. We believe that NSS pose no major risk to the capital market and eve if the rates are increased, it would not drain liquidity or funds from the capital market.

OIL, THE CHINA FACTOR

The prices of POL products were increased on the last day of the last fiscal year by as much as 6%-10%. The price of motor spirit increased from PkR45.53 per liter to PkR48.94 per liter. Kerosene prices rose from PkR27.98 per liter to PkR29.53 per liter and the price of high-speed diesel (HSD) rose from PKR29.06 p.l. to PkR31.74 p.l. The government also increased gas prices by 5.81% per MMBTU. Consequently the gas prices for fertilizer feedstock have increased by 12.5%. The increase in oil prices, will pass-through to higher transportation prices and can possibly take the CPI into the much feared double digits in the next couple of months. The government can do little to keep oil prices pegged, when the globally the prices are making new record highs courtesy of high demand from China.

The Chinese juggernaut has mastered the art of making basic commodities into overnight scarcity. Any commodity they develop an affinity for gets shrunk out of existence (or almost) within a blink of an eyelid.

The fate of oil (read, the black gold) seems to be no different. The recent surge in the oil market can be attributed to the following reasons 1) Bottle-necks in the global refining system 2) Insatiable demand from China.

The first factor is primarily due to the types of oil supplied by the OPEC members. These genres of crude tend to be heavy, sulfurous grades that are costly to refine.

The global demand, on the contrary, is fixated with the ever more clean fuel with lowsulfur content. This supply-demand mismatch puts an upward pressure on oil prices.

But this pressure does not seem to be a sustainable one; the market forces will force the refiners to make the necessary investments to upgrade the equipment.

The second factor seems to be the more ominous one. The oil guzzling capacity of China is only increasing with time. Only last year the Chinese oil consumption grew by almost 15%. China consumed about 7 million barrels/day of oil last year, paid US$20 billion more (due to higher prices) and a further US$ 16 billion more (due to higher volumes) than in the last year.

With the global imbalance reaching new proportions (primarily the rising U.S trade deficit with China); any money that flows into China becomes investment especially in the property market. This mechanism of absorbing oil shocks with a booming real estate market does not allow the Chinese economy to slow down amidst increasing oil prices. Adding fuel to the fire - and not figuratively - the U.S economy has recorded a growth rate in excess of 3.0% for the ninth consecutive quarter. Being the largest oil consumer in the world (U.S consumption was 20.5 million barrels/day last year) the demand is bound to remain heavy weight in the coming future.

Alas, the time has come where the nation of opium-eaters has shifted preferences to crude binging. Keep it sweet! Please.

 

 

ALFALAH SECURITIES MODEL MARKET PORTFOLIO

We at Alfalah Securities are devising a Model Market Portfolio (MMP), based on our recommendations, which we will track weekly in our Pakistan Weekly Review. Our portfolio is based on AlfalahSec ValGuide and is primarily composed on value investments. For the next week our portfolio has an equity-cash distribution of 70-30.

We intend to increase this to 80-20 by the next week. The equities included in our portfolio are: National Bank of Pakistan, Pakistan Oil Fields, Bank of Punjab, Fauji Fertilizer, Pakistan Telecom, Muslim Commercial Bank and Sui Southern. We have given 30% weight to POL, followed by NBP with a market share of 20%. The rest five stocks have 10% weight each.

We believe that AlfalahSec MMP would assist our readers to make better investment decisions and would also allow them to track the performance of our recommendations. It is clarified that these stocks have been selected on the basis of long-term view, with one-year price targets. The portfolio may go through dips depending on short-term market fluctuations.

ALFALAHSEC RESEARCH: MODEL PORTFOLIO

 

PORTFOLIO WEIGHTS

NAME

TICKER

EQUITY WEIGHT

CURRENT PRICE

FV

UPSIDE

DIVIDEND YIELD

Equities

60

National Bank of Pakistan

NBP

30

109.35

150

37%

1.1%

   

Pakistan Oil Fields

POL

30

283.45

334

18%

4.5%

   

Bank of Punjab

BOP

10 82

95

NA

NA

NA

   

Muslim Commercial Bank

MCB

10

79.1

96

21%

3.0%

   

Sui Southern Gas Company

SSGC

10

22.85

29

27%

6.5%

   

Fauji Fertilizers Company

FFC

10

121.8

160

31%

10.2%

Cash

40

 

Source: Alfalah Securities Research

STOCK IN FOCUS: NATIONAL BANK OF PAKISTAN

From this week we would also provide one stock recommendation in our Weekly Review. The stocks covered in this Focus section, would be primarily from our MMP. For the first week, we are pitching National Bank of Pakistan (NBP) to our clients. Our fair value for NBP is PkR150, based on FY06F Book Value Per Share

(PkR88.15) and an implied Price to Book Value target of 1.7X. For calculating the book value, we have used adjusted book value i.e. included surplus on revaluation of assets. The revaluation assets for NBP include earning assets like NIT units. The stock is trading at a discount of more than 20% to its fair value and is trading at Price to Book Value of 1.2X and PER of 6X.

In CY05, we expect the bank to post an EPS of PkR15.1 (NPATL PkR8.85bn), up 44%YoY as compared to an EPS of PkR10.58 in CY04. The deposits are expected to grow by 13%YoY, while the advances are expected to increase by 25%. NBP has around 365mn NIT units in its investment portfolio, on which it would gain from a higher NIT dividend expected this year (Expected NIT dividend: PkR3-3.5). Last year the bank earned PkR1.2bn from dividend income, this year, we expect that to increase to PkR1.3bn.

NBP is the biggest bank in consumer banking. Its product, Advance Salary, recorded a massive growth of 200%YoY last year, taking its consumers to 500,000. Around 17% of NBP's advances are to individuals while individuals account for 36% of its total deposit base. This leads to lower cost of funds and higher earning assets.

National bank is our pick in the banking sector. As we have stated frequently, in our past Calls and Weekly Reviews, we are overweight on the banking sector and feel bullish on its sustained growth. NBP, being the largest bank in the sector and the last remaining Big-5 bank, under government control, is most well poised to lead the growth spur in the sector. There are still many growth efficiencies in which NBP can improve itself. In CY05, the bank plans to set up 70 new ATMS and intends to start on-line banking. Whereas other banks would be too occupied to worry about minimum paid up capital requirement and other issues, NBP can focus its energies on improving operating efficiencies and technological up-gradation.

INCOME STATEMENT (PKR MN)

 

2000

2001

2002

2003

2004

2005F

2006F

Interest Income

29,702

31,291

27,127

19,452

20,947

27,254

31,652

Interest Expense

20,881

18,877

14,699

6,736

6,559

7,706

9,670

Net Interest Income

8,821

12,413

12,428

12,717

14,388

19,548

21,982

Non Interest income

4,030

4,502

5,209

7,248

8,305

8,225

8,692

Total Income

12,851

16,915

17,637

19,965

22,693

27,773

30,673

Administrative Expenses

8,009

8,710

9,138

7,807

8,879

9,126

9,594

Profit Before Tax

1,033

3,016

6,045

9,009

12,025

14,378

16,028

Profit After Tax

461

1,149

2,253

4,198

6,243

8,914

10,418

Source: Company Account, Alfalah Securities Research

 


 

BALANCE SHEET (PKR MN)

2000

2001

2002

2003

2004

2005F

2006F

 

Assets

371,636

415,089

432,803

471,860

549,741

622,173

683,585

Liabilities

354,653

397,579

408,867

444,276

506,804

569,930

622,933

Advances

140,318

170,319

140,547

160,990

221,444

285,638

353,182

Deposits

316,493

349,617

362,866

395,568

465,572

526,096

578,706

Investments

72,609

71,759

143,525

166,196

144,736

180,430

198,240

Source: Company Account, Alfalah Securities Research

 


 

FINANCIALS (PKR)

 

2000

2001

2002

2003

2004

2005F

2006F

EPS

0.78

1.95

3.82

7.12

10.58

15.11

17.66

Chg

148.99

96.17

86.30

48.71

42.79

16.87

DPS

0.00

0.79

0.79

0.87

1.25

3.00

3.31

BV/S

19.28

20.27

24.20

30.74

42.81

55.50

69.76

Adj. BV/S

8.41

-1.24

9.77

26.28

60.83

73.02

88.62

Dividend Yield

0.00

0.73

0.73

0.81

1.16

2.79

3.07

P/E

137.86

55.37

28.23

15.15

10.19

7.13

6.11

P/BV

5.59

5.32

4.45

3.51

2.52

1.94

1.55

P/Adj BV

12.81

-87.02

11.03

4.10

1.77

1.48

1.22

RoE (Tier 1)

8.11

9.84

17.18

25.90

28.78

30.74

28.19

RoE (Tier 2)

6.66

10.87

16.30

17.71

18.73

18.46

 

RoA

0.25

0.29

0.53

0.93

1.22

1.52

1.60

Mkt Cap/Deposits

20.10%

18.19%

17.53%

16.08%

13.66%

12.09%

10.99%

Source: Company Account, Alfalah Securities Research

MARKET THIS WEEK: BETTER THAN EXPECTED

Market this week improved by 144 points (2%)

closing at 7464.60, while the average volumes increased by 12%, reaching the USD427mn mark. The improvement came mainly because of a) strong rumour regarding continuation of badla in parallel with margin financing b) expectations of jump in oil prices in local market that drove a slight rally in OMCs c) dividend expectations from NIT in the range of PkR3 to PkR3.5 per unit that improved the banking stock prices.

KSE-100 index was down by 95 points on Monday, owing to the reduction in badla position for the third consecutive time as per announced schedule. However, market recovered on the very next day by 176 points mainly due to rumours of parallel running of badla with margin financing and buying in PTCL due to attractive absolute price. Expectations of better dividend from NIT and jump in oil prices in local market enhanced the market sentiments and improved the index up by 62 points on Wednesday. However, the last two days have seen a dull performance by the market on the back of expected jump in NSS rates and closing of fiscal year.

Outlook for the next week: Neutral to Positive. Market is expected to be in the range of 7300-7700 index level, while the volumes are also expected to improve due to institutional activity anticipated to pour in after the end of the fiscal year 2005. Quarterly results will keep the investors on their toes. Investors should keep a watch on the increase of NSS rates. Though unlikely, a higher increase in NSS rates will depress the market.

Please review the attached event calendar, as the investor community will be keeping an eye on the corporate announcements in the coming week.

EVENT CALENDAR

NAME OF COMPANY

DATE

EVENT

Pak. Income Fund

04-07-2005

BoD Meeting

Pak. Stock M. Fund

04-07-2005

BoD Meeting

Pak. Capital M. Fund

04-07-2005

BoD Meeting

Meezan Islamic Fund

06-07-2005

BoD Meeting

Faysal Bal. Growth Fund

12-07-2005

BoD Meeting

Fauji Fert. Bin

26-07-2005

BoD Meeting

Unilever Pakistan

26-07-2005

BoD Meeting

BOC Pakistan

27-07-2005

BoD Meeting

Rafhan Best Foods

28-07-2005

BoD Meeting

 


 

PAKISTAN ECONOMICS SNAPSHOT

WEEKLY

W-3

W-2

W-1

W

 

Forex Reserves (USD mn)

12,766

12,995

12,996

13,000

Exch Rate: PkR/USD

59.45

59.51

59.63

60.01

PkR/Euro

76.70

76.82

77.44

77.08

PkR/Yen

0.55

0.56

0.57

0.57

Monthly

Feb-05

Mar-05

Apr-05

May-05

INTEREST RATES

3m T-bill

4.70%

6.30%

7.2%

7.60%

6m T-bill

5.2%

7.10%

7.8%

7.95%

12m T-bill

5.49%

7.10%

8.3%

8.45%

INFLATION

CPI (YoY)

9.9%

10.2%

11.1%

9.8

MONEY

Currency in Circulation (YoY)

15.1%

15.1%

na

Na

Deposits (PkR bn)

2155

2209

na

Na

(YoY)

19.9%

20.1%

na

Na

Loans (PkR bn)

1637

1657

na

Na

(YoY)

34.1%

34.5%

Na

Na

M2 (YoY)

19.0%

19.3%

Na

Na

EXTERNAL BALANCE

Exports (USD mn)

1151

1194

Na

Na

(YoY)

2.6%

3.8%

Na

Na

Imports (USD mn)

1616

1786

Na

Na

YoY

-3.1%

10.5%

Na

Na

Trade Balance (USD mn)

-465

-592

Na

Na

YEARLY

2000

2001

2002

2003

2004

GDP (USD bn)

60.33

58.51

63.35

67.70

69.07

GDP growth

4.13%

1.84%

3.10%

5.11%

6.40%

Agricultural Growth

1.95%

-2.2%

0.1%

4.1%

2.6%

Services Growth

3.09%

4.76%

5.30%

5.24%

5.49%

Manufacturing Growth

3.73%

9.3%

4.5%

6.9%

13.4%

Population (mn)

140

143

146

148

149

GDP per capita (USDmn)

429.7

408.6

433.9

457.4

463.6

TRADE BALANCE

Imports (USD bn)

9.602

10.202

9.434

11.333

15.47

YoY

-0.1%

6.2%

-7.5%

20.1%

36.5%

Exports (USD bn)

8.19

8.933

9.14

10.889

12.27

YoY

8.8%

9.1%

2.3%

19.1%

12.7%

Trade Balance (USD bn)

-1.412

-1.269

-0.294

-0.444

-3.2

Current Account (USD bn)

-1.143

-0.513

1.33

3.16

1.73

Remittances (USD mn)

983

1087

2389

4236.85

3800