MARKET THIS WEEK
Lack of concrete developments on Badla issue was
the dominating force in the market as the index shed off around 180
points WoW. Commencement of the result season and hike in NSS rates
failed to generate any significant response either way and volumes
remained dull throughout the week. Result season did fuel some
excitement in Faujis but no spillover effect on other stocks could
be seen. Announcement of monetary policy and trade policy too proved
to be non-events for the market.
OUTLOOK FOR THE FUTURE
Result season should see interest in the
respective stocks. Engro (27th July), FFC (28th July) and PSO (28th
July) should all see some stock specific activity on the back of
speculation about results and possible payouts. On the overall
front, we believe that pending resolution of Badla should keep
volumes dry and the market range bound. However news flow, if any
regarding Badla issue should generate interest in the market. In
times of confusion, focus on fundamentally sound scrips. Our top
picks are FFC, FFBL, Callmate Telips, POL, and National Bank of
The major developments this week were:
•Money supply growth target set at 13.05% for
•US$1,524mn FDI recorded in FY05
•PTA directs WLL operators to implement single
•20% increase in Farm Credit for FY06
•The average spreads for the banking sector
have gone up from 3.83% to 5.29% (Jan-May) YOY due to the increasing
interest rate environment.
•The Shaukat Tarin Committee formed to study
the financing requirements of the stock market forms four working
•British Gas interested in PPL sell-off
•State Bank of Pakistan (SBP) has set monetary
expansion target of 13.05% for the next fiscal year (compared to
16.98% M2 growth recorded in FY05).
•Total Foreign Direct Investment (FDI) recorded
at US$1,524mn in FY05, as compared to US$949.4mn in FY04.
•PTA directs WLL operators to implement single
•The Agricultural Credit Advisory Committee of
SBP has approved PkR130bn credit allocation to agricultural sector
for the FY06, 20% YoY higher than the actual disbursement during
•On the back of sound macroeconomic indicators,
worker remittances reached US$4,170mn in FY05 (from US$3,868mn in
•Ministry of Finance keeps existing cap of
PkR12bn on badla financing.
•The GoP is likely to impose a regulatory duty
of 30% on cement exports from the current level of 1.25%.
THIS WEEK'S TOP STORIES
NETSOL - TECH STOCKS DEBUT AT KSE
NetSol Technologies Limited, a software
development and services company goes public today. A first of its
kind to be listed on bourses in Pakistan, NetSol generates revenues
by licensing proprietary software products and their enhancement and
maintenance. 1) Impressive profit growth, 2) Growing target market
and ) government support in the form of tax holiday till 2016 serve
as major positive factors for the stock.
Sustainability of profit profile however remains
a concern to us primarily on account of reliance on single software
LeaseSoft. Competition from international software houses coupled
with rapid technological change compels us to recommend a Neutral
stance on the stock.
FFBL - 1HCY05 RESULTS PREVIEW
Fauji Fertilizer Bin Qasim (FFBL) is due to
announce its half-yearly results for 2005 on Thursday 21-Jul-2005.
We expect the company to post after tax earnings of PkR1,377mn (EPS:
PkR1.47) as opposed to PkR833mn (EPS: PkR0.91) during the same
period last year. We are also expecting the company to announce
PkR1.00/share cash dividend. A 65% YoY growth in earnings is likely
to accrue from 1) volumetric growth in both urea and DAP sales, 2)
better margins and 3) higher interest income. We maintain our Buy
recommendation for FFBL, with a potential upside of 52% from the
BELATED REVISION IN NSS RATES - A SIGH OF RELIEF!
Directorate of National Savings has finally
revised rates on National Saving Schemes (NSS) in the range of
100-200bps, which will be effective from 01-July-05. With the
revision in NSS rates, we also expect Pakistan Investment Bond (PIB)
yields to adjust upwards by 100-150bps. According to news reports,
yields on Defense Saving Certificates (DSCs) have increased to 9.46%
(from 8.15%), followed by Regular Income Certificate (RICs) 8.88%
(from 6.84%), Special Saving Certificate (SSC) 8.60% (from 6.95%).
At the same time, rates on Behbood Saving Certificates and Pensioner
Saving Accounts have been revised upwards to 11.04% from (10.08%).
We believe that in absence of primary market PIB yields, Directorate
of National Savings has benchmarked NSS rates with the secondary
market yields of PIBs. In the secondary market 3, 5 and 9 years PIBs
are currently trading at 8.75%, 8.90% and 9.20% respectively, which
are in line with the revised returns on SSCs (3 year instrument),
RICs (5 year instrument) and DSCs (10 year instrument). Given the
higher rate of increase in shorter-term instrument (SSC & RIC)
compared to longer-term instrument (DSC), we expect investor will
prefer to invest in RICs. This will eventually help SBP in
maintaining tight liquidity in the market to counter inflation.
CHENAB LTD: A PEEK INSIDE THE BLACK BOX
Chenab Ltd., the recently listed textiles
conglomerate is well placed to improve profitability in the WTO era.
Following our recent discussion with company
management, we have gathered some insight on the company's focus
going forward. Chenab has invested a considerable amount (PkR3bn)
over the last three years in preparation of the quota free era.
According to the company management, additions and upgrading will
add a further PkR300mn to this base and is likely to raise Chenab's
exportable capacity to PkR9bn by the end of CY05. Since January this
year the company has seen 10% growth in Home textile exports as well
as in Value Added goods but a decline in Knit wear. We expect the
company to post a full year EPS of PkR2.17 for FY05 (PkR0.9 for
FFBL - PROMISING RETURNS FOR FFC
Fauji Fertilizer Bin Qasim (FFBL) announced
1HCY05 results yesterday, posting after tax earnings of PkR1,326mn
(EPS: PkR1.42), 59% higher YoY. The company pleased its investors by
announcing a PkR1.25/share interim cash dividend along with 1HCY05
results, giving a clear indication about sustainability of the
dividend stream from the company. We are maintaining our earning
estimates of FFBL at PkR2.56/share for CY05, but are revising our
full year dividend expectations to PkR2.00/share from PkR1.50/share.
This will increase our earnings forecast for FFC to PkR4,943mn (EPS:
PkR12.67) for CY05 as compared to our initial estimates of
PkR4,717mn (EPS: 12.09). We maintain our Buy for FFBL and FFC.
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