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 July 23, 2005
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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 Pakistan.

FUNDAMENTAL CHANGES

The major developments this week were:

•Money supply growth target set at 13.05% for FY06

•US$1,524mn FDI recorded in FY05

•PTA directs WLL operators to implement single cell mobility

•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 groups.

•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 cell mobility.

•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 FY05.

•On the back of sound macroeconomic indicators, worker remittances reached US$4,170mn in FY05 (from US$3,868mn in FY04).

•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 current levels.

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 FY04).

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.

MARKET ROUNDUP

..

LAST WEEK

THIS WEEK

% CHANGE

Mkt. Cap (US $ bn)

35.36

34.57

-2.23%

Avg. Dly T/O (mn. shares)

163.27

133.70

-18.11%

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

286.00

198.12

-30.73%

No. of Trading Sessions

5

5

22

KSE 100 Index

7535.81

7353.85

-2.41%

KSE ALL Share Index

4945.20

4838.57

-2.16%