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. SECP REPORT

 

STOCK MARKET AT A GLANCE

 

By SHABBIR H. KAZMI
Updated Aug 06, 2005
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MARKET THIS WEEK

The market gained 239.68 points (WoW) and better volumes were seen after the market recorded a 3-year low volume of 49.5 million shares on Monday in light of continued uncertainty over the Badla issue. The market gained 247 points (combined) on Tuesday and Wednesday as expectations of enhancing the Badla Cap fueled market activity and healthy volumes were witnessed. Towards the end of the week negative sentiment crept in as investors took the release of the Task Force report negatively.

OUTLOOK FOR THE FUTURE

We expect the market to remain range bound over the next week in the absence of any announcement to enhance of the cap on COT from PkR12bn to PkR20-25bn. Askari Commercial Bank (10-Aug-05) and MCB (11-08-2005) are expected to announce their 1H05 results next week, which may trigger some stock specific activity. We recommend investment in fundamentally strong stocks namely Fauji Fertilizer, Fauji Fertilizer Bin Qasim, Callmate Telips, POL, National Bank of Pakistan, Packages, Shell Pakistan and Nestle Pakistan.

FUNDAMENTAL CHANGES

The major developments this week were:

•OCAC has keeps prices of petroleum products unchanged in its fortnightly meeting

•PTCL has reduced charges for fixed line to mobile by PkR0.68/min, from the current PkR2.80/min to PkR2.12/min

•The government has decided to give tariff protection to the local automobile sector rather than seeking a further waiver for the continuation of the deletion program

•Trading volumes at KSE were recorded at 49mn shares on 1st August 2005, the lowest in the last three years

•Airblue, a private airline launched last year, is currently in negotiations with Airbus for the purchase of 10 aircrafts

•Pakistan Suzuki Motor Company is enhancing its production capacity to 100,000 units per year in 2006 from the present level of 68,000 units

•Federal tax collection totaled PkR33.59bn in the first month of FY06 as compared to PkR30.68bn over the same period last year (up 9.5% YoY)

•According to the Chairman Board of Investment, the government has set US$3.5bn as the target for FDI during 2005-06 compared to the target of US$1bn for the previous fiscal year

•The State Bank of Pakistan (SBP) marginally increased T-bill yields of all three tenors in the auction

•WLL players ask PTA to revise decision

•The KSE 100 Index gained almost 247 points (combined) on 2nd and 3rd of August

•Prime Minister Shaukat Aziz has stated that the government is providing a subsidy of PkR4bn on the import of 250,000 tons of Urea in order to facilitate the farmers

•SECP releases task force report on March crisis

•Pakistan's first public company offshore adventure has gone sour as the operator PPL has encountered a dry hole at its offshore Pasni II well

•PTCL is scheduled to hold an Extra Ordinary General Meeting on August 8, 2005

•The Chinese Central bank announced that it would carry out further revaluation but only at an appropriate time, eyeing the economic and financial situation

THIS WEEK'S TOP STORIES

KSE - LIQUIDITY WOES

Proposals have been submitted by the Shaukat Tarin Committee to resolve the current liquidity crunch at the KSE. The Advisor to the Prime Minister on Finance met with the committee members on Friday, and has indicated that the government would take all necessary steps to meet financing requirements of the stock market. As reported in the newspapers, the Shaukat Tarin Committee has recommended that the cap on badla should be raised to PkR20-25bn for a period of 30 days, during which alternate arrangements would be made to provide financing to stock market investors. We expect a positive reaction to any development on raising the cap on badla financing. However, concerns on alternate arrangement of funds within 30 days are likely to act as a dampener. The Advisor to PM has also instructed the KSE to resolve the issue of double margins which has been highlighted as one of the key hindrance to margin financing.

HIGHER OIL PRICES- POL TO BENEFIT

Confluence of political and supply related factors have pushed international oil prices to make another high of US$62.30 ahead of peak winter demand season. These factors have added to worries over sufficient supplies and inventory build up. We expect crude oil prices to remain firm in the short term (US$58-62/bbl range) while we foresee easing off in prices over the medium term. Our long-term view on oil price is US$31/bbl. Pakistan Oilfield stands to benefit the most from higher oil prices due to (1) its higher revenue share from oil production (2) an 18% YoY enhancement in production in FY06. We recommend a buy on POL, which trades at a discount of 11% to our fair value of PkR340 and offers a dividend yield of 5%.'

RATE HIKE LOSING STEAM - FOCUS ON YIELD PLAYS

With the pace of rate hike losing steam, we believe yield plays could potentially attract some attention. Hubco and Kapco, both pure dividend plays, have been out of favor since the time interest rates have moved up.

However, with the government taking measures to improve food supplies and control general price level in the country, CPI inflation has already started showing signs of moderation, aided by high base affect. In an effort to control prices, government has decided to keep oil prices unchanged for some time and at the same time government is making efforts to ensure supply of essential food items. In a similar development, government has allowed sugar import from India and kept wheat support prices unchanged. We expect very limited upside in the short end of the yield curve, as inflation is tapering off. However, we believe that the SBP is likely to keep a strict control on monetary expansion in the ongoing fiscal year to combat speculative buying activities.

 

 

CEMENT SECTOR FY06 - CHALLENGES AHEAD

As a starter, Jul-05 dispatches growth (3.7% YoY growth) has failed to provide a direction for the full year owing to high monsoon rains, floods and supply constraints. However, we expect cement demand to grow by 16% YoY during FY06 with 15% YoY growth in domestic sales and 25% YoY growth in exports (mainly to Afghanistan). We believe continuous pressure from government; upcoming expansions; sustainability of cement cartel and rising costs would be the key challenges faced by the industry during FY06, which will have a medium to long-term negative impact on cement industry. We maintain our underweight stance on Cement sector. Maple Leaf Cement is our only Buy in the sector (Price Obj: PkR32/share).

SHELL PAKISTAN: FY05 RESULT REVIEW

Shell Pakistan surprised investors with higher than market consensus earnings and payout for FY05 yesterday. Recording a growth of 63% in bottom line, the company posted an after tax profit of PkR2,451mn (EPS PkR69.90) compared to after tax profits of PkR1,508mn (EPS PkR43.01) earned last year. The most surprising element was announcement of stock dividend of 25% along with PkR27/share cash dividend. 105bps higher margins and better product volumes translated into a 24% jump in the top line, which rolled down to bottom line. A 3x jump in financial charges proved to be a drag on bottom line growth while cost savings during 4QFY05 in transportation charges mitigated the effect. Trading at a trailing PER of 8.74x as compared to its peer's PER of 11.7x, Shell looks attractive. The stock also offers a decent dividend yield of 5.7%. We therefore are of the opinion that the bidders are likely to make some adjustment for these concerns the bid price.

MARKET ROUNDUP

..

LAST WEEK

THIS WEEK

% CHANGE

Mkt. Cap (US $ bn)

34.35

35.35

2.91%

Avg. Dly T/O (mn. shares)

88.33

189.55

114.59%

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

139.71

273.90

96.05%

No. of Trading Sessions

5

5

.

KSE 100 Index

7178.93

7418.61

3.34%

KSE ALL Share Index

4726.73

4867.34

2.97%