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 Aug 13, 2005
.

MARKET THIS WEEK

Sentiments and rumors took center stage as fundamentals took a back seat for another week. While last week saw the market gain on expectations of revival of Badla with higher limits, absence of any such development was the deciding factor this week as the market melted considerably on the first four days of the week shedding off 448 points. However on the last day of the week, rumors of positive developments coupled with attractive price levels saw the market recover some of the intra-week losses regaining 180 points to close 268 points down WoW.

Outlook for the Future

Badla remains the bone of contention for market participants and unless the issue is resolved, sentiments and rumors will continue to hold center stage. Valuations however have turned attractive due to the run down in prices. We re-iterate our stance to remain focused on fundamentally sound scrips. Fauji Fertilizer, Pakistan Oilfields, Fauji Bin Qasim, Packages, National Bank and Callmate Telips would be our preferred stocks while KAPCO should also not be ignored at current levels.

FUNDAMENTAL CHANGES

The major developments this week were:

•NIT to be divided in to 5 portions for smooth sell off

•4 parties qualified for PPL and 7 for PSO

•Commencement of production from Badar field operated by Pakistan Exploration Limited (PEL) is expected to enhance OGDCL's production by 22.5mmcfd by November 2005

•KSE seeks more time for implementation of pre-trade verification

•The import of used and new cars has picked up due to liberalization of trade by the government. ???OGDCL, has decided to offer sharing and operator-ship agreement in five of its oil and gas fields located in Sindh province

•Etisalat, has arranged the required financing for payment of remaining bid amount of Pakistan Telecommunication Company Limited (PTCL). A consortium of 7 international banks will provide the financing worth US$2.114 billion.

•Fed lift rates a further quarter point to 3.5%

•International DAP prices (fob) have climbed to US$258-262 per ton in US Gulf, which is 6% higher MoM basis (US$238-254/ ton in Jun-05) and 17% higher YoY basis (US$222/ ton in Jul-05)

•The Pakistani government is planning to issue another Eurobond by the end of calendar year 2005

•Askari Commercial Bank announced its 1H05 results posting profits after tax of PkR864mn (EPS: PkR5.73). The results show a decline of 27% as compared to after tax profits of PkR1,179mn for 1H04

•Royal Dutch Shell Plc along with its JV partner plans to invest US$40mn in the offshore exploration block Indus E

•Muslim Commercial Bank Limited announced 1HFY05 results posting after tax profits of PkR3,040mn (EPS: PkR7.12) compared to PkR1289mn (EPS: PkR3.02) during the same period last year, posting growth of 136% YoY

•Cement manufacturers have offered to sell cement directly to the government at PkR245-250/bag, to be sold later to builders and the general public through a nationwide network of utility stores

•Facing up to increased competition coming in from newer privately owned airlines, PIA, the national carrier, has embarked on a downsizing regime

•Oil prices break the $66 barrier

THIS WEEK'S TOP STORIES

AUTO SECTOR: GROWTH AND UNCERTAINTY!

The auto sector has seen considerable growth amidst mounting uncertainty in recent times. The industry has thus far received ample protection from the government and has thrived. However, the government has recently liberalized import policies in order to bridge the demand-supply gap of 40,000 cars per annum. Auto assemblers have expansion plans amounting to PkR80bn to come online by 2010. However, influx of imported cars will eat away a portion of the market share and it is likely that the manufacturers will hold back major expansion plans. The change in government policy does meanwhile provide an opportunity for the auto manufacturers to enhance their trading income by benefiting from the cut in CBU duty. It would be interesting to see as to how the local assemblers respond to the challenges that they currently face. Waleed Mohsin (waleed.m@kasb.com)

TOP OF THE CLASS; BUY NISHAT CHUNIAN

Nishat Chunian has come of age and is emerging as one of the most attractive textile stocks trading at the KSE. With 33% top-line and 62% bottom-line CAGR over the last five years, NCL offers over 31% upside to our DCF based fair value of PkR128.50/share. Our positive stance on the company, going forward, is supported by sales growth accruing from increased global demand in the post quota era as well as NCL's ability to charge premium prices for it's products leading to high gross margins. With the company's operating capacity growing tremendously (120% increase in spinning capacity, 40% increase in weaving capacity and a new dyeing plant to be operational in FY06), we believe the company has entered the ranks of the 'big guns' in textile. We expect Nishat Chunian to post after tax earnings of PkR772mn for FY05 (EPS PkR11.29) and recommend investors to BUY Nishat Chunian.

INFLATION GETTING MILDER!

We expect headline CPI inflation for Jul-05 to stay within a range of 8.00-8.25% (as compared to 8.74% in Jun'05). At the same time, we expect core inflation to be recorded at 9.0%. We see food prices stabilizing, as government is focusing more on the supply chain of essential food items. Adding to this, the manufacturers ability to pass on cost is becoming increasingly common, which in turn translates in to higher core inflation. In our view, key inflation statistics for the month of July are likely to be led by both transport and Housing Rent Index (HRI). We expect transport inflation and HRI to be around 14.0% and 12.0% respectively. However, we expect food inflation would further decline to 8.0% (from 9.3% in Jun). Our full year inflation expectation for FY06 stands at 7.0-7.5%.

PACKAGES LTD. - BUY THE PAPER GIANT!!!

We initiate coverage on Packages Limited with a Buy recommendation on the back of 1) 18% expected growth (5-year CAGR) in revenues from FMCGs; 2) Beneficiary of growing textile exports, triggering demand for corrugated cartons and 3) eyeing accelerating demand for its paper products, Packages recently began expanding its production capacity by 3x costing US$250mn. Packages is due to announce its 1H05 results on 22-Aug-2005. We expect Packages to report bottom line of PkR541mn (EPS: PkR7.74) for 1H05, up 24% YoY. The growth in earnings is mainly driven by 15% growth in the top-line fueled by demand from both the consumer marketing (white paper packaging) and textile companies (corrugated cartons). Our DCF based target price for the stock is PkR212/share indicating a 46% upside from current levels. Buy Packages!!! Shagufta Irshad (sirshad@kasb.com)

CURRENT ACCOUNT NEGATIVE BUT PAK STANDS TO GAIN!

After four consecutive years of surplus current account balance, Pakistan has recorded a negative current account balance in FY05. We believe Pakistan stands to benefit from this, as bulk of Pakistan trades and goods account balance deficit was financed through non-debt generating flows (such as remittances, FDI, and portfolio investments). According to the provisional figures released by State Bank of Pakistan (SBP), Pakistan's current account balance recorded a deficit of US$1,526mn in FY05 (compared to surplus of US$1,811mn in FY04). During the year, Pakistan recorded huge trade, services and income deficit of US$10, 232mn compared to the total current account transfer of US$8,814mn. On the other hand, flow of FDI registered an impressive growth of 60% YoY (to US$1,521mn). Going forward, we expect current account deficit to further widen to US$2.5bn in FY06, as Pakistan is expected to post a huge trade account deficit. We expect, high oil prices coupled with increasing trade account deficit remain potential negatives for exchange rate. We expect PkR/ US$ parity to stay within a range of PkR61.0-61.5/ US$ by June 2006. Muzzammil Aslam (maslam@kasb.com)

MARKET ROUNDUP

..

LAST WEEK

THIS WEEK

% CHANGE

Mkt. Cap (US $ bn)

35.35

34.12

-3.48%

Avg. Dly T/O (mn. shares)

189.55

152.59

-19.50%

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

273.90

227.39

-16.98%

No. of Trading Sessions

5

5

23

KSE 100 Index

7418.61

7150.65

-3.61%

KSE ALL Share Index

4867.34

4697.63

-3.49%