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 20, 2005
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MARKET THIS WEEK

A four-day week but eventful nonetheless, with the market gaining 161 points WoW. Uncertainty again prevailed during the initial part of the week, as investors stayed on the sidelines. Wednesday saw the lowest volumes for the past three years signifying the lack of certainty on part of market participants. The turning point of the week though came in on Friday with the news that the higher-ups were meeting to find a solution to the current deadlock and announce the Continuous Financing System in place of badla with a higher limit. Volumes shot up to 194mn and the market gained 213 points in a single day, more than recovering its intra week losses and closing in the green WoW.

OUTLOOK FOR THE FUTURE

The outcome of the above mentioned meeting would determine the short-term direction of the market. If a solution acceptable to market participants is announced, one could see a couple of more days like Friday as punters return to the action. However in case of another deadlock, just expect the same to happen. We now are sounding redundant in predicting a range-bound market but that is exactly what we foresee if the meeting does not bear any fruitful result. Avoid punting in uncertain times and rely on fundamentals. PAKO (rising oil prices), KAPCO (attractive dividend yield), FFC and FFBL (benign farm economics) and Callmate (strong result expectations) seem attractive at current levels.

FUNDAMENTAL CHANGES

The major developments this week were:

•The State Bank of Pakistan allowed mutual funds to invest abroad. Mutual funds can now invest abroad a maximum of US$15mn or 30% of the funds under management whichever is lower.

•Pakistan external debt and liabilities were recorded at US$35.83bn as of Jun-05 (compared to US$35.25bn on Jun-04).

•Pakistan's import bill surged in July-05, as in the month of July; total import was recorded at US$1.99bn (from US$1.45bn in Jul-05). At the same time, total exports were recorded at US$1.27bn (from US$1.18bn).

•Inflation for the month of July rose to 8.99% up from 8.74% in June, whilst core inflation remained unchanged at 8.9%.

•The Oil Companies Advisory Committee (OCAC) kept POL prices unchanged in the third consecutive fortnightly revision.

•In a high-level meeting with Ministry of Industries, Prime Minister Shaukat Aziz asked the ministry to initiate incentives to pace up expansion, increase production and avoid cartelization in the cement industry.

 

 

•SBP reported net withdrawal of PkR49.16bn from domestic unfunded debt in FY05.

•The Karachi Stock Exchange is planning a KSE Sensitive Index, which would comprise 30 most liquid scrips on free float basis.

•SBP reported a net decline of 5.8% YoY and 13% MoM in worker remittances for the month of July-05.

•Chenab Ltd starts trading on 22nd August.

•Local car sales have gone up by 12 percent for the month of July (YoY).

•State Bank of Pakistan marginally increased the cutoff yields in 3 & 6 month T-bill, whilst keeping 12-month yields unchanged at 8.7907%.

•Polling was carried out on the 18th of August for union councils in 53 districts across the country. This marks the end of the first stage. Stage 2 of elections is on the 25th of this month.

•A consensus has reportedly been reached to introduce Continuous Financing System (CFS) and amend future rules to improve the liquidity in the market.

THIS WEEK'S TOP STORIES

PAKISTAN NEEDS AT LEAST 'ONE' MORE UREA PLANT

We are expecting urea supply demand imbalance to continue even after the commencement of the expansion plans through de-bottlenecking of existing units and a new urea plant, Despite this, there remains room for at least 'one' more urea plant. Since the government has shown its inclination to attract investment in this sector, both FFC and Engro are willing to set up a new urea plant under the existing Fertilizer Policy subject to long-term gas supply assurance by the government. Engro's management has disclosed its intention for setting up a new urea plant, which would be identical in size to Engro's existing urea plant with an execution time of approximately 2.5 years while FFC is not very hopeful about getting favor from the government owing to monopoly control issues.

FUNDS INVESTING ABROAD- POSITIVE LONG TERM

State Bank of Pakistan (SBP) in a historical decision has allowed mutual funds to invest in overseas market to the extent of 30 percent of their fund size subject to a cap of US$15 million at any given time. While the rules for such investments are yet to be finalized, the development bodes well for mutual funds and capital markets over the longer term. With enhanced options for investment, mutual funds would be able to diversify their investments and earn better returns for a lower risk profile. Depreciation of currency should also add an additional component to local currency returns translating into increased attraction for investors. This should in turn help the mutual fund industry to flourish, which is pivotal to the growth of capital markets in Pakistan. In the short term however liquidity drain (maximum PkR17-18bn) remains a latent threat but chances of all funds being invested simultaneously remain remote.

SENSITIVITY OF EARNING FOR E&PS

Assuming a 19% higher middle-eastern oil price of US$50 for FY06 as against our base case of US$42, we estimate earnings of OGDCL, PPL and POL to be higher by 3%, 6% and 13% respectively from our base case assumption. Given the pricing mechanism for crude and gas pricing for the domestic E&P sectors, we do not expect the top line of local E&P sector to benefit directly from the movement in world oil price which have jumped by 32% YTD. As per our calculations, even local crude oil prices do not have a direct correlation due to pricing discount applicable under old petroleum policies for all the E&P companies. POL due to higher production from relatively new fields has higher correlation to oil prices, and hence higher sensitivity. We are maintaining our liking for POL, which trades at 9.1x FY06 earnings and offers a discount of 18% to our DCF based fair value of PkR360 under base-case oil price assumption, while PPL also looks attractive trading at a 8.3x FY06E earnings.

PTCL- LIFE AFTER PRIVATIZATION

We have released a report on Pakistan Telecommunication Company Limited (PTCL), with a neutral stance. The gist of the report is covered in the following:

Focusing on PTCL's future in a privatized and deregulated environment, we opine that new management of PTCL, Etisalat would concentrate on Wireless Local Loop (WLL) and cellular to utilize them as growth engines for the company. The relative quality advantage that PTCL currently possesses and the infrastructure edge over new entrants in the industry should not be ignored either. Etisalat's efforts for realizing efficiency gains would however be marred owing to the drag on bottom line emanating from the employee package and the threat of emerging LDI (Long Distance and International) operators who come as a part and parcel of deregulation for all incumbents like PTCL. The drags coupled with ambiguities regarding Etisalat's exact strategy for PTCL compel us to maintain a Neutral stance on the stock. Our 'sum-of-theparts' fair value for the stock stands at PkR64 per share.

MARKET ROUNDUP

..

LAST WEEK

THIS WEEK

% CHANGE

Mkt. Cap (US $ bn)

34.12

35.08

2.81%

Avg. Dly T/O (mn. shares)

152.59

97.39

-36.18%

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

227.39

158.11

-30.47%

No. of Trading Sessions

5

4

22

KSE 100 Index

7150.65

7311.92

2.26%

KSE ALL Share Index

4697.63

4820.67

2.62%