CAPITAL MARKETS

 

1- FOREX KERB WATCH

2- COT WEEKLY REVIEW

3- FINEX WEEK

4. STOCK WATCH
5. STOCK MARKET AT A GLANCE

 

STOCK MARKET AT A GLANCE

 

By SHABBIR H. KAZMI
Updated Aug 27, 2005
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MARKET THIS WEEK

The market's performance remained strong during the week posting a WoW increase of 3.74% and the volumes remained strong as well, averaging 315 million. The commencement of CFS has brought in a positive response from the investors. The uncertainty regarding the Badla issue had subdued interest during recent times. Furthermore, increasing of the cap to PkR25 billion and increasing the scrips under CFS to 14 has fueled greater market activity. Most of the corporate results were better than market expectation and thus generated stock specific activity.

OUTLOOK FOR THE FUTURE

The result season is in full swing and the coming week should be driven by stock specific activity as some major companies are expected to announce their results. Banks have posted strong results and should be the center of focus. The cement sector result season also gets underway with Lucky scheduled to announce results of FY05 on Monday. Fundamentally strong stocks POL (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:

•OGDCL is getting further aggressive on its exploration and development plans as the company has planned to drill 57 wells this years and another 107 wells next year

•Callmate plans to launch global calling cards soon

•Urea offtake was up 16% during Jan-Jul05 while DAP offtake grew by 42%

•Dewan Salman and Ghazi Shipping Company have shown interest in setting up new cement plants in N.W.F.P

•The government is targeting over US$3.0bn Foreign Direct Investment (FDI) in the current fiscal year compared to US$1.52bn FDI received last year.

•Hassan Associates has agreed to raise their bid price for Karachi Electric Supply Corporation (KESC) by PkR0.64 per share to match the PkR1.65 per share price earlier offered by Kanooz Al Watan Group of Saudi Arabia

•Packages announced its 1H05 results reporting Net Profit after tax of PkR481mn (EPS: PkR6.97)

•The Saudi Al-Tuwairqi Group has expressed an interest in the privatization of Pakistan Steel

•The government has decided to take immediate steps to increase installed generation capacity by 900MW

•Foreign Portfolio investment (FPI) jumped up to US$41.8mn (166% YoY increase) in July-05 ???Bank Alfalah Limited announced 1H05 results posting after tax profits of PkR847mn (EPS: PkR2.82), up 43% YoY

•Pakistan PTA reported disappointing results for 1HFY05, ending the 6 months with EAT of PkR393.635mn (EPS: PkR0.26) 45% lower YoY than 1HFY04 EAT of PkR692mn (EPS: PkR0.46)

•ICI Pakistan announced its 1H05 results recording profits of PkR656mn (EPS: PkR4.73) as against 1H04 profits of PkR340mn

•Union Bank Limited announced 1H05 results posting after tax profits of PkR799mn (EPS: PkR3.26) for 1H05, 123% YoY higher

•Pakistan Suzuki Motor Company (PSMC) announced 1H05 earnings after tax of PkR759.134 million (EPS:14.05) as against 1H04 earnings of PkR705.774 million (EPS:13.06)

THIS WEEK'S TOP STORIES

STOCK MARKET - CFS TO ADDRESS LIQUIDITY WOES

Technical issues plaguing the performance of the KSE are likely to take a back seat now with the introduction of Continuous Funding System (CFS), which will replace the previous financing system of Carry Over Trade. Fund availability under CFS has been capped at PkR25bn, almost twice the amount currently available under COT mechanism. This is likely to address the liquidity woes at the KSE, which have been cited as the major hurdle to KSE's performance. While preliminary details of CFS have been made available at the KSE's website, more details are awaited on the new funding mechanism. Nonetheless, the market has reacted favorably to this development, as the KSE-100 Index opened 2.5% higher than Friday's closing. While the initial positive reaction is likely to be seen across the board, we believe that investors should be cherry picking stocks. Banking, oil and gas and fertilizers remain our preferred areas of exposure, while we are selectively positive on telecom.

WORLDCALL TELECOM LIMITED GOES PUBLIC

WorldCALL Telecom Limited (WTL) is being offered for subscription on Tuesday and Wednesday, August 23-24 2005. KASB Bank is the placement agent of the issue, and also one of the underwriters, which restricts us from giving any recommendation on the stock. Discussion of the salient features is however in place. WorldCALL Telecom is offering 69 million shares at par for public subscription. The combination of LDI and WLL operations carries long term positive synergies for the company giving it a major chunk of the entire telecommunication value chain. However, it will take some time before the Wireless Local Loop segment starts contributing. Therefore the company's bottom line performance will be marred in the short-term, as WLL performance will drag the contribution from LDI segment. The long-term prospects however are attractive.

ICI AND PPTA RESULTS FOR 1HFY05

We expect ICI to post an after tax profit of PkR.536 million (EPS: PkR3.86) as compared to earnings after tax of PkR340 million (EPS: PkR2.45). We believe that the company is unlikely to announce an interim payout. Furthermore, we expect a top line growth of 3.6%, which will translate into a bottom line growth of 57%. The jump in earnings is fueled by lower cost of sales through cost control, benefits of staff restructuring, reduced financial charges and higher other income.

Pakistan PTA is also due to announce its results for 1HFY05 today. We expect the company to post EAT for the half year of PkR1,058mn (EPS: PkR0.70), up 52% YoY from 1HFY04 earnings of PkR692mn (EPS: PkR0.46). While both the revenue and cost side demonstrate the high petrochemical price syndrome, the company is helped along by lower depreciation charges. In concurrence with Merrill Lynch's regional petrochemical view, we are of the opinion that primary margins in this sector have pretty much peaked and the onslaught of additional capacity from china will bring PTA prices down in the coming 12 months.

GAS PRICE CAP - UNKNOWN KNOWN

We believe apart from Sui and Kandkot, the cap on gas prices at US$36 is not applicable on some other fields falling under Petroleum Policy 2001 in which OGDCL, PPL and POL have substantial working stake Our calculations show pricing mechanism for major fields (SuI, Kandkot, Sawan, Miano, Pindori, Turkwal etc) would continue to incorporate a 20% incremental benefit for every dollar the benchmark oil prices exceeds US$25 per barrel. We estimate a revision of 11.5% for standard petroleum Policy fields and 18%-19% for Sui and Kandkot in the upcoming monthly price revision to be announced shortly. The major beneficiary of this revision would be PPL and POL deriving 83% and 21% revenues from these fields while impact on OGDCL would be muted owing to low contribution (11%). Our estimates incorporate US$45 per barrel oil prices. We maintain our liking for POL, which is trading at an 8% discount to our DCF, based fair value of PkR360. PPL too looks inexpensive trading at 8.72x FY06E earnings as against its average PER of 12x.

LUCKY CEMENT - FY05 RESULTS PREVIEW

Lucky Cement is scheduled to announce its FY05 results on Monday 29-Aug-2005. We are expecting the company to post after tax earnings of PkR802mn (EPS: PkR3.05) as opposed to PkR686mn (EPS: PkR2.60) reported last year. We are not expecting a cash dividend announcement while chances for a bonus dividend are high. The growth in earnings is purely driven by 27% YoY volumetric growth in sales, whereas higher fuel cost is likely to keep margins under pressure. We are expecting a 400bps reduction in gross margins. At current levels, Lucky Cement is fairly valued and trading at 9.6x FY06E earnings (EPS: PkR4.87). We recommend a Neutral stance for Lucky Cement with a fair value of PkR43/share.

MARKET ROUNDUP

..

LAST WEEK

THIS WEEK

% CHANGE

Mkt. Cap (US $ bn)

35.08

36.29

3.45%

Avg. Dly T/O (mn. shares)

97.39

315.14

223.59%

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

158.11

501.00

216.87%

No. of Trading Sessions

4

5

22

KSE 100 Index

7311.92

7585.70

3.74%

KSE ALL Share Index

4820.67

4985.60

3.42%