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 Sep 03, 2005
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MARKET THIS WEEK

The market opened on a positive note on Monday with heavy buying in Oil & Gas sector on the back of record high oil prices; making KSE the only regional market, which had responded positively to surging oil price (as Hurricane Katrina shuts down Gulf of Mexico oil production). Better than expected results announced by BOP and NBP also triggered activity in these scrips. Bullish spells slowed down on Tuesday as CFS (Continuous Funding System) started approaching its cap of PkR25bn. Announcement of final date for Etisalat's take over was another boost for the market. Bullish spells continued through out the week while the index underwent a minor correction on Thursday. On WoW basis, the index gained 203points or 2.7% during the week.

OUTLOOK FOR THE FUTURE

We expect the market to remain range bound during the next week since CFS has already reached PkR24bn level as against the cap of PkR25bn. However futures trading would be another option. KAPCO, FCCL, ATRL and NRL are expected to announce their results next week, which should generate some stock specific activity. We advice investors to adopt a cherry picking strategy while we recommend a buy for POL (rising oil prices), KAPCO & Hubco (attractive dividend yield), FFC and FFBL (benign farm economics), NBP (Low Advance to deposit ratio), Nishat Chunnian (high margins; beneficiary of WTO) and Callmate (strong result expectations).

FUNDAMENTAL CHANGES

The major developments this week were:

* Hub Power Company Limited (Hubco) announced its results for the year ended June 30, 2005

* posting after tax profits of PkR5,385.44mn (EPS: PkR4.65) and a full year cash dividend of PkR3.90

* The Economic Coordination Committee of Cabinet (ECC) has announced its final decision to allow duty-free import of cement through the private sector The Cabinet Committee on Privatization (CCoP) has rejected Hassan Associates offer for 73%

* stake in the state owned KESC, citing the buyer as unsuitable to run a concern as huge as the KESC

* Rising oil prices continue to remain a threat for inflation target (8.0%) in FY06

* Emirates Telecommunication (Etisalat) is expected to take over 26% ownership along with management control of Pakistan Telecommunication Company Limited (PTCL) on September 18th 2005

* Petroleum product prices were revised up by an average of 7%, with the highest increase in price of High Speed Diesel, which was revised upwards by almost 9%

* State Bank of Pakistan (SBP) increased the cutoff yields of 3M T-bill by 18bps to 8.10%, whilst

* keeping yields on both 6M and 12M T-bill unchanged

* According to provisional estimates, the Central Board of Revenue (CBR) has collected PkR35.639bn in the month of August 2005

* National Bank of Pakistan announced 1H05 results, posting net profit of PkR4,416mn (EPS: PkR7.44), 103% higher YoY

* Pakistan Petroleum Limited (PPL) announced FY05 results posting net profit of PkR8,623mn (EPS PkR12.57) compared to PkR6,617mn (EPS: PkR9.65) last year

* Lucky Cement announced FY05 results yesterday. Net profits were up by 20.5% YoY to

* PkR827mn (EPS: PkR3.14)

THIS WEEK'S TOP STORIES

BANK OF PUNJAB - 1H05 RESULTS REVIEW

The Bank of Punjab (BoP) announced its 1H05 results on Friday, 26-Aug-05, posting after tax profits of PkR1,531mn (EPS: PkR8.47). The bank also announced a 30% stock dividend along with the results. While dividend income from BoP's holding in National Investment Trust was expected, we believe that the major surprise in earnings has accrued through capital gains. BoP investments in mutual funds (excluding NIT) amounted to PkR1.5bn. We believe that the market has more or less discounted the positive surprise in the earnings of BoP as the stock price has moved up by almost 15% in two weeks. We recommend investors to book profits in BoP.

PTCL- SKIMMING DIVIDEND QUITE POSSIBLE

Pakistan Telecommunication Company Limited (PTCL) will be announcing its last results under government ownership in the coming days. While the EPS figure will obviously be one to grab attention, the limelight this time around would be on dividend announcement that comes with the final results. With the management control set to transfer by end of Sep-05 or thereabout, a final skimming dividend remains on the cards. Dr. Salman Shah has also indicated that the government would look to mitigate the impact of rising international oil prices through higher than expected returns from PTCL. Financially, PTCL is strong enough to bear a payout ratio greater than 100%. Our calculations suggest that the company could announce a final cash dividend of PkR3.50 per share taking full year dividend to PkR5.50 per share, a payout ratio of over 100%.

HIGH OIL PRICES AND PAKISTAN'S EXTERNAL ACCOUNT!

Crude oil prices are just below the inflation-adjusted level of US$81/bbl reached in 1970s. While the oil rich companies continue to enjoy the bonanza, continuous increase in oil prices has started to perturb economies around the world. While Pakistan is also likely to see an impact on its external account, we believe that a couple of factors have provided some cushion to Pakistan, atleast for this year. We have forecasted Pakistan's oil import bill and trade account deficit for FY06 at US$50, US$55 and US$60/barrel Middle East crude prices. With the surge in oil import bill we expect total import bill to reach at US$26.00bn in FY06 (from US$20.60bn in FY05). This will further widen the trade deficit to US$9.0bn in FY06 (from US$6.2bn in FY05).

However, higher forex inflows in FY06 on account of privatization proceeds, and steady worker remittances are likely to keep the current account deficit in the range of US$2.5-3.0bn (from US$1.5bn in FY05), which in our opinion is manageable. However, we expect the Pak Rupee to depreciate by 3.0% in FY06 to PkR61.50/USD (from PkR59.50 in FY05).

HUBCO - FY05 RESULT PREVIEW

We expect The Hub Power Company Ltd. (Hubco) to post net profits of PkR5,345mn (EPS: PkR4.62) for FY05, 2% lower YoY. The board meeting is scheduled to be held today in London, and results are likely to be announced before market opens tomorrow. Dividend announcement remains the most important element in Hubco's results. We expect the final dividend for FY05 to be in the range of PkR1.65-1.75/share, which is in addition to the interim dividend of PkR1.30/share announced in Mar-05. With senior debt retired, Hubco would no longer be required to retain excess cash equivalent to debt servicing. Hence, dividend payout for FY06 is likely to be higher (KASB Estimate: PkR4.0-4.5/share for FY06). At current prices, Hubco's dividend yield for FY06 stands at around 15%, almost 600bps higher than the bond yield. However, post FY06, Hubco's dividend yield would normalize to 12%.

TEXTILES; THE GOOD, THE BAD AND THE BIG PICTURE!

We are certain about growth in the textile sector this year. There are too many positives -WTO, the budget, investment and BMR- to miss (refer our daily 'Textiles in Pakistan; where will it go, dated 27th June 2005). 11.38% export growth YoY, was realized in the 2HFY05(post quota). Yet, a month into FY06 and several key macro issues have been raised. Yes Pakistan's GDP growth is expected to stay on track at 6-7% but at the same time the interplay of core issues; high inflation and interest rates, soaring oil prices, commodity price upcycle and policy issues (both national and international) are looming on the horizon of the sectors performance. We attempt to clarify the position, highlight potential risks and dispel overly bearish myths. In particular, drawing parallels to macro factors in India and China, we are not overly concerned about a negative fallback from these factors. We maintain a positive stance on the sector.

MARKET ROUNDUP

..

LAST WEEK

THIS WEEK

% CHANGE

Mkt. Cap (US $ bn)

36.29

37.23

2.59%

Avg. Dly T/O (mn. shares)

315.14

382.18

21.27%

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

501.00

637.87

27.32%

No. of Trading Sessions

5

5

22

KSE 100 Index

7585.70

7789.76

2.69%

KSE ALL Share Index

4985.60

5114.74

2.59%