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).
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
* 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
* According to provisional estimates, the Central
Board of Revenue (CBR) has collected PkR35.639bn in the month of
* National Bank of Pakistan announced 1H05
results, posting net profit of PkR4,416mn (EPS: PkR7.44), 103%
* 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.
Mkt. Cap (US $ bn)
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KSE 100 Index
KSE ALL Share Index