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 10, 2005
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MARKET THIS WEEK

The market remained range bound during the week and fortunes kept fluctuating on the back of news flow, rumors and expectations and eventually closed off 1.28% higher WoW. News that Etisalat has shown interest in acquiring further 'A' class shares in PTCL in order to increase its holding in the stock provided impetus to sentiments. On the other hand, mixed expectations regarding OGDCL's full year earnings and POL's bonus announcement kept the progress in check with the rumors regarding CFS limit enhancement helping the market close in the green.

OUTLOOK FOR THE FUTURE

Any news regarding enhancement of CFS limit to PkR30bn should drive market sentiments to a certain extent. POL's board meeting on Monday and subsequent announcement or otherwise of bonus issue could well prove to a turning point for short-term direction of the market. Apart from POL results announcement of APL, Cherat & Maple Leaf Cement could generate some stock specific activity. We recommend investors to focus on fundamentally strong stocks. POL (rising oil prices), KAPCO & Hubco (attractive dividend yield), FFC and FFBL (benign farm economics), NBP (Low Advance to deposit ratio), Nishat Chunian (high margins; beneficiary of WTO) and Callmate (strong result expectations) remain our top picks.

FUNDAMENTAL CHANGES

The major developments this week were:

•The combined opposition parties held a nation-wide strike to protest against the military government on the 9th of September

•The Asian Development Bank (ADB) has revised down Pakistan's GDP growth to 6.5% (from 7.0%), owing to an expected deceleration in agriculture growth and comparatively reduced manufacturing growth

•Dr Ishrat Hussain has indicated that government may conduct PIB auction within this month or next month

•The Privatization Commission (PC) has invited Expression of Interests (EoIs) for privatization of Pak-American Fertilizer. The last date for submission of EoIs is 10-Oct-2005.

•The government has decided to enhance gas production by 10% in the next few months

•Orascom, the acquirer of Pakistan Cement (Formerly Chakwal Cement) announced that Pakistan Cement is expected to commence commercial production from 2Q06

•Fauji Cement (FCCL) reported after-tax earnings of PkR510mn (EPS: PkR 1.38), 63% higher YoY

•Kot Addu Power Company Limited (Kapco) announced FY05 results, posting after tax profits of PkR8,048mn (EPS: PkR9.14/share), 16% higher YoY

•Monopoly Control Authority has issued show-cause notices to 18 cement companies including DGKC, Lucky, Maple Leaf, Fauji, Dewan Hattar, Cherat and Pioneer Cement for increasing their cement prices from PkR176/bag to PkR225/bag in 2003

•Newspaper reports indicate that Etisalat has been in discussions with the government regarding different issues ranging from minor modifications in the agreements to incorporate Shariah Compliance to the right to increase share holding via call option for additional "A" class PTCL shares

•Pakistan recorded a budget deficit of 3.31% in FY05 (up from 2.51% in FY04)

•NRL posted profit after tax of PkR2,120 (EPS: PkR31.82) compared to earnings of PKR1,849 (EPS: PkR27.75)

THIS WEEK'S TOP STORIES

PAK SUZUKI: STRIVING ON A STRONG BOOK!

Amidst the uncertainty surrounding the future of local auto industry, there are opportunities for the auto assemblers to benefit from increasing consumer demand. Pak Suzuki is well equipped to benefit from the surge in demand as it caters primarily to the 800cc and the 1000cc segment, which are less likely to be hit by import liberalization. On the back of its core competency, the company has been able to record a jump in the top and bottom line. Another key aspect is the strength of the company's balance sheet, which shows a expected (CY05) Book Value per share of PkR.127 and a Book Value per share of PkR.115 based on the June 2005 Balance Sheet. The operating strength of the company combined with the strong book makes the stock a strong pick at current levels!

KAPCO & FCCL - FY05 RESULT PREVIEW

Kot Addu Power Company (Kapco) is scheduled to announce FY05 results today. We expect the company to post net profit of PkR7,465mn (EPS: PkR8.48). We also expect the company to announce a final dividend in the range of PkR3.5-4.0/share for FY05. We recommend a Neutral stance on Kapco, which is trading at an 8% discount to our fair value of PkR48/share.

Fauji Cement (FCCL) is expected to announce its FY05 results tomorrow, 07-Sept-2005. We are expecting FCCL to post after tax earnings of PkR543mn (EPS: 1.47), 73% YoY growth. FCCL is expected to report 700bps improvement in gross margins to 39% during FY05 owing to 100% conversion to Coal firing system and better retention levels. We also expect the company to announce its first cash dividend of PkR0.50/share. We recommend Hold for FCCL.

NBP - EARNINGS MOMENTUM CONTINUES

National Bank of Pakistan (NBP) remains our top pick in the banking sector. Expansion in net interest margins (NIM), relatively low/stable cost of deposits, and aggressive loan book expansion is likely to keep the earnings momentum intact for the next two quarters. NIM have increased by almost 50bps to 4.21% in 2Q05, while asset re-pricing is likely to lead to further increase in the remaining two quarters of the current year. On the deposit side, relatively high proportion of non-remunerative and low cost deposits is likely to keep NBP's overall deposit cost stable. We maintain a Buy on NBP with a price objective of PkR141.

POL - FY05 RESULT PREVIEW

The much awaited board meeting of Pakistan Oilfields Ltd. (POL) will be held on Monday, 12-Sep-05 (delayed for a day) in Syria to approve FY05 accounts. We expect POL to post 46% growth in the bottom line. Our full year earnings forecast stands at PkR3,655mn(EPS: PkR27.81) compared to PkR2,495 (EPS: PkR18.99) in FY04. We also expect the company to pay a cash dividend of PkR10-12 and announce a stock dividend of 40-50%. Growth is likely to come through mainly from i) 5-8% rise in production and ii) 42% and 12% rise in selling prices of oil & gas respectively. Going forward, POL would benefit from (1) further strengthening of oil prices (already up by 15% YTD FY06) and (2) full year impact of production jump from both Tal and Pariwali field. We strongly rule out any impact of NRL transaction on POL's P&L in FY05. POL currently trades at PER of 12.5x based on FY05 earnings. Trading at a slight discount to our DCF based fair value of PkR360, we maintain our liking for POL.

BUDGET DEFICIT - BANG ON TARGET!

Budget deficit in FY05 was recorded at 3.31% compared to the full year target of 3.2%. We believe, higher deficit in FY05 compared to last year is primarily attributed to the rise in current expenditures. Total current expenditures were recorded at PkR943bn (compared to the budgeted target of PkR700bn). This includes both debt servicing and defence expenditures. Total debt servicing and defence expenditure were recorded at PkR210bn and PkR211bn respectively. Revenue collection remained impressive, as government earned exceptional dividend income from Public Sector Enterprises (PSEs) coupled with rising privatization proceeds. Going forward, we believe that the budget deficit will widen further in current fiscal year on the back of high current and development expenditures planned. We expect, budget deficit to cross 4.0% (against the target of 3.80%).

MARKET ROUNDUP

..

LAST WEEK

THIS WEEK

% CHANGE

Mkt. Cap (US $ bn)

37.23

37.71

1.29%

Avg. Dly T/O (mn. shares)

382.18

345.09

-9.70%

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

637.87

630.59

-1.14%

No. of Trading Sessions

5

5

22

KSE 100 Index

7789.76

7889.25

1.28%

KSE ALL Share Index

5114.74

5198.85

1.64%