Decent volumes accompanied by range bound
activity were the theme of the week as the market closed 0.5% in the
green closing at 7934.54. The market did cross the 8,000 points
physiological barrier in intra day trading twice during the week but
failed to register a closing above the 8,000 levels. Highlights of
week were result announcement by POL and cement sector. Cement
sector performed decently on the back of good results expectations.
Although non-announcement of bonus this year by POL was a dampener
for the market, expectations of an exceptional 1QFY06 result for POL
rejuvenated interest in the scrip after a couple of damp days.
OUTLOOK FOR THE FUTURE
With the market heavy weight OGDCL expected to
announce results on Monday, the market could be in for huge
movements during the week giving any stock specific activity in OGDC
taking the market along with itself. Any progress on Etisalat's take
over of PTCL could see interest in the telecom stock. Government had
earlier quoted 18th September as the date of final payment. First
tier stocks have started making a comeback in the market and
movements in heavy weights could well dominate this week's market
The major developments this week were:
•The government is continuing its policy of
increased dependence on inexpensive, indigenously produced fossil
fuel and has approved gas allocation for power generation,
fertilizer production and CNG stations.
•As per newspaper reports, Haji Ghani Usman and
Group have offered PkR4.315bn translating into PkR80 per share for
96.34% stake in Javedan Cement Limited (JCL).
•The Privatization Commission has invited
Expression of Interests (EoIs) for sale of 51-74% shares alongwith
management control of Pakistan Steel Mills Corporation (PSMC).
•According to data released by Pakistan
Automotive Manufacturers Association (PAMA) sale of cars increased
by 34.8% in August 2005 as units sold jumped to 12,027 as against
8,920 units in August 2004.
•As per newspaper reports, the number of
cellular subscribers in the country touched 15.5 million by end
August 2005, which translates into net new subscriber addition of
2.7 million during the first two months of FY06.
•President Musharraf, in an interview with the
Washington Post, declined to rule out the possibility of staying in
uniform after 2007.
•As per Engro's management, Economic
Coordination Committee (ECC) has agreed in principle to allocate
100mmcfd gas to one fertilizer company located near Dharki, Sindh
•The successful bidder for 85.29% stake in
Mustehkam Cement was Bestway Cement, with a bid of PkR305 per share
(PkR3.205bn total sum for the acquisition) as against the PkR182.3
per share reference price set by the government.
•Cherat Cement announced FY05 results posting
net profits of PkR512mn (EPS: PkR7.70) up 20% YoY
•In its fortnightly meeting, OCAC kept prices
of petrol and petroleum products unchanged
•Sui Southern Gas Company (SSGC) has finally
decided to initiate work on its LNG import project and is expected
to appoint financial consultants for the project by next month.
THIS WEEK'S TOP STORIES
CEMENT MARGINS - SENSITIVE TO OIL PRICES
We expect rising international oil prices to
indirectly hit cement companies' gross cash margins. Fuel and power
constitute around 62% of the total costs of production (even higher
with rising international oil prices).
Furnace Oil is already up 50% YTD while coal is
yet to see its peak around November-December 2005.
Coupled with government pressures (due to rising
costs of government's development projects) capping increase in
retention levels, cement manufacturers are in for a rough ride in
the near future. We expect cement margins to drop to 39% by Dec-05
(2QFY06) from 45% reported during Mar-05 (3QFY05).
POL FY05 RESULTS REVIEW
POL announced its FY05 results yesterday posting
bottom line growth of 51%. The company's earning after tax grew to
PkR3,764mn (EPS: PkR28.63) from PkR2,495mn (EPS: PkR18.98). The
company also announced cash dividend of PKR12.5 with the result
while the much-touted bonus issue was skipped. The results overshoot
our expectations marginally. Bottom line growth was mainly driven by
32% jump in top line and 200bps decline in effective tax rate of the
company. Looking ahead, we see further growth in the bottom line
coming form both production consolidation and unit price jump. We
believe POL would treat NRL as an associate company. We remain
bullish on POL, which is trading at a PER of 8.18x and offers a
dividend yield of 5% based on our revised earnings for FY06.
INDUS MOTOR COMPANY: FY05 RESULT PREVIEW
Indus Motor Company is due to announce FY05
results on 16th September 2005. We expect the company to post after
tax earnings of PkR1,564mn (EPS: PkR19.90) as against PkR1,473mn
(EPS: PkR18.74) last year, an increase of 6% (YoY). Furthermore, we
expect the company to declare a final dividend of PkR5-6 per share
in addition to the interim dividend of PkR4 that was declared with
the half yearly results. YoY increase in earnings comes mainly due
to a strong last quarter performance on the back of a 3% Yen
depreciation against the Pak Rupee and steel prices tapering off by
around 2%. Our forecast for 4Q05 earnings after tax is PkR591mn
(EPS: PkR7.52) as against PkR256mn (EPS: PkR3.26) in 3Q05, depicting
a staggering QoQ growth of 115%. We like the stock based on the
company's strong trading and manufacturing portfolio, which is
likely to be a major beneficiary of the growth in the auto sector.
Furthermore, with steel prices tapering off and a relatively
favorable Yen-PkR parity we expect the company to continue with its
CHERAT & MAPLE LEAF CEMENT: FY05 RESULTS
We expect Cherat Cement (Board meeting on
15-Sept-05) to post after tax earnings of PkR447mn (EPS: PkR6.73),
5% higher YoY. We expect the company to announce 25-30% cash
dividend. At current prices, Cherat Cement is fairly valued.
Maple Leaf (Board meeting on 17-Sept-2005) is
expected to post after tax profits of PkR660mn (EPS: PkR2.44), 35%
YoY higher. We are not expecting any cash dividend this year. 400bps
drop in margins is mainly attributed to production through wet plant
in 1QFY05 and rising fuel cost. We are withdrawing our existing Buy
for Maple Leaf owing to inflating cost of expansion.
DG KHAN CEMENT: FY05 RESULTS
DGKC is scheduled to announce its results on
Monday, 19-Sept-2005. We expect DGKC to post after tax earnings of
PkR1,305mn (EPS: PkR7.08), 57% growth. We expect DGKC to announce
only a token cash dividend of PkR1.00-1.50/share owing to the
on-going expansion plan. We recommend SELL for DGKC owing to
expected drop in earnings in the next two years. The stock is
currently trading at 36% premium to our fair value of PkR53/share.
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