CAPITAL MARKETS

 

1- FOREX KERB WATCH

2- CFS WEEKLY REVIEW

3- FINEX WEEK

4. STOCK WATCH
5. STOCK MARKET AT A GLANCE
6. PAKISTAN WEEKLY REVIEW

7- SAUDI STOCK MARKET INDICATING GROWTH PROSPECTS

 

STOCK MARKET AT A GLANCE

 

By SHABBIR H. KAZMI
Updated Sep 17, 2005
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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 movements.

FUNDAMENTAL CHANGES

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 robust performance!

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. SELL DGKC.

MARKET ROUNDUP

..

LAST WEEK

THIS WEEK

% CHANGE

Mkt. Cap (US $ bn)

37.71

38.06

0.93%

Avg. Dly T/O (mn. shares)

345.09

351.74

1.93%

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

630.59

492.43

-21.91%

No. of Trading Sessions

5

5

 

KSE 100 Index

7889.25

7934.54

0.57%

KSE ALL Share Index

5198.85

5259.09

1.16%