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Last updated: Friday 23 Dec, 2005-12.30 P.M (PST)

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3 DAYS FORECAST
In oC

CITIES MIN MAX

HUM%

FOR.

KARACHI
Today 12 26 38 Sunny
Tomorrow 11 27 38 Sunny
Day after 11 28 38 Sunny
LAHORE
Today 1 20 87 Sunny
Tomorrow 2 20 87 Sunny
Day after 2 21 87 Sunny
ISLAMABAD
Today 0 18 59 Sunny
Tomorrow 0 18 59 Sunny
Day after 0 21 59 Sunny
HUM%: Humidity In %
FOR.: Weather Forecast
updated: Fri - Sun 23-25 Dec, 2005

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KARACHI         - 021 LAHORE          - 042 ISLAMABAD    - 051 FAISALABAD   - 041 MULTAN          - 061 PESHAWAR    - 0521 CANADA          - 1 KUWAIT           - 965 INDIA               - 91 IRAN                - 98 U.K                   - 44 U.A.E                - 971 U.S.A                - 1

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  CAPITAL MARKETS
 
 

 

 

 

 
 PAKISTAN WEEKLY REVIEW

AlFalah Securities (Pvt) Ltd.
Monday, Oct 03, 2005-Friday, Oct 07, 2005

 

BOARD MEETINGS

COMPANY

DATE

DAY

TO CONSIDER

Worldcall Broadband Ltd.

08-10-05

Sat

Annual Accounts for the year ended June 30, 2005/declaration of any entitlement / any other corporate action.

Worldcall Telecom Limited

08-10-05

Sat

Annual Accounts for the year ended June 30, 2005/declaration of any entitlement / any other corporate action.

Worldcall Communication

08-10-05

Sat

Annual Accounts for the year ended June 30, 2005/declaration of any entitlement / any other corporate action.

Asian Stock Fund Limited

08-10-05

Sat

Annual Accounts for the year ended June 30, 2005.

Altern Energy Limited

08-10-05

Sat

Annual Accounts for the year ended June 30, 2005.

Safeway Mutual Fund Ltd.

08-10-05

Sat

Annual Audited Accounts for the year ended June 30, 2005.

Pakistan Slag Cement Industries Limited

08-10-05

Sat

Annual Accounts for the year ended June 30, 2005 / declaration of any entitlement / any other corporate action.

Kohinoor Power Co. Ltd.

10-10-05

Mon

Annual Accounts for the year ended June 30, 2005 for declaration of entitlement, if any.

Zeal-Pak Cement Factory Limited

10-10-05

Mon

Annual Accounts for the year ended June 30, 2005.

Mustehkam Cement Limited

10-10-05

Mon

Accounts for the quarter ended September 30, 2005.

Attock Refinery Limited

17-10-05

Mon

Un-audited Accounts for the 1st quarter ended September 30, 2005.

Pakistan Tobacco Co. Ltd.

17-10-05

Mon

Accounts for the 3rd quarter ended September 30, 2005.

Shell Gas LPG (Pakistan) Limited

19-10-05

Wed

Quarterly Account for the period ended September 30, 2005 and for declaration of any entitlement.

Rafhan Bestfoods Limited

20-10-05

Thu

Financial results for the 3rd Quarter ending September 30, 2005.

THE OIL-GOLD AFFAIR:

In the weekly published on the 26th of August 2005 we claimed that oil and gold prices move in a lagged synchronization. Historically it had been observed that gold and oil moved in a Gold/Oil ratio (GOR) band of 14-16. Our predictions were that since this band has not been maintained, and as oil prices are not expected to decrease, gold prices would increase to maintain the historical Gold/Oil ratio. The intuition behind the high correlation between these two commodities is that with rising oil prices there is rising inflation. At such times people are more inclined towards investments in gold as it hedges against wealth erosion. Reasons for this include the fact that gold has not been linked to changes in macroeconomic variables and thus a good hedge. From recent observations we can see that our observations held true. In the local market with both rising international as well as local oil prices, the gold prices touched a high of PKR 9211/10 grams. The return on investing in gold for the period 26th August 2005 to 7th October 2005 has been a healthy 7%. As of late, with WTI crude oil in the range of $61-$65 and international gold prices at $470/oz, we see the international GOR at 7.23. The local GOR has stayed at a level of 260 on average from January 1997 to date. Over the months of August and September the local GOR was 140 and at current levels the GOR is at 157 showing a trend towards the 260 level. With Saudi light Crude oil prices expected to remain stable or increase, we expect local gold prices to increase even further.(graph)

THE OIL BASHING:

In the wake of increasing international refined product prices the OCAC revised the local oil prices upwards once again with HSD and MS prices going up by 7.5% and 7% respectively. Since 30th August 2005, MS prices have gone up by 15% where as HSD prices have gone up by 17.5%. The main reason behind the increase in local prices was the increasing international oil prices which were causing the government to take a hit of over PKR 3 billion per month. As of late the total hit the government has taken during the year amounts to PKR 10.5 billion where as last year it amounted to PKR 60 billion, which translates into USD 1 billion. Expectations for HSD and MS prices are 43/Litre and 62/Litre respectively. Expectations are that the government in the FY06 will take a hit of USD 500 million which amounts to PKR 30 billion. The ratio of HSD and MS consumption for FY05 was 5.5:1 and is expected to stay approximately stable at this level. Therefore, if we ignore subsidies on LDO and kerosene we can see that if there is a PKR 1 subsidy on HSD, there should be a PKR 5.5 PDL on MS for the government to break even. At present levels however the PDL on MS amounts to PKR 14/Litre where as the PDC on HSD is PKR 2.2/Litre. At these levels the ratio is 6.36:1 which implies that the government is presently making a positive return on petroleum sales. With crude oil demand restricted to refining capacities and demand for refined products subject to different variables factors, the international refined product prices are expected to increase even further from their present levels which will make this ratio fall and thus increase the total fiscal year subsidy from present levels of PKR 10.5 billion to our expected PKR 30 billion.

THE MISSING LINK?

Sugar cane support prices in Punjab were raised to Rs. 45 per maund from Rs. 40, after a period of four years. This price hike increased the differences between the mill owners and the growers who tried in vain to set a fair support price last month. The tussle for the Sindh support price continues as the Sindh Agricultural Association with the PSMA is in a deadlock with the growers over what the price increase should be. The Mill owners are offering a ten percent increase, up to Rs 1 more than the Punjab Support price, while the growers are demanding Rs 60 per maund. The current support price in Sindh is Rs. 43 per maund. Our prediction is that while the growers will not get their demand of Rs. 60 met, the price increase will be equal to that Punjab, i.e. Rs 5, bringing the Sindh Support price to Rs. 48-49 per maund.

The root of the problem has always been that the support price of sugar cane and sugar are not economically linked; instead they are politically influenced. This price hike will cut into the profits of the mill owners, but the impact on sugar prices for next year will be minimal as the government regulates these prices. The cut in profits will further hurt the Mill owners who have already suffered at the hands of a bad 2004-2005 season.

Apart from the near double-digit inflation figure being demonstrated by the economy, the other alarming figure raising its head is the BoP Current Account deficit for FY05. While in FY04, the economy sat pretty on a surplus figure of USD 1.3 billion, the figure for the CA deficit for FY05 stood at USD 1.8 billion. The deficit was induced by greater than three fold increase in trade deficit of USD 4.5bn, with imports increasing by 38.1 % and exports rising by only 16.0%. While the numbers do look dismal, they should not be a cause for concern. With Pakistan demonstrating rising growth rates since 2002, and exhibiting a GDP growth of 8.4% in FY05; the highest in 20 years, the increase in the import bill is indicative of the growing appetite of a growing economy. However, the issue pivots on the composition of the import bill.

The recent figures show a 44.27% increase to USD 4.2 billion from USD 2.9 billion in the import bill for the first two months (July-August) of FY06 over the same period last year. The almost two-fold increase has been driven by 61.93% increase in machinery, 34.79% in metals, 32.51% in consumer goods and 28.97% in petroleum products.

While considering GDP growth in the recent years; the fact that for the last two years economic growth has been industry propelled is noteworthy and is indicative of the transitional state of the economy. The industrial sector grew by 10.2% in FY05 and 12.0% in FY04 and is expected to grow by 11.0% in FY06. In FY05, Large Scale Manufacturing sector grew by 15.4%, led by Textile, Automobile and Fertilizer sectors. Economic growth stemming from the industrial and particularly from the LSM sector heralds the take-off stage in the development model. However for such growth to be sustained expansions in the sectors are imperative and these expansions are carried through investment and capital expenditure. This is precisely what is being observed through the current composition of the import bill; with machinery import making up the bulk of the import bill. In particular the increase was seen in textile machinery which grew by 30.50 percent. The higher imports and capital expenditure is being accompanied by increase in production figures (manufacturing increased by 15.6% in particular in the production of exports goods such as cotton yarn and cloth), which validate the expenditure.

Another noteworthy aspect of the import bill was the increase of 250.30% in the import of agricultural machinery and implements. The increase can be explained partially by the reduction in import duties on tractors and other agricultural machinery announced in the FY05-06 budget. Agriculture sector which previously used to be the main economic growth driver lagged behind industrial sector growth at 7.5% growth rate in FY05. Farm mechanization can sustain this growth level.

The rising oil prices have been a cause of concern over the last few months. However the increase in the import bill due to oil and petroleum products for July and August has been 28.97%. More disturbing has been the 32.51% increase in the consumer goods import bill. The major constituents of the consumer goods have been food items; sugar increased by 121%, dry fruits by 115%, milk products by 74% and pulses by 15.37%.

Over the next two years, while we can see economic growth, increase in the import bill is also expected. As long as the composition of the import bill remains a capital intensive one, the import bill should be seen as a harbinger of further growth and expansion.

This week the index saw an upward movement of 317 points or 3.85% to close at 8542 level. Average volumes traded over the week increased by 20% to 400mn shares from 333mn shares last week. Average weekly turnover increased to USD 723mn, up 36.5% from last week's USD 529mn.

This bullish run in the index is mainly attributed to first three sessions of the week where the first tier stocks finally came into action. All the leading base shares participated in the sustained run-up under the lead of bank, oil and cement shares followed by reports of higher earnings and a good bit of speculative activity in selected scrips. This flare-up can also be attributed to rumors that SECP had agreed to raise the financing limit to PKR 40bn from the previous limit of PKR 25bn.

On Monday Bulls completely took charge of the market with heavy buying across board, gearing handsomely on the very first day of the new quarter. The index closed went up 1.2% to close at 8327 level. Volumes were up 45% at USD 792mn. This was led by a handsome rally in the banking sector with NBP, FABL, UNBL and ACBL closing on their upper circuits. Other banks also followed suit with MCB, BOP, BAFL and PICB registering upsides of 3.5%, 4.4%, 3% and 3.3% respectively. Other major players were POL, PSO and CTTL, closing up 1.4%, 3.3% and 5% respectively. Cement sector maintained its upward trend with LUCKY and MLCF closing up 3.2% and 5% respectively.

The index maintained its upward drive on Tuesday where turnover figure soared to current year's high of half a billion shares and the index closed up 1.2% at 8426 level. Oil and cement shares performed credibly well. The sharp rise in share values of PSO and SHELL was warranted by the perception of higher inventory gains. OGDC was the most active share closing up PKR 4.9 with a turnover of 131m shares.

Fervent buying interest continued on Wednesday with the index closing up 1.8% (152 points) at 8579 level. PPL, after its relatively sluggish performance last week, closed on its upper circuit. PTC, on expectations of payment by Etisalat before the deadline, also rose sharply to close up 4.7%. OGDC also closed up 1.8%. PSO and POL were also the beneficiaries of the upside, closing up 2.1% and 1.7% respectively. ENGRO, on rumors of its gas allocation, closed up 4.6%. Rumors regarding bank's investments in equities increasing from 20% to 30%, attributed to the day's rally with FABL, NBP and MCB closing up 3.1%, 1.2% and 1% respectively.

Long awaited correction seeped in with volumes drying up 50% (USD 462mn) on Thursday, the first day of Ramzan. The index fell down by 41 points or 0.5% to 8540 level. DGKC, on the back of 9.3% sales growth in the cement industry for the first quarter of current fiscal year, was the volume leader(16%), closing up 0.6%. OGDC, after a handsome upward rally on Wednesday, closed down 0.78%. Other major losers were PTC, NBP, PSO and PPL, closing down 0.9%, 0.6%, 1% and 1.1% respectively. Auto sector maintained its upward trend with DFML and PSMC closing up 5% and 3.5% respectively.

On Friday the index closed up 2 points, trading in a narrow-range amid mixed sentiments. Cement sector was the out-performer with rumors of dam construction. DGKC was the volume leader (25%), closing up 3.9% at PkR 84.35. LUCKY and FCCL also closed up 5% and 2.9% at PkR 56.85 and PkR 17.60 respectively. MCB (Vols. contribution 19%) closed up 4.5% at PkR 134.85. Auto sector continued its upward trend with PSMC and DFML closing on their upper circuits. Overall, the market saw profit taking at higher levels.

OUTLOOK

With many stocks nearing their fair values and some even trading above, positive sentiments have so far improved the index, touching the week's high of 8600 index level. With such sentiments likely to continue next week, we may witness another upside of around 2% to 3%. However, intermittent profit-taking is likely to hinder this upside. Our recommendation is to remain cautious and trade with a stop loss. E&P, OMC, Auto and Cement sectors are likely to maintain their bullish trend next week. Our top picks are PSO, POL, LUCKY, FABL and DFML.

 
 

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