MARKET THIS WEEK
The market finally underwent
a correction and shed a massive 573.55 points after an extended period
of steady rise. The market opened on a positive note on Monday on the
back of SBP raising exposure of banks in the equity market from 20 to
30% and strong NIT earnings. However, the market declined sharply on
Tuesday. Panic selling was cited as the major reason behind the
decline. A recovery was seen on Wednesday, but was short-lived as the
index took a nosedive and fell by a staggering 6.68% (Thursday and
Friday combined). Overall, the market showed a 6.47% decline (WoW).
OUTLOOK FOR THE FUTURE
Settlement of future
contracts is due next week, which could keep the market under pressure
and volumes low. We advise investors to largely stay on the sidelines
but not ignore attractive buying opportunities that arise in select
stocks that become attractive on valuations due to the decline. In
addition, the result season is in full swing and stock specific
opportunities will be there for the taking. We recommend a buy on
Nine, Chenab Ltd, Fauji Bin
Qasim, KAPCO, ICI Pakistan, Nishat Chunian, Nishat Mills, Packages,
Suzuki, Callmate Telips and
The major developments this
•Fauji Fertilizer Bin Qasim
Ltd. (FFBL) reported 46.5% YoY growth in net earnings of PRs1.968bn
(EPS: PRs2.11) for 9M05. FFBL also announced a second interim dividend
of PRs0.75/share (1st interim of PRs1.25/share).
•The Hub Power Company (Hubco)
announced its 1QFY06 results, posting net profit of PRs638mn (EPS:
PRs0.55), 56% down YoY.
•ENGRO reported 34% YoY
growth in profits to post PRs1.35bn (EPS: PRs: 8.82) for 9M05. The
company declared PRs3/share interim cash dividend (already announced
PRs3/share in 1H05).
•We expect Packages to
report 9M05 profits of PRs608mn (EPS: PRs8.70), 12% higher YoY.
•We expect POL to post
earnings after tax of PRs1,413mn (EPS PRs10.75) for 1QFY06 compared to
earnings of PRs660mn (EPS: PRs5.02) in the corresponding period last
•We expect Indus Motor to
post 1Q06 profits of 481mn (EPS: PRs6.11), 30% higher YoY
•Maple Leaf Cement
announced 1QFY06 results posting earnings after tax of PRs266mn (EPS:
PRs0.90), 91% higher YoY.
•Reportedly, the Ministry
of Petroleum and Natural Resources has proposed a reduction in custom
duties on High Speed Diesel from 10% to 5%. If implemented, this
proposal would negatively affect both oil refining and OMC sectors
•In the month of Sept-05,
core inflation came in at 9.6% (from 9.2% in Aug-05) primarily on
account of higher transport inflation.
•Trade deficit reached
US$2.37bn (187.5% higher YoY) in 1QFY06. We believe higher trade defi
cit is primarily attributed to the rise in international oil prices,
as Pakistan imports 70% of fuel demand.
•As per newspaper reports,
remittances amounting to US$1,003mn were received during 1QFY06
depicting an increase of 1.98% YoY compared to the same period last
•Pioneer Cement announced
profit after tax of PRs201mn for 1QFY06 (EPS: PRs1.30), 83% higher YoY.
•As expected Oil Companies
Advisory Committee (OCAC) has decided to keep petroleum product prices
unchanged for the next fortnight.
•Prime Minister, Shaukat
Aziz has said that Pakistan has suffered around US$5bn in losses to
infrastructure from the massive earthquake.
THIS WEEK'S TOP STORIES
BANKS - EXPOSURE LIMIT FOR
In it is latest circular, the
State Bank of Pakistan (SBP) has raised the maximum exposure limit of
banks to the stock market to 30% of the banks' equity. Previously,
banks were allowed to have a maximum exposure of 20% of their equity
to the stock market. However, the enhanced 10% exposure is only meant
for the futures counter, and investment in the ready market cannot
exceed 20% of the bank's equity.
TEXTILE - SPINNING GOLD: TAKE
THE STARS HOME
Unfettered access to the
US$400bn global Textile and Clothing market, thrown open for the first
time after over four decades of quantitative restrictions. The
opportunity is huge and the sense of excitement, palpable. Add to this
an industry which has invested US$5bn over the last five years to gear
up to buoyed demand in this free trade order. Then consider the
government, which is taking an extremely supportive stance through
budgetary and other reforms on all textile trade related issues. All
the while, the domestic cotton crop, as primary raw material for the
textile industry, is the fourth largest in the world.
FFBL & ENGRO - 9M05
FFBL and Engro are expected
to announce their 9M05 results tomorrow, 20-Oct-05. We expect FFBL to
post after tax earnings of PRs1,987mn (EPS: PRs2.13), 50% higher YoY.
The chances for cash dividend are dim. 18% growth in DAP sales and
better margins on both products are the key drivers for 31% YoY growth
in 3Q05 earnings (EPS: PRs0.71). FFBL remains out top pick in the
fertilizer sector with a price objective of PRs47.90, offering 39%
upside from current levels. We expect Engro to post after tax earnings
of PRs1,214mn (EPS: PRs7.94), 21% growth YoY.