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3 DAYS FORECAST
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Tomorrow 11 27 38 Sunny
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Day after 2 21 87 Sunny
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Day after 0 21 59 Sunny
HUM%: Humidity In %
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updated: Fri - Sun 23-25 Dec, 2005

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  CAPITAL MARKETS
 
 

 

 

 

 
 PAKISTAN WEEKLY REVIEW

AlFalah Securities (Pvt) Ltd.
Monday, Oct 24, 2005-Friday, Oct 28, 2005

 

BOARD MEETINGS

COMPANY

DATE

DAY

TO CONSIDER

Ghani Glass Limited

29-10-05

Saturday

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

Trip-Pack Films Limited

29-10-05

Saturday

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

Saudi Pak Commercial Bank

29-10-05

Saturday

Quarterly Accounts for the period ended September 30, 2005.

Hinopak Motor Limited

29-10-05

Saturday

Quarterly Accounts for the quarter ended September 30, 2005.

Din Textile Mills Limited

29-10-05

Saturday

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

Mohammad Farooq Textile Mills Limited

29-10-05

Saturday

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

Pakistan State Oil Co. Ltd.

29-10-05

Saturday

Quarterly Accounts for the period ended September 30, 2005.

Gatron (Industries) Limited

29-10-05

Saturday

Quarterly Accounts for the period ended September 30, 2005.

Jahangir Siddiqui Capital Market Limited

29-10-05

Saturday

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

Jahangir Siddiqui Investment Bank Limited

29-10-05

Saturday

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

Jahangir Siddiqui & Co. Ltd.

29-10-05

Saturday

Accounts for the quarter ended September 30, 2005.

Atlas Battery Limited

29-10-05

Saturday

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

Towellers Limited

29-10-05

Saturday

Accounts for the 1st quarter ended September 30, 2005 for declaration of any entitlement.

National Bank of Pakistan

29-10-05

Saturday

Quarterly Accounts for the quarter ended September 30, 2005.

Sapphire Textile Mills Ltd.

29-10-05

Saturday

Accounts for the quarter ended September 30, 2005.

Sapphire Fibres Limited

29-10-05

Saturday

Accounts for the quarter ended September 30, 2005.

Javed Omer Vohra & Co. Ltd.

29-10-05

Saturday

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

Pakistan Slag Cement Industries Limited

29-10-05

Saturday

Quarterly Accounts for the period ended September 30, 2005.

Altern Energy Limited

29-10-05

Saturday

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

Dewan Hattar Cement Ltd.

29-10-05

Saturday

Unaudited Financial Statements ended September 30, 2005.

Asian Stocks Fund Limited

29-10-05

Saturday

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

Pakistan Telephone Cables

29-10-05

Saturday

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

Dewan Mushtaq Textile Mills Limited

29-10-05

Saturday

Quarterly Accounts for the period ended September 30, 2005.

Dewan Khalid Textile Mills Limited

29-10-05

Saturday

Quarterly Accounts for the period ended September 30, 2005.

Dewan Textile Mills Ltd.

29-10-05

Saturday

Quarterly Accounts for the period ended September 30, 2005.

Ismail Industries Limited

29-10-05

Saturday

Quarterly Accounts for the period ended September 30, 2005.

Suraj Cotton Mills Limited

29-10-05

Saturday

Quarterly Accounts for the period ended September 30, 2005.

First Capital Mutual Fund

29-10-05

Saturday

Quarterly Accounts for the period ended September 30, 2005 / any other corporate action.

Lucky Cement Limited

29-10-05

Saturday

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

Dewan Salman Fibre Limited

29-10-05

Saturday

Annual Accounts for the ended June 30, 2005.

Nagina Cotton Mills Limited

29-10-05

Saturday

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

Suraj Cotton Mills Limited

29-10-05

Saturday

Quarterly Accounts for the ended September 30, 2005.

Hafiz Textile Mills Limited

29-10-05

Saturday

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

Din Textile Mills Limited

29-10-05

Saturday

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

TRG Pakistan Limited

29-10-05

Saturday

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

WorldCall Multimedia Ltd.

30-10-05

Sunday

Accounts for the quarter ended September 30, 2005 / declaration of any entitlement / any other corporate actions.

Azgard Nine Limited

30-10-05

Sunday

Quarterly Accounts for the 4th quarter ended September 30, 2005.

WorldCall Broadband Ltd.

30-10-05

Sunday

Accounts for the quarter ended September 30, 2005 / declaration of any entitlement / any other corporate actions.

WorldCall Communication

30-10-05

Sunday

Accounts for the quarter ended September 30, 2005 / declaration of any entitlement / any other corporate actions.

WorldCall Telecom Limited

31-10-05

Monday

Accounts for the quarter ended September 30, 2005 / declaration of any entitlement / any other corporate actions.

The General Tyre & Rubber company of Pakistan Ltd.

31-10-05

Monday

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

First Capital Securities

31-10-05

Monday

Accounts for the quarter ended September 30, 2005 / declaration of any entitlement / any other corporate actions.

Zeal-Pak Cement Factory

31-10-05

Monday

Accounts for the quarter ended September 30, 2005.

Kohat Textile Mills Ltd.

31-10-05

Monday

Accounts for the quarter ended September 30, 2005.

Samin Textiles Limited

31-10-05

Monday

Accounts for the quarter ended September 30, 2005.

Dewan Farooque Motors Ltd.

31-10-05

Monday

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

Bestway Cement Limited

31-10-05

Monday

Quarterly Accounts for the period ended September 30, 2005.

Huffaz Seamless Pipe Industries Ltd.

31-10-05

Monday

Accounts for the quarter ended September 30, 2005.

Kohinoor Power Co. Ltd.

31-10-05

Monday

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

AKD Capital Limited

31-10-05

Monday

Quarterly Accounts for the period ended September 30, 2005.

United Money Market Fund

31-10-05

Monday

Quarterly Accounts for the period ended September 30, 2005.

Kohinoor Spinning Mills Ltd.

31-10-05

Monday

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

MARKET FOCUS

ETISALAT: THE GAME NEARS ITS CLIMAX

With a post-privatization fair value of PkR 71, PTCL is currently trading at almost a 15% discount to its trading value. However, the stock is rated a BUY at current levels 'only' if Etisalat manages to takeover PTCL. That is why we have seen the PTCL stock (divided between the optimists and the pessimists), move with high volatility leading up to the October 28th payment date. It is clear that if the privatization process encounters a hitch, not only will the fair value drop by more than at least 10% but the stock, with the second largest market capitalization on the Karachi Stock Exchange (KSE), will be cast aside as a dormant stock for the investor, just as HUBCO was a few years back. The government will find that its privatization process (if not completely derailed) will face serious issues of credibility and the potential bounty from the sale of state-owned enterprises may suffer a nose-dive.

In a statement this week, a member of the Privatization Committee, Mr. Ashfaq Hasan Khan has come out with a statement saying that all issues with Etisalat would be resolved before October 28th, and that no further delay is expected. The very fact that the GOP is contemplating a delay is a sign of weakness and so is the trip of the President of PTCL to Abu Dhabi. All this leads some to believe that there are issues on the Pakistani side and the GOP and the PC are desperate to resolve these issues in order to safeguard their reputations. In our view, the only problem from the Pakistani side could conceivably be if there are some strong unions who are raising their voice for more compensation and threats of creating trouble. It is hard to imagine though that the government would not already have a gone a long way to address this issue as it was highlighted sometime before.

What is more plausible however is the fact that Etisalat has clearly overpaid and is now trying to look for an exit strategy, in a way in which it will not taint its reputations in the privatization processes of other countries. It has already gained substantial number of concessions such as 18-month share pledging facility, duty concessions on equipment imports as well as certain changes in the shareholderís agreements. However there have been some reports that Etisilat has asked for an increase in management control as well as being allowed to borrow the transaction cost from a local bank. These are conditions which the GOP will have to stoop well below a respectable stature to accept. Borrowing the investment money from a local bank nullifies the very concept of Foreign Direct Investment.

At this moment, whether Etisalat takes over or not, the PTC stock price at PkR 60 is quite attractive and is trading at a FY06 PE of 10. However the market will keep its fingers crossed and remain volatile till the events preceding and concluding on October 28th play themselves out. One only hopes that all issues are resolved in an amicable manner in the coming few days, so that the market can take a hike on a much needed positive news.

CEMENT SECTOR:

TREMORS VS. FUNDAMENTAL SHOVES

The earthquake that hit Pakistan on October 8 is the greatest calamity to hit the country, in terms of both; loss of human life and the large-scale destruction of infrastructure in the effected areas. What the country looks to now is extensive reconstruction and rehabilitation in these areas, Roads, houses, schools hospitals and all other buildings have to be reconstructed or repaired.

Looking at the Karachi Stock Exchange after the earthquake, we saw a rapid rise in the cement sector, Dera Ghazi Khan Cement (DGKC), Lucky Cement and several others hit their upper circuits in the KSE Bull Run after the Earthquake, and the cements stocks have been holding out fairly well in the present bearish market. This has been attributed to the expected rise in demand for reconstruction purposes after the earthquake. The anticipation remains that the large scale construction that will take place in Azad Kashmir and NWFP will increase the demand for cement. This coupled with the news of expansion by the major cement industry coming online, lead by Lucky which has increased production capacity by 2000 tons/ day drove cement stocks to lead a rally at the KSE post the earthquake.

So is it fair to say that the cement sector is doing well due to the expected rise in cement demand for earthquake induced reconstruction or is there is another reason for this performance?

As the price graph shows, the two major cement stocks; DGKC and Lucky Cement have gaining in value prior to the earthquake. The market had been enjoying a bullish run, with banking and cement stocks leading the rally. From this past performance of cement stocks we can see that the fundamentals were already in place before the earthquake. Contributing to the bull run induced by the solid results posted by the sector was the increased demand for cement, driven by the new housing boom, potential dam constructions as well as export to Afghanistan. In the past there had been doubts about the sustainability of the export to Afghanistan as Iran would be a cheaper alternative for Afghanistan, but these fears can be dispelled by the current shortage of cement in Iran as well as its inaccessibility to Kabul because of the strong hold of the Northern Alliance on its border with Afghanistan and distance to Kabul.

From the stock prices we can see that the upward trend in cement stocks was in place before October 28, 2005, but the positive sentiment created by the anticipated rise in demand for reconstruction gave the sector a further push, allowing it to sustain its Bull run in a market that saw a 600 point downside with a week. We can safely say that the cement sector is defiantly one to watch out for especially with both solid fundamentals and positive market sentiments on its side.

ECON FOCUS

Simply put, no!! According to market sources, three major banks have done some buying in the 12-month T-bill, expecting a ìstability windowî in the yield curve. But that is only a short-term view, and T-bill rates have remained stable in the past 5-6 weeks anyway.

SHORT-TERM RATES MAY REMAIN STABLE- BUT LONG-TERM RATES EXPECTED TO RISE:

Our analysis on the yield curve is that we expect it to remain stable in the short-run. Given the fact that we expect fiscal hemorrhage due to the earthquake, our view is that long-term interest rates will actually rise. Our view is based on the assumption that for the moment, the government has adopted a neutral monetary policy stance. This decision is in the face of a difficult juggling act, with inflation threatening to be higher then forecasted and economic growth feared to be lower then projections.

NEUTRAL MONETARY POLICY-INFLATION AND INTEREST RATES TO MOVE TOGETHER:

A neutral monetary policy, by definition, is where the real rate of interest is kept constant. Given that inflation has stayed between the 8.2-8.5% range in the last two months, the T-bill cut-off yields have also stayed relatively stable during this period. In our view, inflation will continue on an upward trend in October, putting pressure on the SBP to raise interest rates. The fact that the SBP might act with a lag is what some banks have been betting on while purchasing 12 month T-bills. Regardless of the timeframe, if we are betting on inflation not coming down, we cannot assume that interest rates will come down either, given our view of the SBP having adopted a neutral monetary policy stance.

SBP NOT ABLE TO FLUSH OUT INFLATIONARY PRESSURES:

While some quarters are trumpeting the fall in the inflation rate to 8.64% in the first quarter of this fiscal year compared to 9.28% for the last fiscal year, it should be pointed out that an inflation rate of above 8.5% is by no means low. If we account for the high base effect and the 400 plus basis points rise in T-bill cut-off yields, it can be noted that tightening of the monetary policy has only been of limited use in curbing inflation.

CURBING INFLATION- PRIORITY NUMBER ONE:

In the face of predictions of the end of the ea of cheap oil, we see global inflation steadily rising. The importance that central bankers around the world place on controlling inflation can be gauged by the fact that EU central banks are recommending curbing inflation as priority number one, even at the expense of further deteriorating already stagnant growth prospects.

PERSISTENTLY HIGH INFLATION- A SILENT KILLER:

In this respect, Pakistan stands to lose massively. We had an inflation problem before the surge in oil prices took place. Record high oil prices have, however, prevented a meaningful fall in the inflation rate, despite the best efforts of the SBP. Some lessons can be derived from this predicament. Prudent policy-makers should be well aware that economic growth is not a goal unto itself; ìsustainable economic growthî is a desired objective. We may have been the second largest growing economy last year. But if inflation hovers around the 8-9% mark for the next couple of years, it would threaten to derail the whole development process. What Pakistan is experiencing today is not hyperinflation. Hyperinflation is catastrophic in the short-term, but due to its dire nature, the government and central bank are forced to solve the problem. What Pakistan is currently experiencing is persistently high inflation, which is a silent-killer.

IF YOU WANT TO MAKE AN OMELET, YOU HAVE TO BREAK A FEW EGGS:

The best option for us is to act now. Curbing inflation should be priority number one, and should be achieved even if economic growth has to be temporarily sacrificed. True, world oil prices could ease. But a country cannot base its long-term future on exogenous events that it has no control over. Once we have inflation under control, then we can aspire for sustainable economic growth. Of course, like all major decisions, this would also have its skeptics. But as they say, ìif you want to make an omelet, you have to break a few eggs."

MARKET THIS WEEK

With just four sessions this week, mixed sentiments gripped the KSE after a bearish spell last week. This weekís highlights were some major corporate result announcements. The index closed down 90 points or 1.1% wow at 8319 level. Average volume traded over the week declined by 15% to 254mn shares compared to 297mn last week. Average weekly turnover also shrunk to USD 467mn, 15% down from last weekís USD 548mn.

After smashing 6.1% down last week, the index rebounded on Monday on the back of heavy buying in Cement and Oil companies, closing up 1.4% at 8408 level. Moreover, with the introduction of November counter, future positions had leveraged to some extent, providing liquidity into the market. Cement sector's upside was mainly due to its planned growth in production from 18mn tons per annum to over 30mn tons per annum in the next four years. Moreover, the impact of earthquake also continued. Lucky Cement's increase in production by 2000 tons a day led to its upper circuit at PkR 68.55. DGKC, MLCF, FCCL and DCL all closed on their upper circuits. In the banking sector, rumors of renewed foreign buying in MCB and NBP led them to close on their upper circuits. In the oil sector, PSO closed on its upper cap while POL gained 4% to close at PkR 411.75.

Without any CFS session, market opened on a positive note on Tuesday, gaining 0.9%. But it could not sustain above the 8450 level, plunging 1.1% down to 8316 level at close. Volatility prevailed on the back of banking and oil related stocks. BOP closed on its lower circuit at PkR 95, MCB closed up 1.8%, and NBP closed down 4.7%. Most oil stocks remained under pressure with POL, PPL and OGDC closing down 2.4%, 1% and 2.5% respectively. PSO remained strong, closing up 2.8% at PkR 413.55. Cement sector was today's outperformer with LUCK, DGKC and MLCF closing up 5%, 3.7% and 2.6% respectively.

The downward trend prevailed in the market on Wednesday, probably due to the settlement of October counter. The index closed down 0.98% at 8235 level. Market opened on a positive note making an intra-day high of 0.5%(40 points) but later could not sustain that level as it plunged down 2.4%(200 points) on the back of some negative rumors regarding PTCL privatization delay, pushing the stock down 4.9% to PkR 60.00. Later healthy announcements from FFC(32.5% Cash, 10% Bonus, 7.78 EPS), PGF(15% Cash, 20% Bonus, 9.15 EPS) and PRL(25% Bonus, 21.94 EPS) led the index recover 1.4% to close at 8235 level. OGDC was the volume leader, closing up 1% at PkR 105.70. BOP and NBP both closed on their lower circuits.

Good corporate results contributed to Thursdayís upside as the index closed up 1% at 8319 level. Banking sector was the dayís outperformer with NBP, ACBL, FABL and UNBL closing on their upper circuits. Major stocks gained on the back of healthy results such as DGKC(1QFY06 EPS 2.75) up 3.4%, PSMC(3QFY06 EPS 27.68) up 2.9%, FCCL (1QFY06 EPS 0.70) up 5.7%, PPL (1QFY06 EPS 3.90) up 3.5%, OGDC (1QFY06 EPS 2.10, 12.5% Cash Dividend) up 0.9%, and SNGP (1QFY06 EPS 1.69) closed up 5%. BOP was the volume leader, closing up 1.1% at PkR 91.25. Rumors of the final date for settlement on PTC issue also renewed interest in PTC.

Outlook: With hardly two trading sessions next week, we expect the market to remain lackluster. Although the recent corporate announcements are expected to create positive sentiments, a lot depends on the settlement of PTC takeover by Etisalat on Oct 28. We feel market will take it positive if Etisalat agrees to take up the stake or if the date is extended. In a bull market overall, that will give an opportunity to short-term players to play it before the next date set for settlement, in case the date is extended.

Weekly

w-3

w-2

w-1 w  

Forex Reserves (USD mn)

12,419

12,447

12,406

12,627

EXCH RATE:

Exch Rate: PkR/USD

59.70

59.78

59.760

60.760

PkR/Euro

72.98

72.47

73.39

72.34

Monthly

Apr-05

May-05

Jun-05

Jul-05

INTEREST RATES

3m T-bill

7.2%

7.60%

7.48%

7.69%

6m T-bill

7.8%

7.95%

7.94%

7.97%

12m T-bill

8.3%

8.45%

8.40%

8.69%

INFLATION

CPI (YoY)

11.1%

9.8%

8.74%

8.99%

MONEY

Currency in Circulation (YoY)

15.1%

Na

Na

Na

Deposits (PkR bn)

2290

2320

2355

Na

(YoY)

20.49%

19.4%

18.2%

Na

Loans (PkR bn)

1720

1752

1759

Na

(YoY)

37.5%

36.7%

32.8%

Na

M2 (YoY)

14.1%

Na

Na

Na

EXTERNAL BALANCE

Exports (USD mn)

1301

1384

1541

1272

(YoY)

Na

Na

23.4%

-17.4%

Imports (USD mn)

1903

2033

2241

1996

YoY

Na

Na

20%

-10.9%

Trade Balance (USD mn)

-601.5

-648.7

-699.5

-724

Yearly

2001

2002

2003

2004

2005

GDP (USD bn)

58.51

63.50

67.70

69.07

75.29

GDP growth

1.84%

3.10%

5.11%

6.40%

8.4%

Agricultural Growth

-2.2%

0.1%

4.1%

2.6%

7.6%

Services Growth

4.76%

5.30%

5.24%

5.49%

7.9%

Manufacturing Growth

9.3%

4.5%

6.9%

13.4%

12.5%

Population (mn)

143

146

148

149

152.5

GDP per capita (USD)

408.6

433.9

457.4

463.6

503

TRADE BALANCE

Imports (USD bn)

10.202

9.434

11.333

15.47

20.6

YoY

6.2%

-7.5%

20.1%

36.5%

32%

Exports (USD bn)

8.933

9.14

10.889

12.27

14.4

YoY

9.1%

2.3%

19.1%

12.7%

17.1%

Trade Balance (USD bn)

-1.269

-0.294

-0.444

-3.2

-6.2

Current Account (USD bn)

-0.513

1.33

3.16

1.73

-1.9

Remittances (USD mn)

1087

2389

4236.85

3800

4168

 
 

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