With no concrete development
on the PTCL-Etisalat issue so far, market continues to remain range
bound posting a week close of over 9000. The banking sector ontinues
to attract investor interest and the top banking scrips witnessed
heavy activity. On the other hand, uncertainty regarding PTCL's deal
and the future contract expiry has kept investors cautious and
consequently investor interest in sideboard items is picking up and
the second and third tier stocks have seen higher volumes. Overall,
the market closed 1.47% higher WoW.
OUTLOOK FOR THE FUTURE
We expect the market to
remain range bound mainly due to lack of significant triggers,
uncertainty regarding the PTCL deal and future contract expiry. Any
positive development on the PTCL Etisalat deal may a trigger for the
market. We recommend a selectively positive stance on the market and
advise investors to go long in fundamentally strong stocks namely POL,
SNGPL, FFBL, KAPCO, ICI, Packages, NML, NCL and Azgard Nine.
The major developments this
* Minister for Privatization
Dr. Abdul Hafeez Shaikh has reiterated his optimism regarding the deal
* Amidst rumors that Pakistan
would lobby its case for receiving GSP plus status to the EU come
January 2006, on the back of earthquake devastation, it is now being
widely circulated that the country will not receive this compensation.
* LSM (Large Scale
Manufacturing) production growth has shown a considerable decline YoY
in the first two months of FY06. With the exception of pharma and
leather, all major industrial groups have experienced a growth
* In its effort to provide
speedy relief, Government has augmented the compensation amount to
PRs175,000 (from PRs20,000) per household for those affected in Azad
Kashmir and NWFP.
* The privatization of
Pakistan State Oil is once again gaining momentum. The Privatization
Commission expects the date for the first pre-bid meeting to be
announced within the next three weeks, and a date for bidding to be
* Crude oil inventories
showed a significant increase during the week topping consensus
forecasts. Distillate and heating oil stocks jumped up 1.1mn barrels
as against a consensus forecast of 800,000-barrel increase.
* Telecard announced 1QFY06
results announcing profits after tax of PRs54.68mn, which translates
into PRs0.18 on a per share basis. The results are 12% higher YoY
(1QFY05 EPS: PRs0.16).
* In the latest auction,
State Bank of Pakistan (SBP) raised the yields on 6-month T-Bills by
15bps and 12-month T-Bills by 2bps. Yields on the 3-month T-Bill were
* Foreign private investment
in the first four months of the current fiscal year continues to show
strong trend, rising by 127% to US$682.0mn during Jul-Oct 2005.
Foreign direct investment during Jul-Oct 2005 was recorded at
US$465.7mn, 69% higher YoY than the amount received during the same
period last year.
THIS WEEK'S TOP STORIES
poised to cash in on growing trade activity With 1) containerization
in Pakistan picking up gradually and 2) upcoming expansions poised to
overcome capacity constraints for the company, we feel that the stage
is all set for Pakistan International Container Terminal (PICT) to
reap the benefits of the growing international trade in Pakistan (CAGR
of 12.4% over FY05-08). With a bottom-line CAGR of 30% over FY05-10
and potential upside of 29% at current levels, we initiate coverage on
PICT with a BUY recommendation.
HONDA ATLAS CARS: 1H2006
Honda Atlas Cars announced
1HFY06 results yesterday posting earnings after tax of PRs280mn (EPS:
PRs6.67) as against PRs183mn (EPS: PRs4.36) in the corresponding
period last year, up 53% YoY. On a QoQ basis, the company showed a
decline in profitability as the company posted PRs84mn (EPS: PRs2.01)
in 2Q06 as against PRs196mn (EPS: PRs4.66), down 57% QoQ. On the back
of prevalent cost concerns, we recommend a Neutral stance on the stock
with a DCF based price objective of PRs107.00.
OIL - POL REMAINS OUR
Crude oil prices have been
showing strength over the past few days on the back of higher demand
for heating oil during the winter season. While we believe that the
volatility is likely to characterize the near term outlook of oil
markets, improvement in oil supplies in the medium term are likely to
keep prices moderate.
POL remains our preferred
pick in the sector owing to its short-term leverage to oil (higher
revenue accruing from crude oil) and longer term defensive (increasing
gas share in revenue). We maintain our Buy recommendation on POL with
a Price Objective of PRs474/share.
PSO - NEUTRAL MAINTAINED
Driven by our concern on
volumetric growth and price control, we are maintaining our neutral
stance on Pakistan State Oil. While we believe that petroleum volumes,
especially for High Speed Diesel, are likely to recover, we expect
overall volumetric growth to be in the range of 3-4% for FY06. On the
other hand, the government does not appear to be in the favor of
further increase in petroleum prices. We thus believe that earnings
momentum is likely to slow down for FY06.
MERRILL LYNCH ROAD TRIP TO
PAKISTAN- AN OVERVIEW
Below is an excerpt from a
note on Merrill Lynch Regional Strategist, Spencer White's recent road
trip to Pakistan.
We have remained overweight
Pakistan in our regional asset allocation since the beginning of
Post our latest visit we
believe that although market volatility is likely to remain high, the
growth prospects in the economy remain considerable, as is the desire
of management to exploit it. Over the next three years we see the
greatest opportunities to reflect this view through
infrastructure-related activity, the growth in the consumer sector and
policy support for the agricultural sector. The most interesting
investment opportunities include NBP (financial services), Engro
Chemical (new business development), KESC (restructuring) and ICI
Pakistan (consumption pared with restructuring). For sheer yield KAPCO
(18%, paid in US$) is compelling.