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CURRENCY BUYING

SELLING

US Dollar 59.9 60
Bahrain Dinar 158 158.1
Canadian $ 50.85 50.95
Euro 70.75 70.85
Hong Kong $ 7.65 7.7
Japanese Yen 0.508 0.51
Kuwaiti Dinar 204 204.1
UK Pound 103.7 103.8
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
 
 

 

 

 

 
  STOCK MARKET AT A GLANCE

By SHABBIR H. KAZMI
Updated Dec 17, 2005

MARKET THIS WEEK

The sentiment at the KSE remained mix, with investors remaining a bit cautious especially as the year-end is approaching. The index opened on a positive note on Monday but witnessed a decline on the next two trading days. The market picked up on Thursday posting a jump of 87 points amidst a trading volume of only 288mn. The week-end marked a positive close as the Index closed above the 9,500 level. Overall, the trading activity during the week remained relatively dull and the average daily volumes witnessed a WoW decline of 24.73%. Overall, the market closed 0.88% higher WoW.

OUTLOOK FOR THE FUTURE

We expect the market to remain range bound during the next week with the investors taking a cautious stance. Any developments on the Kalabagh Dam issue would determine the market sentiment.

Developments on the PPL & SNGPL privatization deal could trigger stock specific activity. We are selectively positive on the market and recommend investors to go long in Pakistan Oilfields, Fauji Fertilizer Bin Qasim, Nishat Mills, and Azgard Nine. From a dividend yield perspective, KAPCO looks attractive.

FUNDAMENTAL CHANGES

The major developments this week were:

*OPEC, supplier of one third of world's crude production dropped a clear hint of possibility of production cut in 2QCY06 and 3QCY06 in its latest meeting

*Local car production and sales witnessed a 45% and 50% YoY increase during the month of Nov- 05.

*According to newspaper reports, Pakistan is seeking complete removal of anti dumping duty on bed linen exports to the European Union (EU).

*In its Dec 12th Pakistan report, Moody's maintained Pakistan's rating of B2/Not-Prime country for Foreign Currency bonds and bank deposits.

*The OCAC has kept petroleum prices unchanged for the next fortnight. The petroleum product prices rose during the last fortnight in international market by 3%-4%, which has reduced PDL levy on Mogas from PRs17.71 to PRs16.97 per liter.

*As per the Ad published in BR, FaujI Foundation has invited expression of Interest for the sale of its 52% strategic stake in Fauji Cement (PRs5.2bn at market price). The last date for EOIs submission is 10-Jan-06.

*It is rumored that the KSE might accept a non-member as Chairman of the KSE in the upcoming elections scheduled on 15-Dec-05.

*Reportedly the government has decided to hold a pre-bid meeting next month for the eventual sell off of Pakistan Petroleum Limited (PPL).

*The Ministry of Finance has directed Ministry of Food & Agriculture (MINFAL) to review the option of either reducing or withdrawing a direct subsidy on imported urea and an indirect subsidy to domestic fertilizer companies in form of subsidized feedstock gas prices.

*As per news reports, President Musharraf has strongly advocated the construction of Kalabagh Dam by saying that the government would go ahead the project with or without the consensus of all provinces.

*Reportedly, the Ministry of Petroleum and Natural Resources is considering entrusting Oil and Gas Regulatory Authority (OGRA) with the authority to determine prices of petroleum product (POL).

*Privatization Commission (PC) has invited Expression of Interest (EOIs) for the sale of its 51% stake or 255mn shares in Sui Northern Gas Pipelines (SNGPL) to a strategic buyer. The last date of submission is 11-Feb-2006.

A local newspaper has quoted that PTCL deal has been secured as a result of President Pervez Musharraf's meeting with UAE ruler on the sidelines of Organization of Islamic Conference (OIC) summit in Makkah (on December 8th).

*As per the 9-month supply agreement, SNPGL has begun gas load shedding for the industrial sector in Punjab & the NWFP from 15-Dec-2005.

*Employees of Pakistan Telecommunication Company Limited (PTCL) have yet again threatened to go on strike in light of the latest developments regarding PTCL employee lay off.

THIS WEEK'S TOP STORIES

CURRENT ACCOUNT DEFICIT - IMPORTING GROWTH

Current account deficit came in at US$2,043mn during Jun-05 to Oct-05 (compared to US$121mn in the corresponding period last year). We believe higher trade account deficit remains the area of concern, as the gap between import and export has risen extraordinarily high, whilst current account transfers remain stagnant. Interestingly, reserve draw down in the first four months is just US$541mn compared to US$1,038 during the same period last year. Lower reserves draw down is primarily attributed to extra-ordinary jump in Foreign Direct Investment (FDI) and Foreign Portfolio Investment (FPI). This indicates the growing confidence of foreign investors in Pakistan's economy. In sum, we believe current account deficit is largely financed through non-debt generating flows, which indicates Pakistan is importing growth without putting any pressure on its budgetary balances.

FAUJI CEMENT - IT'S BEST TO SELL NOW!!!

With Fauji Cement (FCCL) poised for its best earnings in FY06, Fauji Foundation is looking to cash in on good times and has announced its plan to sell off its 52% strategic stake in FCCL. Given the high cost of this acquisition, we find little reason for existing manufacturers to be aggressive (barring Maple which is eyeing a strategic export location). Fresh investment therefore seems likely, as was the case with Javedan and Essa Cement. With competitor expansions coming online, we expect FCCL to witness a decline in earnings going forward. With further expansions in FCCL unlikely, we recommend investors to cash in on the hype and SELL ON STRENGTH. Our revised DCF based price objective stands at PRs16.04/ share.

THE THREAT OF INFLATION - FADING!

November inflation statistics came in at 7.89% YoY (from 8.27% in Oct-05), whilst core inflation was recorded at 9.65% YoY (from 9.91% last month). Importantly, Core inflation recorded a MoM decline, for the first time since Feb'04. We believe SBP's tight monetary policy combined with government's administrative measure (import liberalization of essential food items) has played a pivotal role in confronting inflation.

However, balance of risk is still favoring long-term inflationary expectations, as concerns of high utilization rates, oil prices and budget deficit linger on. In addition, expected shortfall in wheat output in current fiscal might push inflation higher. On the monetary front, we believe SBP will carefully review other macro economic variables by December end and will devise its monetary stance for 2HFY06. Given the macroeconomic trend, we expect SBP to shift its monetary policy stance from 'Tight' to 'Neutral', as more macro economic variables are stabilizing. We expect inflation to be around 7.5-8.0% by June 2006. Muzzammil Aslam

PETROCHEM MARGINS- THE CONTRARIAN VIEW

"We expect Asian petrochemical margins to pick up in 1-2 months, as the region's supply/demand balance should get tighter with exports to the US. Our survey of traders and shippers as well as chemical producers confirms that Asia-US Gulf chemical trade should accelerate in the coming months...Production losses at US plants during September 2005 to May 2006 amount to 6.2% of Asian capacity. Although not all of it will be replaced with Asian imports, the expected trade flow should be significant enough to bring the price gap close to the equilibrium. If Asian prices rise to the equilibrium, there is a theoretical margin upside 51-74% for ethylene derivatives". Sonia Song, Merrill Lynch.

What does this imply for PSF margins in Pakistan? Not really very good news. The upward price revision we anticipated early next year is not likely to result in better margins if Asian raw material prices play a game of catch up with US prices. The share price of Pakistan's PSF giant, Dewan Salman Fibres Ltd. moves closely with primary margins. With the latter promising little upside in the medium term, we believe DSFL will drag its feet for a little while longer. We are neutral on the stock.

GAS PRICE CAP REMOVAL -POL TO BENEFIT MOST

E&P companies have recently forwarded a proposal to remove the cap on gas prices in order to provide incentives for investment in the sector. This proposal is in early stages and would take time for finalization.

Pakistan Oilfields Ltd. (POL) stands to benefit most from any policy decision by the government to remove the cap on gas prices. We estimate an impact of PRs12 on POL valuation from this. We estimate an upward revision of 2% on average in FY07E -FY09E earnings for POL. Impact on earnings for PPL and OGDCL would however be muted. We do not expect a major impact on gas prices for end consumers, as most of the gas fields either do not have such a ceiling or follow other Petroleum Policies. We maintain our liking for POL that offers an upside of 12% and provides a dividend yield of 4%.

MARKET ROUNDUP

 

LAST WEEK

THIS WEEK

% CHANGE

Mkt. Cap (US $ bn)

45.41

45.73

0.70%

Avg. Dly T/O (mn. shares)

462.98

348.50

-24.73%

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

653.44

493.99

-24.40%

No. of Trading Sessions

5

5

 

KSE 100 Index

9431.81

9514.83

0.88%

KSE ALL Share Index

6330.42

6404.80

1.17%

 
 

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