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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, Dec 19, 2005-Friday, Dec 23, 2005

 

BOARD MEETINGS

COMPANY

DATE

DAY

TO CONSIDER

Pingrio Sugar Mills Limited

24-12-05

Sat

Annual Account for the year ended September 30, 2005.

The Frontier sugar Mills & Distillery Limited

24-12-05

Sat

Annual Account for the year ended September 30, 2005.

The Premier sugar Mills & Distillery Limited

24-12-05

Sat

Annual Account for the year ended September 30, 2005.

Chashma Sugar Mills Ltd.

24-12-05

Sat

Annual Account for the year ended September 30, 2005.

Baba Farid Sugar Mills Limited

27-12-05

Tue

Annual Financial Statements for the year ended September 30, 2005.

Fecto Sugar Mills Limited

27-12-05

Tue

Annual Financial Statements for the year ended September 30, 2005.

Sindh Abadqar's Sugar Mills Limited

27-12-05

Tue

Annual Account for the year ended September 30, 05.

The Thal Industries Corporation Limited

27-12-05

Tue

Annual Account for the year ended September 30, 05.

Habib Sugar Mills Limited

28-12-05

Wed

Audited Financial Statements for the year ended September 30, 05.

Unilever Pakistan Limited

31-01-06

Sat

Such proposals and actions as may be deemed appropriate based on the audited financial results for the period 1st January, 05 to 31st December, 05.

MARKET FOCUS

ALL'S WELL THAT ENDS WELL

The terms of the actual privatization agreement between Etisalat and PTCL will have little impact on PTCL's future earnings. There is no reason for investors to get panicky over the terms of the agreement itself. Some negative sentiment will prevail in the market with regards to future privatizations but it should neither affect the PTC stock, nor negatively effect a market still rallying on the basis of healthy corporate results and high liquidity. Our DCF based Fair Value for PTCL is in the range of PkR 68-71 depending on the modalities of various capital expansions and its current level the stock is a HOLD.

JUDGMENT DAY FINALLY ARRIVES:

Six-months after the bidding for Pakistan Telecom (PTCL) took place, it was finally announced on December 20th that the two-sides had reached an agreement over the fate of the USD 2.56 bn deal, the country's biggest transaction. The two-sides in this case effectively being the governments of Pakistan and the United Arab Emirates(UAE), as issues spiraled out of hand between the PTCL's and Etisalat's management. We believe that Etisalat is at fault for not adhering to the agreement while the GOP cannot be absolved of the blame for continuously trumpeting the high price paid by Etisalat, at a juncture where the differential in bids was obvious to everyone. Adding insult to Etisalat's injury of high payment wasn't exactly the best thing to do.

DEFERRED PAYMENT STRUCTURE:

A five-year preliminary structure which has been agreed to according to preliminary reports was more or less the minimum concession Etisalat was expecting. This measure according to our estimates will allow the UAE monopoly to pay off around 30-35% of the acquisition amount from its own internal cash generation.

OTHER ISSUES:

Other issues which had been under discussion included:

*slashing of bid prices.
*pay package for employees.
*increasing representation on the BOD. right to pledge acquired shares for
*financing within 18 months.
*Right to acquire further 'A' Class Shares.
*Listing on the UAE stock exchanges.

Within these contentions, the one with regards to a slashing of bid prices could have been disastrous for the whole privatization process.

PRIVATIZATION PROCESS IMPACT:

There is little doubt that the future privatization process will be affected to some degree. In stock market terms we may see only a conservative privatization rally of only around 500-1000 points.

Our expectation for the index level at the end of FQ05 would be 10500-10800 level This will be as a result of investor's actually waiting for the payments to go through before making significant bets on scrips like PSO and PPL. As far as the affect on the actual future privatization deals are concerned, an agreement to slash bid prices would have been disastrous. A deferred payment structure on the other hand, we believe would only probably lengthen settlement time of each privatization transaction by a few months, if the buyers of other entities decide to try out their luck through negotiation. The Stock market should be limited to a slight restraint in its upward drive.

ECON FOCUS

IS INFLATION BEING TAMED?

We believe that contrary to the government's claim, inflation is not under control and that situation will worsen. The government will opt for a supply-side policy to control inflation and in order to bring about a new round of growth, maybe even think of reducing interest rates by 50-100 bps.

Inflation has been the cornerstone of the SBP monetary policy in recent months. It is this very economic evil which threatened to halt in its tracks, the economic growth momentum Pakistan has built up over the past four years. Inflation not only erodes the incomes of low-wage earners and fixed salary workers, therefore creating a political situation for the government. It is also very difficult to control once it spirals out of hand as high inflationary expectations can lead to a significant loss of investor confidence in the economy.

The Government has been trumpeting a slowdown in inflation below 8% for the month of November. Let's see if this actually is the case.

On a YoY basis inflation in November stood at 7.86%.

However as always the more meaningful number is always annualized inflation on a Month on Month basis and for October-November, that figure stood at 11.2%. Between September-October this annualized rate was 8.8%. So much for the government's contention for inflation rates being brought under control. The reason why inflation on a YoY basis stood at 7.86% was because of the high base effect. This means that last year's YoY inflation in Nov 2004 over the same period in 2003 stood at a high 9.26%. It is to be remembered that it was during that same time around November 2004 that inflation really started to pick up and so YoY inflation figures lead to an underestimation.

One way to counter inflation is for the SBP to increase interest rates. However that is one policy which would be quite hazardous for investment and demand growth. Pakistan's recent economic growth can be attributed to a consumption boom as a result of low interest rates. Now the government is banking on an investment driven boom which means that all the capacity expansions of the past few years in textiles, cement, auto, fertilizer and financial service industries should come online. This will also mean that with more goods there in the market and a relative tightening of the monetary policy, inflation may be controlled. Since food items form 40% of the CPI index and any agricultural economy is subject to production shocks, an import liberalization policy is being followed by the government to counter food inflation.

With a new SBP governor filling in the big boots of Ishrat Hussain, an increase in interest rates potentially leading to a significant slowdown in the economy would be an image tarnishing prospect. The worrying prospect however is that with the government borrowing reaching 80% of its target PkR 98bn within the first five months of the fiscal year and with the post-earthquake scenario resulting in a bulge in remittance inflows, there is significant liquidity in the markets. If interest rates are not increased and which we believe won't happen for the reasons mentioned above, inflation will not come down. It is definitely going to be a great time for the import agents.

In next week's issue we will be making a more detailed analysis of particular products which have been hurting the purses of the consumers in the last six months.

MARKET THIS WEEK

By the end of the week, the market couldn't sustain the psychological level of 9500 and closed at 9491.47 (down by 0.25% WoW basis).

Average trading volume of the week was reduced from 296mn shares, down by 12% and the value traded also dropped by 11% to USD429mn. The index remained mostly range-bound for the whole week mainly due to a) huge position in December future contracts 2) no final consensus on the dams issue.

The week started with a bearish trend and the index plunged by 135 points and volumes dropped by around 34% compare with the last trading session. That was mainly due to a huge open interest position in the futures of around PkR15bn. PTCL which is the major index contributor after OGDCL, remained positive for the whole day among all major scrips but could not support the market successfully.

On Tuesday, market rebounded sharply from the 9312 points intra day low to the combined effect of PTCL privatisation developments and foreign buying. The market finally gained 102 points to stand at 9482. Media reports quoting UAE officials indicated that the PTCL deal with Etisalat has been finalized. PTCL alone contributed 24 points to the index and was the market leader by volume. NBP was also a star performer, gained 4.3% on the back of announcement of 100% bonus and 30% dividend by Al-Jazira(NBP holds around 6% shares of Al-Jazira).

Following the news of final settlement of PTCL deal with Etisalat, the market started on a positive note on Wednesday. However, late profit taking restricted the day gains with the index closing 22 points higher to the 9504 points level. NBP lost 1.3% as investors realized that AL-JAZIRA dividend is to have only a marginal impact on the bank earnings.

The market remained volatile and directionless during most of the trading session on Thursday.

Finally, the index declined by 32 points to 9471 point level. Trading volumes were 30% lower than Wednesday. The overall trend can be characterized as extremely volatile with individual stocks repeatedly oscillating between positive and negative zones. However, Cement stocks reacted positively to news reports mentioning Government's on going efforts to build consensus over the mega dam projects.

On Friday, Index almost remained in the positive for the whole day and closed at 9491.47 (up by 20.48 points) and volumes down by 33% to 190mn shares. OGDCL remains in a green territory on the back of rumours of government's call for the appointment of advisors for the issuance of OGDCL's GDR's. However, all other major scrips remained range bound as today was the last trading session of the week.

OUTLOOK:

Though the closing of market is below the 9500 level, the market may see an upside of 1% to 2% from its current level. Expected upside can be attributed to a) any positive news regarding Privatisation of other state owned entities b) consensus on dams issue between government and political parties c) major inflow of foreign funds in capital markets. However, some pressure can arise due to the last week of December future contracts and the last week of the year.

Pakistan Economics Snapshot

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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