STOCK MARKET AT A GLANCE.
Devoid of any notable triggers, the market depicted a range bound trend closing almost flat WoW (-0.5%). Despite positive FPI flows this week (US$4.78mn net inflow versus US$16mn net outflow last week), investors chose to stay on the sidelines with volumes declining 44% WoW. Amongst the week's newsflow, the two worth highlighting include: 1) Moody's maintaining its B3 credit rating with a stable outlook for Pakistan and 2) announcement to restore the forward cover facility by the SBP, after remaining suspended since 2008.
OUTLOOK FOR THE FUTURE
The key upcoming event remains the monetary policy (due Saturday, March 26th). The recent macro data (decline in T-bill yields, recent slowdown in government borrowing from the State Bank and fresh revenue generation measures) have tilted market sentiments towards a likely status quo outcome. In addition to this, foreign flows will continue to be closely tracked. Keeping the current scenario in mind, we recommend investors to hunt for value Buys and to use any meaningful weakness in stock prices to accumulate quality names at the KSE. We recommend PPL, POL, PSO and APL as our favorite in oil space. Within fertilizers, we prefer urea plays and hence FFC and Engro deserve attention in our view. Rounding off our list of picks would be Lucky Cement, KAPCO, PTCL, Tripack and LOTPTA.
NEWS THIS WEEK
OFFLOADING 10% SHAREHOLDING: EOIS INVITED FOR OGDC BONDS
The Privatization Commission has invited Expressions of Interest (EoI) for issuance of exchangeable bonds of OGDCL. At present, government holds 74.82% of OGDCL shares and plans to monetize up to 10% shares by means of an issuance of exchangeable bond to international institutional investors. The Privatization Commission announced that the EoIs have been invited from financial advisory consortia that should include (1) at east two international book-runners who have recognized equity linked sales, distribution, and underwriting capabilities and demonstrable track record of successfully managing such issuances and (2) preferable inclusion of a local financial institution as part of the consortium.
TENTATIVE DATES FOR US$575MN PUBLIC OFFERINGS
As per newspaper reports, the government is planning raising US$575mn through listing of Exchangeable Bond (EB), Initial Public Offerings (IPO) and Secondary Public Offerings (SPO) of State-Owned Entities (SOEs). The last meeting of the Cabinet Committee on Privatization (CCOP), presided over by Finance Minister, considered a summary moved by the Privatization Commission (PC) for (1) issuance of OGDCL EB worth US$500mn, (2) IPO of 20% shares of SLIC worth US$5mn and (3) SPO of 2.5% shares of PPL worth US$70mn. The meeting decided that the final structure and size of the transaction for OGDCL will be determined in consultation with the financial advisor and subject to market conditions. The proposed date for listing of OGDCL exchangeable bond and SLIC IPO is May 11 and PPL's SPO is June 11.
MONETARY POLICY TO BE ANNOUNCED ON MARCH 26TH
The State Bank of Pakistan (SBP) is scheduled to announce the monetary policy statement (MPS) for the next two months on 26th March 2011. Given the recent slowdown in government borrowing from the SBP and revenue generation measures taken by the government, we expect the SBP to maintain policy rates for now.
THIS WEEK'S TOP STORIES
MONDAY, MARCH 21, 2011 - MACRO: EXTERNAL ACCOUNT IN CHECK SO FAR
As per the latest press release, CAD declined to US$98mn in 8MFY11 (Jul-Feb-11) as compared to US$3.0bn last year while overall balance of payment (BoP) and SBP net Fx reserves improved to US$1.55bn and US$14.7bn.
Despite high inflation and monetization of fiscal deficit, stable external account depicts that there is limited output gap in the economy primarily due to improved private sector surplus re monetary tightening.
Fx liquidity remains buoyant with steady ex. rate (PRs85-86/US$) amid increase in Fx loans to US$1.5bn reflecting comfort on PRs/USD given high interest rates.
We expect trade deficit and CAD to expand in the next 4-mths primarily due to higher oil prices however this is not a concern as long as matched by higher financial flows. We expect SBP to keep DR unchanged at 14.0% in Mar-11. HAMZA A. MARATH, CFA (Hamza.firstname.lastname@example.org)
TUESDAY, MARCH 22, 2011 - EandPS: INVESTMENT CASE UNHURT BY REGULATORY ISSUE
Regulatory overhang after the 18th amendment and increased security issues have emerged as key drags on 2011 drilling and pose risks future EandP projects.
We believe our investment case for EandPs remains unhurt and see two implications; (1) earnings upside of 2-5% from lower exploration write-offs in 2011 and (2) a relative dry patch in exploration news flow.
We see limited impact on stock prices, which have corrected 5-24% from the Dec/Jan peak while earnings have seen upgrades on strong oil prices. We reiterate Buy on POL and PPL.
We think the overall security issue is limited in specific areas and widespread contagion is unlikely. MOHAMMAD FAWAD KHAN, CFA (Fawad.email@example.com)
THURSDAY, MARCH 24, 2011 - LOTPTA: EYEING ALL-TIME HIGH 1Q AND VOLATILITY BEYOND THAT
As 1Q11 rears its end, we are increasingly bullish on LOTPTA declaring all-time high earnings of PRs1.4/sh due to strong primary margins during in the period.
The disastrous earthquake and tsunami affecting Japanese PX supply and planned turnarounds in PTA plants during Mar-Apr should inflate prices and volatility in primary margins for 2Q11E.
While primary margins remain strong in the near-term, we see growing pressure in the medium-term as new PTA capacities will outpace demand growth.
Resultantly, we expect primary margins to drop from US$300/ton in 2011E to US$250-225/ton in 2012-13E. Adjusting for these, we lower 2011-13E EPS estimates from PRs4.0/4.5/3.9 to PRs3.9/3.3/3.1 and PO to PRs19/sh (- 10%).
We believe strong 1Q earnings, attractive multiples and further news flow on future plans will serve as near-term triggers, reiterate Buy. MUHAMMAD SAQIB SAJJAD (Saqib.firstname.lastname@example.org)
FRIDAY, MARCH 25, 2011 - WEAK YTD CEMENT VOLUMES COULD RECOVER IN 4QFY11E
Pakistan's cement producers have faced a challenging demand environment YTD FY11 (Jul 10-Jun 11), with offtake down 10% YoY in the 1st 8-mths and industry utilization hovering around the 66% mark.
That said, we believe the worst of domestic demand is likely behind us and eye a 16% QoQ recovery in 4QFY11E domestic cement sales which should continue to lend support to already-rising domestic prices.
We re-iterate Buy on Lucky Cement (PO: PRs88), the best play on recovery in Pak cement dynamics in our view, trading at 6.0x FY11E earnings. FARRAH MARWAT (Farrah.email@example.com)
STOCK MARKET SYNOPSIS
###LAST WEEK###THIS WEEK###% CHANGE
Mkt. Cap (US $ bn)###36.48###36.20###-0.75%
Avg. Dly T/O (mn. shares)###112.44###62.56###-44.36%
Avg. Dly T/O (US$ mn.)###45.28###36.77###-18.80%
No. of Trading Sessions###5###4###-
KSE 100 Index###11,606.61###11,552.13###-0.47%
KSE ALL Share Index###8,082.05###8,052.01###-0.37%