Stocks At Weekend

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Stock Watch - Stock Updates

STOCK MARKET AT A GLANCE

MARKET THIS WEEK

Continuing on the lackluster performance of last few weeks, KSE-100 ended the month on a similar pattern. The KSE-100 index dropped by 1.7% while volumes further dried by 27% WoW. Negative headlines around politics, NIT-LOC related selling pressure and dip in regional markets kept the market under pressure. Oil & Gas sector remained under pressured on declining crude oil prices meanwhile PPL received battering on lower than expected earnings and payout (EPS of PRs4.8 and DPS of PRs4) for 2QFY10. Fertilizers attracted interest as FFBL posted stronger than expected 2009 result (EPS of PRs4.05 and DPS of PRs2.25) but lost its charm later in the week as FFC posted slightly below expected 2009 earnings of PRs13/sh though dividend was above expected at PRs12.76/sh. Lucky also posted 1HFY10 results in the week with somewhat better than expected earnings (PRs5.89/sh, -2% YoY) on better export volumes and we upgraded FY10-11E earnings by 2-5% on the back of the same. Positive macro data suggesting improving industrial production - +0.66% YoY in 5MFY10 on the back of some recovery in production in key sectors - failed to excite the market as FX volatility kept sentiments at bay. The T-Bill auction also turned out to be a non-event despite a 15bp cut 6-month T-bill yields, indicating that the market expects status quo in the upcoming monetary policy statement.

OUTLOOK FOR THE FUTURE

As we move further into the quarterly results season, we expect stock specific performance to dominate the broader picture. Furthermore, any positive surprise in the monetary policy statement over the weekend, in the form of a 50-100bps discount rate cut, may boost market sentiment and in particular trigger activity in heavily leveraged companies. With the market lacking broad-based triggers, we recommend focusing on sectors which may give cash/stock dividends (mainly banks, power, fertilizer and E&Ps) and advice investors to take a cherry picking approach for fundamentally strong stocks like FFC, PTCL and INDU. Within the energy chain, we recommend PPL, POL, PSO, APL, HUBC and KAPCO. Engro also offers upside to investors looking for a diversified exposure into Pakistan s deficit sectors like urea, consumers and energy.

FUNDAMENTAL CHANGES

The major developments this week were:

* INDUSTRIAL OUTPUT SLIGHTLY UP IN 5MFY10.Industrial production increased slightly YoY in 5MFY10 on the back of some recovery in production in key sectors. Ministry of Industries index grew 1.28% during the 5MFY10 and Provincial Bureau of Statistics index grew 1% during 5MFY10. The growth in the industrial output was mainly triggered by the growing demand of consumer goods and intermediate goods, however, high financing cost, growing prices of utilities and prolonged power outages in the industrial hubs are some issues impeding the growth in the industrial production.

During July-Nov, in petroleum sector, production of jet fuel oil was up 2.10%, motor spirits up 1.78% and lube oil up 1.05%, while production of kerosene oil fell by 25.76%, high speed diesel fell 4.57%, furnace oil fell 15.14%, and LPG fell 9.07%. In the food sector, production of sugar decreased 5.33%, tea blended 3.73%, starch 18.11% and beverages 11.82%. On the other hand production of vegetable ghee rose by 1.50% and cooking oil 3.02%. In auto sector, tractors production grew 30.17%, buses 7.09%, jeeps and cars 12.54% and motorcycles 47.52%. However, trucks and LCVs production fell by 5.91% and 36.22%, respectively.

* GOVERNMENT MAY CUT PSDP 2009-10 BY 50%.As per newspaper reports, the Finance Ministry has informed Planning Commission that government may cut Public Sector Development Program (PSDP) 2009-10 by 50% or over PRs210bn due to poor cash inflow of the funds pledged by Friends of Democratic Pakistan (FoDP) and delay by United States in releasing reimbursement under the Coalition Support Fund (CSF). Earlier, the government had allocated PRs421bn for federal development projects for FY10 PSDP and has released less than 30% funds by December 2009.

* FFBL: ROBUST 2009 LED BY OTHER INCOME & ASSOCIATE PROFIT.FFBL reported a strong set of 4Q09 results with both earnings & dividend surprising on the upside. 4Q09 EPS of PRs2.12 and final DPS of PRs2.25 take full-year EPS to PRs4.05 (+51% YoY and +31% on reported basis) and dividend growth to +40% YoY. Upside was driven by higher share of associate profits and other income where FFBL s own operations were largely in-line with expectations. Our key takeaways include: As expected a good quarter on the domestic DAP sales front. Given limitation of sales, the company did not have any volume gains from strong 4Q09 sales (estimated at 655k tons for the industry +35% YoY). Benefit from rich DAP and urea margins visible.

Key surprise element was higher associate income & other income, where (1) Moroccan JV PMP (FFBL stake 25%) turned profitable after posting loss for the last 3 quarters; (2) net other income increased by 612% QoQ - likely on account of return on ST investments & cash where cash on FFBL s book increased significantly in 4Q09 (from PRs5.42bn to PRs9.65bn). Current cash balance is equal to PRs10.33/sh of FFBL.

Higher DPS of PRs4.00 (vs PRs3.00 expected) will also reflect in FFC s earnings where PRs1/sh higher dividend from FFBL implies PRs0.63/sh earnings impact for FFC.

* SBP CUTS YIELDS ON 3 & 6 MONTH PAPER.The State Bank of Pakistan (SBP), on Jan 27th, accepted bids of PRs29.26bn, from auction of 3, 6 and 12-mth government Treasury Bills (MTBs). The SBP saw hefty participation with total size of PRs87.84bn. The key highlight of the auction was ~15bp decline in the cut-off yields of 6-mth paper despite tight money market conditions. SBP accepted PRs2.14bn for 3-mth bill at 11.87% (-0.04bp), PRs10.38bn for 6-mth with yield at 11.89% (-15bp), and PRs16.74bn for 12-mh with yield at 12.01% (-0.03bp). With inflation likely to edge up over the next few months, we expect SBP to keep its policy rate unchanged in the upcoming monetary policy statement.

* FFC 2009 RESULTS - EPS UP 35% YOY BUT BELOW EXPECTATIONS.FFC posted a mixed set of 2009 results where despite robust YoY earnings and dividend growth (+35% and +28% respectively), earnings came in slightly below expectations (both ours and consensus). FFC reported 4Q09 earnings of PRs3.22/sh taking full-year earnings to PRs13.00/sh. That said final DPS was higher than expected at PRs3.25 (PRs3.00 expected) taking full-year payout to PRs12.76/sh, though absence of much anticipated bonus may also have disappointed the market. Key drivers of lower-than-expected earnings in 4Q09 are (1) higher operating costs (likely on account of maintenance cost in 4Q due to partial shut-down in Oct-09); (2) higher 4Q09 effective tax rate at 37%. Meanwhile robust YoY earnings/dividend growth was led by better urea margins where we estimate urea primary margins are up 18% in 2009 on the back of 16% higher prices. While the stock corrected post result, note that FFC is currently trading at 12% 09A & 12.8% 10E D/Y. We maintain our Buy rating.

KASB Research (021-111-222-000)

THIS WEEK S TOP STORIES

Monday, January 25, 2010

IPPS-CONCERNS OVERPLAYED; VALUE REMAINS

* With higher furnace oil cost creating a drag, we tweak down FY10-11E assumptions for Pak IPPs, Hubco and Kapco, (EPS lowered 1-3%, DPS lowered 3-5%) as we factor in slower-than-earlier anticipated Wapda receivables payment in the medium term.

* That said, we believe IPPs stock price performance FY10 to date factors in a far grimmer outlook where Kapco has under-performed the KSE by 18% and Hubco by 16%. We believe market pessimism on the IPPs is overdone and re-iterate Buy for Hubco and Kapco.

* We do not underplay the importance of intercorporate debt in shaping IPPs fundamentals and investment appeal. That said, we believe the worst of the crisis is behind us given issuance of two power bonds in 2009 and substantial balance sheet easing post the same. Note that for 2009 crisis peak to re-manifest, receivables would have to double from current levels.

Farrah Marwat
(farrah.marwat@kasb.com)
Tuesday, January 26, 2010

PPL- ONE-OFF HIT DRAGS 1HFY10 EARNINGS

* PPL s 1HFY10 EPS was reported at PRs9.8 (-29%) along with cash payout of PRs4/sh. 2QFY10 EPS of PRs4.8 was 8% lower our estimate (KASB: PRs5.2) due to a PRs1.2bn one-off blow-out charge on Sui field. Excluding one-offs, EPS would be 16% higher than expected.

* QoQ, sales jumped 7% driven by combination of volumes and price improvement. Adjusted operating cost increased by a measured 14%

* 1H EPS constitutes 37% of our FY10E EPS of PRs25.8. We see strong earnings in 2H, with 20% higher gas prices and 3-4% production growth.

* A key exploration highlight in 2H is results of drilling at the deep, offshore well in Indus Block M. While a dry well could cost PRs1.3bn or PRs0.8/sh to PPL, a positive outcome could see meaningful upside to earnings/valuation.

Mohammad Fawad Khan
(fawad.khan@kasb.com)
Wednesday, January 27, 2010

LUCKY: EARNINGS UPPED POST 2QFY10 RESULTS

* Lucky announced slightly above expected 2QFY10 earnings of PRs2.48/sh (-18% YoY), taking 1HFY10 earnings to PRs5.89/sh (-2% YoY). Key standout, in our view, is relatively steady QoQ margins despite ~16% lower QoQ prices.

* Margins were sustained through a combination of (1) export volume gains where exports are priced at US$49/ton vs local retention of US$37/ton; (2) decline in production cost/bag as 2QFY10 utilization rose to 87% (from 81% in 1Q).

* Better than expected export performance cements Lucky s premium position vis--vis domestic market peers and leads to our 2-5% earnings upgrade over FY10-11E.

* That said, we would wait for higher certainty on margins before turning incrementally positive on the stock.

OGDC: ESTIMATES RAISED ON HIGHER GAS PRICES

* We upgrade our future earnings estimates for OGDC by 1-2% and raise our PO to PRs108.74/sh, up 3%.

* Trading at FY11E P/E of 7.9x, we contend OGDC is fairly valued. While OGDC stock price has jumped 32% in the last 6 months; future stock price performance is contingent on exploration newsflow, tangible progress on court cases on field development and Qadirpur gas price settlement.

* We see low possibility of resolution of Qadirpur gas price in the next six months. Since the government & JV partners in Qadirpur field reportedly agreed on a gas pricing formula in 1QCY09, the government has not given a final shape to the plan.

* With 12% higher realized oil prices and normalized effective tax rate, our initial estimates suggest OGDC 2QFY10 earnings of PRs3.12/sh, up 11% QoQ (1HFY10E EPS of PRs5.94/sh).

PAKISTAN: A REBOUNDING ASSET AT A DISCOUNT

* Negative headlines have dominated Pakistan s scene over last couple of years but the stand out feature of its investment case remains intact i.e.: a domestic demand story (50% of 170mn population is below 19) which is not correlated to peer markets.

* Flag bearer of non-correlation remains the potential of 100-150bp monetary easing (current DR: 12.5%) in CY10, when peer markets face tightening.

* Macros have stabilized under IMF but next leg up depends on 1) commodity prices, 2) better admin measures and 3) sovereign flows (IFIs, US and FoDP).

* While potential 1) monetary easing, 2) reintroduction of leverage and 3) upgrade to MSCI EM, do support a case for re-rating, 13.3% CY11E EPS growth suggests market could touch 11,000 during CY10 on the same forward PE, where abrupt capital gains tax imposition poses a risk.

KASB Research
(research@kasb.com)

STOCK MARKET SYNOPSIS

.

LAST WEEK

THIS WEEK

% CHANGE

Mkt. Cap (US$bn)

33.32

32.73

-1.77%

Avg. Dly T/O (mn. shares)

228.52

167.27

-26.80%

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

103.70

72.05

-30.52%

No. of Trading Sessions

5

5

.

KSE 100 Index

9777.59

9614.19

-1.67%

KSE ALL Share Index

6933.77

6821.14

-1.62%

Courtesy : Pakistan Economist


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