Bullion touched US$1669 an ounce yesterday before closing, with a drop of 3.54%, at US$1594 an
ounce. It reached US$1669 an ounce as Euro debt resolution became more and more doubtful.
Investors also took advantage of low prices indulging in short selling, which resulted in fluctuating
price levels.
The main demand for the metal that is causing its prices to increase is from India and China who
have always been the largest and second largest consumers of gold. Moreover, the peak season for
gold has already started in September with Eid and will continue in October and onwards owing to
Diwali and weddings which will further boost the metal’s consumption.
However, global recession threat including expected deceleration in China’s growth, falling demand of
US consumer goods etc is causing all commodities to fall, and is also spilling its effects on gold. Plus the
strengthening of dollar has also resulted in the precious metal losing its appeal as an investment
haven.
The metal has touched US$1583 an ounce today breaking the support level of US$1588 an ounce. Thus
it is possible that it dips to US$1533 an ounce once again. This period is for investors to perform short
selling; buying at around US$1587‐US$1600 and selling as it reaches US$1644‐US$1650 an ounce.
Using Fibonacci Retracements we have estimated the following resistance levels for gold:
R1=US$1651; R2=US$1714; R3=US$1793
Analyst:
Ms. Gulshan D
Ferozepurwalla*
gulshan@scstrade.com
+92‐21‐111 111 721
September 29, 2011
Pakistan Research
Commodities Daily
MARKET WATCH
(Prices as on September 28,
2011)
Open
Friday, September 30, 2011
Thursday, September 29, 2011
The fertiliser sector has been facing serious problems as a result of gas curtailments by the Sui network. It has substantially affected production, s
The fertiliser sector has been facing serious problems as a result of gas curtailments by
the Sui network. It has substantially affected production, subsequently affecting urea
sales for the 8MCY11, resulting in a fall of 3.9% as against the same period last year,
from 3.86mn tons to 3.7mn tons of urea dispatches.
Though if only the last month of August is reviewed then one would see an increase of
84.5% to 556,000 tons of Urea sales compared to 302,000 tons in August 2010. This
increase has mainly been contributed by the single train fertilizer Engro Enven, which
boosted operations by 35% to 150,000 tons on a monthly basis, and the lower
comparative production figure in the same period last year on account of devastating
floods.
However, DAP did not meet the same fate as Urea. Infact the Di‐ammonium phosphate
fertilizer witnessed an increase of 24.3% in 8MCY11 period, rising to 521,000 tons as
compared to 419,000 tons in same period last year. The reason behind the increase in
DAP sales is the shortage of Urea production and expectation of rise in DAP prices.
Thus the highlight of today’s news is the climb in DAP sales which is a positive news
for Fauji Fertilizer Bin Qasim (FFBL) as it is the sole producer of DAP in Pakistan and
hence would enjoy the largest chunk of revenue.
Moreover, as the Rabi season is nearing the DAP sales are further mounting, with
77,000 tons DAP dispatches in August 2011 alone, which is 52.9% higher than the
50,000 tons in August 2010. Thus FFBL would capitulate most of the benefits which
would be further combined with the increase in Urea production and sales on
account of gas resumption.
Thus we expect FFBL to yield an EPS of Rs9.06/sh and potential PE of 6.35x with a
DCF fair value of Rs68.2/sh.
FFBL has already shell out first and second interim dividends and is expected to give
third and fourth interim dividends which would bring the amount of total dividend to
around Rs10/sh.
We reiterate “BUY” for FFBL which has an appreciation margin of 18.6% from its
current market price of Rs57/sh.
the Sui network. It has substantially affected production, subsequently affecting urea
sales for the 8MCY11, resulting in a fall of 3.9% as against the same period last year,
from 3.86mn tons to 3.7mn tons of urea dispatches.
Though if only the last month of August is reviewed then one would see an increase of
84.5% to 556,000 tons of Urea sales compared to 302,000 tons in August 2010. This
increase has mainly been contributed by the single train fertilizer Engro Enven, which
boosted operations by 35% to 150,000 tons on a monthly basis, and the lower
comparative production figure in the same period last year on account of devastating
floods.
However, DAP did not meet the same fate as Urea. Infact the Di‐ammonium phosphate
fertilizer witnessed an increase of 24.3% in 8MCY11 period, rising to 521,000 tons as
compared to 419,000 tons in same period last year. The reason behind the increase in
DAP sales is the shortage of Urea production and expectation of rise in DAP prices.
Thus the highlight of today’s news is the climb in DAP sales which is a positive news
for Fauji Fertilizer Bin Qasim (FFBL) as it is the sole producer of DAP in Pakistan and
hence would enjoy the largest chunk of revenue.
Moreover, as the Rabi season is nearing the DAP sales are further mounting, with
77,000 tons DAP dispatches in August 2011 alone, which is 52.9% higher than the
50,000 tons in August 2010. Thus FFBL would capitulate most of the benefits which
would be further combined with the increase in Urea production and sales on
account of gas resumption.
Thus we expect FFBL to yield an EPS of Rs9.06/sh and potential PE of 6.35x with a
DCF fair value of Rs68.2/sh.
FFBL has already shell out first and second interim dividends and is expected to give
third and fourth interim dividends which would bring the amount of total dividend to
around Rs10/sh.
We reiterate “BUY” for FFBL which has an appreciation margin of 18.6% from its
current market price of Rs57/sh.
Wednesday, September 28, 2011
GOLD TRENDS 29-9-2011 Gold touched US$1533 an ounce yesterday and closed at US$1630 an ounce with a ‐0.77% change.
Gold touched US$1533 an ounce yesterday and closed at US$1630 an ounce with a ‐0.77%
change.
It touched US$1663 an ounce as investors realized that the Greece debt crisis is not going to
be solved anytime soon; in fact speculators consider it to be on the brink of a default.
However, investors are in a frenzy witnessing the augmenting dollar against the Euro, which
is reducing gold’s demand as an alternative investment to dollar and therefore want to
realize as much cash as possible by selling bullion and move towards Treasuries.
We expect gold to dwindle in short term on account of dubious investors, which may cause
the metal to touch the US$1533 low once again. However, it appears that the uncertainty of
Euro zone debt resolution is bringing investors a bit closer to gold which is maintaining its
prices above the support level of US$1583 an ounce for now. The support level of US$1648 is
very weak and the metal appears to break this level time and again in daily trading.
Furthermore, gold is expected to fall in the short term if any news related to the efforts to
resolve the Greece debt issue, surfaces.
change.
It touched US$1663 an ounce as investors realized that the Greece debt crisis is not going to
be solved anytime soon; in fact speculators consider it to be on the brink of a default.
However, investors are in a frenzy witnessing the augmenting dollar against the Euro, which
is reducing gold’s demand as an alternative investment to dollar and therefore want to
realize as much cash as possible by selling bullion and move towards Treasuries.
We expect gold to dwindle in short term on account of dubious investors, which may cause
the metal to touch the US$1533 low once again. However, it appears that the uncertainty of
Euro zone debt resolution is bringing investors a bit closer to gold which is maintaining its
prices above the support level of US$1583 an ounce for now. The support level of US$1648 is
very weak and the metal appears to break this level time and again in daily trading.
Furthermore, gold is expected to fall in the short term if any news related to the efforts to
resolve the Greece debt issue, surfaces.
Tuesday, September 27, 2011
CEMENT TREND - FFC IS THE BEST AFTER LUCKY
The rising prices of raw materials such as coal, diesel, electricity etc have grabbed the
cement companies by the throat, who are trying to develop new means of production
to cut as much as cost of production as they can. However in this time of augmenting
inflation good news has surfaced, for the cement companies i.e. Rs30 per kg bag
increase in the selling prices of cement in the northern zone. This constitutes a 7.8%
rise in prices in just one month. Newspapers are reporting retail price of Rs 415/50kg
bag.
This increase in price would benefit the northern players including major players such
as DG Khan Cement (DGKC) and Fauji Cement (FCCL). We cover both the companies.
The revenue base would witness a jump which would also compensate for any decline
in local sales or exports in the situation of a supply glut. Particularly, we expect Fauji
Cement to gain high profits on the back of increasing prices. Moreover, a discussion
with the FCCL management highlighted that FCCL’s production has increased
manifolds along with sales booming substantially in recent times. Moreover, the new
German line is fully operational thus making FCCL making one of the better players in
the industry.
We expect FCCL to yield FY12EPS in the range of Re 0.7/sh with a DCF target price of
Rs8/sh ‐ Rs9/sh.
P&L a/c Rs '000 FY09 FY10 FY11
Sales 6,953,323 4,902,396 5,788,302
Gov. levy (1,638,785) (1,093,941) (1,045,709)
Net sales 5,314,538 3,808,455 4,742,593
COS (3,627,110) (3,292,871) (3,919,540)
GP 1,687,428 5 15,584 823,053
Distribution cost (50,260) (47,737) (74,149)
Administrative expenses (103,186) (103,490) (147,938)
PBIT 1,533,982 3 64,357 600,966
Other income 1 90,424 27,220 28,053
Other operating expenses (78,173) (25,460) (36,944)
Finance cost (224,716) (41,206) (103,922)
PBT 1,421,517 3 24,911 488,153
Taxation (413,894) (74,732) (62,492)
PAT 1,007,623 2 50,179 425,661
EPS 1.43 0.31 0.52
Margins and ratios FY09 FY10 FY11 FYE12
EBIT margin 28.9% 9.6% 12.7% 14.7%
PBT margin 26.7% 8.5% 10.3% 12.5%
PAT margin 19.0% 6.6% 9.0% 9.6%
cost/sales 68.2% 86.5% 82.6% 81.9%
Source: Standard Capital Research
We continue to maintain “BUY” for FCCL and now consider it our top pick in
cement sector after Lucky Cement (LUCK).
cement companies by the throat, who are trying to develop new means of production
to cut as much as cost of production as they can. However in this time of augmenting
inflation good news has surfaced, for the cement companies i.e. Rs30 per kg bag
increase in the selling prices of cement in the northern zone. This constitutes a 7.8%
rise in prices in just one month. Newspapers are reporting retail price of Rs 415/50kg
bag.
This increase in price would benefit the northern players including major players such
as DG Khan Cement (DGKC) and Fauji Cement (FCCL). We cover both the companies.
The revenue base would witness a jump which would also compensate for any decline
in local sales or exports in the situation of a supply glut. Particularly, we expect Fauji
Cement to gain high profits on the back of increasing prices. Moreover, a discussion
with the FCCL management highlighted that FCCL’s production has increased
manifolds along with sales booming substantially in recent times. Moreover, the new
German line is fully operational thus making FCCL making one of the better players in
the industry.
We expect FCCL to yield FY12EPS in the range of Re 0.7/sh with a DCF target price of
Rs8/sh ‐ Rs9/sh.
P&L a/c Rs '000 FY09 FY10 FY11
Sales 6,953,323 4,902,396 5,788,302
Gov. levy (1,638,785) (1,093,941) (1,045,709)
Net sales 5,314,538 3,808,455 4,742,593
COS (3,627,110) (3,292,871) (3,919,540)
GP 1,687,428 5 15,584 823,053
Distribution cost (50,260) (47,737) (74,149)
Administrative expenses (103,186) (103,490) (147,938)
PBIT 1,533,982 3 64,357 600,966
Other income 1 90,424 27,220 28,053
Other operating expenses (78,173) (25,460) (36,944)
Finance cost (224,716) (41,206) (103,922)
PBT 1,421,517 3 24,911 488,153
Taxation (413,894) (74,732) (62,492)
PAT 1,007,623 2 50,179 425,661
EPS 1.43 0.31 0.52
Margins and ratios FY09 FY10 FY11 FYE12
EBIT margin 28.9% 9.6% 12.7% 14.7%
PBT margin 26.7% 8.5% 10.3% 12.5%
PAT margin 19.0% 6.6% 9.0% 9.6%
cost/sales 68.2% 86.5% 82.6% 81.9%
Source: Standard Capital Research
We continue to maintain “BUY” for FCCL and now consider it our top pick in
cement sector after Lucky Cement (LUCK).
Pakistan Petroleum Ltd (PPL)
Pakistan Petroleum Ltd (PPL) reported consistent cuts in its dividend payouts as
witnessed by market since FY08. The company had announced a dividend payout of
Rs12/sh in FY11 as against a payout of Rs9/sh and Rs13/sh in FY10 and FY09 respectively.
Years FY11 FY10 FY9 FY8 FY7 FY6 FY5
Div. % 120 90 130 155 110 90 55
Bonus % 10 20 20 10 10 ‐ ‐
Source: www.scstrade.com
Due to the concerns of circular debt coupled with the consistent flat growth observed in
Oil and Gas Sector, analysts did not expected much from PPL. The recent news updates
delineated apparent management’s intentions to discontinue dividend cuts. Thus
management is trying not to deprive its shareholders from dividend especially when
Government of Pakistan is the major shareholder and beneficiary.
PPL despite of undertaking large‐scale exploration and production activities together
with the strategic shift of focus to drilling its own oil and gas wells instead of relying on
joint venture partners to shore up the company’s depleting reserves; it is yet seems to
have its financial and liquidity position in a comfortable zone. This financial stability could
be a good omen and a trigger for the attractive cash payouts along with the customary
bonus of 10% ‐ 20%.
The biggest trigger in PPL is any news which is related to privatization since company
needs injection of investment in technology and latest equipments which could only be
possible if some able foreign partner take a direct control of the company. PPL, for many
years, is having flat gas production and its proportion of oil production is minimal in
overall ‘production mix’. At present the PPL has got weak triggers. The main trigger for
PPL is ‘price increase’ announced by the regulator OGRA on PPL’s depleting assets.
Rumors on Qadirpur subsided
We have had a discussion with many people in the company (OGDC) wherein we could
not find any thing negative happening at big gas producing field Qadirpur since it is
a perforated land in Sindh province and cannot be in any way equated with Pindori like
water log problem at Khyber Pakhtoonkhwa.
In fact a new compression plant installed is at the testing stage. The gas field reported
satisfactory sale of 501mmcfd till 6' o clock morning yesterday (which is last sale
reporting time). Any good result in testing would result in addition to gas production.
We consider this to be good news for OGDC (major stakeholder) and PPL (minor
holdings).
witnessed by market since FY08. The company had announced a dividend payout of
Rs12/sh in FY11 as against a payout of Rs9/sh and Rs13/sh in FY10 and FY09 respectively.
Years FY11 FY10 FY9 FY8 FY7 FY6 FY5
Div. % 120 90 130 155 110 90 55
Bonus % 10 20 20 10 10 ‐ ‐
Source: www.scstrade.com
Due to the concerns of circular debt coupled with the consistent flat growth observed in
Oil and Gas Sector, analysts did not expected much from PPL. The recent news updates
delineated apparent management’s intentions to discontinue dividend cuts. Thus
management is trying not to deprive its shareholders from dividend especially when
Government of Pakistan is the major shareholder and beneficiary.
PPL despite of undertaking large‐scale exploration and production activities together
with the strategic shift of focus to drilling its own oil and gas wells instead of relying on
joint venture partners to shore up the company’s depleting reserves; it is yet seems to
have its financial and liquidity position in a comfortable zone. This financial stability could
be a good omen and a trigger for the attractive cash payouts along with the customary
bonus of 10% ‐ 20%.
The biggest trigger in PPL is any news which is related to privatization since company
needs injection of investment in technology and latest equipments which could only be
possible if some able foreign partner take a direct control of the company. PPL, for many
years, is having flat gas production and its proportion of oil production is minimal in
overall ‘production mix’. At present the PPL has got weak triggers. The main trigger for
PPL is ‘price increase’ announced by the regulator OGRA on PPL’s depleting assets.
Rumors on Qadirpur subsided
We have had a discussion with many people in the company (OGDC) wherein we could
not find any thing negative happening at big gas producing field Qadirpur since it is
a perforated land in Sindh province and cannot be in any way equated with Pindori like
water log problem at Khyber Pakhtoonkhwa.
In fact a new compression plant installed is at the testing stage. The gas field reported
satisfactory sale of 501mmcfd till 6' o clock morning yesterday (which is last sale
reporting time). Any good result in testing would result in addition to gas production.
We consider this to be good news for OGDC (major stakeholder) and PPL (minor
holdings).
KSE TREND 26-9-2011
Markets ended lower on the last trading day of the week as turmoil in the international markets was reflected in KSE. Net outflow of $1.936 million was witnessed in the equities on Friday.
Further, increasing tensions with America on the issue of Haqqani network is a source of concern for investors, however, the army called an extraordinary corps commander meeting on Sunday where a source privy to discussions at the conference revealed that de-escalation efforts were afoot.
The government has lowered the GDP growth target for FY12 from 4.2% to 3.5% following an estimated loss of 2.5 million cotton bales in Sindh by recent floods
Further, increasing tensions with America on the issue of Haqqani network is a source of concern for investors, however, the army called an extraordinary corps commander meeting on Sunday where a source privy to discussions at the conference revealed that de-escalation efforts were afoot.
The government has lowered the GDP growth target for FY12 from 4.2% to 3.5% following an estimated loss of 2.5 million cotton bales in Sindh by recent floods
PSO EARNING FUTURE OUTLOOK
Break down in supply chain, fuel shortages and nationwide loading shedding
are becoming major sources of concern as PSO receivables reach a daunting
Rs155bn of which, around Rs131bn is the circular debt.
It appears that this famous bubble of circular debt is on the verge of bursting. It
has reached its limit and is creating enormous amount of problems for Pakistan
State Oil as well as for other refineries. It has hurt PSO’s liquidity massively
causing it to default on local refineries payments in this month, as a result of
Rs131bn to PSO by the power sector. In fact the companies have continuously
defaulted on its payment obligations hence hampering PSO’s ability to meet its
creditors’ payments.
This delay in payments to refineries has, in turn, affected local production
which is a sign that if not taken drastic measures immediately, our country
would suffer severe shortage of fuel causing prices of petroleum products to
reach sky high.
Moreover, the deteriorating liquidity of PSO is making it difficult for it to meet
its international obligations, for which the company is struggling very
assiduously as any default on this end would disturb supplies which would then
take months to resume, thus creating a gap in imports as well.
Hence, it is a dire need for the company to receive its payments as any further
delays in the near future would cause fuel cargoes to be deferred, as PSO has
utilized all its resources for financing future product supplies. As far as the local
production of fuel oil is concerned, it is already in melancholy and imports are
needed to curb the supply shortages to avoid increased load shedding.
In a nutshell, PSO needs to receive its rightful share of cash in the nearest
future to avoid further hindrances in local production and import of fuel oil, to
evade the severe scarcity of the concerned product, rising prices and intense
load shedding; before it gets bankrupt.
We have a ‘Sell’ stance on PSO with FY12 expected EPS in the range of
Rs57/sh‐Rs60/sh.
are becoming major sources of concern as PSO receivables reach a daunting
Rs155bn of which, around Rs131bn is the circular debt.
It appears that this famous bubble of circular debt is on the verge of bursting. It
has reached its limit and is creating enormous amount of problems for Pakistan
State Oil as well as for other refineries. It has hurt PSO’s liquidity massively
causing it to default on local refineries payments in this month, as a result of
Rs131bn to PSO by the power sector. In fact the companies have continuously
defaulted on its payment obligations hence hampering PSO’s ability to meet its
creditors’ payments.
This delay in payments to refineries has, in turn, affected local production
which is a sign that if not taken drastic measures immediately, our country
would suffer severe shortage of fuel causing prices of petroleum products to
reach sky high.
Moreover, the deteriorating liquidity of PSO is making it difficult for it to meet
its international obligations, for which the company is struggling very
assiduously as any default on this end would disturb supplies which would then
take months to resume, thus creating a gap in imports as well.
Hence, it is a dire need for the company to receive its payments as any further
delays in the near future would cause fuel cargoes to be deferred, as PSO has
utilized all its resources for financing future product supplies. As far as the local
production of fuel oil is concerned, it is already in melancholy and imports are
needed to curb the supply shortages to avoid increased load shedding.
In a nutshell, PSO needs to receive its rightful share of cash in the nearest
future to avoid further hindrances in local production and import of fuel oil, to
evade the severe scarcity of the concerned product, rising prices and intense
load shedding; before it gets bankrupt.
We have a ‘Sell’ stance on PSO with FY12 expected EPS in the range of
Rs57/sh‐Rs60/sh.
KSE TRENDS
Adm. Mullen's outburst against Pakistan's key intelligence agency ISI has some
reverberations on Pakistani politics as well as decision making of our fund manager
friends.
It’s being said that America would continue to show restraint despite threatening
posture, since any 'unilateral attack' on sanctuaries in North Waziristan may ignite
further trouble for the weak Pakistani political government. The trouble would
emanate within the streets which could wilt present 'democratic set up' wherein all
strong army could push for an interim set up. The shaping up of this scenario is now
evident from recent overtures by army top brass in Pakistan's troubled Sindh province
whereby army chief exchanged notes with Karachi based businessmen that indicate
increased interest to trigger 'political change'. Till now army has shown restraint
despite economic meltdown given political expediency.
In light of this we pronounce that funds should keep FFBL since it would continue to
dominate investors interest since it still provide 30% upside from present price. Many
analysts have failed to capture real value in FFBL (given lack of understanding on agridynamics
+ co relation with international price) and this is evident from funds holding
position on the stock.
Secondly, other fertilizer players are also at an advantageous position such as FFC
and Fatima (we see FFC and Fatima touching new highs). We do not like holding
company i.e. Engro Corp and instead would like investors to wait for Engro Fertilizer
IPO.
Among oil explorers, it is Pakistan Oilfields which continues to remain 'favorite'
despite delays coming in Domial2 (presence of 1mmcfd gas + company's inability of not
lifting thick oil) that would keep investors at tenterhooks. Though, we like OGDC due
to developments in Zin Block where 85 development wells are planned.
Among emerging players, investors should not forget new German plant of Fauji
Cement (FCCL; target price Rs 8/sh) which is now under production. People would
only realize value once it would make a Lotpta like journey in coming months. Among
other emerging players, Engro Foods (EFoods) also provide value.
Among banks, MCB and BAFL provide value (we like BAFL since it provides lot of
liquidity). Despite liquidity constraints, ABL is also a good option.
The developing political situation, though would initially send shivers down the spine,
is likely to give 'sign of relief' to investors in and around December 11'. At present
investors are wary from the current political impasse and are hesitating on filing CGT
returns.
reverberations on Pakistani politics as well as decision making of our fund manager
friends.
It’s being said that America would continue to show restraint despite threatening
posture, since any 'unilateral attack' on sanctuaries in North Waziristan may ignite
further trouble for the weak Pakistani political government. The trouble would
emanate within the streets which could wilt present 'democratic set up' wherein all
strong army could push for an interim set up. The shaping up of this scenario is now
evident from recent overtures by army top brass in Pakistan's troubled Sindh province
whereby army chief exchanged notes with Karachi based businessmen that indicate
increased interest to trigger 'political change'. Till now army has shown restraint
despite economic meltdown given political expediency.
In light of this we pronounce that funds should keep FFBL since it would continue to
dominate investors interest since it still provide 30% upside from present price. Many
analysts have failed to capture real value in FFBL (given lack of understanding on agridynamics
+ co relation with international price) and this is evident from funds holding
position on the stock.
Secondly, other fertilizer players are also at an advantageous position such as FFC
and Fatima (we see FFC and Fatima touching new highs). We do not like holding
company i.e. Engro Corp and instead would like investors to wait for Engro Fertilizer
IPO.
Among oil explorers, it is Pakistan Oilfields which continues to remain 'favorite'
despite delays coming in Domial2 (presence of 1mmcfd gas + company's inability of not
lifting thick oil) that would keep investors at tenterhooks. Though, we like OGDC due
to developments in Zin Block where 85 development wells are planned.
Among emerging players, investors should not forget new German plant of Fauji
Cement (FCCL; target price Rs 8/sh) which is now under production. People would
only realize value once it would make a Lotpta like journey in coming months. Among
other emerging players, Engro Foods (EFoods) also provide value.
Among banks, MCB and BAFL provide value (we like BAFL since it provides lot of
liquidity). Despite liquidity constraints, ABL is also a good option.
The developing political situation, though would initially send shivers down the spine,
is likely to give 'sign of relief' to investors in and around December 11'. At present
investors are wary from the current political impasse and are hesitating on filing CGT
returns.
Monday, September 26, 2011
GOLD TRENDS third support level of US$1650 an ounce by touching US$1628 an ounce on September 23, 2011. It opened today at US$1650 an ounce an
Gold has broken its third support level of US$1650 an ounce by touching US$1628 an ounce
on September 23, 2011. It opened today at US$1650 an ounce and is hovering at US$1597 an
ounce. This decline has been brought about by the rise in dollar against a basket of
currencies, the efforts by European leaders to come up with new ways to resolve the debt
issue and the decision by the Fed to replace short term debt to long term bonds. Moreover,
the fear of global recession has caused investors to sell their metal holdings and realize
whatever gains they can and as fast as they can.
We expect the metal to touch US$1475 an ounce in the short term and go further beyond
this level if investors continue to invest in dollar and divest from gold.
However, this decline is expected to reverse by the end of December 2011 as we should not
forget that the US debt is still lingering, the Euro zone debt crisis is still unresolved,
unemployment is not declining and growth is decelerating in the large world economies.
Moreover, a quantitative leasing‐3 is expected in 2012 which would support gold causing it to
once again become an investment haven.
It is also very likely that investors start buying the precious metal at these low prices,
resulting in an increase in demand for bullion and subsequently raising prices.
on September 23, 2011. It opened today at US$1650 an ounce and is hovering at US$1597 an
ounce. This decline has been brought about by the rise in dollar against a basket of
currencies, the efforts by European leaders to come up with new ways to resolve the debt
issue and the decision by the Fed to replace short term debt to long term bonds. Moreover,
the fear of global recession has caused investors to sell their metal holdings and realize
whatever gains they can and as fast as they can.
We expect the metal to touch US$1475 an ounce in the short term and go further beyond
this level if investors continue to invest in dollar and divest from gold.
However, this decline is expected to reverse by the end of December 2011 as we should not
forget that the US debt is still lingering, the Euro zone debt crisis is still unresolved,
unemployment is not declining and growth is decelerating in the large world economies.
Moreover, a quantitative leasing‐3 is expected in 2012 which would support gold causing it to
once again become an investment haven.
It is also very likely that investors start buying the precious metal at these low prices,
resulting in an increase in demand for bullion and subsequently raising prices.
KSE MARKET TRENDS 26-9-2011 The possibility of fallouts of straining relationship between two allies weighed heavily over the market. Panic selling
KSE MARKET TRENDS 26-9-2011
The possibility of fallouts of straining relationship between two allies weighed heavily over the market. Panic selling was witnessed by the local investors whereas positive net flow of $1 million was witnessed from the foreign investors.
Political analyst believes that there is a likelihood of de-escalating in crisis between Pakistan and the US as the former started consultation with some of its close allies including China and Saudi Arabia . The PM of Pakistan also called an All Parties Conference on September 29th to discuss the situation.
The SBP has decided to intervene to halt the depletion in the Pakistani Rupee (PKR) against the US Dollar (USD). PKR traded over Rs. 90 in the open market yesterday.
Friday, September 16, 2011
PPL is seeking Joint venture with Iranian oil companies
PPL is seeking Joint venture with Iranian oil companies
According to KSE notices, PPL is seriously considering Joint venture operation in oil and gas exploration sector of Iran with Iranian oil companies (Joint venture will lead stake in different blocks of Pakistan and Iran). Company is evaluating different options in oil and exploration sector. However, company has not finalized any agreement with Iranian oil companies. If any contract finalized between PPL and Iranian oil companies it will have huge positive impact on PPL as Iran have huge oil and gas reserves.
We maintain our Buy stance on PPL with target price of PKR 259/share.
Thanks and Best Regards,
Research Department
Phone : 0092-21-35317703
Fax : 0092-21-5895328
M.M. Group of Companies
MM Tower, 3-C, Khayaban-e-Ittehad
Phase – II extension
D.H.A, Karachi
PPL is seeking Joint venture with Iranian oil companies
PPL is seeking Joint venture with Iranian oil companies
According to KSE notices, PPL is seriously considering Joint venture operation in oil and gas exploration sector of Iran with Iranian oil companies (Joint venture will lead stake in different blocks of Pakistan and Iran). Company is evaluating different options in oil and exploration sector. However, company has not finalized any agreement with Iranian oil companies. If any contract finalized between PPL and Iranian oil companies it will have huge positive impact on PPL as Iran have huge oil and gas reserves.
We maintain our Buy stance on PPL with target price of PKR 259/share.
Thanks and Best Regards,
Research Department
Phone : 0092-21-35317703
Fax : 0092-21-5895328
M.M. Group of Companies
MM Tower, 3-C, Khayaban-e-Ittehad
Phase – II extension
D.H.A, Karachi
Gold fell yesterday by 0.66% closing at US$1824 an ounce after touching US$1844 an ounce.
Gold fell yesterday by 0.66% closing at US$1824 an ounce after touching US$1844 an ounce. This
decline has been mainly caused by the news that French and German officials are convinced that the
debt issue would be resolved and that countries are being probed to incur efforts to do so.
French President Nicolas Sarkozy and German Chancellor Angela Merkel received international calls to
increase efforts in combating the European debt crisis.
According to recent news UBS AG (UBSN), Switzerland’s biggest bank, faced a trading loss of about
$2bn owing to unauthorised trading at its investment bank. However, European stocks were not
affected by this news and instead climbed as the assurance from Germany and France, that Greece will
remain a member of the euro, outweighed this huge trading loss.
Gold also declined as vice chairman of the China’s top economic planning agency stated that China is
willing to help the debt burdened European nation by buying Euro bonds from countries who are
involved in this debt nightmare.
If gold closes below the US$1793 support level it is feared to reach around US$1700‐ US$1740 an
ounce. However, if the plans to resolve the debt issue are not soon put into action, the bullion may rise
to a resistance level of around US$1880 an ounce.
In the short term we expect gold to hover at low prices as the US stock market is reviving, the Jobs
plan is under consideration and the European debt issue is under scrutiny.
decline has been mainly caused by the news that French and German officials are convinced that the
debt issue would be resolved and that countries are being probed to incur efforts to do so.
French President Nicolas Sarkozy and German Chancellor Angela Merkel received international calls to
increase efforts in combating the European debt crisis.
According to recent news UBS AG (UBSN), Switzerland’s biggest bank, faced a trading loss of about
$2bn owing to unauthorised trading at its investment bank. However, European stocks were not
affected by this news and instead climbed as the assurance from Germany and France, that Greece will
remain a member of the euro, outweighed this huge trading loss.
Gold also declined as vice chairman of the China’s top economic planning agency stated that China is
willing to help the debt burdened European nation by buying Euro bonds from countries who are
involved in this debt nightmare.
If gold closes below the US$1793 support level it is feared to reach around US$1700‐ US$1740 an
ounce. However, if the plans to resolve the debt issue are not soon put into action, the bullion may rise
to a resistance level of around US$1880 an ounce.
In the short term we expect gold to hover at low prices as the US stock market is reviving, the Jobs
plan is under consideration and the European debt issue is under scrutiny.
Friday, September 9, 2011
Lucky Cement Company Ltd. (LUCK)-Result Preview
Lucky Cement Company Ltd. (LUCK)-Result Preview
Lucky Cement Ltd. (LUCK) board is expected to announce its 1HFY11 result on January 31, 2010. We expect the company to post PAT of Rs1,643 mn (EPS: 5.08) in 1HFY11 versus PAT of Rs1,908 mn (EPS: 5.90) in corresponding period last year, a decline of (-13.9% YoY).
Lucky tackling all odds smartly
Lucky tackling all odds smartly
LUCKY cement likely to post PAT of Rs3,703 mn (EPS: 11.45) for FY11, up by (+18% YoY) versus PAT of Rs3,137 mn (EPS: 9.70) in corresponding period last year. Growth in profitability to stem from higher local / export cement prices by (+38.38% / +20.40% YoY) respectively, consequently topline would propel by (+19.43% YoY).
We recommend ‘BUY’ for the stock currently trading at P/E 5.97x - FY11E, our target price is Rs85.76/ share, offers upside of 25.38%.
Millat Tractors drop in earnings QoQ
Millat Tractors drop in earnings QoQ
Millat Tractors Ltd. (MTL) is scheduled to announce its 9MFY11 results on 25th April, 2011. We expect the company to post PAT of Rs1,636mn (EPS: 44.70) as against PAT of Rs1,611mn (EPS: 44.0) in corresponding period last year, a slight increase of (+1.58% YoY).
Bank Alfalah profitability to grow (+9.5% YoY)
Bank Alfalah profitability to grow (+9.5% YoY)
Bank Alfalah Ltd. (BAFL) is scheduled to hold its 1QCY11 result meeting on April 23, 2011. We expect the bank to post PAT of Rs642 mn (EPS: 0.48) versus PAT of Rs586 mn (EPS: 0.43) in corresponding period last year, growth of (9.48% YoY).
Company Update- FATIMA Fertilizer – Ready to take off
Investment Perspective We initiate the coverage of Fatima Fertilizer with BUY recommendation. Our DCF based June-12 TP of Rs18.75/ offers an upside potential of 25.6% from its last close. Product mix to add value to the company’s profitability.
Fatima’s product line consists of
UREA – (Production Capacity 500k tons)
CAN – Substitute of Urea and cheaper by 10%-15% (Production Capacity 420k tons)
NPK- Substitute of DAP and cheaper by 40-45% (Production Capacity 300-320k tons)
Dedicated gas supply of 110mmcfd from MARI network – currently considered best among SNGP/SSGC due to no interruption in gas supply. The feed gas supply is available for 10 years at USD 0.7/mmbtu or (Rs60/mmbtu as against Rs102/mbbtu available to other players) and beyond this period expiration feed gas price would be revised at par with industry rates Fatima is enjoying benefit from both Urea and CAN owing to significant rise in both products prices. Urea was sold around Rs830/ bag in mid Dec-10 now available at Rs1,060/ bag (ex GST) (+27.7%) and CAN was available at Rs710/ bag and now at Rs975/ bag (ex GST) (+37.32%). There is no change in feed gas price for Fatima except slight curtailment of gas by 8-10% on Mari network. Any hike in Urea price
Any hike in Urea price would also be followed by CAN. We have calculated the sensitivity of change in price of UREA & CAN on the profitability of the company. Increase of Rs100/ bag in (UREA and CAN) would improve the earnings of Fatima by EPS 0.50, considering no change in feed gas/fuel cost. NP/NPK which trades at significantly lower price than DAP and key players of this product are Engro, PakArab and importers. We have analysed past trend of NP/NPK vs DAP, outcome depicts demand increases for NP/NPK when DAP gets abnormally expensive as was witnessed 2 years back in global commodity price upswing. Since 16% GST DAP has become expensive and currently at Rs4,100/ bag versus NP at Rs2,700/ bag.
Primary margins on CAN/UREA/NP would remain less volatile and high compared to peers mainly due to cheaper gas availability and stable PhosRock prices the main raw material of NP Company to gain additional income CER in the vicinity of Rs900-1,000 mn and any revision in price to benefit more. Bottom line impact to the tune of EPS 0.50 We expect Fatima to start paying cash dividends from CY12 onwards, more over currently stock is trading at compelling CY12e & CY13e P/E of 5.28x & 4.99x respectively. Our channel check suggests COD likely to be achieved in July’11.
Fatima’s product line consists of
UREA – (Production Capacity 500k tons)
CAN – Substitute of Urea and cheaper by 10%-15% (Production Capacity 420k tons)
NPK- Substitute of DAP and cheaper by 40-45% (Production Capacity 300-320k tons)
Dedicated gas supply of 110mmcfd from MARI network – currently considered best among SNGP/SSGC due to no interruption in gas supply. The feed gas supply is available for 10 years at USD 0.7/mmbtu or (Rs60/mmbtu as against Rs102/mbbtu available to other players) and beyond this period expiration feed gas price would be revised at par with industry rates Fatima is enjoying benefit from both Urea and CAN owing to significant rise in both products prices. Urea was sold around Rs830/ bag in mid Dec-10 now available at Rs1,060/ bag (ex GST) (+27.7%) and CAN was available at Rs710/ bag and now at Rs975/ bag (ex GST) (+37.32%). There is no change in feed gas price for Fatima except slight curtailment of gas by 8-10% on Mari network. Any hike in Urea price
Any hike in Urea price would also be followed by CAN. We have calculated the sensitivity of change in price of UREA & CAN on the profitability of the company. Increase of Rs100/ bag in (UREA and CAN) would improve the earnings of Fatima by EPS 0.50, considering no change in feed gas/fuel cost. NP/NPK which trades at significantly lower price than DAP and key players of this product are Engro, PakArab and importers. We have analysed past trend of NP/NPK vs DAP, outcome depicts demand increases for NP/NPK when DAP gets abnormally expensive as was witnessed 2 years back in global commodity price upswing. Since 16% GST DAP has become expensive and currently at Rs4,100/ bag versus NP at Rs2,700/ bag.
Primary margins on CAN/UREA/NP would remain less volatile and high compared to peers mainly due to cheaper gas availability and stable PhosRock prices the main raw material of NP Company to gain additional income CER in the vicinity of Rs900-1,000 mn and any revision in price to benefit more. Bottom line impact to the tune of EPS 0.50 We expect Fatima to start paying cash dividends from CY12 onwards, more over currently stock is trading at compelling CY12e & CY13e P/E of 5.28x & 4.99x respectively. Our channel check suggests COD likely to be achieved in July’11.
DML Exim Private Ltd, India
DML Exim Private Ltd, India
Dear Sirs,
Kindly refer to our earlier communication regarding non-payment of an amount of US$ 568,934.90 by above mentioned supplier from India, awarded to us by International Cotton Association, Liverpool, U.K. on 21/12/2010.
Since DML Exim (Pvt) Ltd. failed to honor their commitment of supply of Cotton, we had gone for arbitration to International Cotton Association, Liverpool, UK. Who awarded decree in our favor. We therefore hereby request you to issue a circular to all the member that they should be very cautious in dealing with this party whose complete address is given below:
DML Exim Private Limited
405, Embassy Tower
Opp. Jubilee Garden
Jawahar Road, Rajkot 360 001
Gujarat, India
Tel: +91 281 222 9182-3
Fax: +91 281 223 0505, 2220409
Email: logistics@dmlgroup.in
(Company Owned by Mr. Harishkumar Lakahni)
They have backed out on their commitment and even not honoring the award of International Cotton Association, Liverpool, U.K.’s pronouncement who have awarded us the above amount. A copy of the Award is enclosed for your record and ready reference.
Cement Sector Update-4Q profitability outlook
Cement Sector Update-4Q profitability outlook
Outgoing FY11 for cement sector was a negative growth year since 2001. Cement dispatches fell by -8.23% YoY to 31.3 mn tons, the accurate figure previously projected by our research team. In last 5 years the dispatches CAGR remained 6.66% with bulk of growth came from exports (+30.82% 5Yr CAGR). Exports were 3.2mn tons in FY07 and closed the year FY11 at 9.41mn tons where as local dispatches posted insignificant growth of 1.09% 5YR CAGR.
Culprits behind the downfall were; floods badly marred the demand for cements coupled with slowing down economy growth, political unrest and law & order.
4Q Profitability to upsize for IIS cement universe players
Cement dispatches for 4Q11 remained 8.6 mn tons (+7.4% Q/Q) and cement prices scaled up by +34% Q/Q for the quarter to Rs390/ bag. Subsequently retention prices for the cement players improved for the quarter and margins would remain on higher side. We estimate 4Q11 earnings for LUCK, DGKC and ACPL to remain 3.43/ share (+9% Q/Q), 0.71/ share and 2.85/ share (+30% Q/Q) respectively.
Price decline and 1Q12 dispatches outlook
Post budget price reduction was not fully passed on by the players with slight decline of Rs10-12/ bag on different brands. As per historical analysis for (Apr-Sep) period, 55-60% cement sector dispatches comes from this period (considering Apr-Mar financial year). We believe in 1Q12 dispatches momentum to continue and register further profitability growth for the sector. In our opinion Lucky and DGKC cement to benefit most from this likely scenario and would remain in limelight. We expect 1Q12 cement dispatches to grow by (+9% YoY) largely due to low base effect in 1Q11 (due to floods) and support to continue from summer season construction demand.
We believe going forward cement demand to stem mainly from much needed country wide infrastructure development and DAMs construction for energy needs. We expect sectors’ dispatches to grow by 3.5% CAGR for next 5 years.
Outgoing FY11 for cement sector was a negative growth year since 2001. Cement dispatches fell by -8.23% YoY to 31.3 mn tons, the accurate figure previously projected by our research team. In last 5 years the dispatches CAGR remained 6.66% with bulk of growth came from exports (+30.82% 5Yr CAGR). Exports were 3.2mn tons in FY07 and closed the year FY11 at 9.41mn tons where as local dispatches posted insignificant growth of 1.09% 5YR CAGR.
Culprits behind the downfall were; floods badly marred the demand for cements coupled with slowing down economy growth, political unrest and law & order.
4Q Profitability to upsize for IIS cement universe players
Cement dispatches for 4Q11 remained 8.6 mn tons (+7.4% Q/Q) and cement prices scaled up by +34% Q/Q for the quarter to Rs390/ bag. Subsequently retention prices for the cement players improved for the quarter and margins would remain on higher side. We estimate 4Q11 earnings for LUCK, DGKC and ACPL to remain 3.43/ share (+9% Q/Q), 0.71/ share and 2.85/ share (+30% Q/Q) respectively.
Price decline and 1Q12 dispatches outlook
Post budget price reduction was not fully passed on by the players with slight decline of Rs10-12/ bag on different brands. As per historical analysis for (Apr-Sep) period, 55-60% cement sector dispatches comes from this period (considering Apr-Mar financial year). We believe in 1Q12 dispatches momentum to continue and register further profitability growth for the sector. In our opinion Lucky and DGKC cement to benefit most from this likely scenario and would remain in limelight. We expect 1Q12 cement dispatches to grow by (+9% YoY) largely due to low base effect in 1Q11 (due to floods) and support to continue from summer season construction demand.
We believe going forward cement demand to stem mainly from much needed country wide infrastructure development and DAMs construction for energy needs. We expect sectors’ dispatches to grow by 3.5% CAGR for next 5 years.
FFBL Investment in WPP a diversification in right direction
FFBL Investment in WPP a diversification in right direction
Investment in WPP a diversification in right direction
FFBL is investing in wind power project with 50mw of 2 projects and FFBL’s share is 35% in each project. Financial close is expected in 2HFY11 and plants to come online in 2H13. Project cost is Rs11bn each and debt:equity ratio would be 75:25.. We expect cash payout for CY11 could fall to 80% keeping in view the financing share from FFBL in the project.
Valuation:
The stock is currently trading at CY11E P/E 6.32x and offers dividend yield of 15.64% along with capital gain of 7.7%, our TP for the stock is Rs47.54/ share.
Investment in WPP a diversification in right direction
FFBL is investing in wind power project with 50mw of 2 projects and FFBL’s share is 35% in each project. Financial close is expected in 2HFY11 and plants to come online in 2H13. Project cost is Rs11bn each and debt:equity ratio would be 75:25.. We expect cash payout for CY11 could fall to 80% keeping in view the financing share from FFBL in the project.
Valuation:
The stock is currently trading at CY11E P/E 6.32x and offers dividend yield of 15.64% along with capital gain of 7.7%, our TP for the stock is Rs47.54/ share.
Urea margins growth unabated
Urea margins growth unabated
Major reason behind such increase in profitability is due to increase in average prices by +32% YoY to Rs1,037/ bag for the period under review as against Rs787/ bag in 1H10. However there was no change in feed stock gas price which improved the company’s gross margin and likely to remain 56.5% in 1H11 as against 44.3% in 1H10. Despite all this company’s production remained on lower side by (-5.5% YoY) to 1,172k tons, consequently offtake also dipped by (-4.6% YoY) to 1,174k tons.
Major reason behind such increase in profitability is due to increase in average prices by +32% YoY to Rs1,037/ bag for the period under review as against Rs787/ bag in 1H10. However there was no change in feed stock gas price which improved the company’s gross margin and likely to remain 56.5% in 1H11 as against 44.3% in 1H10. Despite all this company’s production remained on lower side by (-5.5% YoY) to 1,172k tons, consequently offtake also dipped by (-4.6% YoY) to 1,174k tons.
FFC OUTLOOK
We believe 2H11 would also be a good period for FFC because urea prices one again increased to Rs1,340/ bag and will definitely have positive impact on 3Q11 earnings. Any hike in urea price by Sui network players would favor FFC but additional curtailment on Mari network or hike in feed gas price for Mari network could hamper earnings growth. At current levels the stock is trading at CY11 P/E of 6.83x and offers a dividend yield of 14.26%. We recommend Hold stance for the scrip, as we believe such high urea margins would not sustain in CY12 and onwards
FFBL’s superb earnings adding more value
FFBL’s superb earnings adding more value
FFBL’s cumulative dividend of Rs4.75/ share will have an EPS impact of 2.40/ share in 1H11 earnings of FFC. Improved margins on DAP resulted in bumper earnings of FFBL, hence adding value to FFC’s bottom line. We expect other income to improve by (+79% YoY) to Rs2,730 mn in 1H11 as against Rs1,525 mn in 1H10. Company’s other charges and distribution expenses are likely to swell by +38% YoY and +15% YoY respectively.
FFBL’s cumulative dividend of Rs4.75/ share will have an EPS impact of 2.40/ share in 1H11 earnings of FFC. Improved margins on DAP resulted in bumper earnings of FFBL, hence adding value to FFC’s bottom line. We expect other income to improve by (+79% YoY) to Rs2,730 mn in 1H11 as against Rs1,525 mn in 1H10. Company’s other charges and distribution expenses are likely to swell by +38% YoY and +15% YoY respectively.
Fauji Fertilizer Company Ltd. (FFC) - 2QCY11 Result Preview
Fauji Fertilizer Company Ltd. (FFC) - 2QCY11 Result Preview
Fauji Fertilizer Company Ltd. (FFC) is scheduled to announce its 2QCY11 result on July 29, 2011. We expect the company to post PAT of Rs 8,773mn (EPS: 10.34) versus PAT of Rs 5,101mn (EPS: 6.01) in corresponding period last year, an upsurge of (+72% YoY). On top of the stellar performance we expect the company may announce cash dividend of Rs5.25/ per share.
KSE INVESTMENT TIME
Keeping in view the recent downfall of KSE100 Index from 12,576 level on Jul 5, 2011 to 10,900 level currently trading (-13.3%), dividend yielding stocks have become very attractive compared to fixed income investments based on forward earnings of CY11/FY12. As per our analysis multiple stocks offer dividend yield above 15% on their future earnings compared to fixed income paper yields in the range of 13-14%, moreover these stocks are trading on low P/E multiples. The decline in price of these stocks from their recent highs ranges from (-3% to -18%). We strongly recommend investors to invest in promising dividend yielding stocks that also offers capital gain on top of it. Following table shows the prospective yields on selected stocks.
MCB Bank: Announcement update……CY11 PE 7.6x
MCB Bank: Announcement update……CY11 PE 7.6x
MCB Bank Ltd has announced its 1HCY11 results showing an EPS of Rs 12.64/sh as
against Rs 9.5/sh in the corresponding period last year. MCB’s profit after tax mounted
to Rs 10.57bn as against Rs 7.94bn in the same period last year showing Y‐o‐Y growth of
33%. Interim dividend of Rs 3/sh has also been announced, which accumulated with 1Q
dividend became a total dividend of Rs 6/sh. (6 monthly div. yield – 3.1%)
Better NIMs…
Net Interest Income (NII) maintained its pace demonstrating y‐o‐y increase of 25.6%
mounting Rs 22.23bn (CY10: Rs 17.7bn); on account of High Net Interest Margins (NIM)
which stood at 7.9% in CY10 translating a highest NIM among big five banks.
Likewise to all the other big banks that are now preferably investing more in government
papers, growth in NII may have been mostly contributed by the yields of government
papers.
Provisions increased
MCB’s non performing loans (NPL) began to cumulate with high velocity. This was same
for MCB, who experienced a rise in provisions by 18.3% y‐o‐y.
Riding on non core income….
MCB being one of the premier banks in Pakistan is riding on better technology initiatives
thus recorded a healthy increase of 38.8% y‐o‐y basis in non core operations which is
forming a 33% part in overall profits (1HCY10: 31%). Apart from trade finance operations
bank also made gains via ‘investment oriented’ equity markets.
MCB to trade on requisite PE
We like MCB which is yielding 7.6x CY11 PE. We will come up with a detailed overview on
MCB once detailed 1HCY11 accounts are unveiled.
MCB Bank Ltd has announced its 1HCY11 results showing an EPS of Rs 12.64/sh as
against Rs 9.5/sh in the corresponding period last year. MCB’s profit after tax mounted
to Rs 10.57bn as against Rs 7.94bn in the same period last year showing Y‐o‐Y growth of
33%. Interim dividend of Rs 3/sh has also been announced, which accumulated with 1Q
dividend became a total dividend of Rs 6/sh. (6 monthly div. yield – 3.1%)
Better NIMs…
Net Interest Income (NII) maintained its pace demonstrating y‐o‐y increase of 25.6%
mounting Rs 22.23bn (CY10: Rs 17.7bn); on account of High Net Interest Margins (NIM)
which stood at 7.9% in CY10 translating a highest NIM among big five banks.
Likewise to all the other big banks that are now preferably investing more in government
papers, growth in NII may have been mostly contributed by the yields of government
papers.
Provisions increased
MCB’s non performing loans (NPL) began to cumulate with high velocity. This was same
for MCB, who experienced a rise in provisions by 18.3% y‐o‐y.
Riding on non core income….
MCB being one of the premier banks in Pakistan is riding on better technology initiatives
thus recorded a healthy increase of 38.8% y‐o‐y basis in non core operations which is
forming a 33% part in overall profits (1HCY10: 31%). Apart from trade finance operations
bank also made gains via ‘investment oriented’ equity markets.
MCB to trade on requisite PE
We like MCB which is yielding 7.6x CY11 PE. We will come up with a detailed overview on
MCB once detailed 1HCY11 accounts are unveiled.
PSO Review‐ Tax reversals resulting in astonishing EPS………………… BUY @Rs215.95/sh
Pakistan Sate Oil (PSO) announced its FY11 results which were quite in line with our expectations as
far as various heads in profit and loss account. However, the EPS of Rs86/sh, showing a 63% increase
from prior year, was way beyond our expectations and was caused by tax reversals that are normally
not in the knowledge of the analysts.
The major reason behind the unexpected results demonstrated by the highly augmented EPS of
Rs86.17/sh is the taxation amount of Rs3.19bn which declined by 64% from prior year. The cause of
this huge decline is the losses suffered by PSO in the past which were reversed in FY11.
The company reported net sales of Rs974bn being 10% higher from the prior year sales of Rs877bn.
This increase was mainly attributable to the price hikes in petroleum products viz. HSD, FO, MOGAS
etc. from which the company tend to benefit.
far as various heads in profit and loss account. However, the EPS of Rs86/sh, showing a 63% increase
from prior year, was way beyond our expectations and was caused by tax reversals that are normally
not in the knowledge of the analysts.
The major reason behind the unexpected results demonstrated by the highly augmented EPS of
Rs86.17/sh is the taxation amount of Rs3.19bn which declined by 64% from prior year. The cause of
this huge decline is the losses suffered by PSO in the past which were reversed in FY11.
The company reported net sales of Rs974bn being 10% higher from the prior year sales of Rs877bn.
This increase was mainly attributable to the price hikes in petroleum products viz. HSD, FO, MOGAS
etc. from which the company tend to benefit.
Lofty fertilizer prices….
Lofty fertilizer prices….
The fertilizer prices are witnessing a continuous hike on account of various factors.
Firstly, the gas curtailments have caused reduced production hence resulting in
increased urea prices. Secondly, hoarders are hoarding fertilizers (DAP and Urea),
waiting for the right time to release the stocks and gain on high offers. Thirdly, the vast
fields which were destroyed by the devastating floods are now gradually being revived
by the farmers who are trying hard to make good the losses they suffered, hence
subsequently increasing demand of the fertilizers. Fourthly, it is imperative to check
the smuggling of fertilizers which creates shortages in the country and tends to
increase local prices.
One major drawback of the soaring urea and DAP prices is the burdened farmers who
are being trampled by the hoarders. This pressure of increasing prices on the farmers is
causing a decrease in demand for DAP and Urea. But one can argue that the contracted
demand is not majorly affecting sales as even with the reduction in demand our local
production of urea is so low that the government feels the need to import it every
year. Infact recently the government needs surged to 1mn tons import of urea for the
Rabi season in order to meet the farmers’ requirements.
The DAP prices are currently at Rs4050/50kg bag with urea prices rising to
Rs1234/50kg bag. A further increase is expected as gas supply from SNGPL would be
stopped from August 28, 2011 to September 17, 2011, on account of maintenance of
Qadirpur gas field. However, this hike in price would offset the decline in production
caused by gas shortages and increase sales revenue for the fertilizer companies.
The fertilizer prices are witnessing a continuous hike on account of various factors.
Firstly, the gas curtailments have caused reduced production hence resulting in
increased urea prices. Secondly, hoarders are hoarding fertilizers (DAP and Urea),
waiting for the right time to release the stocks and gain on high offers. Thirdly, the vast
fields which were destroyed by the devastating floods are now gradually being revived
by the farmers who are trying hard to make good the losses they suffered, hence
subsequently increasing demand of the fertilizers. Fourthly, it is imperative to check
the smuggling of fertilizers which creates shortages in the country and tends to
increase local prices.
One major drawback of the soaring urea and DAP prices is the burdened farmers who
are being trampled by the hoarders. This pressure of increasing prices on the farmers is
causing a decrease in demand for DAP and Urea. But one can argue that the contracted
demand is not majorly affecting sales as even with the reduction in demand our local
production of urea is so low that the government feels the need to import it every
year. Infact recently the government needs surged to 1mn tons import of urea for the
Rabi season in order to meet the farmers’ requirements.
The DAP prices are currently at Rs4050/50kg bag with urea prices rising to
Rs1234/50kg bag. A further increase is expected as gas supply from SNGPL would be
stopped from August 28, 2011 to September 17, 2011, on account of maintenance of
Qadirpur gas field. However, this hike in price would offset the decline in production
caused by gas shortages and increase sales revenue for the fertilizer companies.
Global slowdown benefiting gold
Once again bullion experienced a rise on account of fear of global economic slowdown. It touched
US$1794 an ounce before closing at US$1787 an ounce hence displaying a minor positive change of
0.07%.
This global economic deceleration is evident from the following important information:
• In London, the national unemployment total increased more than forecast, with an increase
of 38,000 to 2.49mn.
• There have been forecasts for a slower growth in China.
• Bad loans at Chinese banks are expected to rise to very high levels, hence eroding profits and
slowing growth. China’s local governments are trying hard to repay their debt.
• Japan’s exports fell more than expected in July on account of global slowdown and declining
overseas currencies.
􀂾 The exports decreased 3.3% in July as compared to same period last year.
ô€‚¾ Exports to China, which is Japan’s largest overseas market, dropped 1% in July.
Shipments to the U.S. declined by 8.2% and witnessed a 6% increase to those made
to the European Union.
• Japan’s GDP reduced at an annual rate of 1.3% in the 3months ended June 30 owing to the
earthquake that interrupted manufacturers’ supply chains.
• Germany's GDP increased by a meagre 0.1% in the 2nd quarter which was less than the
expected increase of 0.5%.
The above factors are attracting investors towards the yellow metal as an investment haven and
causing a hike in price day after day. Hence, on the basis of the continuing economic slowdown and
the unresolved European debt crisis, we expect gold to increase further and cross the US$1814 mark.
However, a fall to US$1752 an ounce could be expected once more as the metal is soaring too high
US$1794 an ounce before closing at US$1787 an ounce hence displaying a minor positive change of
0.07%.
This global economic deceleration is evident from the following important information:
• In London, the national unemployment total increased more than forecast, with an increase
of 38,000 to 2.49mn.
• There have been forecasts for a slower growth in China.
• Bad loans at Chinese banks are expected to rise to very high levels, hence eroding profits and
slowing growth. China’s local governments are trying hard to repay their debt.
• Japan’s exports fell more than expected in July on account of global slowdown and declining
overseas currencies.
􀂾 The exports decreased 3.3% in July as compared to same period last year.
ô€‚¾ Exports to China, which is Japan’s largest overseas market, dropped 1% in July.
Shipments to the U.S. declined by 8.2% and witnessed a 6% increase to those made
to the European Union.
• Japan’s GDP reduced at an annual rate of 1.3% in the 3months ended June 30 owing to the
earthquake that interrupted manufacturers’ supply chains.
• Germany's GDP increased by a meagre 0.1% in the 2nd quarter which was less than the
expected increase of 0.5%.
The above factors are attracting investors towards the yellow metal as an investment haven and
causing a hike in price day after day. Hence, on the basis of the continuing economic slowdown and
the unresolved European debt crisis, we expect gold to increase further and cross the US$1814 mark.
However, a fall to US$1752 an ounce could be expected once more as the metal is soaring too high
Engro’s stock
Keeping in view the significant downfall in Engro’s stock and strong fundamentals investors have over reacted. We foresee quick short term recovery of 5-10% and moderate upward movement going forward. It is a good time to take an entry in Engro as against peers, which are trading close to their target prices. The stock is currently trading at CY11E & CY12E P/E of 7.41x & 5.58x respectively and our TP for the stock is Rs235/ share.
Engro Corp
Engro Corp. a conglomerate with diversified business portfolio was a favorite growth stock of every investor and equally for analyst till few weeks back. Unusual delay in COD and gas supply concerns built negative sentiment. As a result stock has been going through selling trend in last 3 months from a high of PKR 205.78/ share on 31st Mar11 reflecting a downfall of (-25% to date).
Owing to gas availability issues to Enven (Engro’s new plant), the company had no option but to increase the urea price to cover the production loss and investors preferred to switch from Engro to FFC/FFBL/FATIMA because these companies were the beneficiaries of this blessing. Moreover gross margins of both the Fauji stocks marched up to historic highs which raised up CY11 earnings expectations.
Engro’s fundamentals are very strong, as far as growth story is concerned it is still intact and investors concerned regarding ability to payoff loans are vague. As per company’s management Engro would be able to post EBIT of (Rs29-31 bn) moreover company would also generate cash flows through IPO of Engro Fertilizer in 3Q11 and already launched Engro Foods, moreover Engro Energy IPO is also in the pipeline. Company’s debt repayment is expected to be PKR20 bn in CY11, but the positivity side of the picture is significant reduction in debt from the company’s balance sheet.
On the gas front the other major concern of investors, Enven has air tight Gas sales agreement which provides comprehensive legal cover. We believe gas supply issue would be resolved within 2H11 and dedicated gas supply would be available to the plant. Consequently 2012 could be the year for the company with optimum production; on the other hand urea prices would also come down between PKR 925-1,000/ bag considering current feed/fuel gas price. Moving forward any upside in fuel/feed gas would benefit Engro Enven because the plant’s gas price is fixed for 10 years.
Owing to gas availability issues to Enven (Engro’s new plant), the company had no option but to increase the urea price to cover the production loss and investors preferred to switch from Engro to FFC/FFBL/FATIMA because these companies were the beneficiaries of this blessing. Moreover gross margins of both the Fauji stocks marched up to historic highs which raised up CY11 earnings expectations.
Engro’s fundamentals are very strong, as far as growth story is concerned it is still intact and investors concerned regarding ability to payoff loans are vague. As per company’s management Engro would be able to post EBIT of (Rs29-31 bn) moreover company would also generate cash flows through IPO of Engro Fertilizer in 3Q11 and already launched Engro Foods, moreover Engro Energy IPO is also in the pipeline. Company’s debt repayment is expected to be PKR20 bn in CY11, but the positivity side of the picture is significant reduction in debt from the company’s balance sheet.
On the gas front the other major concern of investors, Enven has air tight Gas sales agreement which provides comprehensive legal cover. We believe gas supply issue would be resolved within 2H11 and dedicated gas supply would be available to the plant. Consequently 2012 could be the year for the company with optimum production; on the other hand urea prices would also come down between PKR 925-1,000/ bag considering current feed/fuel gas price. Moving forward any upside in fuel/feed gas would benefit Engro Enven because the plant’s gas price is fixed for 10 years.
Gold expected to touch US$1923 an ounce
Once again we saw bullion crossing the US$1900 mark and touching US$1903 an ounce before
closing at US$1897 an ounce. Thus the metal displayed a positive movement of 0.84%; even
rising above platinum.
As mentioned earlier the main reasons behind this rally is the growing concern over European
debt crisis which is causing investors to doubt the Euro zone’s economic stability and the
slowdown in economic growth in the world’s most powerful country, America, which is
dragging people away from investing their money in equities.
The decelerated growth in the US was evident from the close to zero increase in
employment in the month of August which attracted investors towards bullion as an
investment haven.
Furthermore, the increasing inflation in China which reached 6.5% in July this year, has
forced investors to buy gold for hedging purposes. Moreover, a slowdown in China’s
manufacturing industry was seen in August but with cost increasing further.
Hence all these factors contribute to the increase in gold price, which we expect to touch
US$1923 an ounce; though occasional drop in the metal on reaching high points can be
expected.
Using Fibonacci Retracements we have estimate the following support levels:
S1=US$1796; S2=US$1717; S3=US$1653
closing at US$1897 an ounce. Thus the metal displayed a positive movement of 0.84%; even
rising above platinum.
As mentioned earlier the main reasons behind this rally is the growing concern over European
debt crisis which is causing investors to doubt the Euro zone’s economic stability and the
slowdown in economic growth in the world’s most powerful country, America, which is
dragging people away from investing their money in equities.
The decelerated growth in the US was evident from the close to zero increase in
employment in the month of August which attracted investors towards bullion as an
investment haven.
Furthermore, the increasing inflation in China which reached 6.5% in July this year, has
forced investors to buy gold for hedging purposes. Moreover, a slowdown in China’s
manufacturing industry was seen in August but with cost increasing further.
Hence all these factors contribute to the increase in gold price, which we expect to touch
US$1923 an ounce; though occasional drop in the metal on reaching high points can be
expected.
Using Fibonacci Retracements we have estimate the following support levels:
S1=US$1796; S2=US$1717; S3=US$1653
Gold to decline to around US$1700 an ounce as equities strengthen
The precious metal dipped further yesterday to US$1793 an ounce before closing at US$1813 an ounce.
The decline was fuelled by the rise equities. Equities rallied because investors expected a proposal by
Obama in his speech to congress, to introduce US$300bn to generate jobs. The current unemployment
rate is around 9%.
To boost the decelerating economy it is expected that in Fed’s meeting on September 20‐21, 2011 a
few short‐term Treasury securities would be replaced by long‐term debt in order to reduce yield on
long term debt. This would attract investors towards gold for investing their wealth thus increasing
bullion prices.
Moreover, to support those unemployed Federal Reserve Bank of Chicago called for a commitment to
keep interest rates low until unemployment falls to 7.5% whilst keeping medium‐term inflation below
3%.
Furthermore, according to the Federal Statistics Office in Wiesbaden German exports fell 1.8% in July,
after dropping 1.2%. Imports also declined 0.3%. This indicates slow down in the global economy and
will tend to benefit gold.
We estimate that as the US economy continues to recover gold will fall near to US$1700 an ounce but
will also rally nearing 2012 as US cuts spending and economic slowdown hits various other countries
such as Japan, China etc.
The decline was fuelled by the rise equities. Equities rallied because investors expected a proposal by
Obama in his speech to congress, to introduce US$300bn to generate jobs. The current unemployment
rate is around 9%.
To boost the decelerating economy it is expected that in Fed’s meeting on September 20‐21, 2011 a
few short‐term Treasury securities would be replaced by long‐term debt in order to reduce yield on
long term debt. This would attract investors towards gold for investing their wealth thus increasing
bullion prices.
Moreover, to support those unemployed Federal Reserve Bank of Chicago called for a commitment to
keep interest rates low until unemployment falls to 7.5% whilst keeping medium‐term inflation below
3%.
Furthermore, according to the Federal Statistics Office in Wiesbaden German exports fell 1.8% in July,
after dropping 1.2%. Imports also declined 0.3%. This indicates slow down in the global economy and
will tend to benefit gold.
We estimate that as the US economy continues to recover gold will fall near to US$1700 an ounce but
will also rally nearing 2012 as US cuts spending and economic slowdown hits various other countries
such as Japan, China etc.
DG Khan Cement (DGKC) has been striving very hard to maintain its market position in these times of intense competition and has managed to do so by being the second largest producer in the Northern zone.
DG Khan Cement (DGKC) has been striving very hard to maintain its market position in
these times of intense competition and has managed to do so by being the second
largest producer in the Northern zone.
It could be seen from the company’s final accounts that the revenue increased by 14% on
account of sale of cement bag at around Rs400 per 50kg bag in the North. This
consequently resulted in an increase in gross profit of 62% which is 42% higher as
compared to prior year, in margin terms.
The 23% increase in profit from operations was caused by highly reduced operating
expenses which witnessed a decline of 80%. However, this decline was overshadowed by
the 148% hike in selling and distribution cost. Operating income of Rs1.1bn, too,
maintained the PBIT, hence resulting in a 17% increase.
The net profit of Rs0.17bn has been mainly affected by the increased deferred taxation
but the net margin has increased by 1% only due to high sales revenue.
However, the increased selling cost and deferred taxation adversely affected the EPS of
the company, which has deteriorated by 36% to Rs0.45/sh as compared to the prior year.
these times of intense competition and has managed to do so by being the second
largest producer in the Northern zone.
It could be seen from the company’s final accounts that the revenue increased by 14% on
account of sale of cement bag at around Rs400 per 50kg bag in the North. This
consequently resulted in an increase in gross profit of 62% which is 42% higher as
compared to prior year, in margin terms.
The 23% increase in profit from operations was caused by highly reduced operating
expenses which witnessed a decline of 80%. However, this decline was overshadowed by
the 148% hike in selling and distribution cost. Operating income of Rs1.1bn, too,
maintained the PBIT, hence resulting in a 17% increase.
The net profit of Rs0.17bn has been mainly affected by the increased deferred taxation
but the net margin has increased by 1% only due to high sales revenue.
However, the increased selling cost and deferred taxation adversely affected the EPS of
the company, which has deteriorated by 36% to Rs0.45/sh as compared to the prior year.
KAPCO also announced its FY11 results with PAT of Rs6527 mn (EPS: 7.41) as against PAT of Rs5090 mn (EPS: 5.78) and final dividend of Rs3.50/ share, taking the full year payout to Rs6.50/ share.
KAPCO also announced its FY11 results with PAT of
Rs6527 mn (EPS: 7.41) as against PAT of Rs5090 mn (EPS: 5.78) and final
dividend of Rs3.50/ share, taking the full year payout to Rs6.50/ share.
Nishat Mills Ltd. announced its FY11 results and reported a profit of Rs4,843 million (EPS: 13.78) as against PAT of Rs2,915 mn (EPS: 10.50) in FY10. Company announced Rs3.30 final cash dividend for shareholders.
Nishat
Mills Ltd. announced its FY11 results and reported
a profit of Rs4,843 million (EPS: 13.78) as against PAT of Rs2,915 mn (EPS:
10.50) in FY10. Company announced Rs3.30 final cash dividend for shareholders.
PTCL has been struggling since quite some time with its revenue generating ability on account of highly aggressive competition from the competitors and low quality of its products especially the landline service, which is causing people to divert from PTCL and resulting in a significant drop in its number of fixed line subscribers.
PTCL has been struggling since quite some time with its revenue generating ability on
account of highly aggressive competition from the competitors and low quality of its
products especially the landline service, which is causing people to divert from PTCL and
resulting in a significant drop in its number of fixed line subscribers.
The recent FY11 result is the product of the above mentioned problems that resulted in a
3% decline in the revenue of the company. Increase in the number of WLAN subscribers
is the main factor that contributed towards PTCL’s earnings.
The cost handling by the company is also inefficient. The cost of services increased 9% Yo‐
Y. Taking the cost to sales ratio, the cost of services for FY11 was 75.6% as against 67%
in the prior year hence showing that the sales did not increase in line with the increasing
cost. Administration and marketing costs have increased 4% and 6% respectively on
account of high employment cost, high competition and growing inflation.
The only positive aspect of the final accounts is the operating income that increased by
53%. That too, is because of high dividends from Ufone and interest income on loans
given to its subsidiaries.
All margins of PTCL are weak eventually resulting in a decreased EPS yield of Rs1.46/sh
which is 20% reduced from the prior year.
account of highly aggressive competition from the competitors and low quality of its
products especially the landline service, which is causing people to divert from PTCL and
resulting in a significant drop in its number of fixed line subscribers.
The recent FY11 result is the product of the above mentioned problems that resulted in a
3% decline in the revenue of the company. Increase in the number of WLAN subscribers
is the main factor that contributed towards PTCL’s earnings.
The cost handling by the company is also inefficient. The cost of services increased 9% Yo‐
Y. Taking the cost to sales ratio, the cost of services for FY11 was 75.6% as against 67%
in the prior year hence showing that the sales did not increase in line with the increasing
cost. Administration and marketing costs have increased 4% and 6% respectively on
account of high employment cost, high competition and growing inflation.
The only positive aspect of the final accounts is the operating income that increased by
53%. That too, is because of high dividends from Ufone and interest income on loans
given to its subsidiaries.
All margins of PTCL are weak eventually resulting in a decreased EPS yield of Rs1.46/sh
which is 20% reduced from the prior year.
Attock Cement Company Ltd. (ACPL)- FY11 Result Preview
Attock Cement Company Ltd. (ACPL)- FY11 Result
Preview
Attock Cement Ltd.
(ACPL) is scheduled to announce its FY11 result on September 12, 2011. We
expect the company to post PAT of Rs696mn (EPS: 8.03) for FY11 versus PAT of
Rs1,017 mn (EPS: 11.74) in corresponding period last year, massive decline of
(-32% YoY). Company’s profitability in 4Q11 likely to improve by
(+42% QoQ) translating into PAT of Rs270mn (EPS: 3.12) versus PAT of Rs190 mn
(EPS: 2.20) in 3Q11. Moreover we expect company to announce final cash dividend
of Rs4/ share and 10% stock dividend.
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