November 1 12, 2010 The Weekly Service from Alfalah Securities (Pvt.) Ltd.

Transcription

1 November 1 12, 2010 The Weekly Service from Alfalah Securities (Pvt.) Ltd. In this issue Market Focus Page 3 By Alfalah Securities Research Valuation Guide..... Page 5 By Alfalah Securities Research

2 The Weeks Ahead Board Meetings Company Date Day To Consider Honda Atlas Cars Pakistan Ltd. 23-Nov-2010 Tuesday Accounts for the 2 nd quarter period ended September 30, November 12, 2010 Page 2 Pakistan Weekly Review

3 Market Focus November 08, 2010 November 12, 2010 [By Alfalah Securities Research; (9221) ] KSE100 Index KSE-100 Weekly Market Performance 11,100 11,000 10,900 10,800 Nov-05 Nov-08 Nov-10 Nov-11 Nov-12 VOLUME INDEX WEEKLY COMPARISON Current 12-Nov-10 KSE STATISTICS Previous 05-Nov Volume (mn sh) Change % KSE100 index 10,874 10, % Avg. Volume (mn sh) % Avg. Investment (PkR mn) 6,017 4, % SYMBOL MARKET PERFORMERS (KSE-30) Current Price Previous Price Change % Indus Motor Ltd % J.S. Capital Ltd % Lotte Pakistan Ltd % Bank Al-Habib Ltd % Arif Habib Sec. Ltd % Fauji Fert. Bin Q. Ltd % Attock Refinery Ltd % Adamjee Insurance Ltd % Nishat Mills Ltd % Fauji Fertilizer Co % Source: KSE Website, Alfalah Securities Research KSE-100 Index closed at 10,874 down 0.1% over the week. Average Daily Volume during this week stood at 166 mn shares as compared to 123 mn shares last week. On daily closing basis, index touched a high of 10,992 and a low of 10,874. ECONOMY: Tightening fails to achieve the objectives Monetary growth surged by 100% YoY during 4MFY11 and inflation continues to rise despite tight monetary policy by the central bank. The monetary growth (M2) increased by 1.9% during 4MFY11 as against 0.91% during the same period last year. The central bank increased the key policy rate by 50bps during the last policy reviews to check inflation but the measures not yielding the desired results as evident by the massive increase in inflation. The CPI for the month of October 10 stood at 15.33% with 4MFY11 moving average at 14.3% showing a sturdy high trend thus, paving way for the central bank to continue with the tight monetary policy stance. We believe that tightening alone would not be able to pull down the inflation as the factors fueling inflation like removal of subsidies, weakening of currency and undocumented part of economy would largely remain unaffected by the SBP tight monetary policy. Instead this would affect economic growth as cost of production would increase further. We believe that fiscal discipline and administrative measures along with tightening can produce the desired results. 15% tax to be levied on sugar and other items The approval of RGST (Reformed General Sales Tax) imposition has been given by the cabinet and passed on to the Parliament. Under the RGST, FBR will impose 15% standard sales tax on sugar, pharmaceutical products, agricultural machinery / equipment, ships, aircraft, aviation and navigation equipment. Moreover, it is expected that 15% RGST would also be applicable on silver and gold bars, currency notes, shares, stocks and bonds, bricks and building blocks of cement. Although the rate of RGST would be lower however, being applicable on a broader base is expected to burden the consumers in the form of rising inflation. However, this has to be imposed as IMF has linked the release of next tranche of USD 11.3 bn SBA with introduction of RGST and reforms in the power sector. The introduction of RGST is aimed at removing all the tax exemptions and generating new resources internally in a bid to control fiscal deficit. Remittances up in Oct Remittances figures have continued to show a rising trend where USD 3.50 bn have been received in 4MFY11, showing an increase of USD mn or % over the same period last year. USD mn were remitted in Oct 10, up % or USD mn, when compared with USD mn received in the same month last year. The main reason behind rise in remittances which has so far more or less sustained the November 12, 2010 Page 3 Pakistan Weekly Review

4 Market Focus momentum remains curbing and crack down on informal channels and narrow spread of exchange rate between kerb and interbank market rate that has lowered the incentive for adoption of informal channel. The highest inflow was received from UAE, USA, and Saudi Arabia which amounted to USD mn, USD mn and USD mn respectively. The healthy remittances has contributed a great deal to lower the external account situation and improvement in the economic conditions. CPI up 15.33% in Oct According to the data released by Federal Bureau of Statistics the consumer price index (CPI) has surged by % YoY in October. We expect both YoY and MoM CPI inflation to inch up further in the coming months as food and energy prices are on the rise. If the currency continues to weaken and oil prices maintain an upward trajectory, it would be unlikely for the government to realize the target inflation in this fiscal year. Because of the sustenance of YoY inflation in double digit figure as well as the vulnerability going ahead, we expect the Central Bank to continue with its tight monetary policy stance. OIL & GAS SECTOR: Discovery at Tal Block MOL made a new oil and gas discovery in Makori East at Tal Block. Initial reports have confirmed a big reservoir of oil and gas however; the pressure, size and quantity would be disclosed after the completion of the testing and commercial viability. OGDC and PPL holds 27.76% and POL holds 21.05% working interest in Tal Block. The discovery is positive for the sector however, it may take some time before its impact on the profitability could be assessed. AUTO SECTOR: Floods do not have any impact on auto sales Auto sales (Cars+LCVs) during Oct 2010 increased by 12% from the same month last year whereas on MoM basis sales increased by 17% despite recent floods. PSMC sales increased for the third consecutive month on MoM basis. Indus Motor s sales which took a dip during August continued its recovery for the second consecutive month. The recent sales trends indicate that recent floods and higher car prices did nt have any major impact on the car sales. we believe that strong agri income, all time higher remittances coupled with low motorization are the key reasons for improvement in auto sales. We currently recommend SELL and BUY on INDU and PSMC with TP of 195 and 108 respectively. MARKET: Efforts are underway to introduce a Leverage product SECP in consultation with MoF has changed the name of Margin Trading System (MTS) to Securities Leveraged Markets and Pledging Rules (SLMPR). MoF is expected to notify the rules of the new leverage product in a week. The new rules would have higher degree of checks to mitigate risks for financing in the capital markets. The launch of SLMPR is expected to be taken as a positive for the stock market as the volume dried up severely in the absence of any leverage product. The continued lacklustre performance of the market has intensified the need of the introduction of a leverage product to bring in some impetus to market activity. MARKET OUTLOOK: The market would be open only for two days in the coming week due to Eid holidays where it may witness lackluster activity. We expect the market to take some correction thus, making room for fresh buying opportunity in fundamentally strong scrips. November 12, 2010 Page 4 Pakistan Weekly Review

5 Valuation Guide ( Updated on November 12, 2010 ) SYMBOL YEAR END CURRENT PRICE (PKR) TARGET PRICE (PKR) UPSIDE / DOWNSIDE POTENTIAL RECOMM PRICE AVG. Daily EPS EPS Growth PERFORMANCE CURRENT Trad.Value (PKR) Mkt. Cap. (USDmn) (USD mn) 1-Month YTD 52 Weeks 09A 10F 11F 12F 09A 10F 11F 12F AUTOMOBILE ASSEMBLER Indus Motor Co. INDU JUNE % SELL 13.8% 32.2% % 148.6% -34.7% -3.7% Pak Suzuki Motor PSMC DEC % BUY -2.2% -16.6% % 180.9% 53.9% 45.4% CEMENT D. G. Khan Cement DGKC JUNE % BUY 10.4% -15.9% % -50.0% 45.1% 26.1% Fauji Cement FCCL JUNE % BUY -0.8% -21.3% (0.33) % -77.9% % 121.5% Lucky Cement LUCK JUNE % BUY -0.7% 8.4% % -31.7% 50.6% 2.6% Maple Leaf Cement MLCF JUNE *UR -4.1% -26.4% (2.64) (7.08) % % - - COMMERCIAL BANK Habib Bank Ltd. HBL DEC *UR 3.5% -15.8% Muslim Comm. Bank MCB DEC % SELL 2.0% -6.7% 1, % -16.2% 17.5% - National Bank Ltd. NBP DEC *UR 1.9% -12.8% % United Bank Ltd. UBL DEC % BUY 9.7% -1.7% % 6.5% 15.6% 3.4% FERTILIZER Engro Corporation ENGRO DEC *UR -1.0% -3.4% Fatima Fertilizer Co. FATIMA DEC *UR -6.7% -26.0% Fauji Fertilizer Bin FFBL DEC % HOLD 11.1% 27.2% % -4.9% 15.8% 0.7% Fauji Fertilizer Co. FFC DEC % HOLD 1.5% 5.7% % 3.0% -3.5% 6.7% OIL & GAS EXPLORATION COMPANY Oil & Gas Dev. Co. OGDC JUNE *UR 5.9% 41.6% % Pakistan Oilfields POL JUNE % HOLD 0.0% 5.8% % 29.4% 17.4% 17.7% Pak. Petroleum Ltd. PPL JUNE % HOLD 2.8% -0.4% 2, % -15.8% OIL & GAS MARKETING COMPANY Pakistan State Oil PSO JUNE *UR 0.2% -7.5% Sui Northern Gas SNGP JUNE % HOLD 3.2% 33.6% % -39.9% 167.0% 9.5% * Sui Southern Gas SSGC JUNE % BUY -17.6% 72.6% % % -47.2% 15.3% POWER GENERATION & DISTRIBUTION Hub Power Co. HUBC JUNE % HOLD 3.2% 8.2% % 46.8% 2.4% 17.1% REFINERY Attock Refinery Ltd. ATRL JUNE % BUY 39.8% -11.4% % -87.6% 904.0% 29.7% National Refinery Ltd. NRL JUNE % HOLD 11.8% 42.8% % 114.3% -25.8% 12.5% TECHNOLOGY & COMMUNICATION NetSol Technologies NETSOL JUNE *UR 1.8% -35.2% Pakistan Telecom. PTC JUNE % BUY -2.2% 5.7% 1, % 2.0% 14.8% 8.6% TEXTILE COMPOSITE Nishat Mills Ltd. NML JUNE % HOLD 9.3% -22.5% % 130.0% -36.1% 9.9% ALFALAH SECURITIES UNIVERSE 9, % 39.5% 11.0% 6.7% Recommendation Benchmark: Our recommendation benchmark of BUY and SELL strategy is based on the share price potential upside or downside of 15% from the Current Price. * UR= Under Review; NM= Not Meaningful NOTE: All the Target Prices and Earnings have been updated for the 50 bps increase in the discount rate. * Valuations of SSGC have b een updated for the OGRA's decision related to UFG Benchmark and and Non Operating Income November 12, 2010 Page 5 10F = 10A Pakistan Weekly Review

6 Valuation Guide COMPANY NAME SYMBOL P.E. (X) * PB (X) ROE DIVIDEND YIELD NET PROFIT MARGIN DEBT / ASSETS 09A 10F 11F 12F 09A 10F 11F 12F 09A 10F 11F 12F 09A 10F 11F 12F 09A 10F 11F 12F 09A 10F 11F 12F AUTOMOBILE ASSEMBLERS Indus Motor Co. INDU % 22.3% 16.8% 14.9% 3.8% 5.8% 4.6% 5.0% 3.7% 5.4% 4.2% 3.7% 4.9% 0.0% 0.0% 0.0% Pak Suzuki Motor PSMC % 4.8% 6.9% 9.2% 1.4% 2.0% 2.0% 2.0% 1.0% 2.3% 3.0% 3.9% 1.0% 1.0% 0.9% 0.8% CEMENT D. G. Khan Cement DGKC % 3.8% 1.6% 2.0% 0.0% 2.9% 1.3% 1.6% 3.9% 5.0% 2.1% 2.5% 29.3% 21.7% 17.6% 15.0% Fauji Cement FCCL ### % 2.3% -2.2% 0.5% 0% 0% 0% 0% 18.9% 6.6% -2.4% 0.5% 46.0% 39.6% 38.6% 37.3% Lucky Cement LUCK % 16.0% 15.1% 13.6% 5.5% 5.5% 2.1% 2.1% 17.5% 16.9% 16.3% 15.6% 16.3% 6.9% 12.1% 5.3% Maple Leaf Cement MLCF (1.06) (0.40) % 4.2% - - 0% 0% % 2.2% % 62.7% - - COMMERCIAL BANKS Habib Bank Ltd. HBL Muslim Com. Bank MCB % 19.5% 20.7% - 6.0% 5.0% 5.5% - 9.0% 7.4% 7.8% National Bank Ltd. NBP % % % United Bank Ltd. UBL % 16.6% 16.2% 16.4% 4.3% 4.3% 6.0% 6.0% 6.3% 5.6% 4.9% 5.0% FERTILIZER Engro Corporation ENGRO Fatima Fertilizer Co. FATIMA Fauji Fertilizer Bin FFBL % 30.2% 32.9% 24.9% 8.9% 10.5% 12.2% 12.3% 10.3% 9.8% 11.1% 10.6% 0.0% 0.0% 0.0% 0.0% Fauji Fertilizer Co. FFC % 62.9% 58.9% 61.0% 11.2% 11.6% 11.2% 11.9% 24.4% 19.8% 18.0% 18.1% 42.5% 37.5% 33.6% 31.6% OIL & GAS EXPLORATION COMPANY Oil & Gas Dev. Co. OGDC % % % % Pakistan Oilfields POL % 22.9% 22.7% 22.9% 4.8% 5.6% 6.0% 6.0% 40.0% 41.6% 37.9% 39.5% 0% 0% 0% 0% Pak. Petroleum Ltd. PPL % 31.8% 30.9% 27.4% 6.8% 6.1% 7.3% 7.5% 45.0% 38.9% 42.2% 41.8% 0% 0% 0% 0% OIL & GAS MARKETING COMPANY Pak. State Oil PSO Sui Northern Gas SNGP % 3.6% 9.6% 10.4% 8.2% 8.2% 8.2% 8.2% 0.6% 0.3% 0.7% 0.7% 10.3% 8.2% 7.0% 5.9% Sui Southern Gas SSGC % 18.5% 7.9% 8.1% 29.6% 43.8% 56.1% 0.0% 0.1% 2.4% 1.3% 1.4% 15.7% 15.4% 17.0% 17.3% POWER GENERATION & DISTRIBUTION Hub Power Co. HUBC % 19.1% 19.2% 22.0% 8.5% 12.6% 12.9% 15.1% 4.6% 5.6% 6.2% 6.8% 28.2% 29.2% 26.7% 24.2% REFINERY Attock Refinery Ltd. ATRL *NM % 4.9% 5.4% 5.4% 5.4% 0.0% 0.0% 2.0% 0.8% 0.7% 0.6% 0.7% 0% 0% 0% 0% National Refinery Ltd. NRL % 16.7% 11.8% 12.5% 5.9% 7.1% 7.9% 7.9% 1.4% 3.0% 1.7% 1.8% 0% 0% 0% 0% TECHNOLOGY & COMMUNICATION NetSol Technologies NETSOL Pakistan Telecom. PTC % 8.5% 9.5% 10.0% 7.5% 7.6% 8.8% 0.0% 15.4% 16.3% 17.6% 18.2% 0% 0% 0% 0% TECHNOLOGY & COMMUNICATION Nishat Mills Ltd. NML % 6.2% 7.7% 8.1% 5.5% 4.6% 3.7% 3.7% 5.3% 6.6% 8.2% 8.5% 43.8% 36.4% 29.7% 19.1% ALFALAH SEC.UNIVERSE % 20.7% 20.0% 19.3% 6.0% 6.6% 7.3% 5.5% 18.8% 17.3% 17.7% 17.8% 7.4% 6.4% 5.9% 5.2% * FYO6E Year End = December * PB (x) in Banking Sector = PB with revaluation surplus November 12, 2010 Page 6 10F = 10A Pakistan Weekly Review

7 Alfalah Securities (Pvt.) Ltd. MANAGEMENT Shoib Memon FOREX TEAM Arshad Shoaib Siddiqui M. Khurram Irfan Investment Product Development & Distribution Uzma Taslim Syed Adnan Hashmi RESEARCH TEAM Research Analyst Uzma Taslim Omais Ainul Yaqin Syed Abrar Hussain Research Database S. Adnan H. Jaffery Mohammad Nasir Muhammad Azam MONEY MARKET TEAM Sohail Ahmed Faruqui Zahid Khan S. Hasan Mehdi Rizvi Muhammad Faraz Siddiq ONLINE TRADING Mohammad Faizan EQUITY SALES TEAM HEAD OFFICE (Karachi) Zaheer Ahmed Ibrahim Abid Mir Muhammad Awais Abdur Rehman Muhammad Raheel Shah BRANCH OFFICES LAHORE OFFICE Abrar ul Hassan ISLAMABAD OFFICE Abdul Ahad Effendi (IBG) Muhammad Irfan Khawaja Khurram Latif Muhammad Junaid Rafiq Jamal Tariq Hikmatullah TRADE ONLINE WITH ALFALAH TRADE Contact us for details: UAN: (021) 111-AFS-111 ( ), Head Office: 12 th Floor, Tower A, Saima Trade Towers, I.I. Chundrigar Road, Karachi 74200, Pakistan. Tel: , Fax: (9221) Branch Offices: Lahore: Room No. 302, 3 rd Floor, Siddiq Trade Centre, 72 Main Boulevard, Gulberg, Lahore, Pakistan. Tel: (9242) , Fax (9242) Islamabad: H. No: 30, Khayaban-e-Iqbal, (Margallah Road), F 8/3, Islamabad. Pakistan. Tel: (9251) This report has been prepared by Alfalah Securities (Private) Limited ( Alfalah Securities ) based on the information and opinions that have been compiled or arrived at based upon information obtained from sources believed to be reliable and in good faith. Such information has not been independently verified and no guarantee, representation or warranty, express or implied is made as to its accuracy, completeness or correctness. All such information and opinions are subject to change without notice. Whilst all reasonable care has been taken to ensure that the facts stated are accurate and the opinions given are fair and reasonable, neither Alfalah Securities nor any of the group companies, directors, shareholders, sponsors, officers or employees, shall in anyway be responsible for the contents. Alfalah Securities, group companies, directors, shareholders, sponsors, officers or employees may trade as a market maker in the investments that are the subject of this document or in related investments and may have acted upon or used the information contained in this document, or the research or analysis on which it is based, before its publication. Alfalah Securities, its group companies, directors, shareholders, sponsors, officers or employees may also have a position or be otherwise interested in the investments referred to this document. This is not an offer to buy or sell the investments referred to in this document. This document may not be reproduced, distributed or published for any purpose.