Top News
Check latest news Read →

Economy: Sector Analysis Apr 2010

Registration of companies in March 2010
The Securities and Exchange Commission of Pakistan (SECP) registered 293 companies during the month of March, 2010, as compared to 254 and 270 companies registered during Jan., and Feb., 2010, respectively. The total corporate portfolio as on 31st March, 2010 comprises of 55,200 companies.
Total 293 companies incorporated during March 2010, comprise of 2 public unlisted companies, 279 private companies and 12 single member companies. Healthy and continuous increasing trend in incorporation of new companies has been seen since November, 2009.
Authorised capital and paid up capital of companies incorporated during March 2010 amounted to Rs 4,329.45 million and Rs 451.82 million, respectively.
During March 2010, the highest number of companies were incorporated at Lahore, whereby 111 companies have been registered, followed by Karachi and Islamabad registering 74 and 72 companies, respectively. Peshawar, Multan, and Faisalabad registered 19, 12, and 3 companies respectively, while Quetta and Sukkur registered 1 company each.
Major share of new incorporation during March, 2010, was witnessed in the trading sector whereby 54 companies were registered, followed by 24 in services, 20 in construction,18 in corporate agricultural farming, 16 each in food and beverages and Hajj and Umrah services, 14 in tourism, 13 in engineering, 12 in information technology, and 11 each in communications and education sector.
During March., 2010, SECP granted licences to 2 associations not for profit under Section 42 of the Companies Ordinance, 1984, of which one is related to education sector and other for promotion of sports.
Of the 293 companies registered during March. 2010, 23 companies have foreign investment. Foreign investors in these companies belong to Australia, USA, UK, UAE, China, Saudi Arabia, Panama, North Korea, South Korea, Turkey, Sweden, Congo, Oman, Bosnia and Malaysia. Of these 23 companies, 5 companies are registered in trading, 3 companies in food and beverages, 2 each in engineering, construction and miscellaneous sector and one company each in Hajj and Umrah services, telecommunication, education, healthcare, transport, corporate agricultural farming, power generation, tourism and broadcasting sector, etc.

Mr. Salman Ali Sheikh addresses Pakistan Insurance Institute Conference
Mr. Salman Ali Shaikh, Chairman Securities & Exchange Commission of Pakistan delivered a key note speech at the FAIR International Insurance Conference on political violence, held in Sheraton Hotel Karachi on April 12. The Federation of Afro-Asian Insurance and Reinsurers, “FAIR” was established in September 1964, to promote cooperating among insurance and reinsurance companies in Africa and Asia, through the regular exchange of information, expertise and the development of business relations. Pakistan Insurance Institute became a member of FAIR in 2009.
The subject at hand was addressed by a galaxy of internationally renowned speakers from SwissRe, SCOR, Allianz, Lloyd’s of London, Ceylinco, Aon Benfield, UIB and Crescent Global. Apart from these international speakers, there were over 300 delegates and participants from different areas of Insurance industry who took part in the conference as well.
Mr. Salman Ali Shaikh, Chairman Securities & Exchange Commission of Pakistan, praised the efforts of PII on organising a conference on such an important subject. He also said that conferences like these can show the real essence of our great nation which has to be portrayed in a more positive fashion internationally. He urged the companies to become more customer-responsive and adopt Corporate Social Responsibility as a conscious approach to integrate with the demand of society and add economic value to their business.
To promote educational and knowledge sharing activities in the field of insurance, the Pakistan Insurance Institute (PII) was setup in 1951 by the insurance fraternity of Pakistan. Since 1953, PII is affiliated with Chartered Insurance Institute (CII), London. Over the past many years, PII has played a vital role in effectively meeting the current and future human resource needs of the insurance industry.

Is monetary policy turning into a fiscal policy?
Against our contrarian call of a 25-50bps cut in the discount rate, the Central Bank has maintained the status quo. In our view, the SBP has ignored the sharp improvements in the macro-economy over the last 12 months and seems to be solely focused on potential risks on the fiscal side as well as inflationary expectations. Therefore, we retract our expectations of a rate cut in 1HCY10 where any rate cut in 2HCY10 is dependent on an overhaul in thinking at the Central Bank. However, we rule out any increase in rate based on our forward-oriented expectations for:
“Core inflation” currently at 10%YoY, maintaining its downward trajectory
Likely improvement in tax collection, especially indirect taxes, as the real economy recovers
Monthly current account deficit averaging in the manageable range of +$200mn and — $600mn
Partial materialisation of Coalition Support Funds which reportedly amount to —$2bn
— AKD Research
29 March, 2010

PkR exchange rate: measuring the “downward” currency risk
On the back of better than anticipated improvement in the country’s external stability parameters, the PkR exchange rate volatility – as measured by the monthly standard deviation of PkR-US$ parity – has dropped. The improvement in the “core” external parameters is evident from the 67.8%YoY contraction in the cumulative Current Account deficit during 9MFY10. During the same time frame, strong inflow of home remittances (up 15.8%YoY) and contraction in the trade deficit (down 26.4%YoY) has lowered Pakistan’s external vulnerability and eased pressure on the PkR exchange rate, where the PkR has appreciated by 1% against the US$ in the past two months. Despite this appreciation, it is interesting to note that the “downward” currency risk is slowly inching up.
— AKD Research
30 April, 2010

Lucky: weak 3Q – LT positives unchanged
Below-expected 3QFY10 earnings (down 42% YoY to PRs2.02/sh) drive our 6% FY10E earnings downgrade to PRs10.69/sh but do little to dim our confidence on sequential margin and earnings recovery for Lucky over the next 12-months.
Weak 3Q earnings were led by heightened reliance on domestic market sales but with (1) outages at South plant complete; (2) Mar-10 uptick in export prices; & (3) inclusion of Lucky in export freight subsidy scheme effective 4QFY10, we see a good chance of 4Q export volume recovery.
Our positive bias towards Lucky is premised on the same, where we expect gains from (1) cost rationalization; (2) gradual domestic cement price recovery; (3) 4QFY10 export recovery, to drive EPS recovery. We maintain Buy with an unchanged PO of PRs94/sh (7.6x ‘11E implied P/E vs. 10.8x 10-yr historical avg P/E).
— KASB Securities and Economics Research
26 April, 2010

Engro Corporation Limited – strong 1Q10 earnings overshadowed by gas concerns
Robust earnings growth in 1Q10 is broad-based

Engro reported strong 1Q10 earnings, +176% YoY and +71% QoQ to PRs5.76/sh (32% of our 2010E consolidated EPS of PRs17.86). Earnings growth was broad based, contributed by Fertilizer (price & volume uptick in urea & NP/NPK); Eximp (sizeable DAP trading gains); Vopak (volume gain post Ethylene commissioning). Foods bottom-line remained in the red, though note losses were 1/4th of 4Q09 as UHT business remained profitable. Energy came online in Mar-10 reporting a PRs44mn profit. We maintain our liking for Engro where we believe that as subsidiary earnings grow/consolidate, LT value for Engro will continue to improve.

…but failed to excite as gas supply concerns rise
Robust earnings failed to excite the market given fresh concerns on gas supply where govt has initiated curtailment of gas to the fertiliser sector (15-20% lower gas supply proposed for 6-8wks). While we do not ignore production & efficiency risk, we believe concerns are overdone where (1) producers pricing power; (2) govt cost of subsidising incremental imports; (3) agri reliance of economy are key factors that would play a role in the policy & earnings implications. In a worst-case scenario of 20% lower gas availability for both the new & old urea plants, we eye EPS impact of 1.8-2.5%/mth over 2010-15E. The same would require ~PRs10-15/bag hike in urea prices to offset, which we believe is the likely outcome.

Other key takeaways & outlook
For Foods, Engro has extended its ice-cream marketing network across 57 cities and launched powdered tea whitener as of 1Q10. Upcoming ventures include (1) foray in packaged juices (May-10); (2) rice processing (Nov-10). On Power, Engro has recently signed a MoU to supply coal to a potential 1,200MW project.
 — KASB Securities and Economics Research
30 April, 2010

Monetary policy: status quo maintained 
State Bank of Pakistan unveiled its Monetary Policy Statement (MPS) for the next two months over the weekend, keeping the discount rate intact at 12.5%
Our long standing view that monetary easing rests on improvement in fiscal position is on track. The MPS has again touched on the key usual suspects; weak fiscal position and uncertainty on foreign flows.
Moreover, SBP has also touched upon the much feared policy reversal stance which it believes would be unhealthy for still nascent recovery, inline with our view.
While the outcome is in line with expectations, a minor section might be disappointed as murmurs of a positive surprise in the MPS had emerged in the last couple of days, which combined with reports of delay in IMF tranche could hurt sentiments.
While SBP’s status quo policy stance for now is appropriate with pressure on fiscal account and uncertainty on external financing staying put, we believe that room for 100-150bp cut in policy rate is available in 2010.
— KASB Securities and Economics Research
29 March, 2010

Leave A Reply