Sector analysis

We initiate coverage on Engro Polymer and Chemicals Limited (EPCL) with a ‘Buy’ rating premised on our target price of PkR27.4/share. Our bullish stance comes on the back of positive developments within the company where EPCL has already commissioned its expansion as well as backward integration projects (VCM plant to be commissioned in 3QCY09). While EPCL’s expanded capacity exceeds demand in the country over the medium term, potential export markets as well as management’s ability to deliver on export targets keep us positive in this area. Moreover, sales of caustic soda should provide cushion to earnings where EPCL will primarily cater to the Southern region of the country. Concurrent higher revenue stream, coupled with cost reductions post full realisation of backward integration project will result in an earnings growth of 4.8x over the next four years – Buy!

AKD Research

KSE management is envisaging introduction of 30-minute index halts at KSE based on KSE-30 index, along with widening of circuit breakers to 10% in two phases.

While convergence to best practice makes sense, we believe the move should be implemented with dual caution as stigma of floor imposition still remains.

Details are yet to emerge but our initial concerns include:

 1) wider circuit breakers provide room for manipulation;

2) non collection of all margins during 30 minute halt will lead to complexities;

3) risk management post introduction of leverage will be critical.

KASB Securities and Economics Research

The recent incentives offered by the government will help revive core earnings growth going forward after currency gains shored up margins in FY09 for NML. Meanwhile, NML’s holding company status via Nishat Power Limited (56.85% stake after dilution) and MCB (8.03% target stake) will, in our view, drive EPS growth over the next two years. Based on this premise, we are forecasting EPS of PkR6.09 in FY10F, rising to PkR7.00 in FY11F. Using the SOP based valuation methodology, we arrive at a target price of PkR72/share for NML, representing 43% upside from current market levels. Buy!

The Securities and Exchange Commission of Pakistan (SECP) registered 209companies during the month of August, 2009. The total corporate portfolio as onAugust 31, 2009 comprises of 53,588registered companies.

Of these 209 companies incorporated during August 2009, 206 companies were limited by shares, comprising of 5 public unlisted companies, 185 private companies and 16 single member companies. In addition, two associations not for profit, licensed under section 42 of the Companies Ordinance, 1984 (the ‘Ordinance’) and one company limited by guarantee under section 43 of the Ordinance, were registered.

Total authorised capital and paid up capital of 206 companies limited by shares, incorporated during August 2009 amounted to Rs. 1,218.1 million and Rs. 225.305 million respectively.

During August 2009, the number of new incorporations was highest at Lahore, where 69 companies were registered, followed by Islamabad registering 60 companies and Karachi with 56 companies. Peshawar, Quetta, Faisalabad and Multan registered 6, 3, 10 and 5 companies respectively.

Major share of new incorporations was witnessed in the services and construction sectors comprising of 18 companies each, followed by 17 in trading sector and 14 in consultancy services.

The total corporate portfolio as on August 31, 2009 comprises of 53,588 registered companies.

During the month, the Commission granted licenses to two associations not for profit under Section 42 of the Ordinance of which one is for promotion of education, and the other for improvement of wooden handicraft and allied industries.

The Securities and Exchange Commission of Pakistan (SECP) with the approval of the federal government, has withdrawn the earlier amendments made in the Companies (Invitation and Acceptance of Deposits) Rules, 1987 (the Deposit Rules) as these rules were impracticable and SECP faced major impediment owing to the ‘advance’’ in the real estate sector are actually pre-payments and not ‘deposit’. Besides, the subject of housing and real estate development falls within the provincial legislative jurisdiction, as it neither appears in the federal nor in the concurrent legislative list of the constitution. Provincial governments have requisite legal framework and administrative machinery for the regulation of the housing and real estate companies.

The general public and other stakeholders may access the notification of the amendments in the Deposit Rules at the Commission’s website, www.secp.gov.pk

 The Securities and Exchange Commission of Pakistan has approved amendments in the Group Companies Registration Regulations, 2008 to further rationalise its provisions relating to designation of group companies contemplating to avail group relief and group taxation benefits from the Federal Board of Revenue (FBR) under the provisions of Income Tax Ordinance, 2001. The Regulations were promulgated on December 31, 2008 by the Commission to provide a regulatory framework for the formation of group companies, comprising a holding company and its subsidiaries.

Internationally, as well as in Pakistan, business groups are characterised by complicated cross-company ownership structures, complex intra-group transactions, diversion of resources between group entities through tunneling or transfer pricing, and transfer of assets to the benefit of the ultimate owner, etc. The Commission, cognisant of the need to optimise the governance framework of group companies, promulgated the regulations to facilitate streamlining of the presently complicated cross-company ownership structures, ensuring transparency in the intra-group transactions, consolidating corporate sector in line with the international best practices, and making the corporate sector internationally competitive.

After the notification of the regulations, and on the basis of consultation with stakeholders including the Pakistan Business Council, a few provisions of the regulations were found to contain jurisdictional overlaps with those under the regulatory purview of FBR. Such provisions have been amended so that both the corporate and tax regulators are able to effectively exercise their powers under their respective jurisdictions.

A notification of the amendments made in the regulations has been placed on the Commission’s website www.secp.gov.pk for information.

The Securities and Exchange Commission of Pakistan (SECP), inline with its object to promote and foster the Futures Market, has accorded approval of Crude Oil Futures, 100 Ounces Gold Futures and Silver Futures contracts to National Commodity Exchange Limited (NCEL).