Wellhead gas Prices 2HFY10 Review

International crude oil and HSFO prices led the surge
The Oil and Gas Regulatory Authority (OGRA) has recently issued new wellhead gas prices for the period of 2HFY10 which indicated the surge of around 3% to 67% relying upon the field’s pricing mechanism. The revision was accounted in response to the increase in international crude oil prices along with the HSFO prices.
Arab Light Crude prices upped by 37%HoH
Arab Light Crude prices showed an up-move by 37%HoH during 1HFY10 to USD 69.09 per barrel on average comparing to the averaged price of USD 50.30 per barrel during 2HFY09. On the other hand, the PKR-USD Parity depreciated by 4%HoH during 1HFY10 to 83.12 comparing to 80.23 during the earlier half. On the other hand, HSFO witnessed 43%HoH increase to USD 422.06 per ton during the period.
Sui field witnessed the largest increment
The Sui and Kandhkot field prices increased by 24.3%HoH and 19.1%HoH respectively while Sawan and Minao wellhead gas prices upped by 19.4%HoH to USD 3.50mmbtu during the review. Moreover, the Adhi field prices depicted an up-surge of 3.7%HoH to PKR 124.03mmbtu where Bhit, Pindori and Pariwali fields witnessed a price increase of 19.4%HoH during the period.
PPL would be the major beneficiary
I believe that Pakistan Petroleum Limited (PPL) would be the major beneficiary of these revisions in wellhead gas prices as Sui and Kandhkot fields who witnessed the largest price increase are under 100% stake of PPL coupled with some other beneficiary fields. On the other hand, Pindori and Adhi fields are expected to improve the earnings of OGDCL and POL during the remaining half of the year.
Looking Forward
I maintain ‘buy’ stance for PPL and POL and ‘hold’ for OGDC by considering their FY10E earnings at is 8.44x, 8.43x and 10.11x respectively where my target price for FY10 is PKR 228, PKR 275 and PKR 122.50 per share respectively.

Automobile Sector 9MFY10 Review

Sector witnessed the increase of 7.8%MoM
The Pakistan Automotive Manufacturers Associations (PAMA) has recently released the production and sales figures for the period of 9MFY10. The sector witnessed the increase of 7.8%MoM during the period to 12,618 units comparing to 11,703 units during last month. On the other hand, the 9MCY10 sales showed 34%YoY growth to 97,918 units comparing to 73,071 units during the same period last year.
Pak Suzuki Motor Company (PSMC) remained the market leaderThe PSMC remained the market leader by further improving its market share to 52% from 51% last month where INDU improved its market share from 35% to 38% during the period. On the other hand, the HCAR market share shrank to 9% from 12% last month while DFML market share remained lowest during the period.
Indus Motors (INDU) showed the largest growthThe sales of INDU showed the largest growth of 16.6% during the period to 4,837 units from 4,150 units during the earlier month followed by PSMC who increased its sales by 9.1% during the period to 6,512 units comparing to 5,970 units during the preceding month where Honda Atlas (HCAR) sales travelled in declining momentum by 18.3% to 1,151 units comparing to 1,409 units during the earlier month. The Dewan Farooq Motors Limited (DFML) remained the owner of lesser unit wise sales.
Corolla remained on top with 4,417 unitsThe sales of Liana witnessed the tremendous growth of 297% to make 119 units of sales during the period comparing to 30 units during the corresponding month while Swift showed 19.21% decrease in its sales during the period. The Corolla remained on top with the sales of 4,147 units during the period showing 19.13% surge during the period while HCAR’s Civic and City showed the 14.19% and 21.42% decline during the period.
Looking Forward
The automobile sales are improving coupled with ongoing economic recovery. I expect further enlargement if SBP eases monetary policy going forward. On the other hand, the cost of production are expected to remain in upward momentum with respect to the depreciating PKR-USD and PKR-JPY parity however, the margins are expected to be stabilized by upward revision of product pricing by the auto sector. I recommend 'hold' stance for INDU and PSMC scrips by considering their current trading at FY10E of 8.35x and 10.44x where our target price for FY10 is PKR 214 and PKR 107 per share respectively.

Oil Marketing Companies (OMCs) 9MCY10 Review

Sales increased by 10.5%YoY
The Oil Companies Advisory Committee (OCAC) has recently disclosed the sales figures for the period of 9MCY10. The sales increased by 10.5%YoY to 14.8 Million tons during the period comparing to 13.4 Million tons during the same period last year where during 9MFY10 the overall sales volume stood at 1.73 Million tons showing 33%MoM increase comparing to the previous month of the same year.
FO volumetric sales led the up-surge
The decent size up-surge was mainly in contribution to Furnace Oil (FO) volumes during the period which depicted an increase of 12.4%YoY to place at 6.6 Million tons comparing to 5.87 Million tons during the same period last year mainly on the back of higher dependence on the thermal power generation.
Mogas witnessed highest increase during the period
The Mogas sales witnessed 32.4%YoY growth to 1.42 Million tons comparing to 1.07 Million tons during the same period last year chiefly in response to the gas shortage which allowed the shutdown of CNG Stations and pulled the Mogas demand on high. Furthermore, the Jet Fuel upped by 31.5%YoY to 1.09 Million tons in contrast to 0.83 Million tons during the same period last year while HSD sales remained slower to stand at 5.53 Million tons comparing to 5.44 Million tons during the corresponding period last year mainly in contribution to the slowdown in economy.
PSO remained the market leader
Pakistan State Oil (PSO) remained the market leader during the period by maintaining its position at 69.5% mainly in response to the continuous rising trend in FO sales which stood at 88.7% during the period while Mogas and High Speed Diesel (HSD) sales of the company witnessed a downward momentum to 48.3% and 61.3% in that order. On the other hand, the market share of Attock Petroleum Limited (APL) also rose to 5.5% in response to the enhancement in the sale of HSD to 6.7% while shell dropped its market share to 12% during the period.
Looking Forward
I believe that the FO sales will continue rising as around 1,800MW thermal units are expected to commercialize by FY11 while the circular debt issue will remain the hurdle for industry. I currently maintain ‘buy’ stance for PSO, APL and SHELL by considering their FY10E trading at 6.47x, 6.67x and 7.50x respectively where my target price of PSO, APL and SHELL for FY10 is PKR 390, PKR 415 and PKR 390 per share respectively.

Pakistan Petroleum Limited (PPL) at Glance

Scrip gained 5% in April 2010
Since the start of current month Pakistan Petroleum Limited (PPL) scrip has gained 5% or PKR 9.31 increase in its price from PKR 195.42 per share to PKR 204.73 till April 07, 2010 mainly at the back of the attractive valuation coupled with upcoming triggers including recent production expansions in support of the increase in wellhead gas prices.
PPL attracting foreigners
The aggressive foreign buying in oil and gas sector of the country precisely in OGDC for quite a long period is now triggering the foreigners to park their investment in other companies where PPL owing a sizeable float in the market is also attracting them primarily based on attractive valuation bundled with expected positive developments.
Another discovery at Latif Block
The company has recently disclosed a finding at Latif Block which is under a Joint-Venture (JV) between the PPL, OMV and ENI owing an equally distributed stake i.e. 33.3%. The company didn’t quote any number regarding the incremental production however the current production of the block stands around 30mmcfd of gas.
70 drills down the roadThe company has aimed to drill 70 exploratory along with 80 development wells in the upcoming 5 years. Currently, the company has a trend to make 4 explorations on average if examine the last 3 years’ trend which is creating a greater hope for the company to easily achieve the set targets. Moreover, the new production flows from at least 2 fields are expected to commence during the current quarter that are expected to contribute 4,300bpd oil and 85mmcfd gas where further 2 are expected to contribute in beginning of later half of the same year. The further benefit is likely to come from the increase in wellhead gas prices especially from Sui and Kandhkot to improve by 20%.
Looking Forward
I maintain ‘buy’ stance for PPL scrip by considering its FY11E earnings at 6.59x where my target price for FY11 is PKR 230 per share.

Lotte Pakistan PTA (LOTPTA) at Glance

Planning to payoff USD 63 Million loan


The management of Lotte Pakistan (LOTPTA) has recently decided to retire its foreign loan of USD 63 Million and to further invest USD 40 Million in Pakistan in a captive power plant for uninterrupted power supply while USD 5 Million in a catalyst recovery plant for cost efficiency. I believe that these steps will help the company’s volatile margins to improve.

Higher current assets will led this payoff

The company is considering the loan payoff option in support of ample amount of cash and cash equivalent owned in FY09. The company had the cash and cash equivalents of PKR 5.4 Billion during the period comparing to PKR 16.45 Million during the same period last year which translated tremendous increase of 329.65%YoY during the period.

PKR-USD Parity expected to remain depreciating

I believe that this initiation would result in hedging the company against exchange losses as the PKR-USD parity is expected to remain in a meager downward momentum going forward. Conversely, the deposit income will be lowered going forward.

PTA prices touched 18 months high level

The Purified Terephthalic Acid (PTA) touched the 18 months high level of USD 979 per tons on April 01, 2010. The up-surge in price is mainly attributed to the higher demand of Polyester Fiber from China and India.

Looking Forward

With rising PTA prices in international market I assume that the margins of the company will further improve to USD 350 per tons comparing to USD 245 during FY09 while I expect PTA demand to grow up by 5% in FY10. On the other hand, the further saving from captive power plant & catalyst recovery plant will start producing the results from FY12. I maintain ‘buy’ stance for the company’s scrip by considering the current trading at FY10E 7.04x where my target price for FY10 is PKR 25 per share.

Pak Suzuki Motors (PSMC) FY09 Review

Posted the NPAT of PKR 255 Million


The Pak Suzuki Motors (PSMC) has recently announced its result for the period of FY09. The company posted the NPAT of PKR 255 Million comparing to PKR 625 Million during the same period last year which translated a tremendous decline during the reviewing period. The EPS of the bank nose-dived to PKR 3.10 comparing to PKR 7.59 last year.

Net sales dwindled by 34%YoY

The Net Sales of the company dwindled by 34%YoY to PKR 26.23 Billion from PKR 39.67 Billion last year mainly in response to the lower volumetric sales to 51,521 units during the period. Moreover, the cost pressures remained the key concern for the company during the period primarily due to depreciating PKR-USD and PKR-JPY Parity coupled with the increase in steel prices during FY09. However, the increase in car prices supported the margins to show 70bps increment in gross profit margins (GPM) to 2.2% during the period.

Lower bank deposits shrank other income

The other income of the company shrank by 54%YoY to PKR 620 Million comparing to PKR 1.35 Billion last year mainly at the back of deposit income which squeezed by 39%YoY to PKR 408 Million against PKR 671 Million last year.

Finance cost squeezed by 75%YoY

The finance cost of the company witnessed a massive reduction by 75%YoY to PKR 13 Million comparing to PKR 53 Million during the same period last year. The decline was mainly attributed to reduction in interest rate during the period.

Looking Forward

I believe that the PKR-JPY parity is turning back to its historical trend while steel prices also look stable going forward. Moreover, the volumetric sales has already picked up and showed a decent growth in 2HCY09 while the company has increased its sales prices by an average 2% (PKR 10,000 to PKR 15,000) during 3MFY10 which is over and above the estimated surge of 3.5% in company's cost of production during the same period. I maintain ‘buy’ stance for the company by considering its FY10E earnings at 10.25x where my target price for 1HCY10 is PKR 107 per share.

Allied Bank Limited (ABL) FY09 Review

ABL outperformed the overall banking sector


Allied Bank Limited (ABL) has recently disclosed its detailed accounts for the period of FY09. The bank posted the NPAT of PKR 7.1 Billion during the period comparing to PKR 4.1 Billion during the same period last year which translated 73%YoY growth during the reviewing the period while EPS stood at PKR 9.1 during the comparing to PKR 5.2 during the corresponding period last year. Moreover, the bank announced the final cash dividend of PKR 2.00 per share coupled with 10% bonus shares.

NII surged by 41%YoY

The Net Interest Income of the bank surged by 41%YoY to PKR 18.7 Billion comparing to PKR 13.3 Billion during the same period last year. The massive expansion comparing to the peers was in response of 190bps jump in earnings yield to 13.4% during the period as the bank lend its money by adopting the valuable strategy where peers remained risk averse and preferred to invest the excess liquidity in government instruments. On the other hand, the NIMs of the bank rose by 85bpsYoY to 6.1% comparing to an average NIMs expansion of 33bpsYoY for peers.

Non-interest income upped by 20%YoY

The Non interest income of the bank witnessed 20%YoY increase to PKR 6.0 Billion from PKR 5.0 Billion in last year mainly at the back of increase in gains from the sales of securities to PKR 1.1 Billion. Moreover, the dividend income of the bank took a slight dip where income from foreign currency account rose by 231%YoY.

NPLs improved to 6.5%

The NPLs of the bank increased by 18%YoY to PKR 16.3 Billion which allowed the NPL ratio to stand at 6.5% coupled with the coverage ratio which was at 77% during the period. The bank made the total provisions of PKR 4.5 Billion during the period comparing to PKR 3.2 Billion last year which depicted a massive surge of 41%YoY during the reviewing period. As a proportion of total loan book, exposure to textile declined by 200bpsYoY to 18%, share of sugar was down 63bpsYoY to 1.33% and retail exposure remained flat at 2.5%

Looking Forward

ABL owns enough competence to retain strong bottom-line growth going forward. The bank is targeting to raise its exposure to high yielding SME segment. Moreover, the non-interest income of the bank is expected to remain growing mainly at the back of higher capital gains on its equity portfolio where the bank currently has PKR 2 Billion as un-realized gains. I currently maintain ‘hold’ stance on the ABL’s scrip by considering its FY10E earnings at 6.68x where my target price for FY10 is PKR 69.50 per share.

Shell FY09 Review

Earnings tremendously boosted during FY09


Shell Pakistan (SHELL) has recently disclosed its result for the period of FY09. The company posted the NPAT of PKR 3.91 Billion during the period comparing to the NLAT of PKR 1.73 Billion during the same period last year where the EPS during the period stood at PKR 37.42 comparing to LPS of PKR 25.20 during the corresponding period last year mainly at the back of higher exchange and inventory losses during last year.

Higher margins squeezed the Cost of Sales

The company made the sale of PKR 156 Billion during the period comparing to PKR 163.15 Billion during the same period last year which translated 4%YoY decrease during the period. Conversely, the cost of sales nose-dived by 9%YoY to PKR 143.10 Billion during the period due to the drastic surge in crude oil as well refined product prices specially the HSD which permitted the company to incur higher inventory gains. Moreover, the gross profit enlarged by 100%YoY to PKR 12.9 Billion resulting higher margins during the period.

Other income surged by 28%YoY

The further support to the outshine performance was given by other income which surged by 28%YoY to PKR 917 Million against PKR 719 Million during the same period last year chiefly due to distribution of higher profits from Pak Arab Pipeline company Limited (PAPCO) to its associated companies.

TFC issuance led lower financial charges

The distribution and administrative expenses of the company upped during the period by 21%YoY to PKR 7.22 Billion comparing to PKR 5.98 Billion during the same period last year while the financial charges of the company turned down by 53%YoY to PKR 1.29 Billion from PKR 2.71 Billion during the same period last year mainly at the back decrease in interest rates. Moreover, the issuance of TFC of worth PKR 85 Billion by the GoP for resolving the circular debt also supported the decrease in financial charges during the period.

Looking Forward

I currently maintain ‘buy’ stance for the SHELL scrip by considering its current trading at FY10E of 7.50x where my target price for FY10 is PKR 390 per share.

Fertilizer Sector 2MCY10 Review

Urea Off-take dwindled by 9%YoY


The National Fertilizer Development Centre (NFDC) has recently announced the fertilizer’s updates for the period of 2MCY10. The Urea off-take witnessed a decent decline of 9%YoY to 984k tons comparing to 1,076k tons during the same period last year mainly at the back of 17%YoY and 16%YoY decline in urea imports and local productions respectively during the period. Conversely, the sector owned the 9%YoY higher sales in terms of increase in urea prices which stood at PKR 814 per bag during the period comparing to PKR 747 per bag during the same period last year.

FFBL supported the Urea’s declining trend

During 2MFY10, Fauji Fertilizer Bin Qasim (FFBL) contributed the major decline of 52%YoY in its urea off-take comparing to the same period last year largely attributable to their plant turnaround while ENGRO witnessed the 2%YoY growth where Fauji Fertilizer Company (FFC) remained unchanged during the period.

DAP off-take showed 42%YoY growth

The DAP off-take remained growing during the period by depicting enormous growth of 42%YoY to 162k tons comparing to 114k tons during the same period last year. The DAP prices also showed a extensive increase of 22%YoY to PKR 2,589 per bag primary due to increase in Phos-acid prices which are currently around USD 610/ton comparing to USD 430/ton during 2HCY09.

ENGRO became the major beneficiary of DAP off-take surge

ENGRO showed the outshine performance during the period by posting 157%YoY growth during 2MFY10 to 41k tons comparing to 16k tons during the same period last year. Moreover, the 230%YoY growth was witnessed on cumulative basis by the company after posting sales of 71k tons during the period. FFBL sales remained deceptive during the period as the company posted the sales of 27k tons by posting 32%YoY reduction during the period mainly at the back of plant turnaround.

Looking Forward

I believe that the fertilizer sector will remain prominent due to the GoP support to agriculture sector by allowing the support prices and subsidized agricultural loans etc. Moreover, the current DAP prices have increased to PKR 2,600/bag due to increase in Phosphoric acid prices which may cause shrinkage to the DAP off-take. Currently, I maintain ‘buy’ stance for ENGRO scrip by considering its current trading at FY10E of 6.50x while ‘hold’ for FFC and FFBL by considering their current trading at 7.80x and 9.50x respectively where my target price for ENGRO, FFC, and FFBL is PKR 250, PKR 120 and PKR 38 per share respectively.

United Bank Limited (UBL) 1HCY09 Review

NPAT dwindled by 23%YoY
United Bank Limited (UBL) recently declared its financial result for 1HCY09. The 1HCY09 was quite disappointing in terms of profitability as the bank posted its NPAT of PKR 4.29 Billion compare to 5.59 Billion in 1HCY08 which translated a decline of 23%YoY and 32%QoQ; the profit before tax was PKR 6.77 Billion in result of 24%YoY decline; the EPS of the bank also shrunk by 23%YoY to PKR 3.85. UBL did not declare any interim payout for 1HCY09
However, the increase in KIBOR rates and 13% average increase in advances brought the increase in interest income of the bank by 20%YoY to PKR 15.83 Billion compare to PKR 13.22 Billion during the same period last year. The Operating revenue also increased by 17%YoY to PKR 22.61 Billion compare to PKR 19.25 Billion during the same period last.
In spite of the high inflationary pressures (average 1HCY09 CPI at 17.6%), the bank made just 11%YoY increase in its Administrative expenses compare to the same period last year.
Higher NPL significantly impacted the results
Although the Net interest income before provisions grew by 20%YoY but on the other hand the non-performing loans (NPL) made a drastic increase of 153%YoY to PKR 6.42 Billion compare to PKR 2.54 Billion during the same period last year. The advance to deposit ratio (ADR) was 72% during the period.
Net interest income after provisions decreased by 12%YoY compare to the same period last year at PKR 9.41 Billion. Provisions are up by PKR 2.5 Billion to PKR 6.4 Billion this year mainly due to elevated corporate and on-going consumer portfolio provisions. The provisioning charge also includes PKR 484 Million charged on account of impairment loss taken on the equities portfolio.
The Net interest margins (NIMs) remained strong at 6.3% owing to higher interest rates and attractive returns on the investment portfolio. However, NIMs on a year on year basis were impacted by an increase in the cost of deposits as a result of SBP regulation of 5% minimum rate of return on saving deposits which came into effect in June 2008.
Flimsy Macro-economic indicators for whole SectorThe upshots of the global financial crisis remained annoying for Pakistan’s economy which resulted in 2% GDP growth during FY09. The political instability and increased militancy in the northern areas of the country also took its toll on the economy both in terms of direct costs of the fight against extremism as well as affecting investment inflows and investor confidence in the country.
However, the IMF program played an important role to bring some strength in key economic indicators. Foreign exchange reserves which dropped to even lower than USD 7 Billion in November 2008 had now increased to USD 11.4 Billion in June 2009. Current account deficit also lowered by 23% this year at USD 8.5 Billion along with decrease in trade deficit to USD 14 Billion against USD 16.8 Billion compare to last year. Remittances again showed up trend by 21% to USD 6.4 Billion this year which also helped to stabilize the external account.
The chief challenges, however, which should have to be resolved in order to restore the economy growth and investors’ confidence in the Pakistan remain the acute energy crisis and the increased threat of militancy and extremism. Given the government’s current focus on these issues, I stay watchfully hopeful that the economic indicators will continue to improve this year for the overall banking sector.
Looking Ahead
UBL being the most attractive stock within the private commercial banks showed a slightly better incremental stock performance during the subjected period. The stock price of the bank mounted by 13% in CY09 to date compared to 31% rise in the benchmark index on KSE. However, the inclusion of a further 1% decline in the discount rate to 12% in recent monetary policy gave an obvious hope of betterment in near future and I am anticipating that its stock price will reach to PKR 65/share in FY09. I maintain the ‘buy’ stance for the bank.

National Refinery Limited (NRL) FY09 Review

NPAT dwindled by 74%YoY
On August 19, 2009, the company announced its result for FY09 ending to June 30, 2009. The company faced a sharp decline in profitability for FY09. NPAT for the year shrank by 74% to PKR 1.53 Billion from PKR 6.01 Billion compare to last year whereas the company's earnings per share were at 5-year low in FY09; it reported 74% lower to PKR 19.17 against PKR 75.10 in the same period a year back. The Sales were dropped by 15% to PKR 109.58 Billion compare to the same period last year which also returned in the shape of decline in Cost of Sales by 12%YoY to PKR 104.31 Billion compare to the same period last year. The Gross Profit Margin of the company lowered by 42%YoY to 4.8% in FY09.
Furthermore, the company paid PKR 30.533 Billion on account of trade discount, taxes, duties and levies in FY09 against PKR 16.847 billion in the same account a year back.
Global Oil Prices and PKR-USD Parity lowered the profitability
This drastic decrease in the performance of the company was mainly in result to the global plunge in oil prices of 39% followed by the decrease in PKR-USD parity by 23% during the period.
The average net realized price for the crude oil sold was USD 55.53/bbl, compared to USD 71.29/bbl during the last year whereas the average PKR-USD Parity was PKR 78.56 in FY09 compare to PKR 62.54 during the same period last year.
Lubricants served as the saving grace
The company's petroleum business experienced a throughout cutback in profit during FY09 chiefly in return to massive exchange losses as PKR-USD Parity depreciated by 23% during the period, and in return to the high inventory losses to 39% drop in global crude oil prices.
In an opposite manner, the company’s lubricant business supplied as the saving elegance for its FY09 net results, which would have been highlighted in red otherwise. The company’s margins in lubricant business were outshine in FY09 as the principal cost of production for lubricants which is furnace oil had a dropping trend along with the decrease in crude oil prices. The company has a strong presence in lubricants across the country which allowed benefiting by charging the premium in the market and offset the impact of inventory loss by fall in oil prices.
On the other hand, the average ‘gross refinery margin’ (GRM) were 60%YoY lower in comparison to the GRM of USD 9/bbl during the same period last year.
Dividend payout ratio to a six-year high of 65%
In the face of the gloomy EPS performance in FY09 compare to the same period last year, NRL did not let down its shareholders to get the lower Dividend for the year as the company has strong cash reserves which enabled it to announce the dividend of PKR 12.5/share for FY09.
This takes the company’s dividend payout ratio to a six-year high of 65%, which stayed close to 20% - 30% in the past. This, however, further asserts the view on refineries' reluctance to invest in Euro-II implementation.
Looking ForwardThere are optimistic signs for the company as the global crude oil prices in the market are expected to not to decline sharply and remain in a range of USD 65-70/bbl during 1HCY10. Therefore, on a comfort zone if NRL manages to keep its fuel business margins at 0%, the lubricant business would still be good enough for NRL to post better profits for the next period as lubricant business hedge the impact of crude oil prices on petroleum business. I include the NRL scrip in the buying list.

Shell Pakistan Ltd. 1HCY09 Review

Shell logs PKR 1.01 Billion profits for 1HCY09
Shell Pakistan Limited (SHELL) has announced its 1HCY09 result on August 19, 2009. The company posted its NPAT of PKR 1.01 Billion a decline of 71%YoY from PKR 3.45 Billion last year during the same period. The Sales were PKR 82 Billion in 1HCY09 compare to PKR 88.06 Billion in 1HCY08 which again represented a decline by 7%YoY compare to the corresponding year. The EPS were again low by 71% to PKR 14.80 per share compare to the same period last year. The foremost issues who impaired the company’s performance were decline in POL products volume, higher financing cost and lower inventory gains.
Better Picture in 1HCY08
The company had better outlook in 1HCY08 compare to 1HCY09. This was mainly in result of a huge inventory gain due to sharp increase in oil prices in the global market last year, the reason why we have seen a decline in Gross Profit Margin from 10.67% to 6.35% comparing to 1HCY08. The profit before tax also shrank by 82% to PKR 962 Million against the PKR 5,380 Million during the same period last year in return of the same reason.
Apart from the above mentioned reasoning, it should be pertinent to note that on a normalized basis after excluding the impact of inventory gains of 2008, the company’s performance shown improvement in terms of profitability regardless of the economic and security challenges faced by the country. Moreover, the company still has unsettled government receivables of approximately PKR 4 Billion including PDC and Sales Tax refunds which allowed the company to soar its short term financing by 65.5% to PKR 902 Million in 1HCY09 from PKR 545 Million in the corresponding period so that it should complete its business cycle. Additionally, one of the elements which supported earnings was chiefly due to the tax reversal of PKR 51.75 Million for the period under review.
Looking Forward
Since the oil prices are moving up on global basis and the Board of Directors has approved an interim dividend for the year ending December 31, 2009 at the rate of PKR 8 per share so we recommend buying its stock.

HUBCO FY09 Review

Outshine performance in FY09 -- NPAT and EPS increased by 45%
Hubco disclosed its FY09 performance on August 12, 2009. The company made an outshine performance in FYO9 by increasing its NPAT with 45%YoY to PKR 3.78 Billion compare to PKR 2.6 Billion last year, the EPS of the company also increased by 45%YoY to PKR 3.27 per share. The company did better than its expectations due to the increase in PKR-USD Parity over the last 18 months as the company’s tariff is benchmarked in USD Index. The PKR-USD Parity also resulted in terms of increase in ROE of the company by 20%YoY in FY09 to 13% from 9% from the same period last year.
Circular Debt..! Still a vicious circle
The company still had a dilemma to get rid of the Circular Debt issue. This year WAPDA repositioned its dues on Hubco at the level of PKR 43 Billion and of which PKR 38 Billion was overdue in June 2009. Therefore, this situation forced Hubco to withhold payment of PKR 37 Billion to PSO, a major oil supplier to the company. The company had a strong believes that they will likely to settle the circular debt issue for ever by the end of August 2009. To continue its business cycle the company raised its Financial Expenses in the year by 7% to PKR 2 Billion under the head of short term borrowings. The company also raised a long-term loan of PKR 5 Billion for Narowal project, which was partly used to pay off short-term borrowings.
Higher Dividend than EPS exhibits company’s confidence against ReceivablesThe company made 56%YoY increase to PKR 3.35 dividend per share for the year, including the additional amount of PKR 2.0 cash dividend per share for 4QFY09 which basically is 102% against 78% payout last year. I believe that this dividend disbursement for FY09 is against the forever circular debt settlement by the end of August 2009 due to the IMF pressure on GoP.
Outlook – Driving towards further ExpansionI have optimistic attitude for HUBCO to buy. HUBCO’s 220MWs Narowal oil-fired power project successfully achieved its financial closing in March 2009 and as per companies’ expectations it will be coming online by March 31, 2010. While, hydro project i.e. Laraib Energy of 84MW is expected to be completed by September 2009. The company also signed a Power Purchase Agreement (PPA) for 25 years on November 20, 2008, with WAPDA and the estimated total project cost is USD 285 Million with a debt to equity ratio of 70:30. The entire debt has been funded locally. On the other hand, the PPA of Laraib Power plant has been initiated and the revised tariff has been approved by ECC at PKR 6.84/KWH. Hubco has 75% equity interest in this project. The company is financing the project injection through local banks and International financial institutions. Furthermore, the company also stated that O&M agreement with International Power Global Development has been renewed for further 12 years.

Nishat Mills Ltd (NML) FY09 Review

NPAT is expected to be PKR 1.39 Billion with an EPS of PKR 5.50 per shareNishat Mills Ltd. (NISM) scheduled to announce its annual result for FY09 on August 25, 2009. I anticipate that the company will post its NPAT of PKR 1.39 Billion in FY09 compare to PKR 6.14 Billion last year; therefore a decline of 77%YoY. This will result into an EPS of PKR 5.50 in FY09 against the EPS of PKR 25.32 during last year.
Better performance in Core Operation than FY08
The outshine performance in FY08 was in result of a capital gain of PKR 5.1 Billion from the mark-to-market transaction of its ‘other investment’ in MCB after the 20% acquisition by MayBank in MCB.
Apart from this capital gain transaction, NISM actually achieved an EPS of PKR 4.45 per share in FY08 and the marked growth for FY09 would be of 33.7%YoY.
NISM’s anticipations to FY09
The company itself targeted their NPAT to reach at PKR 7.55 Billion or 22.9%YoY growth after the termination of antidumping duty on bed linen by the European Union in the beginning of 3QCY09.
The company’s revenues were also estimated to be assisted by a decrease in PKR-USD Parity over in last 18 months. The NISM anticipated that their Gross Profit will reach to 19% in FY09 compare to 15% last year as the company gained a benefit of procuring the annual cotton requirement in the months of October and December which are known as the key buying season.
Looking Forward
Based on the 12 months stock performance of the company I recommend to ‘buy’ NML scrip where the target price for FY10 is PKR 45 per share.

OGDCL FY09 Review

Highlights of the FY09 include:
 OGDCL’s net sales increased by 3.9% to Rs 130,830 million from Rs 125,908 million compared to the last year
 Profit before tax increased by 3.3% to Rs 80,928 million from Rs 78,307 million compared to the last year
 Net profit after tax stood at Rs 55,540 million resulting in earnings per share of Rs 12.91 as against Rs 44,338 million and earnings per share of Rs 10.31 respectively during last year.
 Operating profit margin and net profit margin for the year was 59% and 42% respectively.
 Payable interim dividend of Rs 2.50 per share.
 Average net realized price for the natural gas sold was Rs 174.78/Mcf, compared to Rs 140.88/Mcf during the last year
 Average net realized price for the crude oil sold was US$ 55.53/BBL, compared to US$ 71.29/BBL during the last year
 The Company spudded 30 wells and made two discoveries during the year, (Kunnar South-1 & Pasahki West Deep-1).
Performance Review
OGDCL increased its Profitability by 25.26%YoY
OGDCL has announced its FY09 annual result on August 13, 2009. The company reported its profitability by 25.26%YoY increase to NPAT of PKR 55.54 Billion comparing to the NPAT of PKR 44.34 Billion last year. Profit before tax increased by 3.3% to PKR 80.92 Billion from PKR 78.31 Billion compared to the last year. The EPS for FY09 increased by 11.87%YoY to PKR 12.91 compare to PKR 11.54 last year. The Gross Profit Margin for the year was 69.92% comparing to 69.50% last year whereas the Operating profit margin and net profit margin for the year was 59% and 42% respectively.
Growth mainly driven by gas sales
The FY09 Sales figure was PKR 130.83 Billion with 3.91%YoY increase from PKR 125.91 Billion last year. The company experienced a drastic increase in sales for ‘Gas’ by 26.07%YoY which is a good symbol for the company that it’s actually driving its sales towards the demanding fuel of the country. OGDC contributed 24% of the country’s total natural gas production and the total sales of ‘Gas’ in FY09 was PKR 75.04 Billion compare to PKR 59.52 Billion.
On the other hand, the decrease in the sales of ‘Crude Oil’ and its bi-products i.e. ‘Naphtha’, ‘Sulphur’, ‘Gasoline’, ‘Kerosine Oil’, and ‘High Speed Diesel Oil’; and ‘LPG’ were noticed if I compare it to last year’s figures. The reason behind the decrease in their production was primarily due to decline in production from Dhodak, Thora, Lashari, Bobi, Sono, Tando Alam and Chanda fields. The company has also begun conducting offshore exploration activities which I believe has significant untapped potential.
The major contribution in FY09 Sales after ‘Gas’ was made by ‘Crude oil’ and ‘LPG’ with PKR 63.20 Billion and PKR 3.40 Billion comparing to PKR 70.63 Billion sale of ‘crude oil’, and PKR 5.30 Billion sale of ‘LPG’ by last year.
Operational Review
With a portfolio of 35 operated exploration licenses, the company has the largest exploration acreage in Pakistan, covering 30% of the total awarded acreage till FY09. The company has been able to keep the operational costs at the bare minimum by utilizing their own services and negotiating competitive service contracts for drilling and seismic operations. The company board agreed to merged with Pirkoh Gas Company (Pvt) Limited (PGCL) and the process of merger completed effectively in January 01, 2009
Net Profit margins increased by 21%The chief considerable part came from lesser corporate tax paid by the company of 31% which assisted the company to score net profit margins of 42% compare to 35% last year. This was due to the prior year tax adjustment of PKR 11.60 Billion which the company had to pay last year.
Found only 2 wet well from the exploration of 30 wells/2 Discoveries out of 30 explorationsThe exploration cost mounted by 16%, but then again the company successfully offset its effect by exploring 30 wells, drumming two new findings during FY09. OGDC made overachievement from its target for its exploration activities but failed to maintain the ratio of 3-1.
Lower Production for its major products in FY09
The company had lower production for its major products in terms of volume in FY09 compare to FY08. On average the gas prices increased by 24% to PKR 174.78/mcf along with the PKR depreciation of 23% during FY09 but this effect stoutly offset by 22% on average decline in oil prices as they linked with international price quoted in USD.
Circular Debt still an obstacle
The company owned overwhelming amount of PKR 65 Billion in receivables till March 2009. The company owned ‘circular debt’ as the key area to concern which is minimizing shareholders' return in terms of cash.
Looking Forward
I have optimistic attitude for OGDC to buy. OGDC has outperformed in the market by 97% over last 6 months in response to the exploration and growth related news. OGDC also announced couple of discoveries located in Sindh Province at Kunnar South-1 and Pasahki West Deep-1. Subsequently, on August 12, 2009 another gas discovery was made by the Company at Reti-1A in Guddu Exploration License which comes under the joint venture between OGDCL, IPRATOC, and GHPL holding pre-commercial stakes of 70%, 25%, and 5% respectively.
I estimate the findings to have a marginal annualized EPS impact of PKR 0.016/share for OGDC based on the initial flow rate. Although the above mentioned discoveries would be having a positive price performance impact but then again I am estimating the slowdown to the increase in exploration related news.

All suffered declining fortunes except FFC in 1HCY09

DAP packed down Urea’s SalesThe improved DAP sales of 172%YoY in 1HCY09 conveyed a reversal impact on fertilizer Sector’s sales and brought its 15.1% decrease to PKR 4.9 Billion during 1HCY09. The industry sales’ grew by 45.0%YoY to PKR 45.9 billion and gave a far-fetched performance in DAP sales by 172%YoY increase but a reversal impact in Urea sales by 7%YoY decrease. The negative sales growth in the Urea was in response to decrease in DAP prices (Economy of scale) and in reflection of reduction in Urea’s production which declined by 0.6%YoY to 2 Million tons. The DAP production drove an addition by 42%YoY to 213k tons.
Industry Performance
1HCY09 for Fertilizer sector has appeared to roll into the downward side. Fauji Fertilizer Bin Qasim (FFBL) declared the profit of PKR 497.8 million and EPS of PKR 0.53 in 1HCY09 compared to the profits of PKR 718.2 million and EPS of PkR0.77 during the same period in last year which means a decline of 30.689%YoY. Engro Chemical declared the profit of PKR 1.043 billion along with an EPS of PKR 3.95 compared to the profit of PKR 1.556 billion and EPS of PKR 3.95 in the same period a year back. Dawood Hercules has posted an after tax loss of PKR 615.284 million and Per Share Loss of PKR 5.63 in the period under review against a profit of PKR 1,213.997 million and EPS of PKR 11.10 in the same period year back. Fauji Fertilizer Company (FFC) was the only company who has increased its profitability from the same period last year. It disclosed the profit of PKR 4.547billion and EPS of PKR 6.70 as compared to PKR 3.286 billion profits and PKR 4.84 EPS previously.
Fauji Fertilizer Bin Qasim
FFBL, being the only DAP producer was the leading recipient of the said DAP Sales Growth. FFBL’s DAP sales evidenced a 207%YoY increase – highest in the sector by growth of 164.3%YoY. The company sold 279k tons of DAP having a shoot of 6.5xYoY as a result of this a PKR 15 Billion in 1HCY09 compared to PKR 5.7 Billion during the corresponding period last year. The Urea sales for the company took a dip of 20%YoY and stood at 281k tons in 1HCY09.
In 2QCY09, the company stationed NPAT of PKR 485.3 Million and the EPS of PKR 0.52 compared to NPAT of PKR 556.1 Million and the EPS of PKR0.60 in 2QCY08 which booked a decline of 12.7%YoY. Apart from the Core operation, the faced a loss from associate Pak Maroc Phosphor (PMP) due to shutdown of their operations for 3 months during the period of 16-Nov-08 – 19-Feb-09 as well as a considerable inventory jot down by the company to bring its stocks at NRV; additionally, it was largely in loss from the Joint Venture project booked mainly in resulting to NRV adjustment recorded by PMP.
Engro ChemicalEngro Chemicals had again a drastic performance in DAP sales which grew by 1.8x in 1HCY09 to plunk at 71.6k tons. The DAP sales increased by 1.7x in 2QCY09 at 28.2k tons whereas the Urea sales declined by 24.1%YoY to 419.2k tons in effect of emphasize on DAP Sales by the industry compared to last year.
In 2QCY09, Engro's Urea sales were 183.3k tons compared to 245.2k tons during the same period last year which put a decline of 25.2%YoY. The gross profit margin of the company declined to 20.3% in 2QCY09 in contrast of 40.7% in 2QCY08.
Fauji Fertilizer Company
The company made an NPAT of PKR 1.9 Billion in 2QCY09 and EPS of PKR 2.74 compared to NPAT of PKR 1.5Billion and EPS of PKR 2.28 during 2QCY08 which brought the growth of 20.5%YoY.
The chief explanation behind the enlarged profitability in the 1HCY09 was due to increase in Urea sales including the increase in Price and Quantity and the higher other income principally in 1QCY09 in the shape of higher dividend from FFBL.
Outlook
Based on my analysis the reasons for lower profitability during the year were decrease in profit margins mainly in DAP, and higher interest rates in 1HCY09. I strongly expect the profitability of fertilizer companies to progress due to continued strong DAP and Urea sales, continuously increase in dividends paid by the industry and lower financial charges which are in the reason of decreasing interest rate environment.

Automobile Sector 1MFCY10 Review

Showed a healthy jump of 32.43%YoY
The latest sales figures of Pakistan Automotive Manufactureres Association (PAMA) for July 2009 depict that car sales are gradually picking up month on month basis; however there is still a long way to go for the auto industry. The sales figures reported for the month of July showed a healthy jump of 32.43% to 9,820units compared to the 7,415units in same month in 2008. The figures have also shown an improvement of 8.07% compared to 9,087units in June 2009.
800CC segment leading the recovery
The recovery in sales is lead by the 800CC category which has shown a healthy growth of 13.3% MoM. Honda City and Corolla in the 1300CC range have also witnessed some improvement in sales, the overall MoM growth in this segment is recorded at 9.12%, and the total number of units sold stood at 4,335. 1000CC segment made the sales growth of 5.85% having 1,555units sales in July compared to 1,469 units in previous month; SUVs and LCVs segment showed the negative sales trend by 13.41% and a sales figure of 1,330units in current period compared to 1,536 in last month. The main contributor was Pak Suzuki with 4,966 units sales followed by Indus Motors with 3,586 units while Honda Atlas Cars and Dewan Motors with 1,140 and 128 units of sales respectively.
Withdrawal of FED helped boost the sales...... but high financing cost is still a dragThe government took a decision to reduce the Federal excise duty on CKD units in the recently announced budget this has helped the car manufacturers in reducing the prices of the cars which in turn helped the sales figures. However the high consumer financial cost and the reluctance of the banking sector to push the car loans aggressively is not helping the cause of the car manufacturers.
The Cars’ Sales decline by 49.68%YoY and SUVs & LCVs’ sales decline by 27.67%YoY. The segment which conceded the biggest shock was 1000CC car category with an average downturn of 71.40% in sales. The recorded downturn was in effect of increase in automotive prices caused by 19% PKR-USD Parity (81.39 in June 2009 from 68.40 in June 2008) which increased the cost of imported completely knocked down (CKD) kits and limited financing due to increase in interest rates.
Indus Motors (Toyota).
Toyota corolla remained the highest selling car with 3,124 units sales, continuously maintaining number 1 slot since October 2008. In spite of July-2008 to June-2009 sales volume which declined by 20.45%YoY, it has improved its market share by further 2 points to 36% this month. The year which started with a sizable hit of 80%QoQ downturn in 2009 with the earlier model is gradually being reversed; it stoutly bounced back to 275%QoQ increase in 2nd Qtr of 2009 leading to a growth of 13%QoQ in next quarter, while the last Qtr depicted growth of 17%. In July 2009 Corolla has made 3% sales growth. On the reversal side of this the sales of Daihatsu Cuore, went down by 52.05%YoY in FY09, then we’ve seen sales to get back into the positive numbers with 22% jump MoM basis in June, and in July 2009 the numbers are again showing the negative sales growth of 17% by selling 331 cars compared to last month figure of 397 cars.
Pak- Suzuki
The highest sales in July 2009 were made by Pak Suzuki with 4,966 cars. The main reason for this spike is mainly due to the cut in prices of vehicles on celebration of 1 million vehicle sales by Pak Suzuki since its operations in Pakistan. With the exception of Liana and Alto all the products of Pak Suzuki has shown tremendous sales surge in the previous month, mainly due to the concerted effort on marketing by the company. The sales figures were lead by Bolan with whooping increase of 69% in MOM sales. Ravi and Mehran also witnessed healthy growth in July with MoM growth of 38% and 21% respectively. Very Surprisingly ALTO seems to be loosing its market and probably conceding to Core and foreign competition in 1000 cc category. While Liana remains weakling in Suzuki family, as it faces hard time with completion from Honda City and Corolla Xli in 1300CC range.