FY10 Budget: Construction - Positive to Neutral Written as on June 29, 2009
• Budgetary measures and impact - Positive to neutral
• Recommendation - PACE ‘Buy’ with TP of Rs21/sh.
In today’s Value Seeker, we are discussing the impact of the FY10 budget on the construction sector along with our recommendation.
Budgetary measures and impact - Positive to neutral
. The construction industry would be impacted by the government’s measure of increasing CVT from 2% to 4%.
. However, the construction industry has been extended a favor in terms of no capital gains tax in the budget and the finalization is pending to be discussed with the provincial governments.
Recommendation - PACE ‘Buy’ with TP of Rs21/sh.
In the listed construction sector, PACE Pakistan would be significantly affected from the recent increase in the CVT as 1) the company's on-going projects have already been sold out (receiving payments in installments in line with projects' completion coupled with initial down payments of around 15-20%) and 2) the amounts involve large payments towards which the counterparty may not be very sensitive. However, CVT increase would impact individual level small scale deals with lowering trading volumes with an increase in tax being built in to the prices. We recommend ‘Buy’ on PACE Pakistan with a Dec-09 target price of Rs21/share.
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