Foreword Dear Client, The 2013 outlook is promoted under the name Pakistan Equity Market 2013 Scaling

New Heights . In continuation to what was an excellent year, the KSE-100 gained 49% (37% in USD terms) beating the leading benchmark index providers MSCI Frontier Markets (5%) and MSCI Emerging Markets (14%). While this makes Pakistan one of

the best performing markets in the world, the country is increasingly being recognized among global frontier market investors as a true next generation emerging market. In 2012, Pakistan has shown that it is not just a country about headlines but also about bottom-lines. In spite of some very challenging issues on the macro economic and political front (noises

that investors rightly ignored) the key drivers for this strong performance were (1) resumption and uptick in Pak-U.S. bilateral relations, (2) monetary policy seeing interest rates cut by 250 basis points, (3) Capital Gains Tax reform package, (4) strong corporate results and (5) attractive valuations vs. regional markets (a deep discount to peers implies a forward Price Earnings multiple of

6.8 and Dividend Yield of 8%). 2012 saw stellar gains by all key sectors of the economy including Banking (+ 49%), Energy/Oil & Gas (+ 27%), Power (+ 42%), Cements (+ 153%), Foods (+ 70%), Textiles (+ 101%) and Insurance (+ 58%). BMA is proud to state that our recommended portfolio mentioned in last year s report

titled Pakistan Strategy Outlook 2012: The Right Moves has outperformed the benchmark index by 5% to provide a return of 53% (41% in USD terms) compared to Karachi Stock Exchange 100 s cumulative return of 49%. Thus, we hope to advise our clients on how to outperform the broader market by investing wisely in 2013. The BMA

Rising inflation expectations make equities an attractive asset class in absolute and relative terms.5-4.economics team thinks that the most likely path for the Pakistan economy in FY13 will see real positive GDP growth of 3. Pakistan is at a crossroad of political and economic transition.0% and interest rates will remain in single digits. An efficient transition in .

The perceived risks in such interesting times will lead to volatility that should be .800. a 17% upside to present levels marked by strong corporate earnings growth and higher dividend payouts. Our 2013 year-end target for the Pakistani index (KSE100) is 19.political leadership is essential under the prevailing economic conditions and will impact the economic growth in 2013.

In framing the outlook for 2013. (1) key investment themes for 2013 and beyond. (3) major events or industry risks to consider and (4) hedge against the perceived .considered by investors as an excellent buying opportunity to generate sound returns. (2) stocks with the greatest upside potential to drive performance in 2013. we asked our analysts to highlight.

Textiles and Banking sectors through selective stock picking. Cements. In the first investment idea BMA seven you will find our top stock & industry picks for a diversified core portfolio. BMA recommends exposure to the Energy & Power (Oil & Gas Producers.risks to generate risk-adjusted returns. In the second idea BMA the next eight we elaborate . IPPs).

and we look forward to bringing you more insights over the year. It remains to be seen whether some of these scenarios . We hope that you find this new chapter in the 2013 Research & Strategy series an interesting and illuminating read.on our Research s favourite value plays which can be added in a satellite approach.

Moazzam M. Yours sincerely. happiness and good health in the new year. Whatever happens. Malik Chairman & Chief Executive Officer . I wish you and your family good fortune. though.will actually come to pass.

TABLE OF CONTENTS 1 Pak Equities: More triggers lined up 1 2 KSE100: Targeting 19.800 for CY13 3 3 Elections: A trigger in itself! 10 4 Ample cash: Hunting for yields 12 5 IMF re-entry: A probable case with positivity this time 13 6 BMA seven 7 15 7 Energy: Oil & Gas Pakistan Oilfields Limited-A mix .

of growth and value Pakistan Petroleum Limited -Valuations catching up with peers 16 8 Banks: United Bank Limited The preferred play in hard times 19 9 Fertilizer: Fauji Fertilizer Company Defensive play with astounding yields 21 10 Textiles: Nishat Mills Limited -Most diversified and the best hedge 23 11 Cement: DG Khan Cement Company High margins + strong portfolio = BUY! .

25 12 Power: Hub Power Company Be in safe hands 27 13 And the next eight 29 .

affan@bmacapital.ahmed@bmacapital.punjani@bmacapital. 2013 The good times are not yet over .Pakistan Equity Market Outlook 2013 More triggers lined up Research Analysts Furqan Punjani Friday January Muhammad Affan Ismail Farid Aliani Zoya Ahmed zoya.

heavy short term liquidity and that too without leverage. expected better performance by regional markets and alluring local valuation will lead the equity market to post another year of attractive gains. falling attraction of alternate investments. Our index valuation matrix which .The period of exceptional performance is not over yet. Influenced by a likely change in political setup.

800 points by 2013 end. we have accounted for the major economic risks and challenges (both external and fiscal concerns) that are expected to surface in 1HCY13 into our index calculation. any variation a way .comprises of regional as well as local valuation methods suggests that the local bourse will provide a fairly decent return of 17% to reach 19. Though.

In times of paradoxical economic variables characterized by PKR depreciation amid declining reserves. fiscal imbalances.from the expectations may change our index target. expected political and economic shifts. low interest rates and strong earnings growth. we recommend investors to focus on high dividend yielding and economically immune stocks. The BMA 7 high conviction ideas for the upcoming year .

NCL. ENGRO. Khan Cement from cement sector universe.PA. FCCL.PA. BMAHighConvictionIdeasPrice(PKR) TargetPriceReturnEPS(PKR) .PA.are Pakistan Oilfields Limited.PA. Fauji Fertilizer Company from fertilizers. NPL.PA and PTC.G. Apart from these stocks we also have strong liking EFOODS.PA. FECTC. Pakistan Petroleum Limited and Hub Power Company in energy stocks. United Bank Limited from banking sector.PA.PA. NCPL. Nishat Mills Limited from textiles and D.

PEPBDiv.5x 7% 21% DGKC 54 70 .9X 8% 17% UBL 85 100 29% 14.3x 5. YieldEarningYield POL 431 470 22% 58.8x 0.2 6.4x 2.0x 1.9x 13% 14% NML 64 78 28% 13.5 4.0 5.8 7.6 7.9 1.9x 13% 14% PPL 178 202 22% 30.2x 11% 17% FFC 115 137 32% 15.

0x 1.8x 15% 17% Source: BMA Research Elections: A trigger in itself! The election year has always been a trigger in itself.0 4.33% 12. Historical trends suggest that our capital market has rallied in double digits in both pre and post elections in .6x 4% 22% HUBC 44 52 33% 7.3 6.5x 0.

we believe it s not who comes in. However given the crucial time for the economy. We believe the next election will yet again bring a hung parliament with no majority lying with any .anticipation of new faces and policy shifts. but how strong a coalition they are able to pull together that will act as a trigger for the market.

the ground realities suggest that Pakistan Muslim League Nawaz (PML-N) with some support from religious. .single party. ethnic parties and independents may have an edge. However.

the hunt for better return on reinvestments would lure investors towards equity markets in CY13 also.Ample cash hunting for yields With no increase in discount rates expected in the first half of CY13. . investors (especially individuals) would continue to participate heavily in equity markets as seen in CY12. Moreover with concerns regarding CGT rules addressed.

Though in recent past the quantum of foreign inflows into the local bourse compared to regional peers has declined drastically. the PE expansion .Performance in region to improve Pakistan s relative valuation The ultra-loose monetary policy in developed economies expected to be maintained in the near future leaves a lot of room for PE expansion in Asian equities.

Thus we believe despite higher multiples and even shifting fundamentals of foreigners favorite scrips which include OGDC.PA.PA.PA.PA.PA. LUCK. those markets will make Pakistan s valuation more enticing. POL. MCB.PA would remain in the limelight. ThethemeformarketinCY13 Theme Narration/Catalyst Sectors under focus Stocks to Play 1 Pricing Power Ability to pass on inflationary impact . NBP. PPL.PA and ENGRO.PA.

POL. LUCK. DGKC .to end consumer Sustain margins on the back of regulatory framework and/or supply-demand gap Power HUBC Cements Entire Cement Sector Oil Marketing Companies PSO 2 Devaluation Positive Companies deriving their revenues in USD or guaranteed returns Power HUBC. NCPL. NPL E&P PPL. OGDC Telecom PTC Cements ACPL.

Export driven Textile NML. NCPL. LUCK. NPL E&P PPL. DGKC. FCCL 4 Value with Growth Cheap on multiples Sustainable Growth Predictable dividend payouts Upside . POL. OGDC Impacted by pre-election spending Cements ACPL. NCL 3 Political Spending Industries catering to basic needs and hedged against any slowdown or turmoil Power HUBC.

LUCK Telecom PTCL FMCGs EFOODS Fertilizers FFC. DGKC. FCCL NML. OGDC Cements ACPL. NCL FATIMA. ENGRO EFOODS Revival in credit offtake with .to fair values Power HUBC Oil and Gas POL. FFBL 5 Monetary Easing Decline in financial charges to balloon bottom-line Cement Textile Fertilizer FMCGs DGKC. PPL.

UBL. PSMC Low leverage cost for equity investment Better risk-return profile compared to other investment avenues Entire market BMA Universe .manageable risks Commercial Banks Autos BAFL. MCB INDU.

7 India 13.5 China 9.8 Scaling new heights! We believe the market is all set to post an attractive return in .KSE100: Targeting 19.3 Thailand 12.8 Indonesia 13.1 Singapore 13.2 Vietnam 8.6 Pakistan 6.6 Sri Lanka 9.800 for CY13 Grab your picks Regional CY13 PE (x) Philippines 16.0 Malaysia 14.

Accounting for these factors.CY13 influenced by a likely change in political setup. continuous PE expansions in the region will further lure international investors towards the already under valued Pakistan equities. falling attraction of alternate investments and heavy short term liquidity that too with no leverage. Moreover. our valuation matrix which is a combination of regional as well as local .

the recent unfolding events (CGT relaxation. lower discount rates and elections) would be . Though the expected return for CY13 is marginally lower than last 10 year CAGR of 20% due to critical economic and structural issues.valuation techniques suggests that the local bourse will provide an enticing return of 17% to lead market to reach 19.771 points by CY13 end.

enough to lead the market to post a return higher than last 20 year CAGR of 14%.771 Source: BMA Research .507 Target Price Mapping 25% 19. MethodologyWeightIndexTarget Earnings Growth Valuation 25% 19.536 Source: Bloomberg.645 WeightedaverageIndexTarget19.395 PER Mean Reversion Method 25% 20. BMA Research Regional Discount Convergence Method 25% 19.

2x. the forward FY13 valuations are still at a 26% discount to the last 10 year average PE of 9.CY/FY13 PE of 6. To reach our index level target. we have taken . MSCI EM and MSCI World Indices).8x is 26% cheaper than historic levels Despite stellar performance by the local market to outperform all benchmarks (MSCI FM.

The idea of convergence towards average historical multiples stems from the market s compelling earnings growth and dividend yields of 15% and 8% respectively in FY13E compared to the last 10 year average of 14% and 6% respectively. This would further reduce the difference between earning .a 10% discount over historic multiples to adjust for the current economic and security situation.

there are fears regarding the sustainability of these levels in the wake of challenges on the macro economic front.and dividend yields against t-bill yields after successive cuts in the discount rates. With the index at its all time high. The risk has further intensified after run on the rupee that has started to diminish returns for foreign .

we believe the market will continue to be driven by healthy liquidity in the short term. It should also . Heavy inflows from individual investors after clarification on CGT rules coupled with falling attraction from alternate investment yields will lead local equities to continue the bull run.investors who may be compelled to offload positions in local equities. However.

materialization . After ground breaking performance by the market. Moreover. many new foreign fund managers have started to take interest in Pakistan kept in mind that the rally in the outgoing year despite absence of any attractive leverage product has given the market much depth in terms of liquidity which will further minimize the downside risk and reduce volatility.

of additional flows from the US amid .

thus locking the downside for foreign investors. we believe the next years expected return of 17% would be enough to compensate foreign investors for PKR depreciation (11% in CY13E) and .improving US-Pak relationship (2nd tranche of CSF USD700mn in Jan13. would slowdown the pace of expected PKR depreciation. Kerry Lugar tranche and assistance in other areas). These factors aside.

to safe guard their unrealized return in CY12 (37% in USD terms).0x 1.6x 7. BMAUniverseValuation FY11A FY12A/E FY13E FY14E P/E 8.8x 6. Yield 6% 6% 8% 9% Earning Yield 12% 13% 15% 17% P/B 2.5x Source: BMA Research With ultra-loose money supply .0x Div.7x 1.6x 1.9x 6.

Asian PE multiples have expanded by a hefty 14% last year compared to an average contraction of 15% in 2010 and 2011 (pre-QE phenomenon).in developed markets finding its way to better returns available in regional markets. the Asian equities will continue to beat the returns provided by their Atlantic peers. Recall. Despite staying one of the best performing markets .

(only short of Philippines and Thailand) our local equities are still trading at a PE discount of 43% compared to last 5 years average PE discount of 35% to the Asia. Moreover despite being associated with challenging macro economic situation in the country. the sovereign yields of Pakistan Euro bonds (2017) have come down by ~520bps to 9% .

With considerable risks attached to the economic variables.2% yields offered in the same period last year. we do not see any improvement from the last 5 year average historical discount of 35% however.compared to 14. we believe the increased liquidity would compel our market to . This will further endorse foreign fund managers confidence in Pakistan equity markets.

we believe the current pace of inflows will continue to act as a trigger in CY13 too. Moreover. . we downplay the risk of heavy foreign selling despite the expected depreciation of PKR by 11% in CY13. on the back of better expected return.converge towards its average historical discount. Hence.

BMA high conviction ideas for CY13 Given higher liquidity. alluring valuation against regional peers and expected change in the government would set the theme for CY13. However with economic challenges and PKR deprecation up ahead. we would advise our investors to look into sectors that are shielded against macro economic variables and provide high dividend yields. BMA .

PA).PA).PA).PA).high conviction ideas for the upcoming year include Pakistan Oilfields (POL.PA) and Hub Power (HUBC. United Bank (UBL. Moreover we believe investors should also look out for Engro Foods (EFOODS. Nishat Mills (NML.PA). DG Khan Cement (DGKC. Engro Corp. We believe these scrips have the potential to outperform the benchmark KSE100 index. Pakistan Petroleum (PPL.PA).PA). . Fauji Fertilizer (FFC.

Fecto Cement (FECTC.PA). 178 200 13% 9% 6% 5% Oil & Gas Development . Nishat Power (NPL.PA). 431 470 9% 13% 10% 12% Pakistan Petroleum Ltd.(ENGRO. Fauji Cement (FCCL.PA). Nishat Chunian (NCL. TargetPriceFY13RecommendedPortfolio21-12-201231-12-2013UpsideDiv.YieldAggressive DefensiveBMAModelPortfolio2013 Oil and Gas Exploration 21% 17% Pakistan Oilfields Ltd.PA). and Pakistan Telecommunications (PTC.PA).PA) and Nishat Chunian Power (NCPL.PA).

Co. 115 137 19% 13% 7% 12% Engro Corporation 92 155 68% 0% 5% 0% Oil & Gas Marketing Companies 3% 0% Pak State Oil 233 309 33% 3% 3% 0% Power 16% 39% . 189 202 7% 6% 5% 0% Fertilizers 12% 12% Fauji Fertilizer Co.

Hub Power Co. 44 52 18% 15% 6% 15% Nishat Chunian Power Ltd. 85 100 18% 11% 6% 5% Bank Alfalah Ltd. 19 22 14% 16% 5% 12% Commercial Banks 10% 8% United Bank Ltd. 21 24 16% 17% 5% 12% Nishat Power Ltd. 17 19 13% 15% 4% 3% .

Cements 18% 9% DG Khan Cement 54 70 29% 4% 6% 3% Lucky Cement Co. 34 50 47% 7% 4% 0% Fauji Cement Co. 6 10 67% 0% 4% 0% . 149 160 8% 5% 4% 2% Attock Cement 99 114 15% 10% 0% 4% Fecto Cement Co.

Food Producers 5% 2% Engro Foods 92 102 11% 0% 5% 3% Telecom 6% 5% Pakistan Telecom 17 28 62% 9% 6% 5% Textiles 9% 8% Nishat Mills Limted 64 78 21% 7% 5% 3% Nishat Chunian Limted 36 45 25% 11% 4% 5% Model .

Portfolio Weightage 100% 100% .

The first half of 2013 has the potential to swing the pendulum in .Technical Perspective for 2013 There is little doubt that Pakistan is in a secular bull market in which ultimate upside targets will surprise even the most optimistic. Right now the majority of the market is lined up on the long side of the market.

The FMRs for the majority of the equity funds . Given that we start the year in the midst of the strong advance further gains can be forthcoming however the DNA of the current cyclical bull market places the 100 index much closer to a swing high than a low.the other direction before CY13 puts up strong gains.

. With the majority of funds near maximum allowable exposure limits and interest rates set to rise from current levels. a back of the envelope calculation appears to suggest that there is little money available to continue to drive the market higher.all show very high levels of investment going in to 2013. levels which have historically corresponded with market tops.

AverageEquityfundinvestmentlevelsin%andKSE100pricegraph Avg. The following chart shows the 4-yr relationship between the KSE-100 and its 200DMA. % investmentlevelsforequityfundsKSE100IndexLevel Source: Source: BMA Research / Company FMRs and MUFAP Even the strongest advances are interrupted by periods of regress and reversion to the mean. SpreadbetweenKSE100and200DMA Source: BMA Research .

The market was recovering from a bust cycle at the start of the period and the spread showed extreme readings. Working with the assumption that the KSE-100 is in a bull market you would not expect much trade below . the relationship returned to normal at the start of 2010 and this is the period that we are interested in.

The bottom line Current price action is showing a spread reading of +14%. The upper end of the range at +20% is when the market gets stretched on the upside and reverts back to the mean. much closer to the top than the bottom of .the rising 200-DMA which would mark a very attractive entry point.

the range. Allocating fresh capital . indicating that a reversion to the mean move should be seen most likely in Q1 or Q2. Interpreting this relationship in to an actionable investment strategy means investors and especially speculators should note that the optimum entry point to go long equities for CY13 is when the spread reading is at 0 or marginally negative.

.at current levels will expose portfolios to elevated draw down risk.

1% best performing market amongst regional peers and 9th best in the world. Moreover.Region/MSCI Market Performance in (USD) Pakistan equities roundup: The star performers in CY12 Philippines 41.9% Staggering performance of 49% (37% in USD terms) by local equities has made KSE the 3rd Thailand 38. local equities outperformed their benchmarks i.e. MSCI EM and MSCI FM .

lower GDP growth compared to regional peers India 20. This can be credited to 1) Sri Lanka South .4% This was seen despite the economic turmoil.2% and continuous depreciation of PKR against all major a hefty margin of Singapore 27.1% 23% and 32% respectively in USD terms to become the most lucrative market in the region. Hong Kong 22.

Korea Vietnam Malaysia 18.1% In our last strategy report titled BMA Strategy Outlook 2012: The Right Moves our model Indonesia 4.2% favored and relaxed CGT rules providing liquidity to the market 2) 250bps cut in discount rates which reduced the attractiveness of alternate investments and 3) improving relationship with the US.5% 17.2% 14.0% 12.4% aggressive portfolio outperformed the . Taiwan 11.

Interestingly our defensive portfolio mainly MSCI EM 13.8% constituting stocks with higher dividend yields and relatively lower capital gains has only MSCI FM 4.1% BMAModelPortfolio2012outperformsKSE100Indexby4%givingreturnof53% Source: Bloomberg .8% cumulative return of 53% (41% in USD terms).KSE100 index benchmark by 4% to provide a China -0.9% underperformed the benchmark by 4%.6% MSCI North America 13.2% Pakistan37. MSCI Europe 15.

PricesReturnWeightsWeightedAv.ReturnScrip31-Dec-1121-Dec-12AggressiveDefensiveAg gressiveDefensiveOGDC15218930%20%17%6%5% POL 346 431 40% 15% 22% 6% 9% ENGRO 71 92 31% 7% 5% 2% 2% FFC 100 115 31% 8% 10% 2% 3% FATIMA 23 27 22% 5% 3% 1% 1% PSO 189 233 26% 5% 5% 1% .

1% APL 413 512 36% 8% 10% 3% 4% HUBC 34 44 46% 10% 16% 5% 7% NBP 37 50 54% 4% 2% 2% 1% MCB 122 211 83% 6% 4% 5% 3% NRL 243 212 -7% 4% 2% 0% 0% .

LUCK 75 149 106% 2% 2% 2% 2% DGKC 19 54 194% 1% 0% 2% 0% EFOODS 23 92 307% 3% 2% 9% 6% PICT 66 255 287% 2% 0% 0% 6% 100%100%53%45% Source: BMA Research .

Political disturbances.KeyeventsofCY12KeyeventsofCY12 Commentary on key developments in CY12 The first and the most important trigger for the market proved to be the finance minister s acceptance of SECP s proposals regarding CGT rules in January. notably 1) continuous strain on Pak-US relationship subsequent to closure of NATO supply routes and 2) Supreme Court s disqualification of PM Gilani in .

sustained the bullish run in the market. However 2HCY12 was marked by ease off in US-Pak ties which led to an apology from the US on Salala incident and release of USD1.June.1bn under CSF in August. Other pertinent . dented the upbeat momentum temporarily. which culminated in December with a cumulative 250bps cut. This coupled with continuous monetary easing cycle.

market specific developments were passage of Corporatization. Demutualization and Integration of Stock Exchange bill in the first half and re-composition of KSE100 index to free-float based methodology. .

Elections: A trigger in itself! Making a case for equities Positivity with caution The election year has always been a positive trigger in itself. Historical trend suggests our equity market has rallied in double digits in expectation of new faces and policy shifts. To mention. the maket has enjoyed a 6 month pre-election .

the market has rallied by an average 26% in the following 6 months.average rally of 12% in the last 5 elections whereas post election. depending on the new party and its expected policies. we believe the election will be conducted on time as . Though deteriorating security situation just ahead of election has ignited fears of some deferment in election.

the current government will complete its full term by Mar13 and a consensus interim government will conduct the new election by May13. KSE100IndexhistoricalreturnsElectionDatePriorsixmonthsWinningPartySixmonthsposte lection 24-Oct-90 5% PML-N 13% 6-Oct-93 22% PPP 80% 3-Feb-97 7% PML-N . dampening the market sentiment for some time. we believe the road to election will be bumpy. Having said that.

25% 10-Oct-02 15% PML-Q 36% 18-Feb-08 13% PPP -25% Average Return 12% 26% Source: BMA Research Given the crucial times for the economy. sorting . Solutions to mounting circular debt. we believe not who but how strong the coalition is that will determine the extent to the rise in market post election.

out untargeted subsidies, increasing tax collection and managing PKR position in the wake of declining foreign reserves, to mention a few, remain the key challenges for the upcoming political party and the economy. Thus, it will be necessary for the leader of the coalition-based government to garnish support from all coalition partners to effectively address the economic difficulties faced by

the country. Hence, we believe the upcoming election would not only be a political transition but also an economic transition which if successful would have far reaching positive impacts on the economy in years forward. Odds favouring a change this time A change in government, especially if a strong coalition emerges, will be a widely rejuvenating

factor for the market. Though we believe the next election will yet again bring a hung parliament with no majority lying with any single party, in the wake of current circumstances Pakistan Muslim League Nawaz (PML-N) may have an edge. We believe PML-N with major support from dissidents from current coalition (PML-Q & PPP) and other religious/ethnic parties may form

the government. Despite probable seat adjustments amongst the two ruling parties PPP and PML-Q, they may stand to lose the next elections due to dissatisfied masses. However, we believe PPP could continue to gather support from its stronghold Sindh whereas PML-Q may lose major seats to PML-N and Pakistan Tehreek-e-Insaaf (PTI) in Punjab.

SeatspositioninNationalAssemblyandexpectationfor2013SeatspositioninNationalAssem blyandexpectationfor2013 2008


Key indicators during different regimes (1990 to date) (Avg. Annual) PMLNPPPArmyPMLQ GDP 4.7% 3.6% 3.0% 6.8% Growth -Manufact. 6.2% 2.6% 5.1% 10.7% Inflation 9.3% 12.9%

3.8% 6.5% KSE100 19.4% 6.4% 14.6% 59.5% Source: BMA Research Indicators during PMLN regimes (Avg.Annual)FirstTermSecondTerm Years 1990-1993 1997-1999 GDP Growth 5.2% 3.9% -Manufacturing 6.5% 5.5% growth Inflation 11.0% 6.8% KSE100 41.0% -12.0%* Performance Source: BMA

Research * Nuclear blast 0 20 40 60 80 100 120 140 Source: NA website, BMA Research The newly emerged political party led by Imran Khan (PTI) with a slogan for change may have lost its charm just ahead of election to their biggest competitor PML-N. The party may not be able to bring

we believe the party will manage to fetch some seats in Punjab and Khyber Pakhtunkhwa. This step could result in loss . the election commission is likely to continue with the decision by the highest courts. Despite reservations on voter list verifications and delimitation in Karachi by Muttahida Quami Movement (MQM). However.any quantifiable change in the upcoming parliament.

Why PML-N led government would be positive for the market? Known for its liberal and pro-manufacturing policies which in current economic scenario have become the most desired attributes in any political party. the . nonetheless. we believe MQM would once again emerge as the strongest party in Karachi and Hyderabad.of some seats to ANP and PPP.

Recall. the average real GDP in the tenure of PML-N grew by an average of 4. Led by the handsome manufacturing would rejuvenate if PML-N forms a government.6%.6% in the last three tenures of PPP government. given the . Furthermore. the average manufacturing growth in the last two tenures of PML-N stood at 6%. compared to 2.

Moreover. we believe the next government will meet conditions necessary to re-enter the IMF program. the party s strong political relationship with Saudi Arabia may once again lead the government to enjoy .strongest economic team amongst all its expected coalition partners (religious and ethnic) it would be relatively easy for PML-N to carry out structural reforms this time. Hence.

things are changing quite rapidly. In the wake of this. We have not yet incorporated these developments in our economic model.the import of oil on deferred payments. The deadline approaching fast With 2014 deadline looming around the corner for withdrawal of coalition forces. we . but these steps would reduce some pressure on the current account.

88bn in difficult times when Pakistan is witnessing persistent pressure on forex reserves and its currency .believe Pak-US relations will continue to improve irrespective of whoever forms the government until consensus on major issues like NATO supplies and peace process with Taliban remains. The improvement in relationship can be endorsed by recent CSF payments of USD1.

Ample cash: Hunting for yields Heading for Equities KSE100 vs Other Asset Classes KSEUSDDSCTbills 2003 66% -2% 9% 2% 2004 39% 4% 8% 2% 2005 54% 1% 8% 7% 2006 5% 2% 10% 8% 2007 40% 1% 10% 7% 2008 -58% 28% 11% 11% .

SBP. NSC.812 Ample cash as other . BMA Research CY12TD Net FIPI (USDmn) India 23.2009 60% 7% 12% 13% 2010 28% 2% 12% 13% 2011 -6% 5% 13% 13% 2012TD 48% 8% 12% 11% CAGR 20% 5% 11% 9% Source: KSE.170 S. Korea 14.

With this the differential of dividend yields against t-bills has come down to 150bps compared to last 5 year average of 500bps.investment avenues disappear The reinvestment risk has considerably increased as base rates for fixed income investments have come down by approx 250bps in the last 12 months. Moreover. the difference between earnings yields and t-bill has .

Thus with lesser magnetism towards fixed income as interest rates are expected to remain subdued in 1HCY13. we believe fresh flows into the market will lead the market to provide a decent return .5% in FY13E). only equities provide the opportunity to beat core inflation levels (~10.also gone up by 530bps compared to last 4 year average of 160bps. Hence.

Yields:EarningsvsDividendsvsTreasurybills Dividend Yield T-Bill Yield Earnings Yield 15% 12% 9% 6% 3% 0% 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013E Taiwan CY13 as well.460 Source: BMA Research Philippines 2.483 The troublesome clause of Capital Gains Tax (CGT) to .

649 of the economy is said to be unregistered. Since the promulgation of Capital Gains Tax Sri Lanka 287 ordinance where FBR s authority to ask for source of funding was deferred till Jun14 has Pakistan 132 led the market .disclose the source of income and Thailand 2.384 cumbersome filing drove individual investors away from the market as approximately half Indonesia 1.

to rally by 49% in CY12YTD. To quantify. This is further endorsed by the fact that Vietnam 116 individuals share in daily trading. which had fallen to around 55% in Jun11. Source: Bloomberg the share in daily trading volumes of individuals has doubled to 107mn . has rebounded to 61% in 2HCY12TD and that too with higher volumes and negligible leverage.

the momentum will continue into the next year too and thus fresh inflows will keep pouring into the market amid applicability of CGT relaxation till Jun14. ShareofIndividualsindailytrading(byvalue) Dec-12 Jun-11 7% 10% Individuals Institutions Foreign 32% 35% 55% 61% Source: .from 46mn in 2011. Thus we believe.


the country is likely to head back to the IMF for another program. Though the current account deficit is expected to lower by approx 54% (1.IMF Re-entry: A probable case with positivity With persistent pressure on the external account and resultant impact on the PKR. its financing has become a difficult task .1% of GDP) in FY13.

we believe Pakistan would have to head back to IMF in . This has started to take its toll on local currency as PKR has depreciated by 3% in the last three months which is not ideal for an economy whose major portion of imports is oil.and that too with repayments lined up for FY13. To be specific.

2HCY13 slowing down the impact of PKR depreciation which we expect to be 11% in CY13 where major impact would be seen in 1HCY13.2-7.4bn in CY13) coupled with minimal inflows into the economy.5bn (mere 2 months of import cover) by the end of . the official forex reserves are expected to decline to USD7. And given the repayments to IMF (USD3.

we believe re-entry into the IMF program would be a positive and probable case for the economy however there would be conditionalities attached. . Though we downplay. the expected PKR depreciation in 1HCY13 may slow down if USD800mn from Etisalat. In this scenario. We believe.FY13E. USD900mn for 3G auctions and some component of Kerry-Lugar are realized in FY13.

To mention. .5%). real interest rates of ~0. we believe the increase in discount rates advised by the fund would be low if any.75%-1% would prevail.the pace of currency depreciation would be reduced and with slower impact of fiscal borrowing on inflation levels.75% in FY13 and even at current discount rates (9. we expect CPI inflation to average around 8.

0 3. ExternalAccountandReserveAssumptions(USDbn) CurrentAccountFY12AFY13E Exports 24.7 Trade Deficit -15.0 Income Deficit 3.2 Net Deficit -21. with minimal increase in discount rates expected and slower PKR depreciation.Thus.7 Imports 39.2 Remittances 13 Other Current 4.8 Transfers .0 Service Deficit 3. the attractiveness in local equities would remain intact.

2-7.1 7.9 -2.0% 1.5 Source: BMA Research .6 as of GDP 2.8 10.1 SBP Reserves (end) 10.7 Paris Club CSF 3G Auction OGDC Exchangeable Bonds -Etisalat Payments SBP Reserves (opening) 14.C/A Deficit 4.1% FinancialAccountFY12AFY13E IMF Principal Repayments -0.


608 1. .IMFrepaymentschedulefor2013and2014IMFrepaymentschedulefor2013and2014 USD mn 1.600 1.903 2.106 739 1HCY13 2HCY13 1HCY14 2HCY14 Source: IMF The risk to our external account assumptions stem from higher crude oil prices which seem more likely after extraordinary social expenditures planned by oil producing countries (Saudi Arab.000 1.200 800 400 0 1.

Russia. resultantly increasing the base price for oil exploration. On the fiscal side. A USD5 per barrel increase in oil prices increases Pakistan s current account deficit by USD600mn. higher oil prices would be a risk to our C/A deficit targets which would erode the support provided to the financial account. Iran and other MENA countries). We believe. Qatar. .

the current turbulence was widely anticipated as we move into the election year and the government s spending spree shows a pre-election hangover which cannot be termed as extraordinary. we believe the targeted 4% fiscal deficit for FY13 would be easily . With major subsidies (power which is 26% of total expected fiscal deficit) already been utilized in full during just 5MFY13.

8 7.5 C/A Deficit % 2.3 14.6 103 Remittances USD bn 13.crossed and would hit 6.5 PKR/USD 94.8 8.5 Inflation % 10.75 Reserves USD bn 10.5 9.3 Interest rates % 12. Pakistankeyeconomicindicators FY12 FY13E GDP % 3.7 3.5% of GDP by year end (FY13).0 .

5 Source: Economic Survey.1.1 Fiscal Deficit % 6. BMA Research .6 6.

BMA seven 7 CompanyNameSymbolPriceTargetPriceUpsideDiv.G. YieldGrossReturn Pakistan Oilfields POL 431 470 9% 13% 22% PakistanPetroleumPPL17820213%8%21% United Bank UBL 85 100 18% 11% 29% FaujiFertilizerFFC11513719%13%32% Nishat Mills Ltd.KhanCementDGKC547029%4%33% Hub Power Company HUBC 44 52 18% 15% 33% . NML 64 78 21% 7% 28% D.

Summary FY13E EPS Price Upside PER D.4x 6% 14% .Energy: Oil & Gas Overweight Oil & Gas Sector Performance 1M 3M 12M Absolute % 1% 4% 15% Relative to KSE % -3% -6% -34% BMA Universe Val.Yield Growth OGDC 189 7% 7.

attractive valuations Driven by significant increase in hydrocarbon production. aggressive E&D activity in both own/JV operated hydrocarbon . steady trend in oil and gas prices.PPL 178 14% 5.4x 13% 17% Relative Oil & Gas vs KSE100 Index Pakistan Oil and Gas E&P: Robust fundamentals.9x 8% 21% POL 431 9% 7.

Pakistan Oil and Gas E&P sector will continue to depict stellar performance. being major recipient of foreign investment and relative invulnerability to local fundamentals further strengthens our investment thesis on the sector. Given the unfolding of macro events like steep depreciation in PKR and notable reduction in . areas and compelling regional valuation. with investor friendly policies.

rate of return on alternate investments. KPD-TAY. Nashpa. Dakhni. Chak Naurang and Adhi may . Mela. we believe E&Ps to gain greater attention on account of their natural hedge against PKR value and attractive dividend yields Production growth in CY13 will be again driven by appraisal/development drilling at TAL. Sinjhoro and Uch blocks/fields. Ongoing development activity in Jhal Magsi.

further unlock upside in sector s fundamentals. Revamp at Sui. . Arab light crude oil prices FY13TD have averaged at USD109/bbl (lower by 2% than FY12 average oil price) however still higher by 9% than our long term oil price assumption thus posing no downside risk to our valuation estimates. Kandhkot and Qadirpur will also remain critical to production outlook.

23% and 22% respectively. Our TP of OGDC. we foresee YoY improvement in wellhead prices mainly due to 9% depreciation in PKR during the comparable period. Among our E&P Universe. PPL and POL stands at PKR202. POL offers .Despite 2% YoY reduction in benchmark period (Jun12-Nov12) oil prices. PKR202 and PKR470 translating into a total return of 13%.

4 80 STO AU Equity Santos Ltd 19.5 4% 7.2 PMO LN Equity Premier Oil Plc 12.the highest dividend yield of 13%.7OGDCPAEquityOil&GasDevelopmentCoLtd7.413%3.2PPLPAEquityPakistanPetroleumLtd5.46% 4.2 0% 5.7 60 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 .YieldEV/EBITDA(x) POLPAEquityPakistanOilfieldsLtd7.98%3. Oil and Ga s KSE100 Index 160 140 120 100 RelativeValuations TickerNameP/E(x)Div.

Aug-12 Sep-12 Oct-12 Nov-12 Dec12 JP Equity Japan Petroleum Exploration 12.8 WPL AU Equity Woodside Petroleum Ltd 18.9 5% 11.9 1% 4.5 OXY US Equity Occidental Petroleum Corp 10.1 1% 3.9 .5 2% 3.3 CAIR IN Equity Cairn India Ltd 7.5 ONGC IN Equity Oil & Natural Gas Corp Ltd 7.

5 Source: Bloomberg.1 NBL US Equity Noble Energy Inc 23. BMA Research .3% 5.4 1% 8.

BUY Target Price Jun-13: PKR 470 Current Price: PKR 431 Bloomberg POL.) 0.5 POL vs.KA Capital Gain 9% Dividend Yield 13% MCAP (USD mn) 1.045 12M ADT (mn sh. KSE100 Relative Chart KSE100 Index POL 160 140 .PA Reuters PKOL.

exposure to high profile TAL region and highest dividend yield of .120 100 80 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Shareholding Pattern as of Jun-12 Pakistan Oilfields: A mix of growth & value Investment theme: Upcoming volumetric additions. shield against circular debt.

More fluid in the pipeline: Volumetric additions from tie . Also.13% in the sector composes our investment theme for Pakistan Oilfields Limited (POL) as a preferred play in the E&P sector. relatively stable wellhead prices of key production fields (78% of total gas production) and higher sensitivity with depreciating PKR value furthers strengthens our conviction towards the stock.

. Mamikhel-2 and Manzalai-9 (cumulatively add ~3500bpd oil and ~70mmcfd gas) plus the commencement of Makori East EPF facility from mid Dec ( added 5000bpd oil and 25mmcfd gas) will more than offset the natural decline from owned operated fields (mainly Pariwali. Pindori and Domial) thus resulting in robust production of recently drilled wells in TAL block mainly Maramzai-2.

In long term. further E&D activity in the high profile .000bpd gas and 150mmcfd gas which will lead to a remarkable growth in earnings of the company.TAL block -yet to reflect its full potential: A large scale Gas Processing Plant (Makori CPF) is also planned to commission operations from 2HFY14 increasing the production capacity of ME field to 20.

Margalla block and Ikhlas block (Sidrial-1 well) may unlock further upside. any upward revision in our oil price assumptions (9% lower than current oil prices) by USD10/bbl will result in an upside of 7% to our base case EPS estimates. Oil/gas prices to remain steady: Given the 62% share of oil revenue in revenue mix. At .TAL block.

attractive yields: The company enjoys a key edge over its local peers in term of its invulnerability from circular debt due . Robust cash flows. the company will continue to enjoy stable wellhead prices on its TAL block (capped) fields (~3/4th of total gas production) thus posing no downside risk to gas revenues.current oil price levels.

robust dividend stream from . Moreover. The strong cash generation capacity also reduces any Funds 4% risk of exploration/development delays on account of cash which the company has NIT Others managed to maintain a steady payout ratio of 85% (on average) in last four years Mutual compared to 43% of its local peers.

PKR470 per share translating into a total return of 22%.0x to .associates NRL and APL further strengthens the bottomline. At current trading levels. our TP for POL stands at Associted 12% Cos. the stock 53% is trading at PER of 7.4x and 7. Banks & Fis Valuation: Based on our reserve based valuation methodology.

7 50.1 58.2 Price to Earnings 9.0x POL Profile: POL is primarily engaged in exploration and development of oil and gas. InsuranceCos. The Dividend Yield 8% 13% 13% 14% company operates as the only upstream oil .6x 7. 7% 10%1% Individuals13% POL:FinancialSummary FY11AFY12AFY13EFY14E EPS (PKR) 45.our FY13E and FY14E EPS.4x 7.4x 8.6 61.

& EPS Growth 45% 10% 17% 4% gas company under the umbrella of Attock Group. The Return on Equity 32% 34% 39% 41% share of company in total oil and gas production Return on Assets 23% 23% 22% 24% as of June 2012 stood at . The company currently owns 9 development and 4 exploration licenses.

Source: BMA Research. Company Reports .7% and 2% respectively.

7 PPL vs.) 0. KSE100 Relative Chart KSE100 Index PPL 160 150 140 130 120 .976 12M ADT (mn sh.PA Reuters PPL.BUY Target Price Jun-13: PKR 202 Current Price: PKR 178 Bloomberg PPL.KA Capital Gain 13% Dividend Yield 8% MCAP (USD mn) 2.

.110 100 90 80 Dec11 Jan12 Feb12 Mar-12 Apr-12 May12 Jun12 Jul-12 Aug12 Sep12 Oct-12 Nov12 Dec12 Pakistan Petroleum: Valuation catching up with the peers Key value drivers: Our strong conviction for the stock is based on 1) the cheapest trading multiples in the sector.

3) increasing share of crude oil in revenue mix and 4) upcoming volumetric additions.2) aggressive E&D activity plus expanding operations beyond nation borders. The uncapped well head-prices of key gas producing fields (contributing ~70% in total gas production) provide key advantage to the company in an event of steady trend in oil prices. Attractive multiples: The stock .

Shifting revenue mix: Increase in share of .9x and 3. We believe that the gradual fading away of concerns on secondary offer and positive outcome on domestic/foreign ventures will lead to re-rating of the stock.2x reflecting a discount of 20% and 19% respectively to local peers despite robust fundamental trading at FY13E PER and EV/EBITDA of 5.

oil sales in revenue mix from last five year average of 16% to 30% in FY12 will not only provide exposure to steady oil prices but also improve profitability profile (at current oil price levels). The significant addition of crude oil from Nashpa and Tal blocks has provided strongly counter the natural decline from heavyweight Sui field (35% of total .

ME CPF . Manzalai-9 and Makori East EPF) plus Nashpa-3 will cumulatively add a considerable ~11. Mamikhel-2.700bpd oil and ~110mmcfd gas resulting in an upside of 40% and 3% in oil/gas production respectively (post adjusting for PPL stake).revenue) Impressive production growth to unlock further upside: The tie in of Tal block fields (Maramzai-2. Successful drill result at Nashpa-4.

Shareholding Pattern as of Jun-12 General Financial Ins. of Pakistan Exploiting unconventional reserves: With . 7% Others 14% Govt. Public 5% 3% Associated Cos.(expected from 2HFY14) and development/work over activity at Adhi and Latif fields with 39% and 33% stake respectively will further strengthen the production profile.

the company will also stand to benefit from exploitation of its tight gas reservoirs in Hala and Kirthar blocks. A gas sale purchase agreement for Kirthar is already signed with government. the stock represents an upside potential of 13% plus .2x higher wellhead price offered under tight gas policy. Valuation: Based on our reserve based TP of PKR202.

7x to our FY13E and FY14E EPS respectively.9x 5.9x and 5.3x 7.a dividend yield of 8% translating into a total return of 22%.7x Dividend Yield 7% 6% 8% 8% .4 Price to Earnings 9. The stock is trading at PER of 5.1 24.1x 5.9 30. PPL:FinancialSummary FY11AFY12AFY13EFY14E 71% EPS (PKR) 19.0 31.

being the pioneer natural gas producer in Return on Equity 33% 32% 32% 28% the country.PPL Profile: PPL is primarily engaged in EPS Growth 35% 30% 21% 4% exploration and development of oil and gas. The share of company in total oil . PPL. owns six producing fields and 18 Return on Assets 25% 24% 24% 22% exploration blocks.

and gas production as of June 2012 Source: BMA Research. Company Reports stood at 13% and 24% respectively. Currently Government of Pakistan holds 71% share in the company. .

5x . Summary CY13E EPS Price Upside PER D.Yield Growth MCB 211 -7% 9.Banks Underweight Banks Sector Performance 1M 3M 12M Absolute % 2% 2% -6% Relative to KSE % -1% -7% -55% BMA Universe Val.1x 7% 14% NBP 50 10% 5.

14% -10% HBL 118 -4% 6.6x 10% -12% UBL 85 18% 6.0x 11% -5% Relative Banks vs KSE100 Index Pakistan Banks: In a classic catch 22 With foreign inflows drying to all-time low levels and IMF s condition to print less money (borrowing from SBP). the government had no option except to .

coupled with imposition of minimum savings floor rate at 6%. Thus the cumulative 250bps cut in DR to 9.50% in CY12.approach commercial banks post CY09. has put the banking sector in a catch 22 position record . This led local banking sector to route entire double digit deposit growth to government papers and that too on double digit returns.

67% in Nov12 compared to 7. Resultantly. We see little improvement in credit off-take especially from industrial .low private credit off take despite monetary easing together with shrinking yields on risk free papers.37% just a year earlier. the dilemma has started to show on the books already as spreads have come down to their lowest since Jul05 to 6.

And the situation will be more worrisome for small banks having higher cost of deposits leaving very little room for them to keep pre-2012 strategy intact. thus the NIMs will continue deteriorating as the full scale impact of easing cycle materializes in CY13.circles amid worsening energy shortages in the country. The same is all set to drag the sector .

All is not lost though. Our liking leans toward banks with higher deposit growth that too with an . On the upside.bottom-line down by 4-12% in CY13 whereas the impact of expected monetary tightening would come into play in 1HCY14. lesser provisioning and reversals stemming from improving asset quality would be the theme story for banks during CY13.

ability to attract low cost deposits. subsequently leading the sector to a subdued performance. and strong non-interest income base and higher dividend payouts. we believe end of the year result rally on the back of healthy full year dividend payouts will keep interest alive in 1QCY13. exposure to high yielding long term bonds. RelativeValuations Banks . In short term.

813.9HBLPAEquityHABIBBANKLTD1.KSE100 Index TickerNameP/B(x)P/E(x)Div.7 155 140 125 110 95 80 MCBPAEquityMCBBANKLTD1.99.0NBPPAEquityNATIONALBANKOFPAKISTAN0.0 1398 HK Equity IND & COMM BK OF CHINA-H 1.011.3 .1 Dec-12 Nov12 Oct12 Sep-12 Aug12 Jul12Jun12May-12 Apr12 Mar12 Feb-12 Jan12 Dec-11 HDFCB IN Equity HDFC BANK LIMITED 5.3 6.64.16.Yield(%) UBLPAEquityUNITEDBANKLTD1.65.

BMA Research .1 16.2 MAY MK Equity MALAYAN BANKING BHD 1.7 7.6 ICICIBC IN Equity ICICI BANK LTD 2.9 1.2 3.5 Source: Bloomberg.2 13.30.9 12.1 0.5 23 HK Equity BANK OF EAST ASIA 1.

071 12M ADT (mn sh. KSE100 Relative Chart KSE100 Index UBL 200 180 160 140 120 100 .BUY Target Price Dec-13: PKR 100 Current Price: PKR 85 Bloomberg UBL.0 UBL vs.KA Capital Gain 18% Dividend Yield 11% MCAP (USD mn) 1.) 1.PA Reuters UBL.

the bank s deposit . Thanks to aggressive branch network expansion. United Bank Limited has been the most prominent in terms of deposit growth compared to the same sized peers in the industry.80 United Bank: The preferred play in hard times 7pps higher deposit growth compared to industry: The third largest bank in terms of deposit size.

Minimal growth in advances bodes positive: Low growth in advances despite sliding discount rates could be taken . as 80% of total local deposits are CASA. Most importantly the bank enjoys low cost deposits.growth has surpassed the industry s by 7pps to 25% in 9MCY12 and we expect the double digit growth trend to continue in CY13 as well.

The risk of non-performing loans amid energy crisis and expectation of increase in base rates in 2HCY13 has kept banks away from aggressive lending strategy.5% in 9MCY12). The major contribution to the growth of loan .as negative for the bank however things are different in local economy. Despite shrinking NIMs (6. UBL s loan growth has remained at 9% during 9MCY12.

We believe the trend to continue in CY13 as was seen from lesser risky public lending. with expected increase in discount rates in 2HCY13 the spreads will improve in CY14. however. Lesser expected decline in top-line compared to peers: With greater exposure towards high yielding risk free PIBs (22.5% of total investments) compared to an average .

Moreover. Apart from insulation from NPLs.18. the bank also enjoys an edge over peers through its less risky international loan book which accounts for 25% of net lending as of 3QCY12. the decline in top-line will be limited for the bank.6% of top tier banks. the bank Dec11 Jan-12 Feb-12 Mar-12 Apr-12 May12 Jun-12 Jul-12 .

Non-interest income to continue to prosper: The fee income during 9MCY12 has increased by 47% to PKR13.9bn in the same period last year Shareholding Pattern as of Dec-11 thanks to service income .Aug-12 Sep-12 Oct12 Nov12 Dec12 UBL:FinancialSummary CY11ACY12ECY13ECY14E will also enjoy gains from PKR depreciation.2bn compared to PKR8.

Foreign Co. Co/Banks 13% .on remittances and OMNI. We continue to believe that non FI's Others 3% 7% Joint Stock Cos. owned CEO etc. Director. 8% 37% General Public (Foreign) 13% Govt.

higher non interest income and stable dividend stream. The scrip is available at PBv of 1. Outlook: With lowest decline in earnings due to support from double digit growth in deposits that too low-cost. we lean our liking towards UBL.interest income will continue to boost the bank s bottom-line.2x compared .PA. absorbing the impact of falling NIMs.

8x UBL Profile: UBL is engaged in commercial Dividend Yield 7% 10% . We expect stock to provide a capital gain of 18% by CY13 end. EPS (PKR) last 5 year average of 1.0x 4.7x with dividend yield of 11% for CY13.7 15.0 14.7x 6.7x 5.2 17.7 19% Price to Earnings 6.

The bank also operates 17 branches outside Pakistan. The bank operates EPS Growth 39% 18% -5% 24% over 1. making it the third largest bank in Pakistan.11% 12% banking and related services. UBL s GDRs are traded at London Stock Exchange. The bank was established in 1959 as .200 branches inside Pakistan including 14 Islamic Banking branches.

It was sold off to a consortium of Abu Dhabi Group of UAE and Bestway Group in 2001 under a privatization program. Return on Equity 20% 23% 19% 21% Return on Assets 2% 2% 2% 2% Source: BMA Research. Company Reports .a local private sector bank but was nationalized in 1974 by the GoP.


Fertilizer Overweight Chemicals Sector Performance 1M 3M 12M Absolute % 2% 2% -6% Relative to KSE % -1% -7% -55% BMA Universe Val.Yield Growth FFC 115 19% 7. Summary CY13E EPS Price Upside PER D.3x 13% 2% ENGRO 92 69% .

12.5x 9% 21% Pakistan Fertilizers: Have seen the worst As cotton prices bottomed to USD0.8/lb compared to CY11 high of USD2. high fertilizer and energy costs took their toll on farmer economics and thus CY12E local urea demand is set .2x 12% 14% FATIMA 27 58% 6.2x 0% 179% FFBL 38 25% 7.4/lb.

to fall by 10% YoY to 5. negligible gas supply to four SNGPL based plants and squeezing margins complete a story of the worst year in the .3mn tons. Incomplete pass-on of gas cess. This coupled with untimely and high urea imports by the GoP led to inventory pile up for local urea players and continuous pressure on local urea prices.

The sector has increasingly fallen prey to regulatory scrutiny during the last two years as urea prices peaked at PKR1.history for Pakistan Fertilizers. The price hikes were mandated by GST imposition in Mar11.789/bag in Jan12 (up by 126% compared to Jan10 level of PKR790/bag). continuous removal gas subsidies in the form of cess and gas supply deficit .

previously the only hedge against gas supply deficit. influx of imported urea has effectively curtailed the pricing power of the sector. inventory situation is expected to be much relaxed amid rational import . That SNGPL based plants. Going forward. Urea prices have thus been constantly under pressure. keeping all SNGPL based plants under heavy losses in CY12.

Various gas supply plans under consideration may also improve fortunes for SNGPL based players.1FATIMAPAEquityFatimaFertilizerCoLtd6. we prefer attractive dividend plays in the sector! RelativeValuations Relative Chemicals vs KSE100 Index Chemicals KSE100 Index TickerNameP/E(x)Div.YieldEV/EBITDA(x) FFCPAEquityFaujiFertilizerCompanyLtd7.8FFBLPAEquityFaujiFertilizerBinQ asim7.7 160 140 120 100 80 60 RMPH IN Equity Rama Phosphates . 20%6.313%3.59%5.212%4. Amid low interest rates.targets.8ENGROPAEquityEngroCorporationLtd12.

5 2% 9.2 RCF IN Equity Rashtriya Chemicals & Fert 12.6 3% 7.0 DPM VN Equity Petrovietnam Fert & Chemical 4.0 7% 2.7 CHMB IN Equity Chambal Fertilisers & Chem 17.Ltd 3.7 0% 2.0 HDR IN Equity Liberty Phosphate Ltd 4.5 TNH US Equity Terra Nitrogen Company Lp .1 1% 2.

13.3 8% 6.8 Dec11 Jan12 Feb12 Mar12 Apr12 May12 Jun12 Jul12 Aug12 Sep12 Oct12 Nov12 Dec12 Source: Bloomberg, BMA Research

BUY Target Price Dec-13: PKR 137 Current Price: PKR 115 Bloomberg FFC.PA Reuters FAUF.KA Capital Gain 19% Dividend Yield 13% MCAP (USD mn) 1,499 12M ADT (mn sh.) 2.3 FFC vs. KSE100 Relative Chart KSE100 Index FFC 160 140

120 100 80

Fauji Fertilizer: Defensive play with astounding yield! The best performer in the worst year: We like the largest fertilizer player, FFC, as the safest fertilizer bet because the company faces the least sales risk (strong distribution network) and gas supply risk (Mari field based plant) among competitors. Being the only player to

have a nationwide distribution network is a key competitive advantage for FFC. Also, it s Sona brand commands the highest loyalty in farmers being one of the oldest and well established. Yielding over 13% for CY12-14E: With discount rate at a five year low of 9.5%, defensive investors looking for high-yield opportunities to redeploy cash may find FFC one

of the most lucrative equity plays. The stock yields 13% as of last close, with a further upside risk to earnings if lower imports allow sales for the company to go back upto 2.4mn tons (from 2.3mn tons expected) for CY13. FFC Energy (FFCEL) to provide further upside: FFC s 100% owned 50MW wind power project commenced operations in

We have not built in the impact of the project into our models yet as we await full year financials. but initial estimates suggest an annual impact of PKR1.1bn (PKR0.Dec12. This presents yet another upside potential to our CY13 and onwards estimates for the company. Slash in urea price may pose a downside: One downside risk to .9/sh).

provides gas to SNGPL based players. Dec11 Jan12 Feb12 Mar12 Apr12 May12 Jun12 Jul12 Aug12 Sep12 Oct12 Nov12 Dec12 .our estimates comes from the possibility of regulatory pressure on urea prices coupled with further imposition of gas cess. especially if the govt.

. 10% Individuals 15% FFC Profile: FFC is headquartered in Rawalpindi and is engaged in manufacturing.Shareholding Pattern as of Dec-11 Others Foreign 6% Investors 7% Charitable FI's Trust & 13% Others 49% Insurance Cos. purchasing and marketing of fertilizers.

providing 20% upside potential along with .0mn tons. Valuations pose 20% gains potential: Our Dec13 TP for FFC stands at PKR137/sh. which has rated capacities of 550k tons and 650k tons of urea and DAP respectively.The company has rated urea capacity of 2. FFC also holds 51% stake in urea and DAP manufacturer Fauji Fertilizer Bin Qasim (FFBL).

4x 7.0x Dividend Yield 12% 13% 13% 13% EPS Growth 104% -12% 2% 5% .7 15.3x 7.5 Price to Earnings 6.5 15.13% dividend yield for CY13. Upside potential from FFCEL and higher volumetric sales may unlock greater returns while urea price risk poses a downside BUY! FFC:FinancialSummary CY11ACY12ECY13ECY14E EPS (PKR) 17.8 16.5x 7.

Return on Equity 97% 79% 82% 86% Return on Assets 41% 42% 42% 43% Source: BMA Research. Company Reports .

Yield Growth NML 64 21% 4. Summary FY13E EPS Price Upside PER D.Textile Marketweight Personal Goods Sector Performance 1M 3M 12M Absolute % 10% 29% 89% Relative to KSE % 6% 20% 40% BMA Universe Val.8x 7% 35% .

2) lower financing rates and 3) better export prospects will remain the .1x 11% 197% Relative Personal Goods vs KSE100 Index Pakistan Textile: Rebounding core operations warrant attention 1) Robust gross margins on account of low cost cotton and stable prices of finished goods (ranging from cotton yarn to home textiles).NCL 36 25% 3.

However.key value drivers for the sector. cotton prices now seem to have bottomed out and stabilized at current levels. Cotton prices in FY12 witnessed a steep decline which caused significant inventory losses for the downstream companies thus inflicting a severe dent on the gross margins. Low volatility in raw material (cotton) prices coupled with steady trend in .

The sector is also reaping the benefits of recent boom in cotton yarn imports from China/Hong owing to significantly higher minimum support price of cotton in China compared to international prices thus making in-house production of yarn unfeasible for .prices of cotton yarn and value added items will enable the sector to enjoy robust growth in gross margins.

we believe the weaving and home textile/garment segments to remain the major beneficiary. Given nominal cotton yarn imports from EU.Chinese manufacturers. . The recently granted of EU duty free access (effective from Jan13) will further bolster the export prospects for the sector. Moreover. This has significantly improve the utilization and margins of the Pakistan spinning sector.

Given the current high import tariffs imposed on textile and clothing. The textile manufacturers have been aggressively pursuing to install coal fired and bio-mass fuel based .Pakistan is also pursuing to acquire the GSP plus status (effective from Jan14). we believe the value added segment (mainly garments and home textile) will remain the major beneficiary of the scheme.

This will enable the manufacturers to not only curtail mounting power cost but also to avoid production losses on key export orders.4 5% 5.97%4.8NCLPAEquityNishatChunianLtd3.YieldEV/EBITDA(x) NMLPAEquityNishatMillsLtd3.boilers and power plants to combat the energy crisis.811%3.1 .1 200726 CH Equity Luthai Textile Co Ltd -B 6. Personal Goods KSE100 Index 200 180 160 140 120 RelativeValuations TickerNameP/E(x)Div.

1 3% 11.4 Dec11 Jan12 Feb12 Mar12 Apr12 May12 Jun12 Jul12 Aug12 Sep12 Oct12 .1 2% 3.100 TTTM TB Equity Thai Toray Textile Mills Pcl 6.5 80 60 1476 TT Equity Eclat Textile Company Ltd 15.

4 5% 3.5 002394 CH Equity Jiangsu Lianfa Textile Co-A 9.9 2% 6.5 4% 4.8 HDM VN Equity Hue Textile Garment Jsc 6.8 TPCORP-R TB Equity Textile Prestige Pcl-Nvdr 15.8 Source: Bloomberg.7 3% 7. BMA Research .Nov12 Dec12 VTEX IN Equity Vardhman Textiles Ltd 10.

KSE100 Relative Chart KSE100 Index NML 180 160 .BUY Target Price Jun-13: PKR 78 Current Price: PKR 64 Bloomberg NML.) 2.6 NML vs.KA Capital Gain 21% Dividend Yield 7% MCAP (USD mn) 232 12M ADT (mn sh.PA Reuters NISM.

Nishat Mills Limited (NML) is all at set to post another year of robust growth as we foresee the company to .140 120 100 80 Nishat Mills Limited: The most diversified and the best hedge Concrete fundamentals: Driven by robust core operation on account of stellar performances under all divisions coupled with a healthy portfolio.

8 and 4. the stock is trading at PE of 4.1x to our FY13 and FY14 EPS estimates. At current levels. 2) better exports prospects plus persistent weakening . Key value drivers: On core operations front. 1) robust core margins amid lower cotton prices and steady downstream earnings growth of 35% and 15% respectively in FY13 and FY14.

the recently implemented and upcoming energy efficient alternatives to curtail the burgeoning fuel/power cost (not included in our model) will not only result in . 3) improved/initiation of dividend payout by associates 4) low interest rates and 4) cost reduction from alternate fuel projects will remain the key variables of core earnings growth.of PKR. Energy efficient measures: Moreover.

Healthy portfolio: The company also holds a well diversified portfolio invested in group companies.valuable cost savings but would also enable the company to timely process and deliver the export orders. The healthy payout and strong capital appreciation potential in these holding companies further strengthens the fundamental position of the company thus providing a strong guard against volatility .

in core operations. Capacity expansion in high margin value added segment: The company is pursuing Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Shareholding Pattern as of June-12 to further expand its production capacities in processing and home textile segment (already operating at full capacity) amid heavy .

Associated Cos. we believe the upcoming capacity addition will further boost the revenues in the long term. Given the robust downstream demand and strong presence in export markets. Others 9% 21% Fis 28% General Public 42% Limited downside risk: The upcoming Chinese cotton policy may end the ongoing .influx of orders.

boom of cotton yarn exports. NML holds a diversified product portfolio which will keep it relatively immune in the outcome of such an event compared to its peers (highly exposed to non value items) Valuations: Our TP is based on SOTP valuation technique with a portfolio value of PKR51 plus core operations value of PKR27 . Unlike local peers.

8 10. the largest vertically integrated textile company.8x 4. our estimated TP represents a total return of 28% NML:FinancialSummary FY11AFY12AFY13EFY14E EPS (PKR) 13.4x 4.5 15.7x 6.translating into a TP of PKR78share for the company. is Dividend Yield 5% 5% . At current level.0 13.1x NML Profile: Nishat Mills Limited.5 Price to Earnings 4.

Banking. Insurance and . The Return on Equity 14% 9% 11% 12% company operates under the umbrella of Nishat group which has strong presence in all major Return on Assets 9% 6% 8% 9% sectors including Textiles. weaving. printing/dyeing and stitching operations. Cement.7% 8% EPS Growth 66% -27% 35% 15% primarily engaged in spinning.

. Company Reports mix of the company is composed of 49% local sales and 51% export sales. The revenue Source: BMA Research.Power Generation.

Yield Growth LUCK 149 8% 5.4x 5% 31% .Cements Overweight Construction & Material Sector Performance 1M 3M 12M Absolute % 1% 15% 143% Relative to KSE % -2% 6% 94% BMA Universe Val. Summary FY13E EPS Price Upside PER D.

3x 10% 29% Pakistan Cements: Gearing up for another fruitful year Robust retention levels. considerable decline in coal prices and better dispatches from higher PSDP utilization will remain the key value drivers for the sector. healthy other .DGKC 54 29% 4. These factors coupled with notable reduction finance cost.5x 4% 28% ACPL 99 15% 5.

FY12 saw fortunes reverse for the sector and there s no stopping the momentum from there. shrinking margins and all time low capacity utilization.income (owing to improved cash position) and valuable cost savings from alternate fuel projects will further strengthen the margins. FY13 also started on a high note . Following a difficult three year hiatus of price wars.

Though exports volume will remain weak. better export prices coupled with notable decline in PKR . high-margin local dispatches will depict notable improvement (already up by 7% YoY in 5MFY12) on account of better PSDP utilization and uplift in private sector construction the sector witnessed a remarkable 3. Going forward.6x YoY higher earnings in the outgoing 1QFY13.

robust downstream demand will continue to keep the prices downward sticky. That said. Main cost driver coal has stayed depressed (averaging 18% lower in FY13TD compared to FY12 average).value will continue to provide strong support to the topline. Bearish trend in coal prices and resultant improvement in margins will remain the key driver of earning growth in .

PakistanCements:OfftakesreboundingamidincreasingmarginspostFY11 Relative Construction & Material vs KSE100 Index Local Despatches Exports Capacity Coal (LHS) Local Cement Price (RHS) 50 200 500 Construction and Materials KSE100 Index mn tons USD/ ton FY08FY09FY10FY11FY12 160 400 .FY13.

PKR/bag 40 120 300 30 250 200 80 200 20 150 40 100 10 100 0 0 Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-10 .

4 ACEM IN Equity Ambuja Cements Ltd 24.45%4.310%3.9 2% 14.2LUCKPAEquityLuckyCement5.Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 Dec11 Jan12 Feb12 Mar12 Apr12 May12 Jun12 Jul12 Aug12 Sep12 Oct12 Nov12 Dec12 Source: BMA Research RelativeValuations TickerNameP/E(x)Div.KhanCement4.YieldEV/EBITDA(x) DGKCPAEquityD.54%3.G.1ACPLPAEquityAtt ockCementPakistanLtd5.1 TKYOX SL .

Equity Tokyo Cement Lanka-Non Votin 13.9 LMC MK Equity Lafarge .5 2% 6.4 1% 42.3 1110 TT Equity Southeast Cement Co Ltd 61.7 0% 13.4 1% 6.5 7% 4.2 UTCEM IN Equity Ultratech Cement Ltd 22.4 JKCE IN Equity Jk Cement Ltd 13.7 002030 KS Equity Asia Cement Co Ltd 14.

9 4% 12.2 Source: Bloomberg.Malayan Cement Bhd 21. BMA Research .

) 9.KA Capital Gain 29% Dividend Yield 4% MCAP (USD mn) 245 12M ADT (mn sh.PA Reuters DGKC. KSE100 Relative Chart KSE100 Index DGKC 320 280 240 200 160 .BUY Target Price Jun-13: PKR 70 Current Price: PKR 54 Bloomberg DGKC.1 DGKC vs.

120 80 Dec11 Jan-12 Feb-12 Mar-12 Apr-12 May12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov12 Dec12 DG Khan Cement: Rising core margins + sliding leverage = Outperform! DGKC is poised to realize high core margins: With cement prices sustaining upward trend despite capacity addition (prices further up by PKR5-10/bag in FY13TD .

DGKC. 1QFY13 gross margins rose by 8pps to 38%. is well poised to realize higher core margins in FY13-14E. compared to 70% industry utilization. Cost saving projects to bear . the second largest cement producer in the country. The company continues to operate at 100% utilization PKR445/bag in the North). also helped by 25% softer coal prices.

These cost saving measures coupled with lower prices of coal will further unlock upside in gross margins. Softening .fruits: The company has undertaken multiple energy efficient measures which includes Waste Heat Recovery (WHR-2) plant (from 2QFY13). full year impact of RDF-2 plant (commenced in 4QFY12) and possible start-up of TDF plant (further replacement of coal requirement by 10%).

0-PKR1. Healthy portfolio sets DGKC apart: DGKC holds . Lower leverage coupled with 250bps reduction in interest rates will significantly reduce the finance cost providing strong cushion to the bottom-line.5bn in long term debt in FY13-14E amid steady cash flow generation (owing to robust profitability).interest cost to further cushion the bottomline: DGKC is all set to retire over PKR2.

with .a diversified portfolio of Nishat Group companies with strong presence in textile and financial sectors. Valuations -Looking at 30% upside from here: Our sum of parts valuation for DGKC leads to 29% upside from here to our Jun13 TP of PKR70. improved dividend payout from subsidiaries (particularly textile companies) will further strengthen the earnings. Going forward.

4 12.8x 4.6x 5.5x 4.0 12. We expect FY13 earnings to grow by 28% -BUY! Shareholding Pattern as of June-12 Others 4% Associated DGKC:FinancialSummary FY11AFY12AFY13EFY14E EPS (PKR) 0.core operations contributing PKR41/sh and portfolio adding PKR29/sh (valued at 30% discount to market price) to the target price.4x .4 Price to Earnings 139.4 9.

DGKC has long term investment portfolio of .Cos. Sulphate Resistant Cement and Clinker.0mn tons. making it the second largest cement producer in Pakistan. General 32% Public 40% Fis 24% DGKC Profile: DGKC is engaged in production and sale of Ordinary Portland. The company has rated clinker capacity of 4.

Company Reports . Dividend Yield 0% 3% 4% 4% EPS Growth -27% 2305% 28% 3% Return on Equity 1% 12% 13% 12% Return on Assets 0% 8% 10% 9% Source: BMA Research.over PKR5.0bn in related parties primarily in Pakistan s financial and textile sectors. The company is headquartered in Lahore.


Summary FY13E EPS Price Upside PER D.Yield Growth HUBC 44 18% 6.Power Overweight Electricity Sector Performance 1M 3M 12M Absolute % 5% 3% 38% Relative to KSE % 1% -6% -11% BMA Universe Val.0x 15% 3% KAPCO 49 .

5% 6. The phenomenon has snowballed extensively as rising oil prices .1x 16% 8% Pakistan Power: Government s darling in the election year! Circular debt -the sector s biggest apprehension: Power sector in Pakistan is known for its association with the circular debt issue.4x 17% 11% NPL 19 14% 3.4x 14% 24% NCPL 21 16% 3.

Additionally. line losses. the outstanding net amount is still estimated to be . inefficient distribution networks have continued to balloon the outstanding amount.along with government s inability to pass on the tariff entirely to consumers have strained the cash position of companies and has put a question mark on the dividend payout capacities. Hence despite government s commitment to resolve the issue.

As a consequence.around gross PKR370bn. While returns are guaranteed for IPP investors. liquidity shortage has also raised flags on the ability of IPPs to continue . IPPs continue to face liquidity crunch resulting in furnace oil supply shortage leading to lower load factor and electrical output. financial charges on short term borrowing are normally not a pass-through item. In addition.

we strongly believe that some relief would be given to the power sector to settle the power outcry countrywide. We believe the problem will continue to nag the entire industry until any concrete structural resolution however. The ultimate defense against macro-evils: Despite huge . considering the current political situation in Pakistan (upcoming elections).to payout generous dividends.

the interest rate scenario locally is expected to keep the investors hooked to the sector providing an average yield of 15% apart from the capital gains. we have an overweight stance on the sector which is all set to benefit from the current economic scenario (depreciating Pak Rupee and increasing inflation).concerns on circular debt. Furthermore. RelativeValuations Relative .

7 0% 80 NTPC IN Equity Ntpc Ltd 12.4 3% .116% NCPLPAEquityNishatChunianPowerLtd3.414% NPLPAEquityNishatPowerLtd3.3 3% 60 600509 CH Equity Xinjiang Tianfu Thermoele-A 13.YieldHUBCPAEquityHubPowerCompany6.KSE100 vs Electricity Sector TickerNameP/E(x)Div.417% RPWR IN Equity Reliance Power Ltd 29.015% Ele ctricity K SE100 Inde x 160 140 120 100 KAPCOPAEquityKotAdduPowerCompanyLtd6.

KHP VN Equity Khanh Hoa Power Jsc 5.0 15% De c-11 Jan-12 Fe b-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Se p-12 Oct-12 Nov-12 De c-12 EPW AU Equity Erm Power Ltd 9. BMA Research .8 7% API SP Equity Asia Power Corp Ltd 17.4 0% Source: Bloomberg.

KA Capital Gain 18% Dividend Yield 15% MCAP (USD mn) 522 12M ADT (mn sh. KSE100 Relative Chart KSE100 Index HUBC 160 140 .2 HUBC vs.) 2.PA Reuters HPWR.BUY Target Price Jun-13: PKR 52 Current Price: PKR 44 Bloomberg HUBC.

120 100 80 Hub Power: Be in safe hands Profitability in no danger HUBC stands as our favorite pick in the electricity sector as the increasing revenue stream from Narowal and ~1. Furthermore.5% increase in company s Project Company Equity (PCE) component is expected to reflect well on the earnings. the continued devaluation of Pak Rupee against .

will further strengthen the profitability indexed to USD/PKR and US CPI inflation. but cashflows are! The COD of Narowal brought about a rise in company s profitability however. all did .dollar where the local currency has depreciated by 9%YoY in 1HFY13 to average around PKR95.4 per USD against last 3 year depreciation average of 4% in the same period.

not go as planned. . further adding to the liquidity woes of Hubco. it is mandatory for the plant (established under the 2002 policy) to pay in advance for the fuel supply. failing to do so results in plant closure. Furthermore. The project faces severe liquidity problems as National Transmission and Dispatch Company (NTDC) continues to fall short of its obligations.

However. we keep our assumptions intact and expect the company to pay PKR6.5/sh in FY13 with the help of short-term borrowings and funds released from NTDC. Even if the company skips .Worse cum worse: The recent news story highlighting management s concerns over non-payment of dues has raised many questions over the company s capacity for dividend payout this year.

its half-year payout. 4% .Fund. Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Shareholding Pattern as of Jun-12 Others Prov. it will compensate its investors in the full year and the resultant depression in stock price would present a wonderful buying opportunity to the investors.

& Mut. according .Gratuity etc. 32% Insur. 5% Joint Stock Cos Invest. Mod. the second expansion project (Hubco s stake: 75%) is expected to come online sooner than scheduled (mid CY13). Funds 13% Individuals FI's 17% 29% Laraib: the other Narowal? Laraib Power project (84MW).

to sources. As the project is hydel-based, we believe the expansion to bode well for the company due to its relative immunity from circular debt unlike furnace oil based Narowal. Not to forget, the government has laid out an even higher indicative USD IRR for hydel generation at 17%; where currently HUBCO is the only company that is setting up

a hydel plant. However, we have not incorporated the earnings from Laraib in our financial model as we await COD and finalization of tariff. Valuations: Hubco emerges as our favorite pick in the power sector as it combines an irresistible dividend yield with a tremendous growth story. Our TP for the scrip works out to PKR 52/sh providing

an upside of 18% from the current levels. And this is not all! The stock further promises a compelling dividend of 15% taking the total returns to a hefty 33%. HUBC:FinancialSummary FY11AFY12AFY13EFY14E EPS (PKR) 4.7 7.1 7.3 7.8 HUBC Profile: The Hub Power Company Ltd. Price to Earnings 9.4x 6.2x 6.0x 5.6x

was incorporated in Pakistan on August 1,1991. The principal activities of the company are to Dividend Yield 13% 14% 15% 16% develop, own, operate and maintain power EPS Growth -2% 51% 3% 7% stations. The Company owns an oil-fired power station of 1200MW (net) in Balochistan (Hub Return on Equity 18% 27% 29% 31% Plant) and a

214MW (net) oil-fired power station in Punjab (Narowal Plant).The company Return on Assets 4% 4% 5% 5% also has a 75% controlling interest in Laraib Source: BMA Research, Company Reports Energy Limited, a subsidiary company which owns an under construction hydel power project of 84MW.

YieldGrossReturn Engro Foods EFOODS 92 102 11% 0% 11% EngroCorporationENGRO9215569%0%69% Nishat Chunian Ltd.And the next eight CompanyNameSymbolPriceTargetPriceUpsideDiv. NCL 36 45 25% 11% 36% FectoCementFECTC345047%6%53% Fauji Cement FCCL 6 9 50% 0% 50% NishatPowerNPL192214%16%30% Nishat Chunian Power NCPL 21 24 16% 17% 33% PakistanTelecomLtd.PTC172862%9%71% .

1 22.2 78. Yield EPS Growth ROA ROE CY11 1.2x 0% 144% 9% 23% CY13E 4.EFOODSFinancials ENGROFinancials EFOODS: ADD stance but unrestricted growth potential EPS (PKR) P/E Div.9 32. we like the .2x 0% 45% 9% 25% Although EFOODS trades at only 10% discount to our Dec13 TP of PKR102 justifying an ADD stance.5x 0% 407% 5% 12% CY12E 2.

and upside risks in SEC B & C product sales Rapid expansion into non cyclical high growth markets. triumphant penetration and market growth in key segments of operation and successful establishment of high value brands will lead to a . massive untapped potential in key dairy for it s sustainable long term growth prospects. strong branding and innovative marketing strategies.

projected sales CAGR of 25% and earnings CAGR of 57% for the next 5 years The company s advantage stems from its dominant position in UHT milk space (50% market share). which has shown a double digit market growth in the last five years and still represents a minute 5% portion of total tradable milk in Pakistan The potential ability of .

Yield EPS Growth ROA ROE .Omung to accelerate conversion from loose milk in urban centers can. not only increase the rate of conversion towards processed dairy in those cities. but also help EFOODS gain further market share BUY the most liquid food play in the Pakistan market! ENGRO: Highest risk adjusted return in BMA Universe! EPS (PKR) P/E Div.

7 33.2x 0% 179% 3% 7% ENGRO underperformed the broader index by 15% in CY12 as gas supply to ENGRO s fertilizer subsidiary remained at an all time low of just 33 days (excluding diverted gas from the old plant) and pushed CY12 earnings down by .9x 0% -83% 1% 3% CY13E 7.CY11 15.8 5.8x 5% 19% 4% 19% CY12E 2.5 12.

ministries remain committed to resolve gas supply issues for fertilizer sector so that hefty import and subsidy cost can be avoided especially with PKR losing value to USD. We believe CY13 may finally bring reprieve as various govt. Even assuming minimal gas supply to the new plant and resultant zero value for the fertilizer subsidiary leads to .an estimated 80%.

Thus. as based on sum of parts valuation.68% upside from here. Our model leads us to . ENGRO is trading at ridiculously cheap levels not even reflecting the market prices of its two listed subsidiaries (EFOODS and EPCL). even after applying a 25% discount. we believe any resolution to gas supply concerns would lead to re-rating of the stock.

2) unlocking earnings potential from the subsidiary Engro Foods and 3) debt restructuring process are key triggers for the stock to realize rational valuations BUY! .believe gas supply for ~6 months alleviates cash flow concerns for the company. A certain portion of any investor s equity portfolio must be allocated to ENGRO as 1) rationalization of gas policy.


8 9. Yield EPS Growth FY12 3.4 2. and 3) stable dividend income from .9x 13% 9% 1) Better spinning segment margins owing to stable yarn-cotton margin outlook and better export prospects.3x 6% -52% FY13E 11.4 3.1x 11% 197% FY14E 12.NCLFinancials FCCLFinancials NCL: Spinning Fortunes EPS (PKR) P/E Div. 2) reduced lending rates plus better other income (improving cash flows).

4 and PKR12. ROA ROE 4% 12% 11% 27% 12% 25% With 12% QoQ increase in 2QFY13TD average yarn-cotton margins. Our FY13E and FY14E EPS for NCL now stand at PKR11. This translates into FY10-FY14 EPS CAGR of 23%.NCPL forms the basis of our investment thesis on the stock. we believe persistent bearish trend in cotton prices coupled with .4 respectively.

Apart from better export prospects (owing to EU duty free and GSP plus status). the commencement of newly installed/acquired additional capacity will unlock further upside to our base case valuation.steady yarn prices (owing to robust demand) will continue to improve the margins of spinning segment (67% of total revenue mix) thus resulting in healthy growth in core operations. We .

29 22.have a strong conviction on the stock with a TP of PKR45/sh. Yield EPS Growth ROA ROE FY12 0. translating into a total return of 37%.1 0% .9x respectively FCCL: High utilization and debt repayment to unlock growth! EPS (PKR) P/E Div. At current trading level.2x and 2. the stock is attractively priced at FY13E and FY14E PE of 3.

30% 4% 2% FY13E 1.6 0% 249% 12% 6% FY14E 1.6 0% 26% 14% 7% Consistent decline in coal prices. robust local and export prices and easing finance cost amid better cash position will remain the key value drivers for the stock. higher capacity to address increase in demand from improved PSDP utilization.4 4.8 3. Given the hefty debt position .

9x and Debt/ton of USD41. We believe 1) Repayment of PKR1.of the company with Debt:Equity of 0. cumulative downward revision in discount rate by 250bps in CY12 will translate into an annualized EPS impact of +16%.3bn in both long/short term . As per our estimates. we believe the recent monetary easing will result in considerable improvement in the bottomline of FCCL.

b) rising retention levels and c) improved . Despite a) 18% lower average coal prices (FY13TD versus average FY12).loans and 2) increase in capacity utilization to 66% versus 55% last year during the outgoing 1QFY13 may cool down any emanating concerns surrounding the capacity utilization and solvency position of the company thus unlocking much awaited upside movement in the stock.

we believe the stock prices have yet to incorporate the rally of aforementioned triggers. stock price of the company has underperformed the benchmark index by 14pps during last 4 months.0.7x respectively.6x and 3. At our Jun13 TP of PKR9.capacity utilization. At current levels. the stock is trading at FY13 and FY14 PE of 4. That said. the stock presents .

an upside of 38% -BUY! .

5/share). we believe the company may end up declaring a dividend of PKR2.5-3.2 2.1 3.9 5.8x 9% 10% With healthy cash balance (FY13E FCFE at PKR5.0x 29% 430% FY13E 11.FECTCFinancials NPLFinancials NCPLFinancials FECTC: It s all margins and trickle down effect! EPS (PKR) P/E Div. Yield EPS Growth FY12 6.0/share in FY13 translating into an attractive .1x 6% 60% FY14E 12.

20% lower debt/ton of the company as against comparable peers (excluding DGKC. A .3x) should lead to higher trickle down of gross profit to the bottom-line ROA ROE 11% 25% 30% 13% 26% 15% Our assumed coal price stands higher by USD5/ton compared to current coal price. MLCF & FCCL) plus improving interest coverage ratio (currently at 4.yield of 7%.

At our Jun13 TP of PKR50. PE and EV/ton valuation approaches. the stock offers a total return of 45% from current levels.USD5/ton reduction in coal price translates into 8% upside to our EPS estimates.1x Nishat IPPs: It s all . Our valuation is based on a blend of DCF. the stock is trading at FY13E PE of 3. At current price.

2 3.8 3.8 2.4x 10% 8% 7% 28% FY13E 6.9x 0% 9% 9% 26% Efficiency gains arising in the initial years. guaranteed sources of return built in the company s tariff structure. Yield EPS Growth ROA ROE FY12 5.hedged! EPS (PKR) P/E Div.1x 16% 8% 9% 25% FY14E 6. and an expected increase in . hedge against the deteriorating Pakistan s economic position.

However.the cash payouts constitute our stance on the Nishat IPPs. The companies have identical structures with the only difference in payout capacities. we can see a turn of events in FY13 . NPL has not been able to keep up with the dividend expectations of its investors (PKR2/sh in FY12) whereas contrastingly NCPL steadily increased its payout (PKR3.5/sh in FY12).

EPS .5/sh.0/sh in FY13) while maintaining the dividend payout of NCPL to PKR 3.with regards to cash payout of NPL (PKR 3. FY12 FY13E FY14E Realization of funds as a result of the intervention by Supreme Court has toned down the concerns regarding non payments of outstanding dues as the companies now are a tint more hopeful on cash recoveries.

Yield EPS Growth 5.7 3.4x 17% 11% 6.8x 17% 26% 6.1x 17% 9% Having said.1 3. if no possible resolution comes through. the circular debt problem coupled with any imposition of additional liquidity damages continuously pose a threat to the company s financial sustainability and hence remains a key downside risk.(PKR) P/E) Div.5 3. ROA ROE 7% 34% 8% 44% .

with a Jun13 TP of PKR 24/sh offers an upside of 16% from current levels plus a . NCPL.8% 45% NPL is an absolute BUY with total returns of 30% and is available at our Jun13 TP of PKR 22/sh using the dividend discount model providing an upside of 14% from current levels and a tempting dividend yield of 16%.

.dividend yield of 17% taking the total returns to a significant 33% advocating a strong BUY.

is all set to stand back on its feet after continuous fall backs. The company has remarketed itself strongly CY12 CY13E CY14E and is all set to reap the benefits of a conducive and untapped telecom sector in .PTC: Diversification is what sets it apart! PTCFinancials PTC. the largest telecom service provider in the country.

9x We believe the turnaround story in the company s LDI segment will be the major Div.5 Pakistan.8x 6.7 2. Yield 0% 9% 10% upside trigger for PTCL.EPS (PKR) -0. According to industry sources. P/E NM 7.2 2. despite dissolution of ICH. EPS Growth NM NM 13% .

the operators have now formed a price consensus strategy to fix the rates on ROA NM 8% 9% international incoming calls allowing a maximum 20% downward adjustment in ROE NM 11% 13% rates (USc7/min) to attract competition. 2) 6bn incoming minutes per annum and . Assuming 1) ASR of USc7/min.

Furthermore. The company is expected to pay . slowdown in the decline of fixed line subscribers.3)50% market share we have calculated the impact on PTCL to arrive at a Dec12 TP of PKR 28/sh providing a substantial upside of 65% from current levels. increasing broadband penetration (the lowest in the region) will also provide a boost to the company s profitability.

5/sh as dividends in CY13 translating into a dividend yield of 9%.PKR 1. .

While the information contained herein is from sources believed reliable. we do not represent that it is accurate or complete and should not be relied upon as such. Opinions expressed may be revised at any time.DISCLAIMER This memorandum is produced by BMA Capital Management Limited and is only for the use of their clients. This memorandum .

or solicitation of any offer to buy or sell the securities mentioned. Farid . December for information only and is not an offer to buy or sell. ANALYST CERTIFICATION We. Furqan Punjani. 2012 close is used as a reference for computing estimates for the KSE100 Index target and BMA Universe target prices. Muhammad Affan Ismail.

hereby certify that this report represents our personal opinions and analysis of information. KEY CONTACTS Research Team . All views are accurately expressed to the best of our knowledge. We certify that no part of our remuneration is linked either directly or indirectly to recommendations or analysis covered in this report.Aliani and Zoya Ahmed.

Foods. Electricity. Textile. Insurance Zoya Ahmed Telecom. Cements. Economy. Autos Samina Sher Ali Kanji Database In charge Naseem Akhtar Khattak Layout & Product Distribution Institutional Sales Team Omair Beg Chaghtai Head of International Sales Azher Ali Shahzad Domestic Sales Junaid Shaharyar Godil Domestic . Chemicals Farid Aliani Fertilizer.Scope Furqan Punjani Strategy. Banks Muhammad Affan Ismail E&P.

2059 +9221 111 262 111 Ext. 2053 +9221 111 262 111 Ext. 2058 +9221 111 262 111 Ext. 2064 +9221 111 262 111 Ext. +9221 111 262 111 Ext. 2061 +9221 111 262 111 Ext. .Sales Syed Imran Rizvi Domestic Sales Muzammil Khan Domestic Sales Contact No. 2060 Contact No.

com Email skanji@bmacapital.+9221 32464496/32464358 +9221 32444465-67/32461775 +9221 32444465-67/32400255 +9221 32444465-67/32426828 +9221 32444465-67/32464359 Email farid@bmacapital.

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