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MorningShout

PakistanDailyNotes

Fatima:Positivespricedin;DowngradetoU/P
After rallying 19% over the past 3mths on 1) potential margin increase from
ureapricehikeexpectedinJan14and2)4Q13payout,webelievethepositives
for Fatima are now pricedin. Thus, we lower our rating on Fatima to Under
perform.

Fatimaistradingat7.2x2014EP/EandslightlyaboveournewPOofPRs28/sh.
Lowerthanpeers2014ED/Yof7%alreadyaccountsforslightlybetterearnings
growthprofile(Fatima:3yrEPSCAGRof8%vsnogrowthforFFC).

OurPOchange(downfromPRs29toPRs28)reflects1)5%cutin2013EEPSdue
to lower product prices in 4Q13, 2) 4% increase in 201416E EPS due to rise in
ureaandCANprices,3)declineinterminalvalueduetoincreaseinLTgasprice
assumptionpostendofgaspricesubsidy,4)increaseininterestrateforecast.

We recommend profit taking in the stock before it reenters a lull period post
annualpayouts,afterwhichthestockusuallytradesinanarrowrange.

Fatima:Positivespricedin;downgradetoUnderperform
FatimaFertilizerisup19%overthepast3mthsandtouchedahighofPRs30.16on6Jan14on
thebackexpectedincreaseinureaandCANmarginssubsequenttogaspricehikeforthepeers.
Trading at a P/E of 7.2x 2014E EPS while the stock offers 2014E D/Y of 7%, we believe the
upsidefromureapricehikeisalreadypricedin.Wedowngradeourratingby2notchforthe
stockfromBuytoUnderperform.FatimaiscurrentlytradingabovetoournewPOofPRs28(
3%). The likelihood of a sharp increase in urea prices from the current levels which could be
beneficialforFatima,arenowverylow,inouropinion.OurnewPOofPRs28incorporatesnear
termearningsupsidefrommarginhike,declineinLTearningspostendoffeedstockgasprice
subsidyduetoincreaseinbasepriceforfeedgasandincreaseinourinterestrateassumption.
Werecommendprofittakinginthestockonannualdividendannouncement,beforethestock
reenter the lull period with no catalysts (recall Fatimas stock price remained range bound
throughouttheyearuntilNov13givennointerimpayoutsandtriggersforearningsupside).

Raising201416EEPSby4%onbetterureaandCANmargins
Weareraisingour20142016EearningsestimatesforFatimaby4%toincorporatethebenefit
of PRs66/bag hike in urea and PRs70/bag hike in CAN prices, while NP prices remained
unchanged.Recall,industryplayershaveraisedureapricesbyPRs150178/bagearlythismonth
inresponsetohikeinGIDCforfeedandfuelstockgas;thispricehikewaslaterreversedafter
intervention of the govt, which allowed the industry to passon only PRs66/bag hike in urea
prices. For Fatima, since the hike in gas prices is applicable only to fuel stock, (a PRs20/bag
increaseincostofproductionforeachproduct),therecentincreaseimprovesFatimasureagas
marginsbyPRs40/bag,CANgasmarginsbyPRs43/bagwhileNPgasmarginsaredownPRs17
18/bag. Incorporating the impact of these changes, we raise our 2014E/2015E EPS by 4% to
PRs4.03/PRs4.43.

16January2014

ShaguftaIrshadKhurram
Shagufta.khurram@kasb.com
KASBSecuritiesLimited
+9221111222000

FatimaFertilizerCompany

KATSCode
FATIMA
Reuters
FATF.KA
Bloomberg
FATIMAPA
CurrentPricePRs28.95
PriceObjective: PRs28.00

FatimaValuationSnapshot
YE:Dec
Sales(PRsmn)
%Change
PAT(PRsmn)
%Change
EPS(PRs)
P/E(x)
D/Y(%)
EV/EBITDA

Whatcanturnuspositiveonthestock?
1)Hikeinpricesduetoanyfurtherhikeinfeedstockgaspricesforpeersorgradualpassonof
GIDC hike done recently, where every PRs25/bag hike in urea prices imply 1% upside to
Refertoimportantdisclosuresonpage3

2014E
33,570

2015E
35,074

9%
7,994

5%
8,463

4%
9,305

36%
3.81
7.62

6%
4.03
7.20

10%
4.43
6.54

6.9%
5.25

6.9%
4.9

6.9%
4.4

Source:Companyaccounts,KASBestimates

FatimaRelativeperformancechart
3.0
2.5
2.0
1.5
1.0
0.5

Tweaking2013EEPSonlowermargins
We are lowering our 2013E EPS by 5% to PRs3.81 to account for lower than expected NP
(PRs2250/bag),CAN(PRs1380/bag)andurea(PRs1700/bag)exfactorypricesin4Q13,leading
to decline in respective product margins. We expect the company to announce annual cash
payoutofPRs2.002.50alongwiththe2013earningsannouncement.

2013E
32,074

Jan11
Feb11
Apr11
Jun11
Jul11
Sep11
Oct11
Dec11
Feb12
Mar12
May12
Jul12
Aug12
Oct12
Dec12
Jan13
Mar13
May13
Jun13
Aug13
Sep13
Nov13
Jan14

FATIMAFERTZPrice(PkR)

KSE100Index

Source:KASBresearch

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morningshout
Fatimas earnings on annual basis; 2) Recovery in NProck margins, 3) quicker progress on
ammoniadebottleneckingproject,currentlyexpectedtocompletebyJun15.

MorningNews

` WorldBank,SBPforecasthighergrowthratesthanIMF

(BR)

The World Bank has projected Pakistan's GDP growth rate at 3.4% for the current fiscal year
againstgovernment'sprojectionof4.4%inbudgetfor201314.AccordingtoSBP,thegrowth
rateforthecurrentfiscalyearwillbeintherangeof3.04.0%.TheIMFhad,however,projected
a 2.53.0%growth rate. TheWorldBank report "GlobalEconomic Prospect (GEP)" states that
relativelyweakgrowthratesinPakistanandIndia,whichtogetheraccountforcloseto90%of
regionalGDP,reflectacombinationofdomesticimbalances(includinglargefiscaldeficitsand
highinflation),weakeninginvestmentrates,andachallengingexternalenvironment.TheGDP
growth in Pakistan, South Asia's second largest economy, has also been relatively weak in
recent years, averaging 3.5% in factor cost terms since 2010, below the nearly 5% average
growthduringthepreviousdecade.Pakistan'sgrowthisexpectedtomoderateslightlyto3.4%
inFY14,reflectingnecessaryfiscaltightening,andthenriseto4.5%inthemediumterm.

TechnicalView
AhmedHanif
ahmed.hanif@kasb.com

KSE100:OverboughtRSIcallsforacorrection
Theindexcontinueditsbullishtrendbyformingahigherhighandahigherlowbutthemajority
of the volumes were witnessed in second and third tier stocks indicating exhaustion of the
bullishtrend.
Thecorrectiontowards25,800(23%retracementleveloftherisefrom22,19926,876)isdue
fortheindex,afterwhichthebullishtrendcanresume.
RSI is now at 86% and if the index continues to move upward towards 27,400 (bullish trend
line) without giving a correction, the probability of a deeper correction (below 25,800) will
increase.
It is recommended to stay cautious at current levels and wait for 25,80026,000 area to
accumulatepositions

KSE100IntradayMovement
26,865

High26,876

26,809
26,753
26,697
26,641
Low 26,591

26,585

9:30AM 10:55
AM

12:20 1:44PM 3:09PM


PM

Source:KSE

IndexData&VolumeLeaders

KSE30
KSE100
KSEAll
Share
PSO
ENGRO
HBL
AICL
FFC

Close
%Chg
19,611.72
0.5%
26,761.78
0.6%
20,043.06
346.22
168.17
181.10
38.13
117.42

0.6%
0.4%
1.3%
0.6%
3.2%
0.4%

Vol.
US$mn
61.55
81.55
95.32
7.85
5.72
4.99
3.46
3.42

Source:KSE

KSE100:TopGainers&Losers
JSCL
TPL
ANL
MUREB
JDWS
LUCK
ISL
PAKT
GHGL
SHEL
6%

3%

0%

3%

6%

9%

12

Source:KSE

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morningshout
WorldMarketsandCommodityPrices
InternationalEquityMarkets

AsianMarkets(ClosingRates)
Price
AllOrdinaries
ShanghaiComposite
HangSeng
BSE30
JakartaComposite
KLSEComposite
Nikkei225
NZSE50
StraitsTimes
SeoulComposite
TaiwanWeighted
KSE100Index
Source:Bloomberg

EuropeanMarkets(LastTradingSessionsRates)
Price Abs.Chg.
%Chg.

Abs.Chg.
35.7
3.5
0.0
256.6
50.8
10.9
386.3
47.9
19.5
7.2
54.4
171.1

5,255.50
2,023.35
22,791.28
21,289.49
4,441.59
1,824.03
15,808.73
4,913.03
3,143.25
1,953.28
8,602.55
26,761.78

0.68
0.17
0.00
1.22
1.16
0.60
2.50
0.98
0.62
0.37
0.64
0.64

(0.4)
27.9
89.6
N.A
(6.2)
29.9
246.1
(35.4)
6.3

2,729.07
2,957.98
4,332.07
9,733.81
408.62
8,423.40
6,819.90

43.1
17.2
57.9
193.3
2.1
38.8
53.0

1.60
0.58
1.35
2.03
0.50
0.46
0.78

16,481.94
4,214.88
3,609.84
1,848.38

108.1
31.9
29.2
9.5

0.66
0.76
0.82
0.52

AmericanMarkets
DowJonesInd.Average
NASDAQComposite
NASDAQ100
S&P500Index,RTH

ForeignPortfolioInvestmentinEquities
Country
Day(US$mn) WTD(US$mn)
Pakistan
India
Indonesia
Japan
Philippines
SouthKorea
Taiwan
Thailand
Vietnam

ATX
BEL20
CAC40
DAX
AEXGeneral
SwissMarket
FTSE100

%Chg.

MTD(US$mn)

0.6
55.9
253.1
650.4
0.9
(64.6)
247.9
(25.0)
14.0

YTD(US$mn)

(1.7)
116.5
238.6
650.4
(32.3)
(239.8)
430.7
64.3
29.9

YoYYTD(chg)

(1.7)
116.5
238.6
650.4
(32.3)
(239.8)
430.7
64.3
29.9

Date

127.0%
94.1%
30.5%
132.1%
106.0%
693.2%
298.4%
76.6%
53.7%

1501
1401
1501
0301
1401
1501
1501
1501
1501

Source:Bloomberg,NCCPL

ForexandMoneyMarketsnapshot
6MonthKIBOR(Offer)
12MTBill(Average)
10yearPIB(Average)
PkR/US$
Source:KASBMoneyMarket

Current

Previous

Chg.

10.15
10.05
12.63
105.43

10.14
10.05
12.63
105.60

0.01
0.00
0.00
0.17

CommodityPrices
Price
WTI(CrudeOil)
Gold
CRBIndex
Source:Bloomberg

94.17
1,241.86
277.84

Abs.Chg.

%Chg.

1.6
3.3
1.1

1.7
0.3
0.4

KASBSecuritiesLimited,5thFloor,TradeCentre,I.I.ChundrigarRoad,Karachi
ThisreporthasbeenpreparedbyKASBSecuritiesLtd.andisprovidedforinformationpurposesonly.Undernocircumstancesistobeusedorconsideredasanoffertosellorsolicitationof
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permitted by law, have a position, or otherwise be interested in any transaction, in any securities directly or indirectly subject of this report. This report is provided solely for the
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