Pakistan Strategy 2014

Pakistan Strategy|2014 2014 unfolds another chapter of a growth story!
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Pakistan Strategy I 2014
Content
Pakistan Strategy 2014 Abstract KSE Investment Thesis Pakistan at a glance
4 4 5 7
Pakistan Sectoral Strategies 2014 Banks Construction & Materials Personal Goods Fertilizer Power Fixed Line Telecom Exploration & Production Oil Marketing
32 33 40 53 60 69 78 83 90 95 96 97 99 101 102
Pakistan Politics 2014 Ground set for sustainable recovery Performance-off challenges
8 9 10 11 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31
Pakistan Economy 2014 High long-term growth prospects Mid-term challenges & opportunities Inflation: Pressures remain high Policy rate: Too young to die! External account: Sustaining despite challenges Liquidity: Finally improving Remedy to energy crisis Key Macro-factor snapshot Macroeconomic indicators
Other Sectors in Focus Consumer Goods (FMCGs) Pharmaceutical
Pakistan Capital Market 2014 The Jewel continues to shine apart A top-down story from bottom-up earlier Earnings growth to outshine historical averages Rising volumes and foreign participation Regional charm sustains despite bull runs KSE100 index to flirt with 31,000pts level Index is deceptive, go cherry-picking! Who is more sensitive to key macros? Alpha-generating triggers in 2014 Beta-neutralizing premiums in 2014
Valuation Guide Disclaimer Annexure List of Abbreviation Key Data Source Contact
Closing Prices as of December 31, 2012
102 103 104
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Abstract KSE Investment Thesis

100%
With KSE going all guns blazing while punching in another solid return in 2013 (PKR 49%, USD 38%, cumulative 123%, 90% in USD since Jan12), Pakistan equities look all set for yet another exciting bull run in 2014, when a set of macro reforms are expected to take place (already started the year on a strong note!), with an expected improvement in countrys overall macroeconomic governance ahead, albeit with a host of challenges on economic and political fronts. As the veterans say: there are three stages to a bull market. The first stage nobody notices. The second stage the professionals, the smart guys, notice and start accumulating and, in the third stage, the public notices. When the public notices, it goes off the charts and it's time for the smart money to get out. Pak equities are still not there yet. We think we are nowhere near the end of this bull-run since we are at the beginning of the end of the economic troubles, with a democratic political setup in place that has enough muscle to implement the economic reform agenda. Equities arent rising for no reason for sure! And the reasons we will try and explore in this Strategy piece. KSEs Investment Thesis is based on:

75% 50% 26% 7%
KSE Return (USD) Frontier Market

38% 19% 16% 15% 5% 38% 21%
50% 0% 2009 -50%
2010 -10% 2011
-22%-20%
2012
-5% 2013
KSE100 Index Target Estimates 2014 Valuation Basis Target Weight Breakup (pts)
Target Price Based Earnings Growth Justified PE PE-Growth Ratio Regional DY Regional PBV Regional PE Regional EV/EBITDA Current PE Basis Average Weighted Target Index Dec-13 end Expected Total Return 2014 29,714 28,701 30,497 38,441 24,311 27,075 26,364 36,016 29,792 30,101 20% 20% 20% 15% 5% 5% 5% 5% 5% 100% 5,943 5,740 6,099 5,766 1,216 1,354 1,318 1,801 1,490 30,727 25,261 22%
Solid long-term growth prospects High share of rising middle class in population New govt reforms including privatization, foreign fund-raising, fiscal consolidation as well as improved overall governance Rising breath and depth of equities, expected M&As in key sectors Rising volumes, market liquidity and increased foreign investors participation Well-run and shareholder-friendly corporates, despite recent political, economic and security backdrop Very attractive valuations, high and sustainable earnings growth as well as fat dividend yield
AHL Research Valuation Snapshot 2009 2010 2011 2012 2013 2014-15F Earnings Growth 8% 17% 27% 15% 6% 24% PE (x) 8.5 7.6 7.1 6.4 10.4 7.8 Dividend Yield 6.8% 7.0% 6.9% 8.2% 5.0% 6.3% Earnings Yield 11.8% 13.2% 14.1% 15.7% 9.6% 13% ROE 23% 23% 25% 25% 23% 26% PBV (x) 1.8 1.6 1.7 1.5 2.2 1.9 Payout Ratio 58% 53% 48% 52% 52% 49%
Pakistan at a Glance
Economy
Population (mn) Middle Class (of population) GDP/Capita (USD, FY13) GDP Size (USD bn, FY13) GDP Growth (1QFY14) Sovereign Rating FX Reserves (USD bn, Dec13) Current Account Deficit (5MFY14, of GDP) Fiscal Deficit (5MFY14, of GDP) CPI Inflation (Jul-Dec13) Policy Rate 182.5 35% 1,196 218.3 5.1% S&P: -B, Moodys: CAA1 8.1 1.8% 2.2% 8.9% 10.0%
Equities
Major Stock Exchange Benchmark Index Total Market Cap (USD bn, Dec'13) Free Float Market Cap (USD bn, Dec'13) Market Cap as %age of GDP Avg. Daily Traded Value (USD mn, CY13) Avg. Daily Volume (USD mn, 2013) MSCI Category Number of Stocks in MSCI FM Largest Sector Largest Stock Net Foreign Flows (USD mn, 2013) Karachi Stock Exchange KSE-100 57.7 (KSE-100: 50.3) 23.1 (KSE-100: 12.4) 21.3% 93.1 222.6 Frontier Markets 12 Oil & Gas OGDC 398
Total Debt and Liabilities (Sep13, of GDP) 71.0% Total Public Debt (Sep13, of GDP) 63.4%
Foreign Holds (of FF MCap, ex. strategic) 28.0%
Pakistan Politics|2014
Ground set for sustainable recovery
Moving towards Political Maturity

Ground set for sustainable recovery
In 2013, with an unprecedented turnout at the ballot box (55%) following endless queues, the change for a better Pakistan came finally through the vote, the essence of a true democracy taking roots in the country. Pak Politics finally enters a stable mode. The democratic political transition, from one democratic setup completing terms first time in country's history to another, incredibly boosted investor confidence as the setup has also been built upon simple majority, from a divisive coalition earlier. Following smooth political shift, timely transitions of the other two, most powerful positions of the countrys key institutions recently; Military (replacement of the Chief of the Army Staff: from General Ashfaq Pervez Kayani to General Raheel Sharif) as well as Judicial (from Chief Justice iftikhar Muhammad Chaudhry to Justice Tassaduq Hussain Jillan) further set stage for increased confidence and perception change. Peaceful democratic political transfer, political maturity and judicial activism have started bearing fruits when Pakistan in 2013, amongst 177 countries, improved on the list of global corruption perception index by 13 notches to 127th rank. PML-N, a veteran political party in its earlier tenors (served twice earlier: Nov'90-Apr'93 and Feb'97-Oct'99) had fine and effective administration and pro-business-pro-privatization attitude, translating into good economics. PML-N chalked out a detailed economic manifesto with needed action plans for a sustainable economic recovery.
Political Party Position in General Elections 2013 Political Party Pakistan Muslim League-Nawaz Pakistan Peoples Party Pakistan Tehreek-e-Insaaf Muttahida Qumi Movemen Jamiat Ulema-e-Islam Fazlurehman Pakistan Muslim League-Functional Jamaat-e-Islami Others Independent Total Seats
Source: Election Commission of Pakistan PML'N formed gov't in the Punjab, Baluchistan & the Centre, PTI in KPK, PPP in Sindh
National Assembly 188 45 35 24 13 5 4 18 8 340
% 55% 13% 10% 7% 4% 1% 1% 5% 2%
Provincial Assembly 361 104 85 51 25 11 9 69 9 724
% 50% 14% 12% 7% 3% 2% 1% 10% 1%
PMLN: Historical Performance of earlier Tenors Indicators GDP Growth Inflation As % of GDP Fiscal Deficit Current Account Deficit Trade Deficit Tax-GDP Savings-GDP Investment-GDP 6.8% 2.8% 4.7% 13.3% 13.7% 18.4% PML'N 4.3% 9.1%
2014: Heading towards Agenda implementation Performance-off challenges
Combing through recent numbers reveals that newly formed political setup somewhat steered the economy out of deep crises, or at least has put a blockade on bleeding holes through a number of short-term measures, including a balancing budget right after coming into power, one-off resolution of liquidity issues facing power sector, arrangement of the new IMF program and announcement of un-populist measures i.e. power tariff hikes. The latest report card of the new govt on economic performance against targets reveals somewhat rosy picture, where the economic growth seemed to have done well, with GDP at 5.1% in 1QFY14 against last 5yr average of 2.9% (see table alongside). With 2014s sunset, though the govt looks set to implement its economic agenda and other reforms (power tariff increase/ subsidy reduction, privatization of PSEs, spectrum auction, foreign bond issues and capital market reforms), it is faced with a host of political challenges (uneasy relations with India, unsteady political harmony on peace dialogue with the indigenous militant groups as well as drone attacks and subsequent relations with the US post its withdrawal from Afghanistan ahead). Govt economic agenda consists of the following medium term roadmap for putting the economy back on the growth path:

KPIs of the new Govt in first year in office for far in FY14 Indicators GDP Growth Manufacturing Services Agriculture Inflation (5MFY14) Policy Rate As % of GDP Tax Revenue Fiscal Deficit Current Account Deficit Public Debt Circular Debt 3.0% 2.2% 1.8% 63.4% 0.8% 4.0% 2.6% 1.1% 58.0% 0.0% 2.9% 2.9% 0.7% 58.8% 2.1% Neutral Positive Negative Negative Positive Provisional 5.1% 5.2% 5.7% 2.5% 8.9% 10.0% Target 4.4% 4.5% 4.5% 3.8% 10-11% Last year 2.9% 3.1% 2.9% 2.7% 8.4% 9.5% Rating Positive Positive Positive Negative Neutral Neutral
Govt 5-Year Economic Plan Indicators Real GDP Growth Industrial Growth Inflation Budget Deficit Tax-GDP Investment-GDP Health-GDP Education-GDP T&D Loss of Power sector Last 5Y Indicators Full-Yr Target 3.6% 6% Improve Governance 3.5% 7-8% Tax Reforms 7.4% 7-8% Increase in Tax Rate 8.8% 4% Later Tax Cuts 9.2% 15% Interest Rate Cuts 13.4% 0.5% 3.0% 25% 20% PSEs Restructuring 2% Privatization Programs 4% Financial Mkt. Reforms 10% 5Y Target Yes Yes No Yes Yes Yes Yes Yes
GDP growth to gradually rise to around 7% Investment/GDP to rise to 20% Fiscal Deficit to be brought down to 4% of GDP Forex reserves to be increased to around USD 20bn, and Public debt to be reduced to 57.5% of GDP
Pakistan Economy|2014
Reforms all the way
Pakistan Economics High long-term growth prospects

Reforms to affect growth in short-term, but good for long-term macro stability
Pakistan economy has been resilient throughout most of its history despite being repeatedly hit by a multitude of shocks that weakened its underlying growth potential - GDP growth has still been in par with the region. The new democratic govt is aggressively pursuing fiscal reforms and simultaneously uplifting investment. We expect reforms to pickup pace in 2014 to spur growth on a sustainable basis ahead, albeit with tapered pace in short-to-medium term.
Long-term growth drivers in play
Demographics: Strategically placed (between energy hungry Asia and energy rich Middle-Far East and Central Asia) to become Asias premier trade, energy and transport corridor. Young and growing population: Pakistan, the worlds sixth most populous country (over 180mn population), is experiencing an expanded domestic demand, considering ~55% of the population being under the age of 19. Moreover, countrys middle class (~35% of population) is steadily growing with per capita increase of 9% (10yr CAGR). Transiting domestic consumption: Pakistan is mainly a consumption-led economy (~89%), and is now experiencing growing share of investment. Fiscal austerity, without compromising growth: Increasing tax revenues, trimming out excessive non-development expenditure and increasing development projects (~4% of GDP in FY14) will keep investment and growth climate upbeat.
Exhibit:GDP growth averaged 5% for the last 10-yrs. Which is in line with its regional peers (higher than overall average), despite facing both domestic and external challenges 6%
5%
4%
3%
2%
1%
4.8%
0% Pakistan
5.2%
ASEAN -5
3.8%
CEE
4.1%
Lat. AM
5.1%
MENA
Source: SBP, AHL Research
11
Pakistan Economics Growth story

Exhibit: Pakistan GDP deteriorated after experiencing +7% growth story
Per Capita Income (USD) RHS 10% 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% GDP (%age Growth) 1,600 1,400 1,200 1,000 800 600
1,053 1,026 1,072 1,275 1,323 1,368
Exhibit: Pakistan Investment/GDP is one of the lowest in the region

50% 40% 30% 20% 10%
400 200 -
504
505
582
663
724
897
980
14%
0% Pakistan
35%
India
29%
Sri Lanka
26%
Bangladesh
40%
China
Fy01 Fy02 Fy03 Fy04 Fy05 Fy06 Fy07 Fy08 Fy09 Fy10 Fy11 Fy12 Fy13
Source: SBP, AHL Research Exhibit: One of the highest young population /total population within the region
40% 35% 30% 25% 20% 15% 10% 5% 0% Pakistan India Sri Lanka Bangladesh China
Source: SBP, AHL Research Exhibit: Pakistan Saving/GDP is also lowest within the region
60% 50% 40% 30% 20% 10%
33%
11%
37%
14%
23%
0%
14%
Pakistan
32%
India
22%
Sri Lanka
27%
Bangladesh
53%
China
12
Pakistan Economics Mid-term challenges & opportunities

Inappropriate growth mix keeps macro stability risks alive
The government's desire to support growth while simultaneously consolidating Pakistan's fiscal budget at a time when private sector investment, as a percentage of GDP, has been on a decline; has to some extent backfired. We believe, efforts to materialise the new growth strategy has started showing up in the form of: 1) elevated inflation; 2) higher reliance on external financing; and 3) increased cost of credit
Effort to change the growth mix still infant
Recent monetary tightening by the SBP still to curb inflation, defend PKR, and the level of pressure on current account balance is increasing downside risks to the growth outlook. Moreover, rate tightening could impact the willingness of banks to lend, making productive private sector investment growth more difficult to come-by. Pakistans new administration has unveiled some fiscal reforms. We expect these structural reforms (some of them) would speed-up, given the prerequisite disbursement under the new IMFs EFF arrangement. This would also allow the government to augment capital inflows albeit in some form of debt. While such measures could help cushion the pace of currency weakening, we do not expect this to make a major difference in the trend unless structural changes take place and global environment becomes favourable.
Exhibit: Factors such as deteriorating law and order conditions and severe energy conditions are seriously affecting the real productive economic activity. This is constraining the current utilization and future expansion of the economy productive capacity. A key indication is the falling investment to GDP ratio.
Investment %age of GDP 20.0% 19.0% 18.0% 17.0% 16.0% 15.0% 14.0%
FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13
13
Pakistan Economics Inflation: Pressures remain high

Exhibit: Headline inflation above SBP comfort zone

Oct-11
Dec-11
Oct-12
Dec-12
Oct-13
Outlook
Our base-case period inflation, for FY14E and FY15F, averages out at around 10.0% and 10.5-11.0%, respectively.
14
Dec-13
Aug-11
Feb-12
Apr-12
Jun-12
Aug-12
Feb-13
Apr-13
Jun-13
Aug-13
Headline CPI inflation has moderated to 8.9% (1HFY14) after a three year average of 10.7%. However, recent pass-through of administered product prices and more to come-by given expected cut-backs in power subsidy would eventually trigger higher cost of production; allowing in for a higher core price trend, going forward. With the recent resurgence in food prices reaching 9.9% 1HFY14 period average, versus 7.3% in 1HFY13 continuity in trend is expected. Following the spillover effect of rising energy prices and feed-stock prices (reforming in fertilizer subsidy) hints at higher food price index. In addition, crude oil prices having risen in the last three months (1/3rd of import bill) are also keeping the inflation risk alive. Though commodity outlook stands relatively dim, continuous PKR depreciation (8.5% in 2013, 6% FY14 to date) would also keep inflationary pressures on the higher side (raw material imports in turn leads to higher end product prices). Although fiscal consolidation is undergoing, we think financing governments fiscal deficit (8.8% of GDP in FY13 and 6.6% in FY14B) and expansionary government spending (development) all translate well into higher monetary expansion.
16% 14% 12% 10% 8% 6% 4%

Oct-09
CPI (YoY%)
SBP (Comfort Level)
Oct-10
Oct-11
Oct-12
Jan-10
Jan-11
Jan-12
Jan-13
Source: SBP, AHL Research Exhibit: Food, &non-food prices trend 16% 14% 12% 10% 8% 6% 4% Non-Food Prices (%YoY) Food Prices (%YoY)
Oct-13
Jul-09
Apr-10
Jul-10
Apr-11
Jul-11
Apr-12
Jul-12
Apr-13
Jul-13
Pakistan Economics Policy rate: Too young to die!

Exhibit: Headline inflation above SBP comfort zone
Only two years into rate easing, doubts of whether monetary expansion is sustainable surfaced. Our interest rate forecast remains contingent on seeing near upside risk to inflation and real interest rate touching the negative territory. Given the starting point of high inflation and expectations in the medium-term, we believe policy-makers would be certain in pushing policy rate up. Finally, negative real interests will certainly be a point of consideration for the policy-makers. At present, real interest rate gap stands close to 1.0%. Going forward, inflation touching as high as 11.3% in FY14 (estimated), we would not be surprised to see SBP raising its concerns in monetary policy statements.
CPI (YoY%) 17.0% 15.0% 13.0% 11.0% 9.0% 7.0% 5.0%

Apr-10 Apr-11
SBP Reverese Repo Rate
Apr-12
Jan-10
Jan-11
Jan-12
Jan-13
Apr-13
Jul-09
Oct-09
Jul-10
Oct-10
Jul-11
Oct-11
Jul-12
Oct-12
Jul-13 Sep-13
Source: SBP, AHL Research Exhibit: Real interest rates dipping in the negative territory
Real rates (based on 3M trailing Inflation rates) 5.0% 4.0% 3.0% 2.0% 1.0% 0.0%
Sep-09 Dec-09 Sep-10 Dec-10 Sep-11 Dec-11 Sep-12 Dec-12
Outlook
We factor-in a minimum 50bps policy rate hike in 2HFY14 to 10.5%, and subsequent 11% policy rate by FY15. However, the effect of higher policy rate chasing inflation will be growth front-loaded; with continuation of disappointing credit demand growth in the medium term.
-1.0% -2.0% -3.0%
15
Dec-13
Mar-10
Mar-11
Mar-12
Mar-13
Jun-10
Jun-11
Jun-12
Jun-13
Oct-13
Pakistan Economics External account: Sustaining despite challenges

Exhibit: Current account Balance trend (all %age of GDP)
Since the commencement of FY14, the current account balance has moved into a deficit USD 1.9bn (1.8% of GDP) in 5MFY14 versus surplus of USD 0.7mn (0.6% of GDP) mainly due to marked reduction in services receipts (services deficit at USD 1.1bn, versus USD 563mn, primarily due to decrease in CSF funds from the US this year), alongside rise in import bill and fall in general goods. Moreover, countrys financial inflows plunged sharply to post a deficit of USD 712mn (0.7% of GDP) versus a surplus of USD 318mn (0.3% of GDP), causing much pressure on countrys balance of payment. This combined effect of debt repayments and widening current account deficit depleted countrys FX reserves held by SBP that reached USD 3.2bn by Dec-13 versus USD 10.8bn in Jun-12. Henceforth, the SBPs loss of crucial buffer to shieldoff any pressure on PKR resulted in a poor macro environment for PKR. PKR depreciated 6% against USD during the FY14 to date. Regional currencies faced a similar fate: The phenomenon of weak financial inflows have struck in other emerging and developing economies as well, and these economies have subsequently witnessed sharp depreciation in their respective currencies. While this investment squeeze in Pakistan is not exclusively restricted to weak global demand but also due to deterring domestic fundamentals.
Financial Accounts 1.0% 0.5% 0.0%

Sep-13 Dec-13
Net Account Balance (Current + Capital)
BoP
Sep-14
Mar-14
-0.5% -1.0% -1.5% -2.0% -2.5%
Source: SBP, AHL Research Exhibit: Foreign Exchange Reserves and PKR Sch Banks 20.0 18.0 16.0 14.0 12.0 10.0 8.0 6.0 4.0 2.0
Jun-05 Jun-06 Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13 Dec-13
SBP
Days of Import Cover 200 180 160 140 120 100 80 60 40 20 -
Nov-14
Jun-14
16
Pakistan Economics Liquidity: Finally improving
System liquidity remains tight and cost of credit high: lack of sufficient external funding has also led to tight interbank liquidity. In 1HFY14, overnight rates traded at their upper limit of 2.5% (reduced from 3% in Feb-13) of SBP Reverse Repo corridor.
Exhibit: O/N rates trading at the upper limit

SBP RRR 15% 14% 13% 12% 11% 10% 9% 8% 7% 6%
Aug-10 Aug-11 Aug-12 May-10 Nov-10 May-11 Nov-11 May-12 Nov-12 May-13 Aug-13 Feb-10 Feb-11 Feb-12 Feb-13 Nov-13 Dec13
Corridor
O/N Rates
Outlook
Although liquidity conditions are expected to remain tight in the short-to-medium term, we expect it to gradually improve in the later of FY14 with gradual materialization of planned flows on account of privatization, Eurodollar/Global Rupee bond issuance, spectrum auction and CSF money. Moreover, banks deposit growth has outpaced total fund utilisation, which could potentially loosen up some credit availability at banks. Further, a gradual decline in SBP liquidity injections with the help of aggressive realisation of external funds (lowering burden on domestic sources) and pick-up in government revenue receipts, should bode well for increasing liquidity. Realization of external funds and privatisation proceeds (this alone has the potential to reduce fiscal deficit by 0.5%-1% of GDP) Recent steps by SBP to tame down market speculation on PKR alongside aforesaid should stabilise PKR. Overall C/A deficit will remain manageable at 1.2-1.5% of the GDP in FY14E.
Exhibit: Banks fund utilisation outpaced its deposit growth

Fund Allocation Growth 27% 22% 17% 12% 7% 2%
Dec03 Dec04 Dec05 Dec06 Dec07 Dec08 Dec09 Dec10 Dec11 Dec12
Deposit Growth
17
Pakistan Economics Remedy to energy crisis

Exhibit: Electricity demand and supply gap
Overview
GWh 140,000 130,000 120,000 110,000 100,000 90,000 80,000

Jun-06 Jun-07
Net Generation (GWh)
Demand (GWh)
Energy availability in Pakistan has been declining over the last few years, as a result of low investment in the sector. The country faced a record shortfall of both power and natural gas, during FY12-13. Despite several measures taken by the government, prolonged and frequent power cuts have affected production activities and kept economic growth under stiff grip from reaching its full potential. At its core, the energy crisis reflects the lack of a coherent policy, tariff structures, under-capacity utilization and huge transmission and distribution losses.
Jun-08
Jun-09
Jun-10
Jun-11
Jun-12
Jun-13
Jun-14
Jun-15
Jun-16
Jun-17
Reforms: Taking a long-view
Source: SBP, AHL Research Exhibit: Installed capacities and expansions
Henceforth, in order to meet up the current and growing energy demand, the government is aggressively pursuing relatively cheaper and more efficient fuel-based projects to fill-up the supply gap. This will be achieved through increased indigenous exploration of natural gas and oil, coal conversion, gas imports from neighboring countries, curtailing subsidies to reduce fiscal burden through tariff rationalization and finally inducing energy conservation projects. The govt by start of FY14, plugged in PKR 480bn for the resolution of circular debt. Due to one-off liquidity resolution for the energy chain, the circular debt stands manageable at 0.8% of GDP now v/s 2.1% earlier. Although energy reforms are underway, we suspect energy shortfall to fade away with time due to gradual additions.
300,000 250,000 200,000 150,000 100,000 50,000 0

Jan-13 Jan-14 Jan-15
Installed Gross Capacity (GWh) Additions (RHS)
40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 Jan-21
Jan-16
Jan-17
Jan-18
Jan-19
Jan-20
18
Jun-18
Pakistan Economics Key Macro-factor Snapshot

Exhibit: Pakistan GDP sector-wise percentage point contribution Agri. Industrial Service FY13 FY12 FY11 FY10 0.0% 1.0% 2.0% 3.0% 4.0% Exhibit: Pakistan will be a net borrower in CY14-CY16; with IMF
Disbursements 2,500 2,000 1,500 1,000 500 CY00 CY01 CY02 CY03 CY04 CY05 CY06 CY07 CY08 CY09 CY10 CY11 CY12 CY13 CY14 CY15 CY16 CY17 CY18
Exhibit: Pakistan Current Account and falling Investment (%age of GDP) Dev. Exp. (%GDP) 25% Cur. Exp. (%GDP) 40% 35% 20% 30% 25% 15% 20% 15% 10% FY11 FY12 FY13 10%
Repayments+Interest
Source: SBP, AHL Research Exhibit: Pakistan External Account sustaining its way to better prospects Net Balance Fin. Account BoP USD mn 10,000 5,000 FY08 FY09 FY10 FY11 FY12 FY13* (5,000) (10,000) (15,000) Source: SBP, AHL Research
Source: SBP, AHL Research Exhibit: PKR trend against USD Spread RS 115 110 105 100 95 90 85 80 Sep-10 Sep-11 Sep-12 Sep-13 OPEN Mkt IBNK Mkt 4 3 2 1 (1) (2) (3)
Source: SBP, AHL Research Exhibit: Pakistan Current Account and falling Investment (%age of GDP) Rev. (%GDP) Exp. (%GDP) Fiscal Balance (%GDP) RS
24% 22% 20% 18% 16% 14% 12% 10%
10% 9% 8% 7% 6% 5% 4% 3%
FY10
FY11
FY12
FY13
19
Pakistan Economics Key Macro-economic indicators

Key Economic Indicators
Real GDP (Real Growth %) Service Sector Industrial Sector Agricultural Sector GDP (MP - PKRbn) Prices CPI (%age YoY) Policy Rate - Period end External Sector (USDbn) Exports Imports Trade Terms Remittances FX Reserves - Period end Current Account Balance (%age of GDP) Exchange Rate (average) Fiscal Accounts (%age of GDP) Total Revenue Tax Revenue Total Expenditure Current Expenditure Development Expenditure Fiscal Balance Public Debt
Source: SBP, PBS, MoF, AHL Research
FY10A 3.1% 4.6% 4.9% 2.0% 14,824 10.1% 13.9% 19.7 31.2 11.5 8.9 16.8 -2.2% 85 13.5% 10.1% 16.6% 11.5% 5.1% 3.1% 59.9%
FY11A 3.0% 4.4% 0.7% 2.4% 18,063 13.7% 13.5% 25.4 35.9 10.5 11.2 18.2 -0.1% 86 13.0% 9.8% 18.7% 16.0% 2.7% 5.7% 57.2%
FY12A 3.7% 4.0% 3.1% 3.4% 20,654 11.0% 12.0% 24.7 40.5 15.8 13.2 15.3 -2.1% 89 12.9% 10.3% 20.3% 16.3% 3.9% 7.4% 60.0%
FY13A 3.6% 3.7% 3.5% 3.3% 22,909 7.4% 9.0% 24.8 40.2 15.4 14.1 11.0 -0.4% 97 13.2% 9.9% 22.0% 17.8% 4.2% 8.8% 63.5%
FY14E 4.2% 4.6% 3.9% 3.1% 26,219 10.3% 10.5% 26.7 42.8 16.1 15.7 8.7 -1.2% 108 14.5% 10.8% 21.2% 17.0% 4.2% 6.6% 66.4%
FY15F 4.4% 5.0% 3.7% 3.3% 30,148 10.6% 11.0% 28.8 45.8 17.0 17.6 10.4 -1.1% 113 14.9% 10.9% 20.6% 16.5% 4.1% 5.7% 67.8%
20
Pakistan Capital Market|2014

2014 unfolds another chapter of a growth story!
Pak Equities go all guns blazing 2nd year in row! The Jewel continues to shine apart
KSE has been going all guns blazing with simmering returns for two years back to back (2013: 49.4%, 38.0% in USD, 2012: 49.0%, 37.8% in USD) with cumulative 122.6%, 90.1% in USD till 2013, and looks all set for yet another exciting bull run in 2014 when a set of macro reforms are expected to be in full swing. While global economy still craves for growth, equity markets around the globe skyrocketed for being bombarded with flush of liquidity amidst undeterred QE. As such, funds flown in at a blazing pace during 2013 (USD27.5bn with average 3% YoY return, against USD51.6bn in 2012 with average returns of 25% YoY) across the emerging/frontier regions with some signs of improved economic activity in the west as well proved to be a continuous unpinning force for solid performance of risky assets (equities). However, in the mid of 2013, the emerging Asia region saw massive outflows on fear of ending QE with freefall of equities and currencies. Once fears faded, funds flew back to emerging region, partly due to their better fiscals, growth and solvencies than most of the developed markets still stand with. KSE has been outpacing EM and FM indices since 2010. With a blistering pace, KSE100 pushed the envelope further and topped Asia Pacific in 2013, from a 3rd position in 2012, while in terms of attracting foreign flows, KSE fetched ~1.5% of total inflows to the region, against below 0.3% earlier. On its relative eco-political scale, KSE performed exceptionally well, given political-eco and law & order shakeups it survived through in last 5 years. The long surge was driven by CGT-related reforms, solid profits, huge foreign flows and policy rate easing.
80% 60% 40% 20% 0% -20% -40% Asia Pacific* Country Pakistan Vietnam Taiwan S. Korea India Philippines Thailand Indonesia Sri Lanka Avg./Total 40% 30% 20% 10% 0%
KSE100
75% 50% 26% 7%
KSE Return (USD) Emerging Markets
Frontier Market
38% 38% 15% 5% 21%
19% 16%
2009
2010
-10% 2011 -22% -20%
2012
2013-5%
Market Return 2013A 2012A 38% 38% 20% 19% 9% 13% 2% 19% -3% 22% -6% 42% -13% 40% -22% 7% 2% -17% 3% 20%
Foreign Flows (USD mn) 2013A 2012A 398 125 263 154 9,188 4,907 4,875 15,069 19,942 24,389 678 2,548 (6,211) 2,504 (1,806) 1,703 164 239 27,498 51,637
*Ex-Japan
38%
World Equity Returns Comparison 2013

24% 20%
21%
-5%
World Emrg. Mkts Devp. Mkts Front. Mkts
-10%
22
Sustained gains despite Eco-Market dichotomy A top-down story from bottom-up earlier
KSE continued to show immense resilience despite subdued economic growth in the last two years (average 2.9% in last 5yrs), power crises, increased inflation, higher interest rates and sharp attrition in the local currency against USD. Despite hurdles, corporate earnings growth was glued to the rising trend. Ironically, Pak markets bottom-up story has mostly been driven so far by deteriorating macros in the shape of declining local currency followed by high inflation, which was partly driven by rise in commodity prices (oil, fertilizer, cements and food), which largely benefited bottomlines of the index heavyweights i.e. E&Ps (weight 29%), Food Producers (10.5%), Fertilizer (5.4%), OMCs (2.5%), Textiles (5.6%), Power (3.2%) and Telecom (1.9%). So, 58% of KSE provided currency hedge while Banks (20.5%) were amongst the low-performing ones due to increased macro risks. As such, Pakistan's corporate earnings growth, ROEs and average payouts rather fared well (better than regional peers vis--vis macros) while they have yet to reflect the economic reforms expected to be in full swing in 2014, where the outperforming sectors are expected to be the ones more skewed towards growth than the defensive ones earlier. In 2014, KSE is expected to turn into a top-down story, from a bottom-up story so far, since economic reforms should set ground for sustained growth in corporate profits, owing to ensuing economic expansion and capacity utilizations in consequence of demand growth, while cash-flows are expected to solidify amid better gradual recoveries overall, and thus improved payouts.
40%
Real GDP (LHS) Real EGrow (LHS) Real Index Growth
60% 40% 20% 0%
20% 0%
2008A 2009A 2010A 2011A 2012A 2013A
-20% -40% -60% -80%
-20% -40% -60%
-100% Economic Indicators v/s Earnings Growth/Returns Country RGDP 5.6% 4.8% 6.0% 7.0% 7.8% 2.7% 7.8% 1.7% 3.3% 5.2% 3.6% -1.6% Low CPI 8% 8% 6% 3% 6% 2% 3% 1% 1% 4% 11% 7% Low DR 7.5% 7.8% 7.0% 3.5% 6.5% 2.3% 6.0% 1.9% 2.5% 5.0% 10.0% 5.0% Low EGrow 16% 20% 4% 7% 16% 16% 17% 15% 28% 15% 14% -1% ~Parallel RoE 21% 18% 16% 13% 15% 14% 17% 13% 10% 15% 25% 10% High
Indonesia
India Vietnam Philippines Sri Lanka Thailand China Taiwan S.Korea Peer Avg Pakistan Difference Relative Value
23
Sustained gains despite Eco-Market dichotomy Earnings growth to outshine historical averages
Interestingly, during last 5yrs of economic slowdown, corporate earning growth has rather improved sequentially (kept up momentum at a substantial 14% avg. run rate) while economy could not catch up with its underlying potential amid severe energy issues, stubbornly high inflation and double-digit interest rates over the period. Entering 2014, we expect earnings growth to be the bastion of KSE. It is expected to turn even better than historical averages (24% in 201415 v/s 5Y average at 14%) to be largely triggered by key sectors i.e. E&Ps (+10% above average), Banks (+20% above), Textiles (parallel) and below (due to high-base last year) but still strong for Cements, Chemicals, Telecom, Fertilizer and Power. Stable oil prices should support Oil & Gas sector (better production from E&Ps, higher cash margins for OMCs) while improving offtake should support Fertilizer earning-payout. Rate hikes should inch-up banking sectors interest margins (mid-tier) alongside improving NPLs and decline in provisioning/reversals, leading to better payouts (big banks). Cement sector should reap benefits from rising prices, soft/stable coal prices and deleveraging and historic allocation of infrastructure-related funds in budget by the govt. Textiles should significantly benefit from improved exports from recently granted GSP+ Status by EU, other PTAs, alongside currency weakness. Controlled circular debt should translate into better liquidity/cash payout in FY14-15 from PPL, OGDC, PSO, HUBC, KAPCO, NPL, NCPL and few others including NML, NCL, PTC and NBP due to improved sector dynamics. This would attract large portion of the dividendloving investors to Pakistan equities.
Economic Growth vs Corporate Fundamentals Growth

Earnings Growth GDP Growth (RHS) Payout (RHS) KSE100 Return (RHS) RoE (RHS) 80% 60% 40% 20% 0% 10% 5% 0%
2007 2008 2009 2010 2011 2012 2013
30% 25% 20% 15%
-20% -40% -60%

201415F
24% 27% 10% 16% 12% 6% 8% 31% 98% 10% 24% -19% -9% 0% -78% 9%
-5%
-80%
Corporate Sector Earnings Growth: Trend & Forecast Years* Sector E&P Banks Fertilizer Cement Oil Marketing Autos Power Textiles Chemicals Telecom AHL Sample Above 2009 2010 2011 2012 2013 5-Y Avg. 2014-15F Average 19% 6% 20% 103% -44% -11% -78% -337% -424% 7% -3% 10% 47% -30% 123% 13% 130% 11% 2% 17% 18% 25% 71% 23% 51% -3% 45% 66% -7% -31% 27% 41% 6% -36% 170% -31% 49% 19% -27% 79% 15% -4% -13% 29% 54% 25% -1% 21% 66% 40% 6% 14% 7% 26% 64% -105% 25% 17% 31% 176% -67% 14% 10% 20% -16% -48%
-122% -450%
-98% 1313%
*Fiscal Year (Jul-Jun) for Sectors except for Banks, Fertilizer and Chemicals
24
Market liquidity on the go! Rising volumes and foreign participation
Since the resolution on the CGT-related issues back in Apr2012 (simplifying process for investors through NCCPL alongside noquestion-ask provision on source of income included in the income tax ordinance 2001 till Jun2014) has dramatically driven up KSE volumes as well as market liquidity in the last three years. In this regard, Pak equities ATVR (average value traded as % of free float market cap) has also been on the rise, indicating rising market liquidity, though still chasing higher historical averages. In the last two years of rising streak, Pak equity market volumes went through the roof, up 181%, with average volumes standing at 223mn shares, compared to just 79mn shares in 2011. In the same vein, average market traded value also skyrocketed by 112% to USD93mn by 2013, against only USD44mn recorded during 2011. Though mixed historically, foreign participation in Pakistan equities has been on the rise, contributing 15% to the total value traded compared to 12% a year earlier, a level last seen in 2010. In this regard, foreign investors holdings of Pak equities stood ~USD3.5bn (excluding strategic stakes) or close to 28% of freefloat market cap. This gives rise to market sensitivity of foreign trades to KSE100 i.e. 65% of the KSE100 sensitivity is driven by PKR 1.0 delta in OGDC and MCB. Demutualization of Pak stock exchanges is also expected to underpin further growth in volumes, as observed with other world markets (avg. ~40% rise in overall volumes post-demutualization).
USD bn
28.0 26.0 24.0 22.0 20.0 18.0 16.0 14.0 12.0 10.0
Foreign Part KSE Val. Traded Foreign % of KSE (RHS) 16% 15%
15%
KSE Annualized Traded Value Ratio 0.70% AVTR 0.60% 0.50% 0.40% 0.30% 0.20% 0.10% 0.00% 2010 2011 2012 2013
140% 120% 100% 80% 60% 40% 20% 0% -20% -40% -60% -80%
India Finland UK Netherland USA (NASDAQ) German Hong Kong Denmark Japan Canada Brazil Philippine
14% 13% 12% 11% 10% 9% 8%
12% 15% 14%
2010
2011
2012
2013
Stock OGDC PPL NESTLE MCB HBL UBL FFC NBP POL PTC LUCK ABL PSO ENGRO HUBC KAPCO Total
Foreign Holding KSE100 Holding KSE100 Holding (of Weight (of FF*) sensitivity (USDmn) TMC^) % 1,152 70% 10% 13.4 9.3 195 28% 6% 6.7 1.9 323 200% 10% 1.3 2.6 827 77% 31% 8.7 6.7 6 3% 0% 1.7 0 266 69% 17% 3.1 2.1 26 3% 2% 6 0.2 30 11% 3% 2.2 0.2 26 5% 2% 4.1 0.2 7 4% 1% 1.3 0.1 31 8% 3% 3 0.2 1 1% 0% 0.7 0 5 1% 1% 2.9 0 93 24% 12% 3.1 0.8 21 5% 3% 3.8 0.2 1 1% 0% 2.1 0 3,010 64.1 24.7
*Free float, ^TMC = Total Mkt. Cap
Market Volumes post Demutualization

Traded Vol. Change Avg. Change
25
Regional appeal through deep discounts Regional charm sustains despite bull runs
KSEs historical discounts to regional peers on PE/DY have been massive; as high as 52%/61% in 2009 (when market touched historic lows) and as low as 3%/36% in 2005 (when market peaked, then), while the average since 2005 stood at 40%/50%. Comparing averages, KSE still is available at cheaper PE while at a little premium to its regional peers on DY. Since higher risk entails greater return opportunities, KSE100 offers a great deal at these levels more than compensating macro risks that are expected to be reduced with improving macros 2014 onwards. Since global equities were on a bull run too, KSE100s deep discount to regional peers remains (43% on PE, 43% on Ev/EBITDA, 52% on PEG, 14% on PBV, and a fat 47% on DY while a sizeable 39% on RoE). We believe, this is a great deal to counterbalance perceived macro risks of i) rising inflation and thus interest rates, ii) one of the lowest eco growth rates, and iii) increased currency volatility, chained with other macro riskassociated premiums. We expect a 24% YoY earnings growth in 2014-15 (AHL Universe of 29 key stocks). This is in addition to the fact that KSE100 already offers one of the highest RoEs and provides deepest discount at DY (read: pure cash) multiple compared to regional peers. Since earnings growth and RoE are the prime factors to look for by investors amongst other key market fundamentals, KSE100s profit growth is expected to sustain despite high-base, competing most of the peers with better economic growth i.e. China, Sri Lanka, Philippines and Vietnam and India. Thus, we expect KSE100s re-rating to continue with prevailing market discounts.
PE - Regional Disc. Trend 60% 50% 40% 30% 20% 10% 0%

2005
3% 41%39%
Disc to Peers Historical Avg. Disc

52% 49% 43% 35% 49%46%
70%
43% 60%
DY - Regional Disc. Trend Disc to Peers Historical Avg. Disc

61% 60% 58% 47% 40% 36%
55% 47% 46%
50% 40% 30%

2014F
49%
Country
Indonesia India Vietnam Philippines Sri Lanka Thailand China Taiwan S.Korea Peer Average Pakistan Prem/(Disc)
EGrow
16% 20% 4% 7% 16% 16% 17% 15% 28% 15% 14% 1%
Forward Estimates DY RoE PE PBV

2.3% 1.9% 12.0% 2.5% 2.8% 4.0% 2.8% 3.2% 1.3% 3.6% 6.9% -47% 21% 18% 16% 13% 15% 14% 17% 13% 10% 15% 25% -39% 12.8 13.0 10.6 16.0 10.5 11.5 8.9 14.8 17.0 12.8 7.2 -43% 2.4 2.2 1.8 2.3 1.8 1.8 1.3 1.6 1.2 1.8 1.6 -14%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014F
2006 2007
2008 2009 2010
2011 2012 2013
PEG EV/EBITDA
82 64 244 247 64 73 51 101 60 110 52 -52% 8.7 8.3 7.9 10.6 8.5 8.3 7.8 9.4 7.7 8.6 4.9 -43%
26
Index Target 2014 KSE100 index to flirt with 31,000pts level
Pakistan equities are set to further re-rate given their grossly compelling valuations. First re-rating took place following historic resolve on CGT-related issues in 2012, followed by historic change in countrys political canvas in 2013, restoring long-lost investor confidence. Now, in 2014, the 3rd bull run of the series is expected on economic turnaround and its ensuing impacts. Hence, in 2014, investors need to stay close to where valuations are and should not repeat the same oversight made by those who missed rally in 2013 (KSE100 returned 49% again!), when investors remained focused only, and exclusively, on bad eco-political news and eventually lost sight of the compelling valuations! Adjusting prevailing regional discounts to historical levels (average discount ranging 14%-52%), chained with justified PE/PEG, Earnings Growth and the Target Price models, gives a weighted average index target of 30,727pts, another solid jump of 5,466pts expected by 2014-end, with a total return of 22% YoY. We reiterate, KSE100 should escalate to the said level in 2014 based on AHL Research Universe performance with a select of risk-adjusted fundamentally-stronger and potentiallyoutperforming portfolio of stocks (mentioned ahead). However, any delays in planned inflows and economic reforms implementation, greater-than-expected increase in interest rates amid currency and inflation risks with other economic overhaul risks playing out more than the positives discussed, index could underperform its underlying potential target in 2014.
KSE100 Index Target Estimates 2014

Valuation Basis Target Price Based Earnings Growth Justified PE PE-Growth Ratio Target 29,714 28,701 30,497 38,441 24,311 27,075 26,364 36,016 29,792 30,101 Weight 20% 20% 20% 15% 5% 5% 5% 5% 5% 100% Breakup (pts) 5,943 5,740 6,099 5,766 1,216 1,354 1,318 1,801 1,490 30,727 25,261 22%
Regional DY* Regional PBV* Regional PE* Regional EV/EBITDA* Current PE Basis Average Weighted Target Index Dec-13 end Expected Total Return 2014
*On the basis of adjustments to historical discounts
AHL Research Valuation Snapshot 2009 Earnings Growth PE (x) Dividend Yield Earnings Yield ROE PBV (x) Payout Ratio 8% 8.5 6.8% 11.8% 23% 1.8 58% 2010 17% 7.6 7.0% 13.2% 23% 1.6 53% 2011 27% 7.1 6.9% 14.1% 25% 1.7 48% 2012 15% 6.4 8.2% 15.7% 25% 1.5 52% 2013 6% 10.4 5.0% 9.6% 23% 2.2 52% 2014-15F 24% 7.8 6.3% 13% 26% 1.9 49%
27
Key Portfolio Theme Index is deceptive, go cherry-picking!
KSE Investment Thesis is based on:

Solid long-term growth prospects High share of rising middle class in population New govt reforms including privatization, foreign fund-raising, fiscal consolidation as well as improved overall governance Rising breath and depth of equities, expected M&As in key sectors Rising volumes and market liquidity with increased foreign investors participation Well-run and shareholder-friendly corporates, despite recent political, economic and security backdrop Very attractive valuations, high and sustainable earnings growth as well as fat dividend yield
We have the following portfolio mix to bank 2014 equity strategy on to outperform market-wide expected average returns:
Symbol KOHC ENGRO DGKC NCL PSO NML PTC BAFL FFBL FCCL POL Last Closing Target (PKR) (PKR) 97.8 158.4 85.7 60.2 332.2 127.2 28.4 27.0 43.8 16.0 497.7 166.3 255.0 129.0 85.8 461.0 169.4 36.0 34.2 55.2 20.1 609.0 Upside 70.1% 61.0% 50.5% 42.5% 38.8% 33.1% 26.6% 26.5% 26.0% 26.0% 22.4% PE (x) DY Symbol Last Closing Target (PKR) (PKR) 142.6 13.4 112.0 132.6 30.1 276.4 299.9 214.0 499.7 173.5 16.3 134.0 157.4 35.6 327.0 351.0 248.0 576.1 Upside 21.6% 21.5% 19.7% 18.7% 18.6% 18.3% 17.1% 15.9% 15.3% PE (x) DY
2013-14 5.2 4.8 5.5 4.2 3.9 5.4 8.4 6.8 6.3 8.2 7.3 6.1% ACPL 0.0% EPCL 3.5% FFC 6.7% UBL 3.0% NPL 3.9% OGDC 6.8% LUCK 8.4% PPL 14.2% APL 8.1% 11.1% KSE100 Index
2013-14 6.9 6.2 7.1 8.1 3.5 8.8 7.5 7.6 8.6 9.0% 0.0% 13.3% 7.4% 11.8% 2.7% 2.7% 6.1% 10.0%
25,261
30,727
21.6%
7.2
6.9%
28
Key Macro-factor sensitivities Who is more sensitive to key macros?
Below is provided companies earnings / valuation sensitivity with changes in interest rates and local currency (PKR) depreciation against the greenback. Please note that, around 60% of the KSE is positively correlated with currency depreciation (due to pricing / margins being in USD) while part deleveraging of the manufacturing sector (during the long monetary easing cycle till Jun13) is expected to lessen monetary tightening impact on companies bottomlines:
1% PKR Depreciation impact on Earnings Company LUCK NPL NCPL DGKC KOHC ACPL PSO FFBL FCCL Impact (PKR EPS) 0.11 0.02 0.02 (0.03) (0.07) (0.21) (1.20) (0.11) (0.03) 2014E- EPS Change Company (PKR) 39.75 8.58 7.76 15.38 18.72 21.04 85.79 7.08 1.87 0.3% LOTCHEM 0.2% NML 0.2% EPCL -0.2% KAPCO -0.4% NCL -1.4% HUBC -1.4% PTC -1.5% POL -1.7% OGDC APL AHL Research Estimates Impact (PKR EPS) 0.04 0.60 0.05 0.10 0.14 0.08 0.03 0.41 0.10 0.17 2014E- EPS (PKR) 0.56 23.66 2.14 9.05 14.30 8.80 3.49 68.31 31.40 57.70 Change 6.4% 2.4% 2.4% 1.1% 1.0% 0.9% 0.9% 0.6% 0.4% 0.3% 100bps increase in Policy Rate impact on Valuations Company FFC FFBL ENGRO EFERT HUBC KAPCO NPL NCPL LOTCHEM EPCL INDU PSMC PTC NML Change Company -4.0% ACPL -4.2% LUCK -6.5% KOHC -8.9% FCCL -4.0% DGKC -2.8% PSO -2.3% APL -2.5% PPL -3.9% ODGC -8.9% POL -3.7% BAFL -3.9% UBL -3.6% MCB -1.3% NBP Change -3.8% -4.2% -4.1% -5.7% -2.9% -7.1% -3.6% -1.5% -2.0% -2.1% -4.0% -7.2% -4.1% -5.0%
NCL -3.7% AHL Research Estimates
29
Opportunities to seize in 2014 Alpha-generating triggers
Much-awaited and one of the key highlights of 2014, which the current political setup is prominent for, would be resumption of long-stalled Privatization process. The govt is expected to commence the process in 1Q14 with SPOs of the heavyweights (E&Ps: PPL, OGDC, Banks: HBL, UBL, ABL) to offload 5-10% stake (PKR128-213bn, USD1.0-2.0bn) initially. This is expected to not only attract more foreign flows to equities but enhance free-float of the said companies to scale up overall liquidity. Even part materialization of planned flows in 1H14 i.e. Eurobond issue (USD1.0bn), spectrum auction (USD1.0bn), CSF (USD880mn), Etisalat (USD800mn), and other uni/bi/multi-lateral funding should improve system liquidity, which alongside increased investor risk appetite should provide impetus to equities. Better foreign flows are expected to KSE in 2014 on account of: 1) political uncertainty in Bangladesh and India amid elections followed by deteriorating human rights perception in Sri Lanka, ii) US/EU's plans to continue pumping in liquidity, albeit with gradual taper-off, to stimulate their deficit-ridden economies. This should result in higher inflows for KSE where better valuations reside. Other triggers like MSCIs consideration for MSCI EM status in May14 KSE is already its sustainability gauge, and KSEs demutualization expected in 2014, should unwind flows to KSE while historical phenomenon of providing higher returns/increased volumes in 1Q (bigger result season) with foreign-local fresh funds allocation, followed by 2Q and 3Q, respectively, lowest in 4Q, should provide further support to equities from1Q onwards.
Name of Company
Financial Institutions National Bank of Pakistan Allied Bank Ltd. United Bank Ltd. Habib Bank Ltd. Non-Financial Institutions Pakistan Petroleum Ltd. Oil & Gas Development Ltd. Pakistan State Oil Mari Gas Company Ltd Kot Addu Power Co. Ltd Sui Northern Gas Pipeline Ltd. Sui Sothern Gas Co. Pak. National Shipping Co. Pakistan Telecom Co. Ltd. Pakistan Int'l Airlines Total
Gov't % to be Holding Offered*

75.60% 10.07% 23.49% 41.54% 71.06% 74.97% 22.45% 18.20% 46.00% 31.68% 65.21% 82.20% 62.17% 84.64% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00%
Funds to be GoP raised (PKR Holding mn) post sale

12,065 9,369 16,406 21,629 42,654 119,411 8,192 2,319 5,437 1,440 2,194 1,048 11,824 2,400 256,389 65.60% 0.07% 13.49% 31.54% 61.06% 64.97% 12.45% 8.20% 36.00% 21.68% 55.21% 72.20% 52.17% 74.64%
USD mn Foreign Flows vs KSE '000 pts
1,200 1,000 800 600 400 200 (200) (400)
Cumulative FIPI KSE100 (RHS)
25 20
50% KSE Quarterly* Phenomenon Avg. Returns 37% 40% Average Volumes 30% 20% 10% 3% 4% 1Q 2Q 2% 0% 3Q 4Q -3%
15 10 5 0
10% 0% -10% -20% -30%
Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13
*Since 2006-07
-28%
-40%
30
Risk Premiums to account for in 2014 Beta-neutralizing premiums

KSE Returns/Earning Growth vs PKR
Though possibility of an end to flexibility on CGT (esp. on source of income till Jun14) stands remote given no reports of dubious accounts so far and increased investor risk appetite while the govt itself would want it continued given privatization-related offloads, this may give birth to investor fears and causal decline in volumes as the deadline draws nearer without any recourse. Though of low probability (amid IMF-push also), any further delays in the privatization process for any political reasons may turnoff investors jubilation mostly on govt entities stocks, including heavyweights like E&Ps and Banks, which are foreign investorfavorites due to highly compelling valuations, especially E&Ps. Delays in planned inflows totaling ~USD3.7bn (Eurobond, spectrum auction, CSF and PTC-related from Etisalat) and any deferral on quarterly tranches from the IMF if EFF criteria is not fulfilled may affect PKR, causing high volatility, which may result in shift of funds from equities to USD (though limited impact on equities as ~60% of the KSE provides effective currency hedge). Gradual thinning of QE (USD10bn of USD85bn/m) may affect flows to Asian markets, which may in turn raise local investor anxiety (narrowed val. discount also). Yet, any downward drift in equities will remain restricted given low level of local leverage financing. Despite dim commodity outlook (especially fuels), rising CPI due to power/gas tariff pass-ons at home may instigate greater-thanexpected monetary tightening, increasing corporate financial cost (though somewhat deleveraged) and scale down equities values, although we have already factored in upcoming rate hikes into our valuations (50bps rate change impact = 646pts!).
80% 60% 40% 20%

2008
Earning Growth 68% 35% 27% 33%
KSE Return 49% 42%
PKR/USD 49% 20%
37% 0.2%
2009
2010
2011
2012
-7%
-5%
-8%
2013
0% -20% -40% -60% -80% 80% 60% 40% 20% 0%
-2%
-9%
-32% -28% -55%
Equity Returns vs Policy Rate KSE Returns Policy Rate (RHS) 60% 49% 49% 28% -6%
14% 12% 10% 8%
2008
2009
2010
2011
2012
-20% -40% -60% -80% 80% 60% 40% 20% 0% -20% -40% -60% -80%
2013
6% 4% 2%
-58% Equity Returns vs Currency Depreciation KSE Returns 68% Average Return (LHS) 49% 33% 0%
2008 2009 2010 2011 2012 2013
0% PKR/USD (RHS) 30% 49% 25% 20% 15% 10% 5%
-55%
0%
31
Pakistan Sectoral Strategies|2014

Who will be the Stars in 2014?
Banks Sector Performance

Sector's Key Statistics CY13 Exhibit: Banking Sector Performance Relative to KSE100 160% 150% 140% 130% 120% 110% 100% 90% 80%
Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13
No of listed companies Average daily turnover (mn) Mkt cap (PKR mn) Mkt cap (USD mn) Return PE (x) PB (x) ROE ROA Dividend Yield
Source: Bloomberg, AHL Research
25 2.14 1,238,051 11,791 28.45% 12.00 1.38 15.5% 0.65% 7.67%
KSE100
Banking Sector
Source: KSE, AHL Research
Companies under coverage

Company Habib Metro Bank Limited* Bank - Alfalah Limited Bank Al-Habib Limited* United Bank Limited Allied Bank Limited* National Bank Limited MCB Bank Limited SYM HMB BAFL BAHL UBL ABL NBP MCB EPS 5.2 4.0 5.2 16.8 11.9 6.8 25.4 DPS 2.8 2.3 3.5 9.1 7.1 5.4 15.2 P/E 4.8 6.2 8.0 8.1 7.5 8.7 11.2 P/B 0.9 1.0 1.6 1.5 1.5 0.8 2.4 BVPS 27.5 25.6 26.3 89.5 59 73.2 121.1 RoE 18.0% 24.0% 20.0% 20.0% 21.0% 9.0% 22.0% Tp Curr. P 35.3 34.2 49.8 157.4 98.7 57.5 261.4 25.0 27.0 41.2 132.6 89.4 59.3 285.0 Upside Recom. 41.0% 26.5% 21.0% 18.7% 10.0% -3.0% -8.0% Buy Buy Buy Buy Hold Hold Sell
Source: AHL Research, Based on CY14 Estimates, *Under Passive coverage
33
Banks Spring time!

Key drivers
Exhibit: Aggressive fund allocation in investments, with diminishing deposit growth 120% 100% 80% 10% 60% 40%
Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13
Deposit re-structuring to add further value: Most of the banks under our coverage have, to a certain extent, reshuffled their deposit structure towards low-cost deposits, which will be imperative in keeping the deposit cost lower. We expect on average 14% YoY growth in sector deposits. NIMs to expand: With inflation creeping up and foreseeable policy rate tightening, we estimate a 50bps policy rate hike in 1HCY14 to 10.5%, and 11% in subsequent year where we expect banks NIMs to expand by 25-30bps. Asset quality improvement: With NPLs starting to fade off thanks to a higher coverage ratio 75%+, loan provisioning and lower accretion in NPLs banks overall asset quality has improved modestly. Going forward, we expect banks to book in credit reversal, which should further support asset quality. Advances to grow, albeit cautiously: We expect banks to increase their credit to private sector, following lower accretion in NPLs while seeking additional yield earnings off the advances shelf. However, high budgetary borrowing should mean fund allocation would remain high in government securities.
IDR
ADR
Deposit Growth (%YoY) LS
25% 20% 15%
5% 0%
Source: SBP, AHL Research Exhibit: Banks Weighted-Average Lending Rate (WALR) decline sharply post, policy rate hike and MDR limit
Banks WALR Spreads (bps) 800 750 700 650 600 550
Jan-09 Apr-09 Jan-10 Apr-10 Jul 11 Jul 12 July 13 Jul-08 Oct-08 Jul-09 Oct-09 Jul-10 Oct-10 Apr 11 Oct 11 Apr 12 Oct 12 Jan 11 Jan 12 Jan 13 Apr 13
Risks
Policy rate easing, narrowing corridor of Minimum Deposit Rate (MDR), faster accretion in non-performing loans (NPLs)
34
Recommendation
Target Price Current Price Upside Bloomberg Code Free float Major Shareholders Valuation Parameters EPS (PKR) DPS (PKR) P/E (x) P/B (x) Mkt Cap. / PPOP (x) Div. Yield ROE ROA NIMs 2012A 3.3 2.0 8.3 1.2 3.5 7.4% 15.7% 0.9% 4.8% 2013E 3.5 2.0 7.8 1.1 4.4 7.4% 14.9% 0.8% 3.9%
BUY
34.2 27.0 27% BAFL PA 50%
Banks Bank Al-Falah Ltd.

Key investment theme
2014F 4.0 2.3 6.7 1.1 3.9 8.5% 16.3% 0.9% 4.1%
Earnings to grow by 16% to PKR 4.0/share by CY14F: We estimate banks earnings to top PKR 4.0/share in CY14F from PKR 3.5/share in CY13E. In addition, we expect a dividend of PKR 2.0/share and PKR 2.3/share in CY13E and CY14F, respectively. Banks income to expand by 11% YoY: We estimate higher mark-up income expansion higher NIMs owing to deposit restructuring ( +76% CASA and Islamic deposit portion) and higher advances growth (+11% in CY14F). Asset quality: We estimate better loan portfolio with infection ratio falling to 8.5% in CY14F, following improved overall growth overview. Warid/Wateen proceeds: With Wateen (WTL) buy-back offer at PKR 4.5/share, potential benefit for BAFLs bottomline is estimated at PKR 0.12/share. While for the 100% sale of Warid base case USD 750mn is estimated at PKR 4.9/share, the management can use proceeds from Warid in either enhancing dividend payout, increasing branch network or financing its recent strategic investment in Sapphire Wind Power energy project.
Exhibit: NIMs expansion, low OPEX to uplift PPOP PPOP/Share (PKR) 9.0 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13E Dec-14F Dec-15F
NIM (RHS) 6.5% 6.0% 5.5% 5.0% 4.5% 4.0% 3.5% 3.0%
Risks
Given the banks high leverage ratio (18x) a +/-50bps change in Policy rate could lead to an EPS impact of +/-PKR 0.4 or +/- PKR 527mn. Higher loan defaults is another key risk for BAFL.
Source: Company Financials, AHL Research
35
Banks Bank Al-Falah Ltd.

Current Price Target Price Upside Mkt. Cap (PKRmn) Mkt. Cap (USDmn) PKRmn Balance Sheet Item Interest Earning Assets Other Assets Total Assets Deposits Other Liabilities Total Liabilities Share capital Reserves & RE Tier I equity Toal Equity Income Statement Item Mark-up Income Non Mark-up Income Total Income Operating Exp. Pre-provisiong Operating Profits Provisions Pre-tax Profits Taxation Post-tax Profits Dec-12A 481,635 54,832 536,467 457,119 49,101 506,219 13,492 12,198 25,690 30,248 18,580 7,281 25,861 15,519 10,342 3,559 6,783 2,397 4,386 Dec-13E 529,971 59,455 589,426 504,551 52,670 557,220 13,492 14,156 27,648 32,205 17,337 7,959 25,296 16,964 8,332 1,528 6,803 2,142 4,662 27.0 34.2 27% 36,481 346 Dec-14F 589,133 65,383 654,516 564,441 55,592 620,033 13,492 16,434 29,926 34,483 20,162 7,929 28,092 18,689 9,403 1,565 7,838 2,414 5,423 Key Financial Ratios Per share EPS (diluted) DPS P/E (x) Div. Yld (%) P/B (x) Capital Strength (%) RWA Total Eligible Capital CAR (%) Margins (%) Yield on IEA Yield on IBL Spread NIM CASA RoA RoE Non-financial Information Branches Relative Perfromance Abs. Return (%) Avg. Volume (mn) High Low 3M 29.1% 4.3 28.1 20.5 Dec-12A 6M 48.4% 4.3 28.1 18.6 Dec-13E 12M 81.6% 3.7 28.1 14.4 Dec-14F
3.3 2.0 8.3 7.4 1.2 281,561 35,687 12.7% 10.3% 6.0% 4.2% 4.8% 75.6% 0.9% 15.7% 471
3.5 2.0 7.8 7.4 1.1 427,721 57,970 13.6% 8.7% 5.2% 3.5% 3.9% 76.4% 0.8% 14.9% 553
4.0 2.3 6.7 8.5 1.1 409,370 62,070 15.2% 9.4% 5.7% 3.7% 4.1% 76.9% 0.9% 16.3% 561
36
Recommendation
Target Price Current Price Upside Bloomberg Code Free float Major Shareholders Best Way Group Valuation Parameters EPS (PKR) DPS (PKR) P/E (x) P/B (x) Div. Yield Mkt Cap. / PPOP (x) ROE ROA NIMs Exhibit: rebounding NIMs 40.0 40.0 35.0 35.0 30.0 30.0 25.0 25.0 20.0 20.0 15.0 15.0 10.0 10.0 5.0 5.0 PPOP/Share (PKR) PPOP/Share (PKR) NIM (RHS) NIM (RHS) 2012A 14.8 8.0 9.0 1.8 6.0% 5.2 21.2% 2.2% 5.9% 2013E 14.3 8.0 9.3 1.6 6.0% 5.8 18.4% 1.8% 5.1%
BUY
132.6 157.4 19% UBL PA 25%
Banks United Bank Ltd.

2014F 16.8 9.1 7.9 1.5 6.9% 4.6 19.7% 1.9% 5.3%
Banks CASA is expected to improve from 72% in CY13 to 75% in CY14, which should allow for a gradual rise in banks cost of deposits (neutralizing impact of MDR). Mark-up income is expected to rise by 29%, a jump to 75% share in total income in CY13, from 69% earlier. UBLs intl operations (18 branches, mostly in ME with 28% of deposits, 30% of advances generating 6% of PAT) provide diversification (hedged against country-specific risks while there was modest impact on UBL of 2008 crisis reflecting good asset quality). We expect equity market to continue to perform in CY14F albeit in a stable mode after another excellent year of performance. This may allow a relatively lower equity gains, dividends income/ while growth in remittances - CY14E growth projected at 16% - should benefit its branchless banking segment (Omni, for instance). Given the banks relatively lower infection ratio at 14% compared to market average of top banks, we estimate that UBL has a room to grow its loan book, at 12% in CY14F, with high coverage ratio 81%.
Risks
Dec-14F Dec-14F
Though the bank has high asset quality, any significantly erratic business behaviour in the Middle Eastern markets may impact banks books as it has considerable exposure to ME economies.
Dec-13E Dec-13E
Dec-15F Dec-15F
Dec-07 Dec-07
Dec-08 Dec-08
Dec-09 Dec-09
Dec-10 Dec-10
Dec-11 Dec-11
Dec-12 Dec-12
A +/-50bps change in policy rate could lead to an EPS impact of +/PKR 0.8 or +/-PKR 1.02bn.
7.5% 7.5% 7.0% 7.0% 6.5% 6.5% 6.0% 6.0% 5.5% 5.5% 5.0% 5.0% 4.5% 4.5%
37
Banks United Bank Ltd.

Current Price Target Price Upside Mkt. Cap (PKRmn) Mkt. Cap (USDmn) PKRmn Balance Sheet Item Interest Earning Assets Other Assets Total Assets Deposits Other Liabilities Total Liabilities Share capital Reserves & RE Tier I equity Toal Equity Income Statement Item Mark-up Income Non Mark-up Income Total Income Operating Exp. Pre-provisiong Operating Profits Provisions Pre-tax Profits Taxation Post-tax Profits Dec-12A 803,237 91,172 894,409 699,936 103,309 803,245 12,242 65,385 77,627 91,164 38,616 17,131 55,748 24,525 31,223 4,137 27,086 9,022 18,063 Dec-13E 900,229 101,415 1,001,644 809,052 93,765 902,817 12,242 73,049 85,290 98,827 37,158 17,069 54,227 26,482 27,745 1,528 26,217 8,760 17,457 132.6 157.4 19% 162,265 1,538 Dec-14F 1,023,010 112,332 1,135,342 924,261 101,514 1,025,775 12,242 83,788 96,029 109,566 47,301 16,156 63,457 27,813 35,644 4,426 31,218 10,685 20,532 Key Financial Ratios Per share EPS (diluted) DPS P/E (x) Div. Yld (%) P/B (x) Capital Strength (%) RWA Total Eligible Capital CAR (%) Margins (%) Yield on IEA Yield on IBL Spread NIM CASA RoA RoE Non-financial Information Branches Relative Perfromance Abs. Return (%) Avg. Volume (mn) High Low 3M 1.5% 0.8 136.2 117.1 Dec-12A 6M 27.1% 0.9 151.8 107.6 Dec-13E 12M 74.0% 0.9 151.8 74.0 Dec-14F
14.8 8.0 9.0 6.0 1.8 588,680 87,174 14.8% 9.8% 4.8% 5.0% 5.9% 71.8% 2.2% 21.2% 1,296
14.3 8.0 9.3 6.0 1.6 529,221 84,863 16.0% 8.5% 4.3% 4.2% 5.1% 73.2% 1.8% 18.4% 1,303
16.8 9.1 7.9 6.9 1.5 591,471 95,757 16.2% 10.1% 5.4% 4.8% 5.3% 74.6% 1.9% 19.7% 1,311
38
Banks Regional Comparison

Companies BANK OF NANJING CO LTD -A KOTAK MAHINDRA BANK LTD BANK NEGARA INDONESIA PERSER HALYK SAVINGS BANK-KAZAKHSTN AMMB HOLDINGS BHD NATIONAL BANK OF PAKISTAN UNITED BANK LTD MCB BANK LTD BANK AL-FALAH LTD RIZAL COMMERCIAL BANKING LH FINANCIAL GROUP PCL REGIONAL AVERAGE Source: Bloomberg, AHL Research Origin China India Indonesia Kazakhstan Malaysia Pakistan Pakistan Pakistan Pakistan Philippines Thailand Mkt Cap P/E (x) P/B (x) (USD mn) 3,919 6.8 1.1 9,183 22.2 3.2 5,977 9.8 1.6 2,700 5.1 1.0 6,679 12.0 1.6 1,173 8.7 0.8 1,541 9.5 1.5 2,692 7.8 2.5 33,621 6.2 1.0 1,222 11.8 1.8 476 23.7 1.1 6,289 11.2 1.6 P/FCF 6.3 17.2 8.8 9.3 2.8 0.9 1.3 7.8 0.3 7.0 na 6.2 P/Sales 1.5 3.0 2.2 1.3 3.0 1.1 1.7 3.7 0.6 2.3 3.1 2.1 NIMs 3.3% 4.9% 5.6% 4.7% 2.2% 5.1% 5.3% 6.4% 4.1% 3.8% 2.2% 4.3% EBITDA Net Margins Margins n.a. 43.8% n.a. 22.1% n.a. 29.5% n.a. 40.0% n.a. 37.4% n.a. 12.5% n.a. 21.1% n.a. 31.0% n.a. 10.3% n.a. 27.7% n.a. 27.0% n.a. 27.5% Div Yield 4.4% 0.1% 3.1% 0.0% 3.4% 9.1% 6.7% 5.1% 9.2% 1.5% 0.0% 3.9% D/E 4.0 2.4 0.4 0.9 1.4 8.8 9.0 6.4 0.9 1.4 1.6 3.4 ROA 1.3% 2.1% 2.2% 3.0% 1.4% 1.0% 1.9% 3.0% 0.9% 1.8% 0.7% 1.7% ROE 17.3% 15.5% 17.4% 20.6% 14.1% 9.4% 19.7% 22.0% 16.3% 16.4% 5.0% 15.8%
25 20 15 10 5 -
Price to Earning
3.5 3.0 2.5 2.0 1.5 1.0 0.5 -
Price to Book
25% 20% 15% 10% 5% 0%
Return on Equity
10% 8% 6% 4% 2% 0%
Dividend Yield
NBP PA
MCB PA
NBP PA
BAFL PA
BAFL PA
MCB PA
BBNI IJ
KMB IN
KMB IN
AMM MK
AMM MK
KMB IN
AMM MK
HSBK KZ
601009 CH
HSBK KZ
601009 CH
601009 CH
601009 CH
BAFL PA
AMM MK
MCB PA
NBP PA
UBL PA
UBL PA
UBL PA
BBNI IJ
BBNI IJ
HSBK KZ
KMB IN
39
HSBK KZ
NBP PA
BAFL PA
MCB PA
UBL PA
BBNI IJ
Construction & Materials Sector Performance

Sector's Key Statistics No of listed companies Average daily turnover (mn) Mkt cap (PKR mn) Mkt cap (USD mn) Return PE (x) PB (x) ROE ROA Dividend Yield
CY13 35 5.53 303,733 2,893 85.63% 7.60 1.32 16.76% 7.77% 5.33%
Exhibit: Cement Sector Performance Relative to KSE100 KSE100 160% 150% 140% 130% 120% 110% 100% 90% 80%
Jan-13 Apr-13 Jul-13 Aug-13 May-13 Nov-13 Dec-13 Feb-13 Mar-13 Jun-13 Sep-13 Oct-13
Cement Sector

Company Kohat Cement Company Limited D.G. Khan Cement Company Limited Fauji Cement Company Limited Attock Cement Pakistan Limited Lucky Cement Limited
Source: AHL Research
SYM KOHC DGKC FCCL ACPL LUCK
EPS 19.8 13.1 2.1 20.2 39
DPS 5.5 3 1.8 14 8
P/E 5 6.6 7.6 7.1 7.7
P/B 3.5 3.4 1.3 1.2 1.9
BVPS 28.4 25.6 12.3 120.1 158.3
RoE 43.0% 11.0% 17.0% 28.0% 27.0%
Tp 166.3 129 20.1 173.5 351
Curr. P 97.8 85.7 16 142.6 299.9
Upside Recom. 70.10% 50.50% 26.00% 21.60% 17.10% Buy Buy Buy Buy Buy
40
Construction & Materials Strong pricing to spur earnings growth

Exhibit: Coal & Cement Prices Trend

PKR/bag
Cement prices continue to march northwards: Even after a massive 29% (PKR 100/bag) increase during last couple of years, northwards march still goes on as cement price increase by another PKR 25/bag (5%) since July-13. With another spell of price increase expected in 3QFY14, we foresee average price to jump by 12% YoY to PKR 511/bag in FY14. This would enable the companies to pass on the impact of power tariff hike and increase in GST. Coal price outlook remains sluggish: Coal prices have stabilized around USD 85/ton after crossing USD 90/ton for a brief period in Oct-13. Electricity tariff on the other hand, has already been increased by a hefty ~60%, so probability of any further sharp power tariff hike looks minimal. Strong PSDP to translate into higher demand: The government announced historic high PSDP figure of PKR 1.1trn for FY14, which is expected to support the cement demand in the country. We foresee 3% YoY growth in cement dispatches in FY14, while exports outlook remains sluggish.
Cement(LHS)
Coal
USD/ton
550 500 450 400 350 300

Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13
140 130 120 110 100 90 80 70
Source: PBS, Bloomberg, AHL Research
Exhibit: Cement Industry: Exports, Imports & Capacity Utilization

mn tons
Exports
Local
Utilisation 80% 78% 76% 74% 72% 70% 68%
40 35 30 25 20 15 10 5 FY11A FY12A FY13E FY14F FY15F
Risks
Adverse change in coal or cement prices Hike in interest rates
41
Recommendation
Target Price Current Price Upside Bloomberg Code Free float Major Shareholders - Sheikh Family 58.3% Valuation Parameters EPS (PKR) DPS (PKR) P/E (x) P/B (x) Div. Yield ROE ROA EBITDA margins Net margins 2013A 20.45 5.00 4.81 2.52 5.1% 54% 26% 39% 23%
BUY
166.3 97.8 70% KOHC PA 25%
Construction & Materials Kohat Cement Co. Ltd.

2014E 19.75 5.50 4.98 1.83 5.1% 43% 27% 39% 23%
2015F 20.43 6.00 4.82 1.42 5.1% 33% 24% 35% 22%
Rising cement price to produce windfall gains: KOHC is still enjoying lower power tariff, unlike its peers, who raised cement prices to pass on the impact of higher power tariff. We expect gross margins to touch 40% in FY14 compared to 38% a year back. Aggressive deleveraging reducing financial charges; Company has been aggressively pursuing a deleveraging policy with debt now comprising 20% of the equity (vs 47% in FY12), resultantly finance cost is expected to drop by 53% YoY in FY14. In addition, low leveraging will also help the company to raise capital for future capex without compromising dividends payouts. Bottom line to jump by 16% YoY in FY14: The Company is expected to post a massive 16% YoY earnings growth in FY14 to PKR 19.8/share. On a longer horizon, profitability is expected to jump at 10% CAGR in FY13-16 to PKR 22.9/share.
Exhibit: Aggressive deleveraging lowering financial burden

PKR mn
5,000 4,000 3,000 2,000 1,000 0 FY11 FY12
Short Term Loans Long Term Loans Finance Cost (LHS)
PKR mn
800 700 600 500 400 300 200 100 0
Risks
Increase in power tariff: We have incorporated higher tariff from FY15 in our models. Delay in the court decision regarding power tariff has upside risk to our valuations. Cement and Coal price risk: Every PKR 5/bag and USD 5/ton change in cement and coal prices have per share bottom line impact of PKR 0.6/share and PKR 0.7/share, respectively.
FY13
FY14
FY15
FY16
42
Construction & Materials Kohat Cement Co. Ltd.

Current Price Target Price Upside Mkt. Cap (PKRmn) Mkt. Cap (USDmn) PKRmn Income Statement Sales Gross profit Other income Finance cost Net profit Balance sheet Total shareholder's equity Long term loans Total non current liabilities Trade payables Total current liabilities Total equity and liabilities Non current assets Current assets Total Assets Cash flow statement CF from operations CF from investing activities CF from financing activities Ending Cash Jun-13A 11,297 4,361 36 249 2,633 6,041 380 2,294 1,210 2,294 10,795 6,668 4,126 10,795 3,634 (1,021) (1,157) 624 Jun-14E 13,107 5,102 67 116 3,052 8,320 240 1,315 2,585 1,315 11,954 6,388 5,566 11,954 3,086 (82) (1,757) 1,871 97.77 166.3 70% 15,202 144 Jun-15F 14,255 4,977 145 62 3,157 10,705 1,472 2,792 1,472 13,954 6,098 7,855 13,954 3,406 (83) (1,315) 3,880 Key Financial Ratios Per share Earning / Share Dividend /Share BVPS Price ratio P/E (x) P/B (x) Div yield Profitability Gross margins EBITDA margins Net margins Coverage ratio Debt to Equity Debt to Assets Return on Capital ROA ROE Relative Performance Abs. Return (%) Avg. Volume (mn) High Low 3M 33.3% 0.6 98.9 74.8 Jun-13A 6M 43.7% 0.8 98.9 55.1 Jun-14E 12M 74.7% 0.6 98.9 52.8 Jun-15F
20.4 5.0 39.1 4.8 2.5 5% 39% 39% 23.3% 16.1 0.24 0.14
19.8 5.5 53.9 5.0 1.8 5% 39% 39% 23.3% 40.3 0.06 0.04
20.4 6.0 69.3 4.8 1.4 5% 35% 35% 22.1% 74.9 -
26% 54%
27% 43%
24% 33%
43
Recommendation
Target Price Current Price Upside Bloomberg Code Free float Major Shareholders - NML 32% Valuation Parameters EPS (PKR) DPS (PKR) P/E (x) P/B (x) Div. Yield ROE ROA EBITDA margins Net margins Exhibit: Improving Margins and Profitability
PKR/share
BUY
129.0 85.7 50% DGKC PA 55%
Construction & Materials D.G Khan Cement Co. Ltd.

2013A 12.56 3.00 6.85 0.79 3.5% 14% 10% 39% 22%
2014E 13.08 3.00 6.58 0.72 3.5% 11% 9% 38% 21%
2015F 15.71 4.00 5.48 0.65 4.6% 12% 10% 40% 24%
Rising cement prices to stabilize margins: DGKC meets around half of its power requirement through national grid, which has subdued the impact of a hefty 57% rise in power tariff. This coupled with 5% YTD rise in cement prices has set the stage for margins improvement in 2HFY14, where we expect them to cross 38%. Higher dividend income from associates to support bottom line; We expect other income to grow at 2 year CAGR of 10% to PKR 1.7bn in FY15, mainly on account of higher dividends from Nishat Mills and MCB Bank. WHRP to generate fuel savings: The company is in final stages to commission its 8.6MW Waste Heat Recovery Plant, which will reduce its reliance on the expensive national grid, having a positive bottom line impact of PKR 1.2/share. Profitability to jump at 3 year CAGR of 11%: Amid rising cement prices coupled with cost saving measures, falling finance cost and improving dividends, we foresee profitability growth at 3 year CAGR of 11%.
EPS Gross Margins
DPS Net Margins 40% 35% 30% 25% 20% 15%
16 14 12 10 8 6 4
Risks
Cement and Coal price risk: Every PKR 5/bag and USD 5/ton change in cement and coal prices have per share bottom line impact of PKR 0.5/share and PKR 0.6/share, respectively.
2 0 FY12 FY13 FY14 FY15
44
Construction & Materials D.G Khan Cement Co. Ltd.

Current Price Target Price Upside Mkt. Cap (PKRmn) Mkt. Cap (USDmn) PKRmn Income Statement Sales Gross profit Other income Finance cost Net profit Balance sheet Total shareholder's equity Long term loans Total non current liabilities Trade payables Total current liabilities Total equity and liabilities Non current assets Current assets Total Assets Cash flow statement CF from operations CF from investing activities CF from financing activities Ending Cash Jun-13A 24,916 9,326 1,466 995 5,502 47,998 2,899 9,308 2,286 9,308 63,527 37,543 25,984 63,527 6,520 (3,047) (2,120) (4,951) Jun-14E 26,963 9,473 1,514 708 5,731 52,415 1,453 7,693 2,585 7,693 64,882 36,749 28,133 64,882 6,333 (824) (1,240) (683) 85.7 129.0 50% 37,691 357 Jun-15F 29,117 10,540 1,773 496 6,884 57,985 649 6,757 2,792 6,757 68,712 35,940 32,772 68,712 6,523 (841) (988) 4,012 Key Financial Ratios Per share Earning / Share Dividend /Share BVPS Price ratio P/E (x) P/B (x) Div yield Profitability Gross margins EBITDA margins Net margins Coverage ratio Debt to Equity Debt to Assets Return on Capital ROA ROE Relative Performance Abs. Return (%) Avg. Volume (mn) High Low 3M 29.9% 4.3 86.0 68.3 Jun-13A 6M 6.9% 4.8 91.9 66.0 Jun-14E 12M 63.9% 5.0 91.9 48.9 Jun-15F
12.6 3.0 109.6 6.9 0.8 3% 37% 39% 22.1% 8.1 0.20 0.15
13.1 3.0 119.6 6.6 0.7 3% 35% 38% 21.3% 12.1 0.12 0.10
15.7 4.0 132.3 5.5 0.7 5% 36% 40% 23.6% 20.0 0.08 0.07
10% 14%
9% 11%
10% 12%
45
Recommendation
Target Price Current Price Upside Bloomberg Code Free float Major Shareholders - FF 68% Valuation Parameters EPS (PKR) DPS (PKR) P/E (x) P/B (x) Div. Yield ROE ROA EBITDA margins Net margins Exhibit: Healthy Dispatches Outlook
mn tons
BUY
20.1 16.0 26% FCCL PA 55%
Construction & Materials Fauji Cement Co. Ltd.

2013A 1.42 1.25 11.30 1.34 7.8% 13% 6% 37% 13%
2014E 2.10 1.75 7.64 1.30 10.9% 17% 9% 38% 17%
2015F 2.37 2.00 6.75 1.26 12.5% 19% 11% 37% 18%
Margins improvement: Being depended on the national grid for its power needs, FCCL was one of the hardest hit company from power tariff increase in Aug-13. However with rising cement prices, coupled with increasing usage of indigenous and Afghan coal, FCCLs gross margin is expected to improve to 33% in FY14 vs 32% in FY13. Cross currency swap shielding from exchange losses; FCCL has suffered hefty exchange losses on its USD 58mn loan. To hedge this, FCCL entered into a cross currency swap at the end of FY13. This timely decision, shielded the company from sharp PKR depreciation (6% already in FY14) and expected to bring financial charges down by 33% YoY in FY14. WHRP to bring cost savings of PKR 0.7/share: FCCL is planning to install a 10MW Waste Heat Recovery Plant, expected to come online in FY16, having annualised bottom line impact of PKR 0.7/share. Provides strongest earnings growth: FCCLs is estimated to post a massive 48% YoY profitability growth in FY14, with an expected DPS of PKR 1.75-2, offering a dividend yield of 11%.
Exports
Local
Capacity Utilisation 105% 100% 95%
90% 85% 80%
75% 70% 65%
Risks
Cement and Coal price risk: Every PKR 5/bag and USD 5/ton change in cement and coal prices have per share bottom line impact of PKR 0.09/share and PKR 0.1/share, respectively. Increase in interest rates
0 FY11A FY12A FY13E FY14F FY15F FY16F
60%
46
Construction & Materials Fauji Cement Co. Ltd.

Current Price Target Price Upside Mkt. Cap (PKRmn) Mkt. Cap (USDmn) PKRmn Income Statement Sales Gross profit Other income Finance cost Net profit Balance sheet Total shareholder's equity Long term loans Total non current liabilities Trade payables Total current liabilities Total equity and liabilities Non current assets Current assets Total Assets Cash flow statement CF from operations CF from investing activities CF from financing activities Ending Cash Jun-13A 15,968 5,080 95 1,512 2,097 15,936 7,924 4,409 1,483 4,409 30,305 25,266 5,039 30,305 5,994 (54) (4,567) 1,702 Jun-14E 17,383 5,693 144 1,013 2,977 16,357 5,155 5,296 2,585 5,296 29,948 24,260 5,688 29,948 6,611 (236) (6,082) 1,995 16.0 20.1 26% 21,324 202 Jun-15F 19,129 6,283 151 709 3,479 16,933 2,783 5,542 2,792 5,542 29,847 25,092 4,755 29,847 6,766 (2,121) (5,947) 693 Key Financial Ratios Per share Earning / Share Dividend /Share BVPS Price ratio P/E (x) P/B (x) Div yield Profitability Gross margins EBITDA margins Net margins Coverage ratio Debt to Equity Debt to Assets Return on Capital ROA ROE Relative Performance Abs. Return (%) Avg. Volume (mn) High Low 3M 47.0% 9.9 16.0 10.4 Jun-13A 6M 31.7% 13.0 16.0 10.4 Jun-14E 12M 167.6% 15.2 16.0 5.7 Jun-15F
1.4 1.3 12.0 11.3 1.3 8% 32% 37% 13.1% 3.0 0.67 0.35
2.1 1.8 12.3 7.8 1.3 11% 33% 37% 17.1% 5.2 0.50 0.27
2.4 2.0 12.7 6.6 1.3 12% 33% 37% 18.2% 8.2 0.34 0.19
6% 13%
9% 17%
11% 19%
47
Recommendation
Target Price Current Price Upside Bloomberg Code Free float Major Shareholders - Pharaon Investments 84.06% Valuation Parameters EPS (PKR) DPS (PKR) P/E (x) P/B (x) Div. Yield ROE ROA EBITDA margins Net margins 2013A 18.65 13.00 7.76 2.09 9.0% 29% 22% 26% 19% 2014E 20.24 14.00 7.15 1.88 9.7% 28% 21% 26% 18%
BUY
173.5 142.6 22% ACPL PA 20%
Construction & Materials Attock Cement (Pak) Ltd.

2015F 21.93 14.00 6.60 1.70 9.7% 27% 21% 30% 19%
Recent price hike in South to benefit the premium Falcon: Southern region has gone through some strategic changes whereby ACPLs market share has dropped to 24% from 29%. However this will be compensated by the hike in cement prices (~PKR 20-25/bag), improving gross margins to 32% in FY14 (30% in FY13), despite massive increase in power tariff. Improving energy efficiency: The company has recently installed an Alternative Fuel Project to replace some of coal with biomass, municipal waste and shredded tyres. In addition the company is planning to install a coal fired captive power plant, which will reduce power cost substantially. We have not incorporated this in our financial model yet due to premature stage of the project. Bottom line to jump by 9% YoY in FY14: Despite massive increase in power cost, ACPL is expected to post a healthy 9% YoY profitability growth in FY14, which is expected to sustain at 3 year CAGR of 10%.
Exhibit: Sustainable history of more than 100% utilization mn tons 2.0 1.5 108% 1.0 0.5 102% FY14F FY15F FY16F FY12A FY13E FY17F
Exports
Local
Capacity Util 112% 110%
106% 104%
Risks
Cement and Coal price risk: Every PKR 5/bag and USD 5/ton change in cement and coal prices have per share bottom line impact of PKR 0.7/share and PKR 1.05/share, respectively.
100%
48
Construction & Materials Attock Cement (Pak) Ltd.

Current Price Target Price Upside Mkt. Cap (PKRmn) Mkt. Cap (USDmn) PKRmn Income Statement Sales Gross profit Other income Finance cost Net profit Balance sheet Total shareholder's equity Long term loans Total non current liabilities Trade payables Total current liabilities Total equity and liabilities Non current assets Current assets Total Assets Cash flow statement CF from operations CF from investing activities CF from financing activities Ending Cash Jun-13A 11,508 3,535 227 15 2,136 7,947 1,085 1,614 1,674 10,706 6,075 4,631 10,706 3,129 (2,141) (818) 389 Jun-14E 13,241 4,278 242 16 2,318 8,811 1,078 1,814 1,873 11,762 5,969 5,793 11,762 2,149 (299) (1,462) 777 142.6 173.5 22% 16,571 157 Jun-15F 13,427 4,350 399 17 2,512 9,720 1,078 1,655 1,714 12,512 5,860 6,652 12,512 2,733 (307) (1,603) 1,599 Key Financial Ratios Per share Earning / Share Dividend /Share BVPS Price ratio P/E (x) P/B (x) Div yield Profitability Gross margins EBITDA margins Net margins Coverage ratio Debt to Equity Debt to Assets Return on Capital ROA ROE Relative Performance Abs. Return (%) Avg. Volume (mn) High Low 3M 8.3% 0.0 150.9 132.1 Jun-13A 6M 32.2% 0.1 150.9 107.8 Jun-14E 12M 80.0% 0.1 150.9 72.1 Jun-15F
18.7 13.0 69.4 7.8 2.1 9% 31% 26% 19% 181 -
20.2 14.0 76.9 7.1 1.9 10% 32% 26% 18% 122 -
21.9 14.0 84.9 6.6 1.7 10% 32% 30% 19% 117 -
22% 29%
21% 28%
21% 27%
49
Recommendation
Target Price Current Price Upside Bloomberg Code Free float Major Shareholders - Yunus Brothers Group 36% Valuation Parameters EPS (PKR) DPS (PKR) P/E (x) P/B (x) Div. Yield ROE ROA EBITDA margins Net margins 2013A 30.04 8.00 10.02 2.37 2.7% 26% 21% 36% 26% 2014E 39.12 10.00 7.70 1.91 3.3% 27% 23% 43% 30%
BUY
351.0 299.9 17% LUCK PA 40%
Construction & Materials Lucky Cement Ltd.

2015F 44.36 12.00 6.79 1.56 4.0% 25% 21% 42% 30%
Highest Gross Margins in the industry: Economies of scale allow LUCK to be the lowest cost producer (23% lower cost of sales than the sample average) This makes LUCK benefit the most with rising cement prices, making it the highest grosser in the industry. We expect gross margin for FY14 to widen to 47% compared to 44% a year back. Increased domestic share in the South to boost bottom line: The company has recently refocused its sales mix in the southern market where it currently holds ~45% market share compared to 38% earlier. Due to 36% higher retention price in the domestic market, this strategic move would be a major earnings booster for the company with annualised bottom line impact of PKR 7.1/share. Strategic investments to be icing on the cake; Strategic investments in ICI Pakistan, DR Congo and Iraq would give further impetus to the bottom line, albeit in the long term. Earnings to jump at 17% CAGR: We expect LUCKs bottom line to jump at 3 year CAGR of 17% to PKR 47.8/share in FY16, with 31% YoY growth materializing in FY14 alone.
Exhibit: Booming Share in Southern Domestic Market 46% 44% 42% 40% 38% 36% 34% FY11A FY12A FY13A Current
Risks
Decline in cement prices; every PKR 5/bag change drags bottom line by PKR 0.9/share. Sharp rise in coal prices; every USD 5/ton increase reduces EPS by PKR 1.1/share.
50
Construction & Materials Lucky Cement Ltd.

Current Price Target Price Upside Mkt. Cap (PKRmn) Mkt. Cap (USDmn) PKRmn Income Statement Sales Gross profit Other income Finance cost Net profit Balance sheet Total shareholder's equity Long term loans Total non current liabilities Trade payables Total current liabilities Total equity and liabilities Non current assets Current assets Total Assets Cash flow statement CF from operations CF from investing activities CF from financing activities Ending Cash Jun-13A Jun-14E 299.9 351.0 17% 97,352 923 Jun-15F 48,361 23,072 948 33 14,345 62,210 5,308 2,792 5,308 72,705 41,404 31,301 72,705 15,666 (1,042) (3,499) 11,125 Key Financial Ratios Per share Earning / Share Dividend /Share BVPS Price ratio P/E (x) P/B (x) Div yield Profitability Gross margins EBITDA margins Net margins Coverage ratio Debt to Equity Debt to Assets Return on Capital ROA ROE Relative Performance Abs. Return (%) Avg. Volume (mn) High Low 3M 34.2% 0.5 301.1 224.2 Jun-13A 6M 48.0% 0.6 301.1 201.6 Jun-14E 12M 104.9% 0.8 301.1 141.2 Jun-15F
37,810 42,162 16,721 19,690 248 513 89 46 9,714 12,650 41,035 265 3,846 3,572 3,846 50,196 37,183 13,013 50,196 51,099 219 4,848 2,585 4,848 61,180 42,166 19,014 61,180
30.0 8.0 126.9 10.0 2.4 3% 44% 36% 25.7% 132.1 0.01 0.01
39.1 10.0 158.0 7.7 1.9 3% 47% 43% 30.0% 352.5 0.01 0.004
44.4 12.0 192.4 6.8 1.6 4% 48% 42% 29.7% 561.4 -
12,239 15,603 (8,087) (6,745) (2,191) (2,714) 1,961 6,144
21% 26%
23% 27%
21% 25%
51
Construction & Materials Regional Comparison

Companies JIANGXI WANNIANQING CEM-A BIRLA CORP LTD SEMEN INDONESIA PERSERO TBK TASEK CORP BHD LUCKY CEMENT D.G KHAN CEMENT FAUJI CEMENT ATTOCK CEMENT KOHAT CEMENT LAFARGE REPUBLIC INC TPI POLENE PUBLIC CO LTD REGIONAL AVERAGE Source: Bloomberg, AHL Research Origin China India Indonesia Malaysia Pakistan Pakistan Pakistan Pakistan Pakistan Philippines Thailand Mkt Cap (USD mn) 639.5 321.1 6,848.9 540.5 913.8 354.2 202.1 157.1 144.1 1,154.8 663.5 1,085 P/E (x) 25.8 7.0 19.4 17.1 7.7 6.6 7.6 7.1 5.0 24.3 117.5 22.3 P/B (x) 3.0 0.8 5.4 1.6 1.9 0.7 1.3 1.9 1.8 3.3 0.4 2.0 P/FCF 50.7 306.8 42.8 16.6 11.2 5.9 4.3 9.9 5.0 27.4 70.6 50.1 P/Sales 1.1 0.7 4.8 2.8 2.3 1.4 1.2 1.3 1.2 3.4 1.1 1.9 Gross Margins 19.0% 0.0% 47.4% 33.5% 46.7% 35.1% 32.8% 32.3% 38.9% 31.9% 14.4% 30.2% EBITDA Net Margins Margins 1791.8% 1572.3% 3482.7% 2392.1% 42.7% 37.8% 37.8% 26.4% 38.6% 2544.4% 848.2% 1165.0% 4.1% 10.4% 24.7% 16.3% 30.0% 21.3% 17.4% 17.5% 23.3% 14.1% 0.9% 16.4% Div Yield 4.2% 2.4% 2.7% 4.1% 3.3% 3.5% 10.9% 9.7% 5.1% 5.1% 1.8% 4.8% D/E 112.2% 50.0% 21.2% 0.4% 0.5% 12.2% 50.0% 6.0% 6.6% 7.0% 0.3 ROA 2.7% 6.3% 21.0% 8.4% 22.7% 8.9% 9.3% 20.6% 26.8% 10.0% 0.3% 12.5% ROE 11.8% 11.5% 30.5% 9.5% 27.5% 11.4% 17.3% 27.7% 42.5% 13.9% 0.4% 18.5%
30 25 20 15 10 5 -
Price to Earning
6.0 5.0 4.0 3.0 2.0 1.0 -
Price to Book
60% 50% 40% 30% 20% 10% 0%
Return on Equity
10% 8% 6% 4% 2% 0%
Dividend Yield
LUCK PA
FCCL PA
TC MK
BCORP IN
SMGR IJ
000789 CH
DGKC PA
KOHC PA
ACPL PA
TC MK
BCORP IN
000789 CH
SMGR IJ
000789 CH
000789 CH
DGKC PA
DGKC PA
BCORP IN
DGKC PA
ACPL PA
ACPL PA
KOHC PA
KOHC PA
LUCK PA
ACPL PA
FCCL PA
FCCL PA
FCCL PA
SMGR IJ
52
BCORP IN
TC MK
KOHC PA
LUCK PA
TC MK
LUCK PA
SMGR IJ
Personal Goods Sector Performance

CY13 178 0.75 354,669 3,378 72.98% 8.36 1.25 9.15% 5.26% 4.85%
Exhibit: Textile Sector Performance Relative to KSE100 KSE100 160% 150% 140% 130% 120% 110% 100% 90% 80%
Jan-13 Apr-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 May-13 Dec-13 Feb-13 Mar-13
Textile Sector

Company Nishat Chunian Limited Nishat Mills Limited
SYM NCL NML
EPS 14.3 23.7
DPS 4.0 5.0
P/E 4.3 5.4
P/B 1.2 0.7
BVPS 51.3 187.1
RoE 31% 13%
TP 85.8 169.4
Curr. P 60.2 127.2
Upside 42.5% 33.1%
Recom. Buy Buy
53
Personal Goods GSP+ Status ignites sector

Exhibit: International vs Local Cotton Prices

USD/lb
EUs GSP+ Status: Pakistans grant for the GSP+ Status for exports to the European Union (EU) has come into effect from Jan14 onwards (valid till further review in 2017). Under the scheme, Pakistans textile products (~3,400 items) will have a duty waiver (zero tariff) in 28 European countries. Preliminary estimates suggest additional annual boost of USD 1.01.5bn in textile exports alone. PKR/USD devaluation: Textile sector is exposed to a currency risk as exports (58% of total exports in FY13) are denominated in USD. Depreciation in PKR/USD parity translates into exchange gains for the sector in such a depreciating environment. Cotton prices: Favorable cotton production and prices will have a positive impact on the sectors margins and profitability .
COTLOOKA Index Local (RHS)
PKR/maund
130 120 110 100 90 80 70 60

Jun-12 Aug-11 Dec-11 Feb-12 Aug-12 Dec-12 Feb-13 Jun-13 Oct-11 Apr-12 Oct-12 Apr-13 Aug-13 Oct-13 Dec-13
8,000 7,500 7,000 6,500 6,000 5,500 5,000 4,500
Source: PBS, AHL Research
Exhibit: Textile Exports vs PKR/USD Depreciation

USD bn
Textile Exports PKR/USD Dep. (RHS) 30% 25% 20% 15% 10% 5% 0%
FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13
Risks
Higher Cotton prices, energy crisis and hike in interest rates Deterioration in law & order situation and lack of available capacity to meet increased export demand Bleak Demand Outlook from Export Markets (esp. China) Threat of blocking textile imports from sizable USA based clients (ex. Walt Disney)
15.0 14.0 13.0 12.0 11.0 10.0 9.0 8.0
Source: PBS, Bloomberg, AHL Research
54
Recommendation
BUY
Personal Goods Nishat Chunian Ltd.

Target Price 85.50 Current Price 60.20 Upside 43% Bloomberg Code NCL PA Free float 45% Major Shareholders - NML 13.6%, ABL 9.6%, NBP 5.4%, DGKC 3.0% Valuation Parameters EPS (PKR) DPS (PKR) P/E (x) P/B (x) Div. Yield ROE ROA EBITDA margins Net margins Exhibit: NCLs Revenue Mix 2013A 11.4 2.0 5.3 1.5 3.3% 32.3% 11.5% 20% 10.7% 2014E 14.3 4.0 4.2 1.2 6.6% 31.3% 12.7% 21% 12.4% 2015F 14.7 4.6 4.1 1.0 7.6% 26.2% 12.5% 20% 11.9%
Advent of GSP+ Status: NCL has the potential to increase its exposure to the EU markets (currently 11% of the countrys top-line), we foresee a decent bottom-line CAGR growth of 11% in the next 4 years as a result. Timely capacity expansion: NCL has increased its spindles capacity by 40% with 22,000 spindles through its own expansion coupled with acquisition of Taj Textile (38,000 spindles). This places the company in a better position to cater rising demand, from domestic and international markets. NCPLs healthy payouts supporting the bottom-line: Every PKR 1/share dividend from Nishat Chunian Limited (NCPL), a 51% owned subsidiary, contributes PKR 0.85/share to the bottom line of NCL. For FY14, other income of the company is to improve by 36% YoY mainly on account of special dividend (PKR 2/share) from NCPL.
Processing and Home Textiles 31% Spinning 57%
Risks
Abrupt change in cotton prices and energy costs With a debt to equity ratio of 1.33x as of FY13, an upward revision in interest rates going forward would swell finance costs of NCL Uncertainties regarding yarn demand from China pose a threat for NCL as it is major yarn exporter to the country
Weaving 12%
55
Personal Goods Nishat Chunian Ltd.

Current Price Target Price Upside Mkt. Cap (PKRmn) Mkt. Cap (USDmn) PKRmn Income Statement Sales Gross profit Other income Finance cost Net profit Balance sheet Total shareholder's equity Long term loans Total non current liabilities Trade payables Total current liabilities Total equity and liabilities Non current assets Current assets Total Assets Cash flow statement CF from operations CF from investing activities CF from financing activities Ending Cash Jun-13A 21,213 3,596 1,000 1,243 2,276 8,020 4,201 4,201 1,425 9,703 21,925 9,528 12,397 21,925 (454) (950) 1,626 270 Jun-14E 22,997 3,831 1,371 1,181 2,862 10,264 2,550 2,550 1,545 10,416 23,229 9,556 13,673 23,229 3,232 (562) (1,693) 1,247 60.20 85.8 43% 12,051 114 Jun-15F 24,902 4,361 1,120 1,279 2,953 12,295 884 884 1,673 11,007 24,187 9,453 14,734 24,187 2,596 (444) (2,114) 1,286 Key Financial Ratios Per share Earning / Share Dividend /Share BVPS Price ratio P/E (x) P/B (x) Div yield Profitability Gross margins EBITDA margins Net margins Coverage ratio Debt to Equity Debt to Assets Return on Capital ROA ROE Relative Performance Abs. Return (%) Avg. Volume (mn) High Low 3M 21.9% 2.5 60.7 48.8 Jun-13A 6M 14.8% 2.5 60.7 47.1 Jun-14E 12M 95.8% 2.5 60.7 28.9 Jun-15F
11.4 2.0 40.1 5.3 1.5 3% 16.9% 20% 10.7% 2.34 1.33 0.49
14.3 4.0 51.3 4.2 1.2 7% 16.7% 21% 12.4% 2.61 0.93 0.41
14.7 4.6 61.4 4.1 1.0 8% 17.5% 20% 11.9% 2.77 0.68 0.41
11.5% 32.3%
12.7% 31.3%
12.5% 26.2%
56
Recommendation
BUY
Personal Goods Nishat Mills Ltd.

Target Price 169.4 Current Price 127.2 Upside 33% Bloomberg Code NML PA Free float 50% Major Shareholders - Directors 25.2%, DGKC 8.6%, AICL 4.0% Valuation Parameters EPS (PKR) DPS (PKR) P/E (x) P/B (x) Div. Yield ROE ROA EBITDA margins Net margins Exhibit: NMLs Revenue Mix 2013A 16.6 4.0 7.7 0.76 3.10% 12% 9% 18% 11.2% 2014E 23.7 5.0 5.4 0.68 3.90% 13% 10% 20% 14.4% 2015F 29.6 6.0 4.3 0.6 4.70% 15% 12% 21% 16.2%
Wide out-reach in EU markets: As NML has a 2.6% market share in the countrys textile exports to EU markets (especially through value-added segment), EUs GSP+ status will further unlock NMLs value ahead. We anticipate the bottom-line to increase by a CAGR of 19.6% in the next four years resultantly. Rising fuel & powers: NML is relatively immune from rising power & gas tariffs due to cost efficiencies through coal (30%) & alternative means (70%) in running its captive power plants. Dividend incomes: Dividends from investments in subsidiaries & associates accounted for ~42% of NMLs bottom-line in FY13. With stable payouts from group companies going forward, we expect a CAGR growth of 14% in the next four years from other operating income.
Risks
Weaving 27%
Spinning 23%
Any unexpected uptick in cotton prices with low level of inventory poses a significant risk to NMLs margins Other significant risk to our valuation is the portfolio value of NML, to mitigate the risk we have taken a 35% discount to current market values of respective companies, any deep decline in prices can still affect our target value for NML as portfolio contributes approximately 50% to our target price
Power Generation 7% Garments 8%
Processing 35%
57
Personal Goods Nishat Mills Ltd.

Current Price Target Price Upside Mkt. Cap (PKRmn) Mkt. Cap (USDmn) PKRmn Income Statement Sales Gross profit Other income Finance cost Net profit Balance sheet Total shareholder's equity Long term loans Total non current liabilities Trade payables Total current liabilities Total equity and liabilities Non current assets Current assets Total Assets Cash flow statement CF from operations CF from investing activities CF from financing activities Ending Cash Jun-13A 52,426 9,044 2,739 1,618 5,847 58,917 12,757 3,649 14,420 18,068 80,635 53,430 27,205 80,635 (735) (17,924) 17,697 4,744 Jun-14E 57,795 12,212 2,913 1,360 8,319 65,777 7,148 1,654 17,342 15,963 83,394 52,809 30,585 83,394 8,970 (777) (6,098) 7,281 127.2 169.4 33% 44,738 424 Jun-15F 64,228 13,762 3,356 1,095 10,408 74,181 2,543 943 17,518 14,367 89,491 52,018 37,473 89,491 12,184 (670) (4,524) 25,299 Key Financial Ratios Per share Earning / Share Dividend /Share BVPS Price ratio P/E (x) P/B (x) Div yield Profitability Gross margins EBITDA margins Net margins Coverage ratio Debt to Equity Debt to Assets Return on Capital ROA ROE Relative Performance Abs. Return (%) Avg. Volume (mn) High Low 3M 43.5% 3.3 128.8 82.7 Jun-13A 6M 41.1% 2.6 128.8 82.7 Jun-14E 12M 108.2% 2.9 128.8 57.2 Jun-15F
16.63 4.0 167.6 7.7 0.8 3% 17% 18% 11.2% 4.93 0.26 0.19
23.66 5.0 187.1 5.4 0.7 4% 21% 20% 14.4% 7.57 0.16 0.13
29.60 6.0 211.0 4.3 0.6 5% 21% 21% 16.2% 11.09 0.11 0.09
9% 12%
10% 13%
12% 15%
58
Personal Goods Regional Comparison

Companies JIANGSU LIANFA TEXTILE CO-A VICTORY CITY INTL HLDGS LTD VARDHMAN TEXTILES LTD FUJIBO HOLDINGS INC NISHAT MILLS LTD NISHAT CHUNIAN LTD ILSHIN SPINNING CO LTD SHINKONG TEXTILE CO LTD SAHA-UNION CORP PCL REGIONAL AVERAGE Source: Bloomberg, AHL Research Origin China Hong Kong India Japan Pakistan Pakistan S. Korea Taiwan Thailand Mkt Cap (USD) 554 260 383 233 414 99 280 394 327 327 P/E (x) P/B (x) 10.9 7.8 4.6 9.1 5.1 6.1 16.8 68.3 9.4 15.3 1.1 0.4 0.7 1.5 1.4 0.7 0.3 2.1 0.7 1.0 P/FCF 103.4 128.3 na 8.7 4.1 1.7 4.3 66.5 9.2 40.8 P/Sales 0.9 0.4 0.3 0.7 0.4 0.2 0.4 12.9 1.2 1.9 Gross Margins 20.0% 18.4% 0.0% 36.4% 21.0% 17.0% 14.7% 28.3% 10.2% 18.5% EBITDA Net Margins Margins 17.5% 13.9% 20.1% 16.0% 16.0% 21.0% -1.8% 8.6% 9.5% 13.4% 8.5% 5.0% 7.2% 7.7% 15.0% 12.0% 2.4% 18.8% 13.2% 10.0% Div Yield 0.0% 0.0% 2.8% 2.4% 4.0% 7.0% 0.0% 0.0% 0.0% 1.8% D/E 0.5 0.6 1.1 0.3 0.4 1.3 0.0 0.4 0.2 0.5 ROA 7.1% 2.6% 5.6% 7.4% 11.0% 12.0% 1.4% 2.0% 5.4% 6.1% ROE 10.6% 4.5% 15.1% 18.0% 12.0% 32.0% 1.8% 3.2% 7.8% 11.7%
70 60 50 40 30 20 10 -
Price to Earning
1.8 1.6 1.4 1.2 1.0 0.8 0.6 0.4 0.2 003200 KS RW IN SUC TB 003200 KS
Price to Book
35% 30% 25% 20% 15% 10% 5% 0%
Return on Equity
8% 6% 4% 2% 0%
Dividend Yield
ARVND IN
ARVND IN
873 HK
NCL PA
873 HK
NML PA
NML PA
NCL PA
ARVND IN
RW IN
1444 TT
1444 TT
873 HK
RW IN
2228 HK
2228 HK
2228 HK
SUC TB
SUC TB
873 HK
003200 KS
003200 KS
NCL PA
NML PA
NCL PA
ARVND IN
NML PA
1444 TT
2228 HK
59
1444 TT
SUC TB
RW IN
Fertilizer Sector Performance

CY13 34 2.09 450,341 4,289 24.08% 20.22 20.12 23.22% 7.18% 9.51%
Exhibit: Fertilizer Sector Performance Relative to KSE100 KSE100 160% 150% 140% 130% 120% 110% 100% 90% 80%
Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Nov-13 Dec-13 Oct-13
Fertilizer Sector

Company Engro Fertilizer Limited Fauji Fertilizer Bin Qasim Limited Fauji Fertilizer Company Limited
SYM na FFBL FFC
EPS 4.1 6.6 15.6
DPS 5.9 14.8
P/E 6.9 6.7 7.2
P/B 1.3 2.8 5.1
BVPS 22.2 15.4 22.1
RoE 21.0% 44.0% 72.0%
Tp 40.4 55.2 134.0
Curr. P 28.3 43.8 112.0
Upside 43.0% 26.0% 20.0%
Recom. Buy Buy Buy
60
Fertilizer The Gloom is History

Exhibit: Fertilizer Sector Historical Production & Offtake

mn tons
Long term gas plan: Fertilizer sector still waits for the clarity on the long term gas plan. The ECC has to reconfirm the gas allocation from Kunnar Pashaki Deep (KPD) field. Outcome: We believe that the govt would reconfirm the aforementioned plan and it would be completed by 3QCY14. Lower imports amid higher production: We foresee 2% growth in production for the upcoming year mainly because of Guddu gas availability to EFERT for 1Q (or beyond) and long term gas plan expected to complete by the end of 3Q. This would lead to improved urea production and lesser imports in CY14.
Production
Offtake
6.5 6.0 5.5 5.0 4.5 4.0

2007A 2008A 2009A 2010A 2011A 2012A 2013E
Exhibit: Long term gas plan
Risks
Failure to implement long-term gas allocation plan. Implementation of Gas levy over and above GIDC and failure of any passing of the same. Torrential rains or flooding. Commitment of gas to EFERT at USc 70/mmbtu would turn negative for the sector excluding EFERT.
DH Fertilizer, 40 Engro , 79 Pak Arab, 58 Agri, 25
61
Recommendation
Target Price Current Price Upside Bloomberg Code Free float Major Shareholders - Engro Corporation 92% Valuation Parameters EPS (PKR) DPS (PKR) P/E (x) P/B (x) Div. Yield ROE ROA EBITDA margins Net margins 2012A (2.3) (12.5) 2.3 0% -19% -3% 40% n.m
BUY
40.44 28.25 43% EFERT PA 8%
Fertilizer Engro Fertilizer Ltd.

2013E 3.9 7.3 1.7 0% 27% 5% 47% 10%
2014F 4.1 6.9 1.3 0% 21% 5% 46% 11%
Growth is the story: Engro Fertilizer Limited is the only growth company (in terms of off-take) in fertilizer sector. The companys off-take is expected to increase 4% YoY in CY14, and a massive 19% in CY15, due to better production post long-term gas plan. In addition, gas diverted from the Guddu power plant is also expected to keep companys production lifted till Mar-14. Margins improvement 1000bps, PAT at 4-year CAGR of 21%: Gas flows from Guddu along with the long-term gas plan bodes well for the company, as gross margins are expected to clock in at a 42% in CY14, an improvement of 1000 bps from CY12. Furthermore, with both plants fully operational from 4QCY14 onwards, the PAT of the company is expected to massively jump at a 4-year CAGR of 21%. Strong cash flows ahead: We foresee strong cash-flow generation amid higher capacity utilization (85% in CY15) coupled with stable urea prices. Our analysis suggests, in CY15F, the companys cash position will be strong enough to declare dividend after fulfilling the IFC requirement of retiring 33% of its senior debt.
Exhibit: Eferts Production, Off-take & Capacity Utilization Production Offtake Utilization (RHS)
k tons
Risks
The key concern remains heavy leveraging of the company - a debt to equity ratio of 2.8x as of Sep-13 making it vulnerable in the rising interest rate scenario Diversion of gas from long-term gas plan to Power sector.
2,000 1,850 1,700 1,550 1,400 1,250 1,100 950 800

CY12A CY13E
90% 80% 70% 60% 50% 40%
CY14F
CY15F
CY16F
62
Fertilizer Engro Fertilizer Ltd.

Current Price Target Price Upside Mkt. Cap (PKRmn) Mkt. Cap (USDmn) PKRmn Income Statement Sales Gross profit Other income Finance cost Net profit Balance sheet Total shareholder's equity Long term loans Total non current liabilities Trade payables Total current liabilities Total equity and liabilities Non current assets Current assets Total Assets Cash flow statement CF from operations CF from investing activities CF from financing activities Ending Cash Dec-12A 30,627 9,861 379 10,703 (2,935) 15,798 48,482 55,459 7,960 26,250 97,508 83,123 14,385 97,508 6,371 (1,857) (4,920) 2,449 Dec-13E 48,842 21,012 916 9,363 5,019 20,967 53,879 60,857 13,253 22,664 104,488 80,198 24,290 104,488 17,014 (2,139) (3,331) 16,442 28.3 40.4 43% 36,663 348 Dec-14F 49,373 20,816 1,041 8,772 5,339 28,805 41,879 48,857 8,159 23,927 101,588 82,338 19,250 101,588 5,662 (7,490) (3,145) 23,012 Key Financial Ratios Per share Earning / Share Dividend /Share BVPS Price ratio P/E (x) P/B (x) Div yield Profitability Gross margins EBITDA margins Net margins Coverage ratio Debt to Equity Debt to Assets Return on Capital ROA ROE Relative Performance Abs. Return (%) Avg. Volume (mn) High Low 3M na na na na Dec-12A 6M na na na na Dec-13E 12M na na na na Dec-14F
(2.3) 12.2 n.m 2.3 0% 32% 40% n.m 1.1 4.1 0.7
3.9 16.2 7.3 1.7 0% 43% 47% 10.3% 2.4 2.8 0.6
4.1 22.2 6.9 1.3 0% 42% 46% 10.8% 2.6 1.7 0.5
-3% -19%
5% 27%
5% 21%
63
Recommendation
Target Price Current Price Upside Bloomberg Code Free float Major Shareholders FFC 51%, FF 17.2% Valuation Parameters EPS (PKR) DPS (PKR) P/E (x) P/B (x) Div. Yield ROE ROA EBITDA margins Net margins DAP Primary Margins USD/ton Phos Acid Conversion Local DAP DAP Primary Margins 2012A 934 430 635 205 2013E 790 371 614 243 2012A 4.6 4.5 9.4 3.2 10% 34% 11% 20% 9% 2013E 6.2 5.0 7.0 3.0 11% 44% 14% 19% 10%
BUY
55.21 43.81 26% FFBL PA 35%
Fertilizer Fauji Fert Bin Qasim Ltd.

2014F 6.6 5.9 6.7 2.8 13% 44% 16% 22% 13%
Focusing DAP: Primary focus would remain on DAP as it requires lesser gas than urea. In CY13, the company operated its DAP plant on 113% utilization level (11MCY13 production figures). DAP Primary margins (PM) on thriving mode: DAP primary margins jumped 19% YoY to USD 243/ton in CY13. We expect PM to grow (+3% YoY) in CY14F as phosphoric acid prices are projecting downward trajectory. Phosphoric acid contract price was settled at USD 610/ton in the 4QCY13 down by 44% YoY. Gas curtailment: Lesser gas curtailment (40%-45%) on SSGC network in comparison with SNGP network (85%). Pricing power: DAP (primary product) always sold on premium in comparison with international DAP prices. Current premium with the intl prices stood at 30%
2014F 628 295 546 251
Risks

Extended gas shutdown amid winter gas curtailment. For every PKR 100/bag reduction in DAP prices, primary margins would shrink by USD 18/ton, translating annual negative impact on bottom line by 0.78/share.
64
Fertilizer Fauji Fertilizer Bin Qasim Ltd.

Current Price Target Price Upside Mkt. Cap (PKRmn) Mkt. Cap (USDmn) PKRmn Income Statement Sales Gross profit Other income Finance cost Net profit Balance sheet Total shareholder's equity Long term loans Total non current liabilities Trade payables Total current liabilities Total equity and liabilities Non current assets Current assets Total Assets Cash flow statement CF from operations CF from investing activities CF from financing activities Ending Cash Dec-12A 47,911 11,461 1,045 1,821 4,338 12,631 1,232 4,905 11,176 23,168 40,704 17,435 23,268 40,703 1,443 6,827 (9,105) 4,717 Dec-13E 55,981 15,481 489 1,817 5,812 13,772 924 4,564 11,627 22,057 40,393 22,617 17,777 40,393 10,052 (6,492) (8,358) 3,991 43.8 55.2 26% 40,923 388 Dec-14F 48,035 13,791 491 1,122 6,147 14,408 616 4,289 9,831 18,816 37,512 23,919 13,594 37,512 7,843 (2,665) (8,386) 782 Key Financial Ratios Per share Earning / Share Dividend /Share BVPS Price ratio P/E (x) P/B (x) Div yield Profitability Gross margins EBITDA margins Net margins Coverage ratio Debt to Equity Debt to Assets Return on Capital ROA ROE Relative Performance Abs. Return (%) Avg. Volume (mn) High Low 3M 19.4% 1.2 45.39 37.06 Dec-12A 6M 24.9% 1.2 45.39 35.57 Dec-13E 12M 28.9% 1.8 45.39 33.35 Dec-14F
4.6 4.5 13.5 9.4 3.2 10% 24% 20% 9% 4.6 1.0 0.3
6.2 5.0 14.7 7.0 3.0 11% 28% 19% 10% 5.8 0.8 0.3
6.6 5.9 15.4 6.7 2.8 13% 29% 22% 13% 9.3 0.6 0.2
11% 34%
14% 44%
16% 44%
65
Recommendation
Target Price Current Price Upside Bloomberg Code Free float Major Shareholders FF 47.8%, Individuals 17.8% Valuation Parameters EPS (PKR) DPS (PKR) P/E (x) P/B (x) Div. Yield ROE ROA EBITDA margins Net margins Exhibit: FFCs Market Share Industry 7.00 6.00 5.00 4.00 3.00 2.00 1.00 2007 2008 2009 2010 2011 2012 FFC 2012A 16.4 15.5 6.8 5.5 14% 80% 34% 45% 28% 2013E 15.4 14.6 7.3 5.3 13% 74% 31% 43% 26%
BUY
134.0 112.0 20% FFC PA 55%
Fertilizer Fauji Fertilizer Co. Ltd.

2014F 15.6 14.8 7.2 5.1 13% 72% 29% 42% 25%
Sure shot: FFC largest urea manufacturer is most protected investment in the fertilizer sector, as it has been the major beneficiary of the gas curtailment, since the company suffers lowest gas outage (8-12%) as compared to its peers, while simultaneously benefits on the pricing gains (6% since start of CY13). Diversified investments: FFC has diversified investment base, with investments in FFBL, S.A (PMP), FCCL. In addition other investments including Wind Power, Al-Hamd foods and lastly Askari bank are going to mature in the future. Lucrative yields: High dividend payout ratio of 95% (avg. for 3 years) translates into attractive dividend yield of 13% for CY14. Gas supply: With the continuous gas supply from Mari Gas Company Limited, the company has an ability to operate plant at 120% capacity (avg. 3 years).
2nd
Risks
Provision of the committed gas sale price (USc 70/mmbtu) to EFERT could lead to fall in urea prices and thus affect earnings negatively. Reduction in price of urea by PKR 50/bag will hurt EPS by PKR 1.1
2013
66
Fertilizer Fauji Fertilizer Co. Ltd.

Current Price Target Price Upside Mkt. Cap (PKRmn) Mkt. Cap (USDmn) PKRmn Income Statement Sales Gross profit Other income Finance cost Net profit Balance sheet Total shareholder's equity Long term loans Total non current liabilities Trade payables Total current liabilities Total equity and liabilities Non current assets Current assets Total Assets Cash flow statement CF from operations CF from investing activities CF from financing activities Ending Cash Dec-12A 74,323 35,998 4,268 999 20,840 26,096 3,870 7,973 15,837 26,817 60,887 29,932 30,954 60,887 18,646 4,719 (16,765) 16,571 Dec-13E 75,199 33,218 4,916 1,291 19,588 27,113 2,430 6,246 16,543 33,699 67,058 37,691 29,367 67,058 18,639 (4,333) (14,123) 22,683 112.0 134.0 20% 142,413 1,350 Dec-14F 78,340 34,405 4,862 1,641 19,825 28,112 1,125 4,674 17,279 35,220 68,006 39,075 28,931 68,006 17,129 1,834 (19,613) 22,033 Key Financial Ratios Per share Earning / Share Dividend /Share BVPS Price ratio P/E (x) P/B (x) Div yield Profitability Gross margins EBITDA margins Net margins Coverage ratio Debt to Equity Debt to Assets Return on Capital ROA ROE Relative Performance Abs. Return (%) Avg. Volume (mn) High Low 3M 14.7% 1.1 116.8 98.14 Dec-12A 6M 12.1% 1.2 116.8 97.63 Dec-13E 12M 10.7% 1.6 116.8 96.73 Dec-14F
16.4 15.5 20.5 6.8 5.5 14% 48% 45% 28% 28.0 0.4 0.2
15.4 14.6 21.3 7.3 5.3 13% 44% 43% 26% 19.8 0.5 0.2
15.6 14.8 22.1 7.2 5.1 13% 44% 42% 25% 16.0 0.5 0.2
34% 80%
31% 74%
29% 72%
67
Fertilizer Regional Comparison

Companies CHINA BLUECHEMICAL LTD - H COROMANDEL INTERNATIONAL LTD CHEMICAL CO OF MALAYSIA BHD FAUJI FERTILIZER COMPANY LTD FAUJI FERTILIZER BIN QASIM ENGRO FERTILIZER LTD THAI CENTRAL CHEMICAL PUB CO PETROVIETNAM FERT & CHEMICAL REGIONAL AVERAGE Source: Bloomberg, AHL Research Origin China India Malaysia Pakistan Pakistan Pakistan Thailand Vietnam Mkt Cap (USD mn) 2,978 1,073 141 1,373 392 348 538 746 949 P/E (x) 10.7 12.1 9.6 7.2 6.7 6.9 8.7 4.5 8.3 P/B (x) 1.5 2.4 0.5 5.1 2.8 1.3 2.1 1.5 2.1 P/FCF 18.6 8.8 90.8 8.2 7.1 4.6 91.4 3.9 29.2 P/Sales 1.8 0.9 0.2 1.8 0.9 0.7 0.6 1.0 1.0 Gross Margins 30.8% na 18.3% 43.9% 28.7% 42.2% 11.6% 32.5% 29.7% EBITDA Net Margins Margins 32.1% 16.9% 16.3% 7.2% 9.5% 2.4% 41.9% 25.3% 21.8% 12.8% 45.7% 10.8% 9.0% 6.6% 24.2% 22.6% 25.1% 13.1% Div Yield 3.8% 1.9% 0.0% 13.2% 13.5% 0.0% 0.0% 0.0% 4.1% D/E 0.0 1.3 0.9 0.5 0.6 1.7 0.2 0.0 0.6 ROA 10.8% 5.3% 1.8% 29.4% 15.8% 5.2% 15.2% 30.4% 14.2% ROE 14.3% 18.8% 4.7% 71.8% 43.6% 21.5% 25.8% 35.1% 29.4%
14 12 10 8 6 4 2 -
Price to Earning
6.0 5.0 4.0 3.0 2.0 1.0 -
Price to Book
80% 60% 40% 20% 0%
Return on Equity
16% 12% 8% 4% 0%
Dividend Yield
FFC PA
FFBL PA
CRIN IN
DPM VN
DPM VN
CRIN IN
FFC PA
CCM MK
3983 HK
CCM MK
TCCC TB
3983 HK
TCCC TB
TCCC TB
FFC PA
FFBL PA
FFBL PA
FFBL PA
CRIN IN
FFC PA
DPM VN
CRIN IN
EFERT
CCM MK
3983 HK
3983 HK
CCM MK
TCCC TB
68
DPM VN
EFERT
EFERT
EFERT
Power Sector Performance

CY13 17 1.97 192,063 1,829 40.24% 13.59 2.08 22.56% 5.77% 13.53%
Exhibit: Power Sector Performance Relative to KSE100 KSE100 160% 150% 140% 130% 120% 110% 100% 90% 80%
Feb-13 Mar-13 May-13 Jun-13 Aug-13 Sep-13 Jan-13 Apr-13 Jul-13 Oct-13 Nov-13 Dec-13
Power Sector

Comapany Nishat Power Limited Hub Power Company Limited Nishat Chunian Power Limited
SYM NPL HUBC NCPL
EPS 7.8 8.4 7.6
DPS 5.5 8.0 6.0
P/E 3.9 7.3 4.6
P/B 1.0 2.1 1.6
BVPS 30.3 28.6 21.4
RoE 28.0% 29.0% 37.0%
Tp 35.6 69.0 38.4
Curr. P 30.1 60.7 34.8
Upside Recom. 18.6% 13.7% 10.5% Buy Buy Buy
69
Power Dividend Ace!

Exhibit: Power Sector Generation Mix Nuclear Thermal Wapda 120,000 100,000 80,000 60,000 40,000 20,000 FY07
Circular debt: Despite the heavy liquidity injection (PKR 480bn) to clear the over due receivables in Jun-13, circular debt has again reached around PKR 220bn in Dec-13. However we except liquidity condition to improve in 2HFY14 with trickle down effect of power subsidy removal. Intensifying demand: With the peak demand still outpacing the supply by 8,600MW the IPPs share in the total power generation of the country is steadily increasing amid declining trend witnessed in hydro sources. Hedging against USD and inflation: The tariff for IPPs has built in immunity against PKR depreciation and inflation (both local and US). Therefore, depreciating PKR/USD parity should increase the ROE component and ultimately the return to equity investors. Attractive dividend yields: IPPs are offering much higher dividend yields (13%-18%) as compared to the yields on govt securities (10-yr PIB 12.8%).
Thermal Private Hydel
FY08
FY09
FY10
FY11
FY12
Exhibit: IPPs Power Generation Share
NPL, 2%
Others, 59%
Risks
NCPL, 2% HUBC, 1 7% KAPCO, 19%

Increasing intensity of circular debt would negatively affect IPPs liquidity and cash flows.
70
Recommendation
Target Price Current Price Upside Bloomberg Code Free float Major Shareholders NML 51%, ABL 8.4% Valuation Parameters EPS (PKR) DPS (PKR) P/E (x) P/B (x) Div. Yield ROE ROA EBITDA margins Net margins 2013A 7.7 3.0 3.9 1.2 10% 33% 10% 24% 11% 2014E 7.8 5.5 3.9 1.0 18% 28% 10% 22% 10%
BUY
35.6 30.1 19% NPL PA 40%
Power Nishat Power Ltd.

2015F 8.0 6.0 3.7 0.9 20% 25% 10% 22% 11%
Dividends: Despite higher earnings with its comparable peer NCPLs, NPL has distributed lower dividend (PKR 3/share vs. NCPLs PKR 6/share in FY13), which should increase the prospects of dividend increase going forward (FY14E div . yield 18%). Profitability: PKR depreciation, Indexation adjustments and improved load-factor (74% in FY14) is expected to post an 1% YoY growth to PKR 7.78/share in FY14. Savings: Likewise its peer, operations and maintenance (O&M) savings and gains from fuel efficiency will also contribute towards the profitability.
Exhibit: NPLs Trade debts and Short term borrowings Trade debts Short term borrowings (STB) STB as a %age of total assets (RHS) 12 10 8 6 4 2 FY11A FY12A FY13A FY14E FY15F 10% 5% 0% 25% 20% 15%
Risks
Higher finance cost due to increased short terms borrowing on the back of piled up circular debt. Higher furnace oil prices would lead to slow recoveries from customers.
71
Power Nishat Power Ltd.

Current Price Target Price Upside Mkt. Cap (PKRmn) Mkt. Cap (USDmn) PKRmn Income Statement Sales Gross profit Other income Finance cost Net profit Balance sheet Total shareholder's equity Long term loans Total non current liabilities Trade payables Total current liabilities Total equity and liabilities Non current assets Current assets Total Assets Cash flow statement CF from operations CF from investing activities CF from financing activities Ending Cash Jun-13A 25,055 5,015 49 2,241 2,739 9,208 10,807 10,807 1,589 5,494 25,509 13,991 11,518 25,509 9,960 (126) (5,923) 3,947 Jun-14E 26,244 4,957 58 2,133 2,754 10,723 9,425 9,425 1,601 7,243 27,391 13,109 14,282 27,391 2,257 (78) (976) 5,174 30.1 35.6 19% 10,644 101 Jun-15F 26,477 4,898 58 1,987 2,839 11,615 8,061 8,061 1,615 7,566 27,241 12,149 15,093 27,241 4,401 (2,956) 6,620 Key Financial Ratios Per share Earning / Share Dividend /Share BVPS Price ratio P/E (x) P/B (x) Div yield Profitability Gross margins EBITDA margins Net margins Coverage ratio Debt to Equity Debt to Assets Return on Capital ROA ROE Relative Performance Abs. Return (%) Avg. Volume (mn) High Low 3M 7.9% 0.4 30.76 27.37 Jun-13A 6M -0.8% 0.6 33.28 27.37 Jun-14E 12M 77.6% 0.6 33.28 16.19 Jun-15F
7.7 3.0 26.0 3.9 1.2 10% 20% 24% 10.9% 2.2 1.5 58.2%
7.8 5.5 30.3 3.9 1.0 18% 19% 22% 10.5% 2.3 1.4 54.5%
8.0 6.0 32.8 3.7 0.9 20% 18% 22% 10.7% 2.4 1.2 50.4%
10% 33%
10% 28%
10% 25%
72
Recommendation
BUY
Power Hub Power Co. Ltd.

Target Price 69.04 Current Price 60.72 Upside 14% Bloomberg Code HUBC PA Free float 70% Major Shareholders DH Fertilizer 10.8%, ABL 9.6%, FF 8.5% Valuation Parameters EPS (PKR) DPS (PKR) P/E (x) P/B (x) Div. Yield ROE ROA EBITDA margins Net margins 2013A 8.1 8.0 7.5 2.2 13% 30% 6% 10% 6% 2014E 8.4 8.0 7.3 2.1 13% 29% 9% 10% 6% 2015F 9.4 8.9 6.4 2.1 15% 32% 9% 11% 6%
PKR depreciation: PKR depreciation of 8% in CY13A and same expected in CY14E coupled with improved load factor would lead towards earnings growth of 3% YoY in FY14 to PKR 8.37/share. Dividend story: The dividend in FY14 is expected to remain flat at PKR 8/share. We believe income from Narowal project will be the major contributor to the company dividend. Govt backing: Hub Power Company operates under the 1994 Power Policy. One of the salient features of 1994 power policy is that, the fuel supply is guaranteed by the govt unlike the newer power plants. Coal conversion: The companys coal conversion project is on cards, however we still await for clarity for the plan, due to unavailability of project details.
Exhibit: HUBCs Trade Receivables & Payables Trade receivables Trade payables Net receivables as a %age of total assets 160 140 120 100 80 60 40 20 FY11A FY12A FY13A FY14E 25 -15% 8% 5% 86 74 35 -10% 2% 60 57 -5% -10% 0% 151 15% 11% 128 10%
Risks

Increasing intensity of circular debt. Higher furnace oil prices. Right shares issue or curtailment of dividend for the financing of coal project.
73
Power Hub Power Co. Ltd.

Current Price Target Price Upside Mkt. Cap (PKRmn) Mkt. Cap (USDmn) PKRmn Income Statement Sales Gross profit Other income Finance cost Net profit Balance sheet Total shareholder's equity Long term loans Total non current liabilities Trade payables Total current liabilities Total equity and liabilities Non current assets Current assets Total Assets Cash flow statement CF from operations CF from investing activities CF from financing activities Ending Cash Jun-13A 165,862 16,293 34 6,548 9,389 32,633 23,551 23,553 34,813 43,127 99,313 49,834 49,480 99,313 26,857 (182) (10,193) 17,069 Jun-14E 173,102 14,749 36 4,715 9,682 33,058 17,488 17,503 57,343 74,812 125,374 47,396 77,978 125,374 10,907 (253) (14,518) 13,205 60.7 69.0 14% 70,262 666 Jun-15F 175,237 15,524 32 4,288 10,931 34,211 14,334 14,349 54,763 72,285 120,845 44,977 75,868 120,845 13,629 (282) (12,932) 13,620 Key Financial Ratios Per share Earning / Share Dividend /Share BVPS Price ratio P/E (x) P/B (x) Div yield Profitability Gross margins EBITDA margins Net margins Coverage ratio Debt to Equity Debt to Assets Return on Capital ROA ROE Relative Performance Abs. Return (%) Avg. Volume (mn) High Low 3M -4.7% 1.6 65.2 59.0 Jun-13A 6M 5.0% 1.8 68.9 58.8 Jun-14E 12M 53.1% 1.6 68.9 38.9 Jun-15F
8.1 8.0 28.2 7.5 2.2 13% 10% 10% 5.7% 0.3 0.9 30.7%
8.4 8.0 28.6 7.3 2.1 13% 9% 10% 5.6% 0.6 1.1 27.8%
9.4 8.9 29.6 6.4 2.1 15% 9% 11% 6.2% 0.6 0.9 26.3%
6% 30%
9% 29%
9% 32%
74
Recommendation
Target Price Current Price Upside Bloomberg Code Free float Major Shareholders NCL 51%, UBL 7.3%, ABL 8.17% Valuation Parameters EPS (PKR) DPS (PKR) P/E (x) P/B (x) Div. Yield ROE ROA EBITDA margins Net margins 2013A 7.5 6.0 4.7 1.8 17% 41% 11% 24% 11% 2014E 7.6 6.0 4.6 1.6 17% 37% 12% 23% 11%
BUY
38.4 34.8 11% NCPL PA 41%
Power Nishat Chunian Power Ltd.

2015F 8.1 6.5 4.3 1.5 19% 36% 12% 23% 11%
Tempting dividend yield: We expect NCPL to attract investors with alluring dividend yield (17% in FY14 and 19% in FY15). Savings: Due to its tariff structure, NCPL is currently saving operations and maintenance (O&M) cost. Profitability: Improved load-factor (75% in FY14E) and indexation adjustments would translate 2% YoY growth in profitability to PKR 7.59/share in FY14E. Circular Debt issue: The circular debt issue has been a major problem for the company but no compromise has been made on cash dividends.
Exhibit: NCPLs Trade debts and Short term borrowings Trade debts Short term borrowings (STB) STB as a %age of total assets (RHS) 11.7 20% 8.5 6.9 15% 5.8 3.6 5.8 12% 3.1 0.0 0% FY11A FY12A FY13A FY14F FY15F 12% 2.8 5% 0% 8.0 20% 15% 10%
Risks
Being smaller IPP, slow recovery from NTDC is a problem for NCPLs cash flow perspective. Piling up of Circular receivables lead to heavy short-term borrowings (subsequently higher finance cost).
14 12 10 8 6 4 2 -
25%
75
Power Nishat Chunian Power Ltd.

Current Price Target Price Upside Mkt. Cap (PKRmn) Mkt. Cap (USDmn) PKRmn Income Statement Sales Gross profit Other income Finance cost Net profit Balance sheet Total shareholder's equity Long term loans Total non current liabilities Trade payables Total current liabilities Total equity and liabilities Non current assets Current assets Total Assets Cash flow statement CF from operations CF from investing activities CF from financing activities Ending Cash Jun-13A 25,166 5,064 156 2,424 2,737 7,270 11,837 11,837 1,939 3,524 22,631 14,773 7,858 22,631 9,642 (58) (9,157) 270 Jun-14E 25,910 5,141 75 2,287 2,788 7,854 10,268 10,268 1,751 6,738 24,860 13,910 10,951 24,860 1,409 (117) (488) 1,074 34.8 38.4 11% 12,776 121 Jun-15F 26,097 5,109 75 2,077 2,962 8,612 8,780 8,780 1,767 6,672 24,064 12,930 11,135 24,064 4,156 (3,715) 1,515 Key Financial Ratios Per share Earning / Share Dividend /Share BVPS Price ratio P/E (x) P/B (x) Div yield Profitability Gross margins EBITDA margins Net margins Coverage ratio Debt to Equity Debt to Assets Return on Capital ROA ROE Relative Performance Abs. Return (%) Avg. Volume (mn) High Low 3M 13.3% 0.5 34.8 30.2 Jun-13A 6M 23.2% 0.6 34.8 28.2 Jun-14E 12M 108.8% 0.8 34.8 15.8 Jun-15F
7.5 6.0 19.8 4.7 1.8 17% 20% 24% 10.9% 0.5 1.8 8.6%
7.6 6.0 21.4 4.6 1.6 17% 20% 23% 10.8% 0.6 1.9 19.4%
8.1 6.5 23.4 4.3 1.5 19% 20% 23% 11.4% 0.5 1.5 19.1%
11% 41%
12% 37%
12% 36%
76
Power Regional Comparison

Companies SHANGHAI ELECTRIC POWER CO-A JSW ENERGY LTD HUB POWER COMPANY NISHAT POWER LTD NISHAT CHUNIAN POWER LTD TRANS-ASIA OIL & ENERGY DVLP GLOW ENERGY PCL PHA LAI THERMAL POWER JSC REGIONAL AVERAGE Source: Bloomberg, AHL Research Origin China India Pakistan Pakistan Pakistan Philippines Thailand Vietnam Mkt Cap P/E (x) (USD mn) 1,748 1,450 666 101 121 153 3,152 371 919 10.7 8.2 7.3 3.9 4.6 10.4 13.0 4.8 7.8 P/B (x) 1.4 1.4 2.1 1.0 1.6 0.8 3.1 0.9 1.6 P/FCF 7.8 6.4 4.4 4.2 25.5 19.6 11.5 9.9 P/Sales 0.7 1.0 0.4 0.4 0.5 4.2 2.0 0.9 1.3 Gross Margins 17.0% 51.9% 8.5% 18.9% 19.8% 86.5% 15.6% 11.2% 28.7% EBITDA Net Margins Margins 20.5% 31.3% 10.4% 22.2% 23.2% 55.4% 22.8% 25.7% 26.4% 5.9% 10.1% 5.6% 10.5% 10.8% 57.3% 9.7% 12.2% 15.3% Div Yield 4.5% 3.4% 13.2% 18.3% 17.3% 1.8% 4.0% 8.1% 8.8% D/E 1.7 1.7 1.1 1.4 1.9 1.7 1.7 1.4 ROA 2.8% 4.6% 8.6% 10.4% 11.7% 7.3% 4.5% 4.2% 6.8% ROE 13.7% 15.2% 29.5% 27.6% 36.9% 8.2% 15.7% 14.2% 20.1%
14 12 10 8 6 4 2 -
Price to Earning
3.5 3.0 2.5 2.0 1.5 1.0 0.5 -
Price to Book
50% 40% 30% 20% 10% 0%
Return on Equity
14% 12% 10% 8% 6% 4% 2% 0%
Dividend Yield
PPC VN
KAPCO PA
NCPL PA
JSW IN
HUBC PA
GLOW TB
NCPL PA
PPC VN
JSW IN
GLOW TB
TA PM
TA PM
600021 CH
600021 CH
600021 CH
KAPCO PA
NPL PA
NPL PA
HUBC PA
HUBC PA
NCPL PA
HUBC PA
NPL PA
PPC VN
PPC VN
600021 CH
KAPCO PA
KAPCO PA
GLOW TB
GLOW TB
NCPL PA
NPL PA
JSW IN
77
JSW IN
TA PM
TA PM
Fixed Line Telecom Sector Performance

CY13 4 9.82 114,496 1,090 58.11% 18.08 0.99 5.04% 3.05% 3.55%
Exhibit: Telecom sector performance relative to KSE100 KSE100 Telecom Sector
160% 150% 140% 130% 120% 110% 100% 90% 80%
Jun-13
Feb-13
Mar-13
May-13
Aug-13
Sep-13
Jan-13
Apr-13
Jul-13
Oct-13
Nov-13
Companies under coverage Company Pak Telecommunication Co.

SYM PTC
EPS 3.1
DPS 2.0
P/E 1.2
P/B 0.1
BVPS 9.1
RoE 6%
TP 36.0
Curr. Pe 28.4
Upside 26.6%
Recom. Buy
Dec-13
78
Fixed Line Telecom Gearing up for 3G!

Exhibit: Broadband market share technology wise DSL 100% 80% 60% 40% 63% 20% 0% FY09
3rd Generation (3G) auction: With 3G auction to take place in Feb14, Pakistans Telecos, brace themselves for Avg. Revenue per Users (APRUs) attrition as higher speeds spectrum will increase usage (in particular data usage) of cellular services and wireless broadband. LDI operators ICH arrangement: Increase of incoming intl call rates from aboard by 400% since Oct12 has remained unchanged. Documented traffic from aboard could pick up with the success of law enforcement agencies in stemming of grey traffic. Broadband subscribers segment: This segment will continue to show its impressive growth trend in CY14 as witnessed in CY13 (from Jan13Aug13, +15% increase in particular EvDO segment posting a +37% growth in subscribers).
WiMax 6% 12% 29% 28% 3% 26%
EvDO 2%
Others 2% 41% 20% 38%
10% 5% 21%
33% 25%
53%
44%
40%
FY10
CY11
CY12
Aug'13
Exhibit: LDI monthly minutes (mn) since ICH

1,001
Risks
1,000 900 800 700 600 500 400

Nov-12 Dec-12 May-13 Aug-13 Oct-12 Jan-13 Feb-13 Mar-13 Apr-13 Jun-13 Jul-13 Sep-13 Oct-13 Nov-13 Dec-13
836 741 653 582 614 593 611 505 501 505 495 586 493 477
Constant decline in documented LDI traffic could continue to dent revenues for LDI operators, reports of the ICH policy might also come under review by PTA going forward as well. Further delays in 3G auction spectrum and non-resolution of 130+ properties dispute pending with Etisalat and Govt since privatization pose a sentimental dent on the sector Zong (China Mobile, Pakistan) has been finally granted an LDI license, which will further dilute the 14 existing LDI operators market share
79
Recommendation
BUY
Fixed Line Telecom Pakistan Telecom Co.

Target Price 36.0 Current Price 28.4 Upside 27% Bloomberg Code PTC PA Free float 16% Major Shareholders - Govt. of Pakistan 62.2%, Etisalat 26% Valuation Parameters EPS (PKR) DPS (PKR) P/E (x) P/B (x) Div. Yield ROE ROA EBITDA margins Net margins Exhibit: PTCLs Revenue Mix 2013A 2.24 12.68 1.27 0.0% 9.61% 5.25% 2014E 3.13 2.00 9.08 1.15 7.0% 12.67% 6.40% 2015F 3.50 2.00 8.13 1.09 7.0% 13.36% 6.73%
Warid Telecom acquisition: The deal is set to materialize in CY14, PTCLs Ufone (100% owned subsidiary) could increase its existing subscriber base of currently 24.8mn by a further 12.8mn (with an existing loyal post-paid subscriber base from Warid an added attraction) through the acquisition Broadband revenues: This segment continues its upward trend (+23% YoY) as subscribers in particular EvDO segment (+68% YoY) would continue to grow with the addition of the 3G spectrum which will act as an impetus for increasing ARPUs of broadband and Cellular Mobile Subscribers (est. to increase bottom-line by an avg. 5.5% from CY14) Clam down on grey-traffic: This would augment LDI revenues (est. to increase bottom-line by 2.2% for every +100mn minutes increase) which also benefit from PKR to USD dep. (8% forecast for CY14) as call rates are collected in USD
LDI & OTHERS 14% DSL&EVO 12% FLL&WLL 34%
Risks
Highly leveraged book given that PTC goes for heavy external borrowing to fund both Warid deal and 3G-Auction Dilution in LDI market share of PTC (currently 50%) with the entrance of Zong (China Mobile, Pakistan), increasing grey traffic would also continue to hurt LDI revenues
UFONE 40%
80
Fixed Line Telecom Pakistan Telecom Co.

Current Price Target Price Upside Mkt. Cap (PKRmn) Mkt. Cap (USDmn) PKRmn Income Statement Sales Gross profit Other income Finance cost Net profit Balance sheet Total shareholder's equity Long term loans Total non current liabilities Trade payables Total current liabilities Total equity and liabilities Non current assets Current assets Total Assets Cash flow statement CF from operations CF from investing activities CF from financing activities Ending Cash Dec-12A 118,415 43,815 5,549 3,813 6,553 114,364 18,750 72,944 37,849 54,889 242,197 159,786 82,411 242,197 16,395 (2,218) (183) 43,987 Dec-13E 133,542 47,613 5,571 2,520 15,969 125,998 18,625 81,685 41,138 49,156 256,838 154,375 102,464 256,838 28,465 (4,950) (10,109) 57,393 28.4 36.0 27% 145,044 1,375 Dec-14F 136,050 47,923 8,196 1,221 17,851 133,649 12,625 88,118 41,982 49,156 270,922 150,576 127,422 277,999 36,631 (209) (12,056) 81,759 Key Financial Ratios Per share Earning / Share Dividend /Share BVPS Price ratio P/E (x) P/B (x) Div yield Profitability Gross margins EBITDA margins Net margins Coverage ratio Debt to Equity Debt to Assets Return on Capital ROA ROE Relative Performance Abs. Return (%) Avg. Volume (mn) High Low 3M 8.7% 8.7 31.7 25.4 Dec-12A 6M 33.1% 9.3 31.7 21.3 Dec-13E 12M 70.3% 10.9 31.7 14.9 Dec-14F
2.2 22.4 12.7 1.3 0% 35% 37% 10.3% 4.72 0.17 0.09
3.1 2.0 24.7 9.1 1.2 7% 36% 39% 12.0% 8.53 0.15 0.07
3.5 2.0 26.2 8.1 1.1 7% 35% 40% 13.1% 16.44 0.09 0.05
5.2% 9.6%
6.4% 12.7%
6.7% 13.4%
81
Fixed Line Telecom Regional Comparison

Companies GRAMEENPHONE LTD CHINA TELECOM CORP LTD-H IDEA CELLULAR LTD TIPHONE MOBILE INDONESIA TBK KAZAKHTELECOM GOLDIS BHD PAKISTAN TELECOM CO LTD GLOBE TELECOM INC SRI LANKA TELECOM PLC JASMINE INTL PUBLIC CO LTD REGIONAL AVERAGE Source: Bloomberg, AHL Research Origin Bangladesh China India Indonesia Kazakhstan Malaysia Pakistan Philippines Sri Lanka Thailand Mkt Cap (USD mn) 3,447 40,702 8,985 279 1,056 365 1,375 4,899 507 1,455 6,307 P/E (x) 13.5 19.3 37.3 14.1 12.1 17.2 8.1 21.2 19.9 17.8 18.0 P/B (x) 6.7 1.1 2.6 2.6 0.5 0.8 1.1 3.1 1.5 4.5 2.5 P/FCF 14.6 13.7 20.2 27.5 na 27.8 7.1 72.1 na 13.2 24.5 P/Sales 2.6 1.0 1.7 0.4 0.9 13.0 1.1 1.7 1.4 3.7 2.7 Gross Margins 57.0% 0.0% 99.0% 5.5% 29.3% 42.2% 35.2% 91.1% 31.6% 54.8% 44.6% EBITDA Net Margins Margins 54.3% 19.0% 25.0% 5.3% 26.6% 4.5% 3.4% 2.5% 39.3% 126.4% 22.4% 100.1% 39.6% 13.1% 42.3% 7.9% 31.9% 7.1% 44.8% 20.6% 33.0% 30.7% Div Yield 7.0% 2.2% 0.2% 1.5% 0.0% 0.0% 7.0% 0.0% 0.0% 0.0% 1.8% D/E 0.4 0.4 1.0 0.2 0.3 0.1 0.1 1.3 0.3 0.4 0.5 ROA 15.5% 3.1% 2.9% 16.0% 52.8% 5.4% 6.7% 4.9% 4.1% 11.0% 12.2% ROE 47.1% 5.7% 7.4% 25.5% 76.9% 6.7% 13.4% 14.6% 7.6% 27.0% 23.2%
40 35 30 25 20 15 10 5 KZTK KZ PTC PA
Price to Earning
7.0 6.0 5.0 4.0 3.0 2.0 1.0 -
Price to Book
90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

IDEA IN GRAM BD KZTK KZ GRAM BD
Return on Equity
8% 7% 6% 5% 4% 3% 2% 1% 0%
GOLD MK
Dividend Yield
728 HK
PTC PA
TELE IJ
GOLD MK
GOLD MK
IDEA IN
GOLD MK
728 HK
SLTL SL
SLTL SL
SLTL SL
728 HK
GRAM BD
KZTK KZ
GRAM BD
KZTK KZ
82
SLTL SL
PTC PA
PTC PA
TELE IJ
IDEA IN
IDEA IN
TELE IJ
TELE IJ
728 HK
Exploration & Production Sector Performance

CY13 3 3.15 1,730,584 16,482 47.9% 12.06 3.42 28.3% 12.3% 3.9%
Exhibit: E&P Sector Performance Relative to KSE100 KSE100 170% 160% 150% 140% 130% 120% 110% 100% 90% 80%
Jan-13 Apr-13 Jul-13 Aug-13 Nov-13 May-13 Dec-13 Feb-13 Mar-13 Jun-13 Sep-13 Oct-13
E&P Sector

Company Pakistan Oilfields Limited Oil & Gas Development Company Pakistan Petroleum Limited
SYM POL OGDC PPL
EPS 68.0 33.6 29.7
DPS 55.0 13.0 12.0
P/E 7.3 8.2 7.2
P/B 3.2 2.8 2.2
BVPS 157.3 97.8 95.4
RoE 46% 39% 35%
Tp 609.0 327.0 248.4
Curr. P 497.7 276.4 214.6
Upside Recom. 22.4% 18.3% 15.9% Buy Buy Buy
83
Exploration & Production Production paving the way for strong earnings
Exhibit: E&P Sector Oil Production POL 25 20 15 10 5 0 FY12 FY13 FY14 FY15 PPL OGDC
Production additions to shape up the growth story: As key development projects will start bearing fruits in a couple of years, AHL E&P universe appears all set to post a massive FY13-15 CAGR 14% and 10% for oil and gas, respectively. POL leads the pack with 17% CAGR in oil while OGDC dominates the gas production with at 18% CAGR. Regulatory framework encouraging aggressive exploration: To encourage the exploration activities, the government in its recent Petroleum Policy 2012, has increased gas pricing by 36% to USD 6/mmbtu. In addition, government is giving 40% higher price for tight gas, while a policy for shale gas pricing is also under consideration. Circular debt resolution generating interest income stream: To tackle the issue of piling up receivables of E&Ps, the government issued PIBs worth PKR 51bn and PKR 21bn to OGDC and PPL, respectively converting their receivables into earning assets. Improving liquidity will also provide funds for aggressive exploration activities. Strong earnings growth ahead: Amid strong production growth and improving other income, OGDC, POL and PPL are expected to post a massive 3Y CAGR earnings growth of 23%, 19% and 18%, respectively.
Exhibit: E&P Sector Gas Production POL 2,500 2,000 1,500 1,000 500 PPL OGDC
Risks

0 FY12 FY13 FY14 FY15
Sharp decline in crude oil price Delay in development project

84
Recommendation
Target Price Current Price Upside Bloomberg Code Free float Major Shareholders Attock Oil Co. 52.9%, Banks 11.4% Valuation Parameters EPS (PKR) DPS (PKR) P/E (x) P/B (x) Div. Yield ROE ROA EBITDA margins Net margins Exhibit: Oil and Gas Production
mmcfd
BUY
609.0 497.7 22% POL PA 46%
Exploration & Production Pakistan Oilfields Ltd.

2013A 45.8 45.0 5.2 3.6 9.0% 31.8% 20.5% 64.8% 37.5%
2014E 68.0 55.0 3.5 3.2 11.1% 45.9% 28.6% 68.7% 42.1%
2015F 73.4 60.0 3.2 2.9 12.1% 44.8% 28.4% 69.1% 43.0%
Production growth to propel earnings: POLs oil and gas production is expected to grow at 17% and 10% CAGR (FY1315), respectively, mainly from TAL where discovery of Makori East 3 and Gas Processing Facility will be the major contributors towards this massive production growth. Reserves downgrade not as scary as thought earlier; Despite a ~70% reserves downgrade of Manzalai, POLs oil reserves managed to post a modest 1% growth in FY13 as reserves upgrades from Adhi and Makori East compensate the fall. Though, gas reserves have dropped by 18%, however lower gas contribution towards the top line is expected to prevent any sizeable damage going forward. Earnings growing at 3 year CAGR of 19%: We expect POLs bottom line to jump at 3 year CAGR of 19% to PKR 76/share in FY16. For FY14, profitability is expected to clock in at PKR 68/share, up 49% YoY, mainly due to strong production growth. Attractive multiples: The stock is currently trading at FY14E PER of 7.3x, while offering an eye catching dividend yield of 12%.
Gas (LHS)
Oil (RHS)
mn bbls
Risks

Declining oil price and PKR appreciation against USD. Delay in development projects may cause lower than expected production growth.
100 95 90 85 80 75 70 65 60 55 50 FY12 FY13 FY14 FY15 FY16
2.50 2.40 2.30 2.20 2.10 2.00 1.90 1.80 1.70 1.60
85
Exploration & Production Pakistan Oilfields Ltd.

Current Price Target Price Upside Mkt. Cap (PKRmn) Mkt. Cap (USDmn) PKRmn Income Statement Sales Gross profit Other income Finance cost Net profit Balance sheet Total shareholder's equity Long term loans Total non current liabilities Trade payables Total current liabilities Total equity and liabilities Non current assets Current assets Total Assets Cash flow statement CF from operations CF from investing activities CF from financing activities Ending Cash Jun-13A 28,878 16,262 1,954 830 10,828 32,948 12,752 6,292 7,938 53,639 37,026 16,613 53,639 12,559 (5,202) (12,995) (5,637) Jun-14E 38,236 23,581 2,156 1,495 16,089 37,210 13,364 6,061 8,475 59,049 39,422 19,627 59,049 17,583 (3,611) (11,827) 2,145 497.7 609.0 22% 645,928 6,123 Jun-15F 40,429 24,835 2,341 1,345 17,371 40,389 14,006 6,409 9,015 63,410 42,292 21,117 63,410 19,279 (4,185) (14,193) 901 Key Financial Ratios Per share Earning / Share Dividend /Share BVPS Price ratio P/E (x) P/B (x) Div yield Profitability Gross margins EBITDA margins Net margins Coverage ratio Debt to Equity Debt to Assets Return on Capital ROA ROE Relative Performance Abs. Return (%) Avg. Volume (mn) High Low 3M 16.1% 0.2 509.4 435.4 Jun-13A 6M 5.3% 0.2 509.4 428.7 Jun-14E 12M 25.0% 0.3 509.4 386.8 Jun-15F
45.8 45.0 139.3 5.2 3.6 9% 56% 65% 37% 18.5 -
68.0 55.0 157.3 3.5 3.2 11% 62% 69% 42% 15.3 -
73.4 60.0 170.7 3.2 2.9 12% 61% 69% 43% 17.9 -
20% 32%
29% 46%
28% 45%
86
Recommendation
Target Price Current Price Upside Bloomberg Code Free float Major Shareholders GoP 74.97%, OGDCL EET 10.05% Valuation Parameters EPS (PKR) DPS (PKR) P/E (x) P/B (x) Div. Yield ROE ROA EBITDA margins Net margins Exhibit: Oil and Gas Production
mmcfd
BUY
327.0 276.4 18% OGDC PA 15%
Exploration & Production Oil & Gas Dev. Co. Ltd.

2013A 21.1 8.3 13.1 3.7 3.0% 30.7% 24.1% 72.4% 40.6%
2014E 33.6 13.0 8.2 2.8 3.6% 38.9% 30.8% 78.0% 49.9%
2015F 37.2 15.0 7.4 2.2 3.6% 33.4% 27.01% 79.0% 50.4%
Leading the gas production growth: OGDC is expected to lead the gas production growth amongst its peers with a jump of 18% CAGR in next couple of years, mainly from KPD-TAY, Sinjhoro, Uch and Jhal Magsi fields. Oil not far behind; Strong production flows from Nashpa, Makori East, KPD and Sinjhoro are anticipated to improve oil production at 13% CAGR in two years time. Other income to jump by 50% YoY: Other income is expected to jump by a hefty 50% YoY to PKR 23bn in FY14, mainly on account of higher interest realised from investments in PIBs (PKR 52bn) and TFCs (PKR 82bn). Profitability growth: Fuelled from higher production coupled with strong interest income, OGDCs profitability is expected to jump at 3 year CAGR of 23% to PKR 39.34/share in FY16. Attractive multiples: The stock is currently trading at FY14E PER of 8.2x, while offering a dividend yield of 4%.
Gas (LHS)
Oil (RHS)
mn bbls
Risks

Declining oil price and PKR appreciation against USD. Delay in development projects may cause lower than expected production growth.
1,500 1,450 1,400 1,350 1,300 1,250 1,200 1,150 1,100 1,050 1,000 FY12 FY13 FY14 FY15 FY16
20.0 19.0 18.0 17.0 16.0 15.0 14.0 13.0 12.0 11.0 10.0
87
Exploration & Production Oil & Gas Dev. Co. Ltd.

Current Price Target Price Upside Mkt. Cap (PKRmn) Mkt. Cap (USDmn) PKRmn Income Statement Sales Gross profit Other income Finance cost Net profit Balance sheet Total shareholder's equity Long term loans Total non current liabilities Trade payables Total current liabilities Total equity and liabilities Non current assets Current assets Total Assets Cash flow statement CF from operations CF from investing activities CF from financing activities Ending Cash Jun-13A 223,365 157,666 15,694 2,315 90,765 323,659 51,611 36,503 38,741 414,011 279,682 134,329 414,011 278,113 (164,799) (33,922) 79,392 Jun-14E 289,687 211,977 23,501 2,501 144,671 411,488 57,398 46,350 48,588 517,474 297,260 220,214 517,474 151,460 (29,696) (51,068) 70,696 276.4 327.0 18% 1,188,605 11,266 Jun-15F 317,640 232,253 28,298 2,676 159,486 509,040 64,128 50,822 53,061 626,229 306,228 320,000 626,229 175,493 (17,987) (61,933) 95,572 Key Financial Ratios Per share Earning / Share Dividend /Share BVPS Price ratio P/E (x) P/B (x) Div yield Profitability Gross margins EBITDA margins Net margins Coverage ratio Debt to Equity Debt to Assets Return on Capital ROA ROE Relative Performance Abs. Return (%) Avg. Volume (mn) High Low 3M 18.4% 0.5 280.5 233.1 Jun-13A 6M 23.0% 0.6 280.5 225.4 Jun-14E 12M 48.6% 0.7 280.5 177.6 Jun-15F
21.1 8.3 75.3 13.1 3.7 3% 71% 72% 41% 60.2 -
33.6 13.0 95.7 8.2 2.9 5% 73% 78% 50% 83.9 -
37.1 15.0 118.4 7.5 2.3 5% 73% 79% 50% 86.6 -
24% 31%
31% 39%
28% 35%
88
Exploration & Production Regional Comparison

Companies CNOOC LTD OIL & NATURAL GAS CORP LTD KAZMUNAIGAS EXPLORATION PROD PAKISTAN PETROLEUM LTD OIL & GAS DEVELOPMENT CO LTD PAKISTAN OILFIELDS LTD PHILEX PETROLEUM CORP PTT EXPLOR & PROD PUBLIC CO PETROVIETNAM GAS JOINT STOCK REGIONAL AVERAGE Source: Bloomberg, AHL Research Origin China India Kazakhstan Pakistan Pakistan Pakistan Philippines Thailand Vietnam Mkt Cap (USD mn) 82,448 40,311 6,357 4,026 11,257 1,118 298 20,113 6,020 19,105 P/E (x) 9.4 11.0 6.9 7.2 8.2 3.5 na 9.6 7.5 7.9 P/B (x) 1.9 1.7 0.8 2.2 2.8 3.2 74.2 2.0 2.7 10.2 P/FCF 18.4 8.9 6.0 6.5 9.5 47.6 na 39.1 7.1 17.9 P/Sales 9.4 11.0 6.9 3.2 4.1 3.1 na 9.6 7.5 6.8 Gross Margins na na na 72.4% 73.2% 61.7% 44.2% 78.2% 21.8% 58.6% EBITDA Net Margins Margins 47.5% 27.5% 35.6% 75.7% 78.0% 68.7% -5.2% 72.0% 21.7% 46.8% 25.7% 14.9% 20.2% 44.2% 49.9% 42.1% na 27.0% 14.4% 29.8% Div Yield 3.6% 3.5% 0.0% 5.6% 3.6% 11.1% 0.0% 3.7% 3.0% 3.8% D/E 0.2 0.1 0.0 1.2 0.4 0.3 0.4 ROA 15.2% 10.0% 10.4% 22.3% 30.8% 28.6% -24.8% 10.9% 21.6% 13.9% ROE 22.2% 16.8% 12.2% 31.1% 38.9% 45.9% -72.7% 21.9% 38.7% 17.2%
12 11 10 9 8 7 6
Price to Earning
4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 -
Price to Book
45% 40% 35% 30% 25% 20% 15% 10% 5% 0%

POL PA OGDC PA GAS VN POL PA
Return on Equity
12% 10% 8% 6% 4% 2% 0%
Dividend Yield
883 HK
OGDC PA
883 HK
PPL PA
POL PA
ONGC IN
ONGC IN
GAS VN
PPL PA
GAS VN
PTTEP TB
PTTEP TB
RDGZ KZ
RDGZ KZ
883 HK
PTTEP TB
PTTEP TB
OGDC PA
ONGC IN
POL PA
PPL PA
ONGC IN
GAS VN
883 HK
OGDC PA
RDGZ KZ
89
RDGZ KZ
PPL PA
Oil Marketing Sector Performance

CY13 3 2.57 140,114 1,334 53.6% 8.36 1.71 20.4% 4.7% 3.5%
Exhibit: OMC Sector Performance Relative to KSE100 KSE100 160% 150% 140% 130% 120% 110% 100% 90% 80%
Feb-13 Mar-13 May-13 Jun-13 Aug-13 Sep-13 Jan-13 Apr-13 Jul-13 Oct-13 Nov-13 Dec-13
OMC Sector

Bank Pakistan State Oil Attock Petroleum Limited
SYM PSO APL
EPS 86.2 63.7
DPS 10.0 50.0
P/E 3.9 7.9
P/B
BVPS
RoE 30% 36%
Tp 461.0 576.1
Curr. P 332.2 499.7
Upside Recom. 38.8% 15.3% Buy Buy
1.0 326.2 2.7 184.6
90
Oil Marketing Circular Debt improvement to lead the way

Exhibit: OMCs Sector Oil Sales

mn tons
Power sector reforms to benefit OMCs: Power tariff increase will pave the way for liquidity improvement in the energy chain as power subsidy was one of the major reasons for resurrection of circular debt. We believe that improving liquidity would be a major trigger for the re-rating of OMCs stocks going forward, particularly for PSO, which is currently trading at FY14E and FY15F PER of 3.9 and 4.7, vs market PER of 7.2x. Scarcity of CNG fuels the demand of transportation fuels: With CNG getting dearer every year, demand of MS and HSD has been on the rise, evident from 18% YoY and 8% YoY growth already achieved in FY14TD. We foresee this trend to strengthen further as the government continues to discourage the usage of CNG. Improving liquidity spurs FO demand: Improving liquidity coupled with governments persistence of less load shedding, demand of FO has increased by 15% YTD in FY14. Margins improvement on the cards: As Petroleum ministry is in final stage to recommend increase in OMC margins for retail segment.
Other
JP
FO
HSD
MS
25 20 15 10 5 FY11 FY12 FY13 FY14
Earnings Sensitivity on Crude Oil Price and Margins Amount in Crude Oil Margin increase by PKR 0.25/ltr PKR/share On USD +5/bbl HSD MS PSO APL Source: AHL Research 5.72 1.1 3.38 1.9 1.71 0.8
Risks
Drop in oil price would decrease margins on deregulated products and inventory loss Governments failure to curb circular debt problem.
91
Recommendation
BUY
Oil Marketing Pakistan State Oil

Target Price 461.0 Current Price 332.2 Upside 39% Bloomberg Code PSO PA Free float 46% Major Shareholders GoP 22.5%, NBP 15.0%, Modarbas 34.0% Valuation Parameters EPS (PKR) DPS (PKR) P/E (x) P/B (x) Div. Yield ROE ROA EBITDA margins Net margins Exhibit: PSOs Finance Cost & Other Income
PKR bn
2013A 50.84 5.00 6.53 0.75 1.5% 22% 4% 2% 1%
2014E 86.17 10.00 3.86 0.98 3.0% 30% 7% 3% 1%
2015F 71.09 15.00 4.67 1.16 4.5% 20% 5% 2% 1%
Resolution of circular debt: Rationalization of power tariff and substantial reduction in subsidy are the major steps forward towards the eradication of circular debt. With 76% share in FO market, PSO will be the major beneficiary of circular debt resolution. Volumetric growth: With highest market share, PSO will be the major beneficiary of 18%, 6% and 9% YoY growth in MS, HSD and FO, respectively mainly on account of CNG shortage and improving load factor of power sector. Strong other income; Under the circular debt resolution mechanism, PSO subscribed to PIBs worth PKR 44bn, carrying mark up rate of 11.5%. These PIBs, provide healthy interest income on one hand, while become a pledge of short term borrowing for PSO. Earnings growing at 3 year CAGR of 14%: We expect PSOs bottom line to jump at 3 year CAGR of 14% to PKR 75.6/share in FY16. For FY14, profitability is expected to clock in at PKR 86.17/share, up 69% YoY, mainly due to penal interest received from power sector.
Finance Cost
Other Income
17 15 13 11 9 7 5 FY12A FY13A FY14E FY15F
Risks

Resurrection of circular debt Decline in oil prices leads to drop in margins of deregulated products and cause inventory losses.
92
Oil Marketing Pakistan State Oil

Current Price Target Price Upside Mkt. Cap (PKRmn) Mkt. Cap (USDmn)
PKRmn Income Statement Sales Gross profit Other income Finance cost Net profit Balance sheet Total shareholder's equity Long term loans Total non current liabilities Trade payables Total current liabilities Total equity and liabilities Non current assets Current assets Total Assets Cash flow statement CF from operations CF from investing activities CF from financing activities Ending Cash Jun-13A 1,100,122 36,509 5,939 7,591 12,558 61,888 3,728 197,303 215,693 281,308 56,952 224,356 281,308 79,444 (46,107) (11,698) 21,639 Jun-14E 1,549,912 43,456 16,272 7,103 21,284 80,578 3,728 210,491 277,005 361,311 56,618 304,693 361,311 (38,808) (855) 45,530 5,867
332.2 461.0 39% 82,054 778

Jun-15F 1,620,213 42,673 8,348 7,539 17,559 95,050 3,728 220,423 291,458 390,235 56,371 333,864 390,235 (3,718) (902) 1,432 (3,188)
Relative Performance Abs. Return (%) Avg. Volume (mn) High Low
Key Financial Ratios Per share Earning / Share Dividend /Share BVPS Price ratio P/E (x) P/B (x) Div yield Profitability Gross margins EBITDA margins Net margins Coverage ratio Debt to Equity Debt to Assets Return on Capital ROA ROE
3M 27.9% 1.8 340.4 264.3

Jun-13A
6M 4.6% 2.3 363.8 259.7

Jun-14E
12M 75.0% 2.2 363.8 177.2

Jun-15F
50.8 5.0 250.6 6.5 0.8 2% 3.3% 2.5% 1.1% 0.3 0.3 0.1
86.2 10.0 326.2 3.9 1.0 3% 2.8% 2.6% 1.4% 0.2 0.8 0.2
71.1 15.0 384.8 4.7 1.2 5% 2.6% 2.1% 1.1% 0.2 0.7 0.2
4% 22%
7% 30%
5% 20%
93
Oil Marketing Regional Comparison

Companies MJL BANGLADESH LTD SHENZHEN GUANGJU ENERGY CO-A RELIANCE INDUSTRIES LTD SURYA ESA PERKASA TBK PT GAS MALAYSIA BHD PAKISTAN STATE OIL CO LTD ATTOCK PETROLEUM LTD PETRON CORP CHEVRON LUBRICANTS LANKA PLC REGIONAL AVERAGE Source: Bloomberg, AHL Research Origin Bangladesh China India Indonesia Malaysia Pakistan Pakistan Philippines Sri Lanka Mkt Cap P/E (x) P/B (x) (USD mn) 231 459 45,815 221 1,485 778 9,339 2,949 249 6,836 29.2 96.0 10.9 41.8 19.8 3.9 7.9 80.5 10.7 33.4 2.6 1.1 1.2 6.6 3.3 1.0 2.7 1.7 5.9 2.9 P/FCF 1,008.7 34.4 29.1 579.4 18.1 3.7 174.9 8.4 206.3 P/Sales 2.7 2.1 0.6 8.0 1.6 0.1 4.1 0.2 2.1 2.4 Gross Margins 19.0% 6.6% 0.0% 63.3% 11.2% 2.8% 3.0% 4.4% 32.4% 15.8% EBITDA Net Margins Margins 17.4% 1.6% 8.4% 29.1% 11.5% 2.6% 3.3% 3.4% 25.6% 11.4% 9.3% 2.1% 5.3% 18.9% 7.7% 1.4% 2.2% 0.5% 19.2% 7.4% Div Yield 3.4% 0.0% 1.0% 0.0% 0.0% 3.0% 10.0% 0.0% 0.0% 1.9% D/E ROA ROE 9.2% 1.1% 11.9% 23.2% 16.1% 29.9% 36.0% 2.1% 62.0% 21.3% 0.4 5.7% 1.0% 0.6 6.1% 0.4 9.7% - 10.9% 0.8 6.6% - 14.9% 1.5 1.0% - 43.8% 0.5 11.1%
120 100 80 60 40 20 -
Price to Earning
7.0 6.0 5.0 4.0 3.0 2.0 1.0 -
Price to Book
35% 30% 25% 20% 15% 10% 5% 0%
Return on Equity
12% 10% 8% 6% 4% 2% 0%
Dividend Yield
GMB MK
000096 CH
GMB MK
APL PA
ESSA IJ
RIL IN
RIL IN
GMB MK
MJL BD
MJL BD
RIL IN
MJL BD
000096 CH
000096 CH
MJL BD
000096 CH
PSO PA
PSO PA
PSO PA
PSO PA
APL PA
ESSA IJ
APL PA
ESSA IJ
ESSA IJ
RIL IN
94
GMB MK
APL PA
Other Sectors in Focus|2014

The new bulls lined up
Consumer Goods (FMCGs) Key Company Indicators

Company Clover Pakistan Ltd. Engro Foods Ltd. Ismail Industries Ltd. Mitchell's Fruit Farms Ltd. Murree Brewery Co. Ltd. National Foods Ltd. Nestle Pakistan Ltd. Noon Pakistan Ltd. Quice Food Ltd. Rafhan Maize Products Ltd. Shezan International Ltd. Unilever Pakistan Foods Ltd. Key Ratios Clover Pakistan Ltd. Engro Foods Ltd. Ismail Industries Ltd. Mitchell's Fruit Farms Ltd. Murree Brewery Co. Ltd. National Foods Ltd. Nestle Pakistan Ltd. Noon Pakistan Ltd. Quice Food Ltd. Rafhan Maize Products Ltd. Shezan International Ltd. Unilever Pakistan Foods Ltd.
Mkt Cap (USDmn) 6.17 759.95 99.51 37.89 84.67 199.20 3,395.85 2.20 3.75 700.39 45.91 554.48
1Yr Avg. Volume 3,355 2,994,983 303 1,798 18,787 15,628 284 1,250 890,689 233 2,473 58
Last Price (PKR) 69.0 104.6 207.8 634.5 387.5 405.7 7,900.0 44.5 7.6 8,000.0 667.2 9,500.0 RoA 5.9% 13.4% 4.2% 13.7% 9.6% 19.4% 13.6% 2.7% 21.2% 21.9% 10.0% 37.9%
Freefloat 5.0% 15.0% 5.0% 35.9% 44.0% 28.0% 5.0% 25.0% 75.0% 4.5% 43.4% 1.4%
52-Weeks High 73.2 162.2 208.6 734.5 400.0 458.4 9,300.0 55.7 10.2 8,208.9 772.3 11,400.0 Low 50.2 80.4 137.2 272.9 115.0 205.2 4,421.5 36.5 5.5 3,376.1 347.3 3,671.1 Dividend Yield, % 8.7% 0.0% 1.0% 1.2% 1.3% 1.5% 0.9% 0.0% 0.0% 1.6% 1.3% 1.2%
Trailing PE 10.9 30.9 29.3 36.9 12.4 31.2 61.1 (1.8) nm 36.2 19.4 81.8 Debt to Equity 0.0% 77.5% 55.9% 88.0% 0.3% 36.2% 218.4% 112.0% 59.7% 0.0% 0.0% 11.0% PBV 0.8 8.0 4.4 9.2 3.8 15.0 31.0 0.8 3.5 10.8 4.3 99.0 Debt to Assets 0.0% 35.1% 14.8% 46.8% 0.1% 16.1% 49.6% 25.7% 30.5% 0.0% 0.0% 3.2%
Gross Net Margins Margins 33.5% 25.7% 17.2% 24.6% 31.2% 32.5% 27.2% 12.2% 34.5% 20.3% 28.8% 38.0% 210.9% 6.5% 3.5% 5.7% 14.5% 8.1% 7.4% 1.1% 18.8% 10.4% 4.1% 12.2%
RoE Book Value 6.8% 30.0% 16.5% 27.4% 24.7% 50.2% 61.2% 12.6% 66.7% 32.0% 20.1% 132.1% 90.73 13.12 47.68 68.66 102.09 27.07 254.91 58.07 2.17 743.13 153.64 95.97
Revenue Growth (YoY) 27.3% 34.5% 8.9% 5.0% 19.5% 19.2% 22.0% -11.2% 11.2% 6.9% 12.1% 18.6% Profit Growth (YoY) -88.7% 191.3% -2.5% 47.6% 36.8% 15.4% 25.6% -455.4% -99.1% 0.3% 20.2% 16.0%
96
Pharmaceuticals Key Company Indicators

Company Abbot Laboatories (Pak) Ltd. Ferozsons Laboratories Ltd. Glaxosmithkline (Pak) Ltd. Highnoon Laboratories Litd. IBL HealthCare Ltd. Otsuka Pakistan Ltd. Sanofi-Aventis Pakistan Ltd. The Searle Company Litd. Wyeth Pak Ltd. Abbot Laboatories (Pak) Ltd. Ferozsons Laboratories Ltd. Glaxosmithkline (Pak) Ltd. Key Ratios Abbot Laboatories (Pak) Ltd. Ferozsons Laboratories Ltd. Glaxosmithkline (Pak) Ltd. Highnoon Laboratories Litd. IBL HealthCare Ltd. Otsuka Pakistan Ltd. Sanofi-Aventis Pakistan Ltd. The Searle Company Litd. Wyeth Pak Ltd. Abbot Laboatories (Pak) Ltd. Ferozsons Laboratories Ltd. Glaxosmithkline (Pak) Ltd.
Mkt Cap (USDmn) 365.2 45.4 373.8 20.4 15.8 4.9 70.1 71.8 60.6 365.2 45.4 373.8
1Yr Avg. Volume 18,153 20,613 304,971 25,571 38,762 11,592 407 151,527 1,257 18,153 20,613 304,971
Last Price (PKR) 393.5 158.6 136.2 118.5 72.5 47.4 767.3 123.6 4,500.0 393.5 158.6 136.2 RoA 25.0% 16.8% 8.7% 6.3% 17.4% -0.3% 9.9% 11.3% 11.2% 25.0% 16.8% 8.7%
Freefloat 19.9% 30.0% 15.5% 35.0% 20.0% 12.9% 15.0% 45.0% 26.6% 19.9% 30.0% 15.5%
52-Weeks High 448.4 158.6 145.6 181.2 74.8 52.3 767.3 128.8 5,200.0 448.4 158.6 145.6 Low 193.3 69.5 59.5 42.7 20.2 30.0 304.5 30.4 823.4 193.3 69.5 59.5 Dividend Yield, % 1.8% 2.8% 2.9% 3.0% 3.4% 2.6% 1.6% 0.8% 1.8% 1.8% 2.8% 2.9%
Trailing PE 18.4 11.7 29.9 20.8 16.6 na 15.2 14.5 33.4 18.4 11.7 29.9 Pharma % age in Topline 74.8% 68.0% 89.1% na 23.0% 100.0% 97.1% 95.0% 100.0% 74.8% 68.0% 89.1% PBV 5.2 2.3 3.6 3.4 5.3 1.0 3.7 2.9 4.9 5.2 2.3 3.6 Pharma Market Share 5.9% na 11.6% na na 4.1% na na na 5.9% na 11.6%
Gross Net Margins Margins 36.3% 38.9% 21.7% 10.1% 42.9% -1.0% 18.5% 24.6% 26.2% 36.3% 38.9% 21.7% 13.7% 20.9% 5.7% 4.2% 11.6% -0.2% 5.6% 10.6% 6.1% 13.7% 20.9% 5.7%
RoE Book Value 35.1% 23.4% 12.1% 55.6% 32.7% -0.7% 26.9% 25.9% 15.5% 35.1% 23.4% 12.1% 76.3 67.9 38.2 34.9 13.8 46.8 207.3 42.1 919.4 76.3 67.9 38.2
Revenue Growth (YoY) 27.1% 0.0% 15.7% 11.9% 28.4% nm 112.2% 39.2% 9.4% 27.1% 0.0% 15.7% Profit Growth (YoY) 27.1% 0.0% 15.7% 11.9% 28.4% nm 112.2% 39.2% 9.4% 27.1% 0.0% 15.7%
97
98
AHL Research Valuation Guide

Sr. No E&Ps Pakistan Petroleum Ltd. Pakistan Oilfields Ltd. Oil and Gas Dev Co. Banks National Bank of Pakistan NBP 58.1 MCB Bank Ltd. MCB 281.2 United Bank Ltd. UBL 132.6 Bank Alfalah BAFL 27.0 Meezan Bank MEBL 39.4 Fertilizer Engro Corporation ENGRO 158.4 Fauji Fertilizer Co. FFC 112.0 Fauji Fert. Bin Qasim FFBL 43.8 Cement Attock Cement Ltd. ACPL 142.6 D.G. Khan Cement Co. DGKC 85.7 Fauji Cement Company FCCL 16.0 Kohat Cement Company KOHC 97.8 Lucky Cement Ltd. LUCK 299.9 Oil Marketing Pakistan State Oil PSO 332.2 Attock Petroleum Ltd. APL 499.7 Autos Indus Motor Company INDU 333.0 Pak Suzuki Motor Co. PSMC 153.9 Power Hub Power Company HUBC 60.7 Kot Addu Power Co. KAPCO 61.8 Nishat Chunian Power Ltd. NCPL 34.8 Nishat Power Limited NPL 30.1 Textiles Nishat Mills Ltd. NML 127.2 Nishat (Chunian) Ltd. NCL 60.2 Chemical Lotte Chemical Pak Ltd. LOTCHEM 7.3 Engro Polymer & Chem. EPCL 13.4 Fixed Line Telecom Pak Telecom Co. Ltd** PTC 28.4 * Closing price as of Dec 31, 2013, **On consolidated basis 57.5 261.4 157.4 34.2 37.5 255.0 134.0 55.2 173.5 129.0 20.1 166.3 351.0 461.0 576.1 360.7 169.7 69.0 66.4 38.4 35.6 169.4 85.8 8.3 16.3 36.0 -1.0% -7.0% 18.7% 26.5% -4.8% 61.0% 19.7% 26.0% 21.6% 50.5% 26.0% 70.1% 17.1% 38.8% 15.3% 8.3% 10.3% 13.7% 7.5% 10.5% 18.6% 33.1% 42.5% 13.4% 21.5% 26.6% Sell Sell Buy Buy Sell 2,128 1,012 1,224 1,349 1,003 24% 40% 25% 50% 10% 50% 55% 35% 20% 55% 55% 25% 40% 46% 20% 25% 26% 70% 52% 41% 40% 50% 45% 25% 17% 12% 1,176 2,710 1,545 347 376 771 1,357 390 156 358 202 144 924 781 395 249 121 669 518 122 101 426 115 106 85 1,381 7.6 20.7 14.7 3.4 3.5 2.4 16.4 4.6 12.5 9.4 0.3 10.7 21.0 36.7 49.7 54.7 11.9 7.1 6.9 5.5 5.8 10.0 3.5 0.0 0.1 2.2 4.3 21.8 14.3 3.5 3.6 16.4 15.4 6.7 18.7 12.4 1.4 17.0 30.0 50.8 47.1 42.7 15.9 8.1 8.4 7.5 8.1 16.6 11.4 0.0 1.3 3.0 6.5 25.6 16.3 4.0 3.5 33.5 16.0 7.1 21.0 15.4 1.9 18.7 39.8 85.8 57.7 43.5 13.3 8.8 9.1 7.8 8.6 23.7 14.3 0.6 2.1 3.5 7.00 13.00 8.50 2.00 1.50 20.00 4.50 8.50 1.50 3.00 6.00 5.50 50.00 32.00 2.50 6.00 6.90 3.50 2.00 3.50 2.00 3.5 14.0 8.6 2.0 2.0 14.6 5.3 13.0 3.0 1.3 5.0 6.0 5.0 45.0 25.0 2.5 8.0 7.5 6.0 3.5 4.0 2.0 2.0 5.2 15.4 9.8 2.3 2.0 15.2 6.3 13.0 3.0 1.3 6.0 8.0 10.0 50.0 25.0 2.5 7.5 7.5 4.5 3.5 5.0 4.0 2.0 13.5 12.9 9.3 7.9 10.8 9.8 7.4 6.6 7.7 6.9 10.8 5.7 9.9 6.5 10.6 7.8 9.2 7.5 7.3 4.6 3.6 7.7 5.3 216.5 9.8 6.2 8.4 8.9 11.0 8.1 6.8 11.1 4.8 7.1 6.3 6.9 5.5 8.2 5.2 7.5 3.9 8.6 7.7 11.0 6.9 6.8 4.4 3.5 5.4 4.2 6.0% 5.0% 6.5% 7.3% 5.2% 0.0% 12.8% 12.0% 9.0% 3.5% 8.1% 5.1% 2.0% 1.5% 9.0% 7.5% 1.7% 13.1% 12.2% 17.5% 11.8% 3.1% 3.3% 0.0% 0.0% 6.8% 8.9% 5.5% 7.4% 8.4% 5.2% 0.0% 13.3% 14.2% 9.0% 3.5% 8.1% 6.1% 2.7% 3.0% 10.0% 7.5% 1.7% 12.3% 12.2% 13.1% 11.8% 3.9% 6.7% 0.0% 0.0% 6.8% 0.8 2.5 1.7 1.1 1.9 1.6 5.3 2.9 2.1 0.8 1.3 2.5 2.4 1.4 3.0 1.5 0.7 2.2 2.1 1.8 1.2 0.8 1.5 0.9 1.4 1.2 0.8 2.3 1.5 1.1 1.7 1.3 5.2 2.9 1.7 0.9 1.1 1.9 1.9 1.1 2.7 1.3 0.6 2.1 2.1 1.5 1.0 0.7 1.2 0.8 1.1 1.1 11.3% 22.0% 21.5% 16.3% 22.2% 2.9% 84.8% 33.0% 23.1% 13.0% 3.0% 52.9% 22.2% 18.1% 31.4% 27.6% 6.0% 27.2% 25.5% 36.8% 32.1% 9.6% 11.9% 0.0% 1.2% 10.1% 5.9% 20.5% 18.9% 15.0% 18.6% 17.9% 73.5% 46.9% 29.3% 13.5% 12.7% 53.7% 26.1% 22.7% 29.6% 19.4% 7.4% 29.6% 29.9% 41.3% 35.1% 12.1% 32.3% 0.4% 13.8% 12.5% PPL POL OGDC 214.0 497.7 276.4 248.0 609.0 327.0 15.9% 22.4% 18.3% Buy 1,972 Buy 237 Buy 4,301 21% 46% 15% 4,018 1,121 11,320 20.8 50.1 22.5 21.3 45.8 21.1 28.2 68.3 31.4 9.58 52.50 7.25 10.5 45.0 7.5 13.0 55.0 7.5 10.1 10.9 13.1 7.6 7.3 8.8 4.9% 9.0% 2.7% 6.1% 11.1% 2.7% 2.8 3.6 3.7 2.2 3.3 2.7 37.1% 34.5% 41.2% 30.4% 31.7% 30.7% Company Symbol Price* Target Upside/ Shares Free M.Cap ($ Stance Price Downside (mn) Float (%) mn) 11-12 EPS 12-13 13-14 11-12 DPS 12-13 13-14 P/E 12-13 13-14 Div. Yield 12-13 13-14 P/B 12-13 13-14 ROE 12-13 13-14
Buy 511 Buy 1,272 Buy 934 Buy 115 Buy 438 Buy 1,331 Buy 155 Buy 323 Buy Buy Hold Hold 247 83 79 82
Hold 1,157 Hold 880 Hold 367 Buy 354 Buy Buy 352 200
Hold 1,514 Buy 663 Buy 5,100
99
Notes
100
Disclaimer
Analyst certification: The analysts for this report certify that all of the views expressed in this report accurately reflect their personal views about the subject companies and their securities, and no part of the analysts compensation was, is or will be, directly or indirectly related to specific recommendations or views expressed in this report. Disclosures and disclaimer : This document has been prepared by investment analysts at Arif Habib Limited (AHL). AHL investment analysts occasionally provide research input to the companys Corporate Finance and Advisory Department. This document does not constitute an offer or solicitation for the purchase or sale of any security. This publication is intended only for distribution to current and potential clients of the Company who are assumed to be reasonably sophisticated investors that understand the risks involved in investing in equity securities. The information contained herein is based upon publicly available data and sources believed to be reliable. While every care was taken to ensure accuracy and objectivity, AHL does not represent that it is accurate or complete and it should not be relied on as such. In particular, the report takes no account of the investment objectives, financial situation and particular needs of investors. The information given in this document is as of the date of this report and there can be no assurance that future results or events will be consistent with this information. This information is subject to change without any prior notice. AHL reserves the right to make modifications and alterations to this statement as may be required from time to time. However, AHL is under no obligation to update or keep the information current. AHL is committed to providing independent and transparent recommendation to its client and would be happy to provide any information in response to specific client queries. Past performance is not necessarily a guide to future performance. This document is provided for assistance only and is not intended to be and must not alone be taken as the basis for any investment decision. The user assumes the entire risk of any use made of this information. Each recipient of this document should make such investigation as it deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in this document (including the merits and risks involved), and should consult his or her own advisors to determine the merits and risks of such investment. AHL or any of its affiliates shall not be in any way responsible for any loss or damage that may be arise to any person from any inadvertent error in the information contained in this report. We and our affiliates, officers, directors, and employees may: (a) from time to time, have long or short positions in, and buy or sell the securities thereof, company (is) mentioned herein or (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as advisor to such company (is) or have other potential conflict or interest with respect to any recommendation and related information and opinions. The disclosures of interest statements incorporated in this document are provided solely to enhance the transparency and should not be treated as endorsement of the views expressed in the report. AHL generally prohibits it analysis, persons reporting to analysts and their family members from maintaining a financial interest in the securities that the analyst covers. Arif Habib Researchs coverage excludes Fatima Fertilizer Company Limited (FATIMA), an Arif Habib Group company, while Pakistan Petroleum Limiteds (PPL) coverage has been put on the restricted list due to Corporate Financial Advisory Mandate.
2014 Arif Habib Limited: Corporate Member of the Karachi, Lahore and Islamabad Stock Exchanges and Pakistan Mercantile Exchange Limited. No part of this publication may be copied, reproduced, stored or disseminated in any form or by any means without the prior written consent of Arif Habib Limited. www.arifhabibltd.com
101
Annexure List of Abbreviations

3G 4G A/C ADB ADR AL ANP 3rd Generation 4th Generation Account Asian Development Bank Advance to Deposit Ratio Arab Light Awami National Party FO FOB FSV FX/Forex FY G2P GDC GDP GDS GENCO GM GoP Gov't GRM HOBC HoH HSD IDR IFEM IFI IM F Int'l IPI IPO IPP IPS JUI Kero KIBOR KPD KSE LDI LDO LIBOR LIPI LPG LSM LTE M &A M CR M EG M FN M M CFD Furnace Oil Freight on Board Forced Sale Value Foreign Exchange Fiscal Year Government to Person Gas Distribution Companies Gross Domestic Product Gas Development Surcharge Generation Companies Gross M argin Government of Pakistan Government Gross Refinery M argin High Octane Blended Component Half on Half High Speed Diesel Investment to Deposit Ratio Inland Freight Equalization M argin International Financial Institutions International M onetary Fund International Iran-Pakistan-India Initial Public Offering Independent Power Producer Investor Portfolio Securities Jamiat Ulema Islam Kerosene Oil Karachi Interbank Offered Rate Kunnar Pasaki Deep Karachi Stock Exchange Long Distance International Light Diesel Oil London Interbank Offered Rate Local Investor Portfolio Investment Liquified Petroleum Gas Large Scale M anufacturing Long Term Evolution M erger & Acquisition M inimum Capital Requirement Ethylene Glycole M ost Favoured Nation M illions of cubic feet per day MN M OGAS M oU MP M PS M QM MS M SCI MT M TS MW NDA NFA NFC NFDC NFM L NII NIM s NPL NSS NTB NTDC OCAC M illion M otor Gasoline M emorandum of Understanding M arket Price M onetary Policy Statement M uttahida Quami M ovement M otor Spirit M organ Stanley Composite Index M etric Ton M argin Trading System M ega Watt Net Domestic Assets Net Foreign Assets National Finance Commission National Fertilizer Development Centre National Fertilizer M arketing Limited Net Interest Income Net Interest Margins Non Performing Loan National Saving Scheme Non-Tariff Barriers National Transmission and Dispatch Company Oil Companies Advisory Committee PPP PPS PSDP PSE PSF PTA PTI QoQ RDF RGST ROA ROE RPPs SBA SBP SCRA SECP SLR SM E SR STA TBILL TDF TI TRN USD WHR WTI YoY YR YTD Pakistan People Party Percentage Points Public Sector Development Program Public Sector Enterprise Polyester Staple Fibre Purified Terephtalic Acid Pakistan Tehreek-e-Insaf Quarter on Quarter Refused Derive Fuel Reformed General Sales Tax Return on Assets Return on Equity Rental Power Projects Standby Agreement State Bank of Pakistan Special Convertible Rupee Account Securities Exchange Commission of Pakistan Statuary Liquidity Requirement Small M edium Enterprises Sharpe Ratio Single Treasury Account Treasury Bill Tyre Derived Fuel Transparency International Trillion United States Dollar Waste Heat Recovery West Texas Intermediaries Year on Year Year Year to date
APM DA All Pakistan M otors Dealer Association BN Billion BOP BPD BPS BTU BV CAD CAGR CAR CFY CNG CPI CRR CSF CY CYTD DAP DEP DHDS DPS DR DSC DY E&P EBIT Balance of Payments Barrel per day Basis Points British Thermal Unit Book Value Current Account Deficit Compound Average Growth Rate Capital Adequacy Ratio Cashflow Yield Compressed Natural Gas Consumer Price Index Cash Reserve Requirement Collation Support Fund Calendar Year Calendar Year to date Di-ammonium Phosphate Depreciation Diesel Hydro Desulphurization Dividend per share Discount rate Defence Savings Certificates Dividend Yield Exploration & Production Earning before interests & taxes
OGRA Oil and Gas Regulatory Authority OM C Oil M arketing Company PAAPAM Pakistan Association of Automotive Parts Accessories Manufacturers PAM A PAT PB PCF PEG PEPCO PER PIB PKR PL PLS PM L PM L-N POL PP PPIB PPIS Pakistan Automotive M anufacturers Association Profit After Tax Price to Book Price to Cash Flow Price-Earnings to Growth Pakistan Electric Power Company Price to Earning Ratio Pakistan Investment Bond Pakistan Rupees Petroleum Levy Profit and Loss Sharing Pakistan M uslim League Pakistan M uslim League (Nawaz) Petroleum Oil Lubricants Petroleum Policy Private Power Infrastructure Board Pakistan Petroleum Information Service
WAPDA Water and Power Development Authority
EBITDA Earning before interest, taxes, depreciation & amortization EGrow Earnings Growth EM EPS EV EY FC FIPI FM FM CG Emerging M arket Earning per share Enterpise Value Earning Yield Factor cost Foreign Investor Portfolio Investment Frontier M arket Fast M oving Consumer Goods
102
Annexure Key Data Source

APCMA APTMA All Pakistan Cement Manufacturing Association All Pakistan Textile Manufacturers Association Annual plan ADB Asian Development Bank Report Bloomberg Budget Documents Economic Survey Gallup Pakistan Government of Punjab Agricultural Department Government of Sindh Agricultural Department IMF International Monetary Fund IFS International Financial Statistics KCA Karachi Cotton Association NEPRA National Eletric Regulatory Authority NFDC National Fertilizer Development Centre OECD Organization of Economic Committee Development Report OGRA Oil and Gas Regulatory Authority OCAC Oil Companies Advisory Committee Pakistan Association of Automotive Parts Accessories PAAPAM Manufacturers PAMA Pakistan Automotive Manufacturers Association PBS Pakistan Beareu of Statistics PTA Pakistan Telecommunication Authority SBP State Bank of Pakistan World Bank Database WDI World Development Indicators
103
Contact
Shahid Ali Research Team Khurram Schehzad Syed Abid Ali Saad Khan Tahir Abbas Numair Ahmed Rao Aamir Ali Ovais Shakir Equities Sales Team Shahid Ali Anshuman Ray Syed Farhan Karim M. Yousuf Ahmed Farhan Mansoori Afshan Aamir Atif Raza Faraz Naqvi Azhar Javaid Dave Sommerhaug Furqan Aslam Corporate Finance & Treasury M. Rafique Bhundi Zilley Askari Faisal Khan Atif Raza SVP - Head of Corporate Finance VP - Head of Inter-Bank Brokerage VP - Head of Business Development VP - Head of Marketing rafique.bhundi@arifhabibltd.com askari@arifhabibltd.com faisal.khan@arifhabibltd.com atif.raza@arifhabibltd.com +92-21-3246-0741 +92-21-3240-0223 +92-21-3246-6076 +92-21-3246-2596 CEO - Head of Equity Sales Head of Foreign Sales VP - Equity Sales SVP - Equity Sales VP - Equity Sales VP - Equity Sales VP - Equity Sales AVP - Equity Sales AVP Foreign Equity Sales Foreign Sales AVP - Equity Sales shahid.habib@arifhabibltd.com aray@arifhabibltd.com farhan.karim@arifhabibltd.com yousuf.ahmed@arifhabibltd.com farhanmansoori@arifhabibltd.com afshan.aamir@arifhabibltd.com atif.raza@arifhabibltd.com faraz.naqvi@arifhabibltd.com azhar.javaid@arifhabibltd.com dave@1857advisors.com furqan.aslam@arifhabibltd.com +92-21-3240-1930 +92-21-3246-6074 +92-21-3244-6255 +92-21-3242-7050 +92-21-3242-9644 +92-21-3244-6256 +92-21-3246-2596 +92-21-3244-6254 +92-21-3246-8312 +1-415-2267-757 +92-21-3240-1932 VP - Head of Research AVP - Senior Investment Analyst AVP - Investment Analyst SR Officer- Investment Analyst SR Officer- Investment Analyst SR Officer- Manager Database SR Officer- Database k.shehzad@arifhabibltd.com abid.ali@arifhabibltd.com saad.khan@arifhabibltd.com tahir.abbas@arifhabibltd.com numair.ahmed@arifhabibltd.com amir.rao@arifhabibltd.com ovais.shakir@arifhabibltd.com +92-21-3246-0742 +92-21-3246-2589 +92-21-3246-1106 +92-21-3246-2589 +92-21-3246-1106 +92-21-3246-2589 +92-21-3246-1106 Chief Executive Officer shahid.habib@arifhabibltd.com +92 -21-3240-1930
104

Pakistan Strategy 2014

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Pakistan Strategy|2014 2014 unfolds another chapter of a growth story!

Pakistan Strategy I 2014

Other Sectors in Focus Consumer Goods (FMCGs) Pharmaceutical

102 103 104

Pakistan Strategy I 2014

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Pakistan Strategy I 2014

Abstract KSE Investment Thesis

75% 50% 26% 7%

KSE Return (USD) Frontier Market

50% 0% 2009 -50%

2010 -10% 2011

Equity Brokerage, Research, Inter-Bank Brokerage, Forex & Corporate Finance

Pakistan Strategy I 2014

Foreign Holds (of FF MCap, ex. strategic) 28.0%

Pakistan Strategy I 2014

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Pakistan Strategy I 2014

Moving towards Political Maturity

National Assembly 188 45 35 24 13 5 4 18 8 340

% 55% 13% 10% 7% 4% 1% 1% 5% 2%

Provincial Assembly 361 104 85 51 25 11 9 69 9 724

% 50% 14% 12% 7% 3% 2% 1% 10% 1%

Pakistan Strategy I 2014

2014: Heading towards Agenda implementation Performance-off challenges

Pakistan Strategy I 2014

Pakistan Economics High long-term growth prospects

Long-term growth drivers in play

Source: SBP, AHL Research

Pakistan Strategy I 2014

Pakistan Economics Growth story

Exhibit: Pakistan Investment/GDP is one of the lowest in the region

Source: SBP, AHL Research

Source: SBP, AHL Research

Pakistan Strategy I 2014

Pakistan Economics Mid-term challenges & opportunities

Effort to change the growth mix still infant

Source: SBP, AHL Research

Equity Brokerage, Research, Inter-Bank Brokerage, Forex & Corporate Finance

Pakistan Strategy I 2014

Pakistan Economics Inflation: Pressures remain high

16% 14% 12% 10% 8% 6% 4%

SBP (Comfort Level)

Pakistan Strategy I 2014

Pakistan Economics Policy rate: Too young to die!

CPI (YoY%) 17.0% 15.0% 13.0% 11.0% 9.0% 7.0% 5.0%

SBP Reverese Repo Rate

-1.0% -2.0% -3.0%

Source: SBP, AHL Research

Pakistan Strategy I 2014

Pakistan Economics External account: Sustaining despite challenges

Financial Accounts 1.0% 0.5% 0.0%

Net Account Balance (Current + Capital)

-0.5% -1.0% -1.5% -2.0% -2.5%

Days of Import Cover 200 180 160 140 120 100 80 60 40 20 -

Source: SBP, AHL Research

Pakistan Strategy I 2014

Pakistan Economics Liquidity: Finally improving

Exhibit: O/N rates trading at the upper limit

Source: SBP, AHL Research

Exhibit: Banks fund utilisation outpaced its deposit growth

Source: SBP, AHL Research

Pakistan Strategy I 2014

Pakistan Economics Remedy to energy crisis