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Pakistan Equity Strategy


Faraz Farooq
Head of Research &
Energy sector analyst

January 2010

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PRICES OF Jan 14, 2010

We, the authors of this presentation, hereby certify that all of the views expressed in
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subject issuer(s) or securities. We also certify that no part of our compensation was,
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p contained in this p
presentation have been compiled
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Telecom Division Financial Services Property Division
Worldcall Telecom Ltd First Capital Securities Corp Ltd Pace Pakistan Ltd
(HFC (Financial Services) (Shopping Mall/Apartments/Office
Broadband/Networks/Wireless/EVDO/ Blocks/ Supermarkets)
Long Distance & International Telephony
First Capital Equities Ltd
Fiber connect services)
(Brokerage/ Research )
Pace Barka Properties
Worldcall Telecom Lanka* PACRA Entity Rating: L-Term A; S-Term A1 Ltd
(Sri Lanka Payphone Network) (5-star Hotel/ Shopping Mall/ Apartment
First Capital Investment Ltd Block Complex 5-star resort & Villas)
(Investment Advisory)
Media Division Pacer Super Mall Ltd
(Business Centre)
First Capital Mutual Fund
(Closed End Quoted Mutual Fund)
Media Times Ltd Pace Woodlands Ltd
(Business Plus & Wikkid Plus satellite
Channels /Daily Times & Aaj Kal National
Lanka Securities Ltd (Residential Scheme)
p p ) (Sri Lanka Brokerage)
Pace Gujrat Ltd
World Press Ltd Shaheen Insurance Co Ltd (Shopping Mall)
(General & Calling Card Printing) (General Insurance)

Trident Construct Ltd
((Construction Company)
p y)
Indicates listed companies

* Strategic majority stake of Worldcall Telecom Ltd acquired by Oman Tell
* Worldcall Telecommunications Lanka is a subsidiary of Worldcall Telecom Ltd.

Auerbach Grayson & First Capital Equities Limited

The relationship between Auerbach Grayson (AGCO) and First Capital Equities Limited
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40% of the portfolio investment volumes from USA are routed through this channel, this
indicates a far higher market share than any other broker which covers Pakistan for US
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.T bl off C Table Contents Economy: Downturn bottoming out Economic structure & performance Government finance External sector Macro indicators Politics: Hot situation cooling off Key events of 2009 & 2010 Market: Nice run but where next? KSE: 11.300 by year end .and 1Q appears pp maximum return pperiod Pakistan equities: Cheapest in the region Regional valuations Sector concentration and EPS outlook KSE versus monetary indicators Pakistan Stock Ideas 6 .

0-3. growing remittances. Growth expectation for B3 Argentina is 0% while B2 Ukraine is likely to suffer 12% decline. softening interest rates. Pakistan’s recent qualification for the fourth tranche (US$1. In fact. Venezuela with B2 rating is projected to post -2% growth in 2009. The financial assistance from IMF has trigged gg much needed economic reforms while the ensuing dollar inflows have provided a cushion for the vulnerable foreign exchange reserves in terms of currency. We strongly believe that the worst is over as the growth downturn is bottoming out. 7 . rising portfolio investment and stabilizing global macro conditions should enable 3.5% GDP growth for the country in FY10. sky-high inflation and portfolio de- leveraging by offshore investors.Economy: Downturn bottoming out Pakistan underwent a series of economic shocks since 2008 that hurt the economic growth (GDP grew by 2% in FY09). mounting internal imbalances. The growing macro stability is also indicated from Pakistan sovereign credit rating upgrade. the comparable and overall single-B rated peers are estimated to post GDP growth of 3% on average. improving liquidity as indicated by pickup in bank credit. pg S&P raised Pakistan’s rating g to ‘B-’ with a stable outlook and Moody’s y upgraded its outlook on Pakistan from negative to stable. GDP growth expectation compares favorably with several rating peers.2bn) of IMF in Dec 2009 is a crucial p positive for the macro economic stability. shocks that aroused from perpetual deterioration in external accounts. As per Moody’s. y Declining inflation.

5) Fx Reserves (US$bn) 9.0 13.0% 12.4% CAD (US$bn) (Jul (Jul-Nov) Nov) (7 32) (7.32) (1 36) (1.1% 12.5% KBOR (6m) 15.5% PIB 10yrs 16.779 9.36) Export (US$bn) (Jul-Nov) 8.Economy: Downturn bottoming out YTD recovery FY09 FY10 DR 15.3% Inflation (CPI) (Dec) 23.2 7.6 Import (US$bn) (Jul-Nov) 17.1 15.5% Inflation (SPI) 25.2 Pakistan CDS (Jan) 35% 6% KSE-100 Index (Jan 14) 5.3% 10.802 8 .8) (5.8% 13.1 Trade Balance (US$bn) (Jul-Nov) (8.6% 12.

000 S&P Rating History & B+ (Positive) O t 08 Oct-08 R i Review for f Downgrade D d B3 B3 – B+ (Positive) Oct-08 Rating Lowered B3 B3 – KSE-100 Index 16.000 Nov-02 Outlook Changed – – Positive Feb-02 Rating Raised B3 B3 Stable B.000 B (Negative) Sep-08 Outlook Changed B2 B2 Negative May-08 Outlook Changed – – Negative B+ (stable) CCC+ 14.000 B+ ((Positive)) May-06 Rating Raised – – – B (stable) CCC+ Jan-05 Outlook Changed – – Positive 8.000 Oct-98 Rating Lowered Caa1 – Negative May-98 Rating Lowered B3 – Negative 0 Jul-01 May-02 Mar-03 Jul-06 May-07 Mar-08 Jan-99 Jun-99 Nov-99 Apr-00 Sep-00 Feb-01 Dec-01 Oct-02 Aug-03 Jan-04 Jun-04 Nov-04 Apr-05 Sep-05 Jun-09 Feb-06 Dec-06 Oct-07 Aug-08 Jan-09 Nov-09 Mar-97 Outlook Assigned – – Stable Nov-96 Rating Lowered B2 – – Sep-96 Review for Downgrade B1 – – Oct-95 Rating Assigned – – – Jul-95 Rating Lowered B1 – – Nov-94 Rating Assigned Ba3 – – Source: Moody's 9 .000 B.000 CCC Nov-06 Rating Raised B1 B1 Stable (Developing) Nov-06 Review for Upgrade pg B2 B2 – 10.000 Oct-01 Rating Raised – – Stable Jun-99 Rating Assigned – Caa1 – 2.(Stable) 4.Economy: Downturn bottoming out E Economic i recovery also l confirmed fi dbby R Rating ti agencies i Moody's Rating History Government Bonds Outlook Date Action FC LC Aug-09 Outlook Changed B3 B3 Stable B+ (stable) Dec-08 Outlook Changed B3 B3 Negative B+ (Negative) 18 000 18.(stable) (Developing) Oct-03 Rating Raised B2 B2 Stable 6.000 May-08 Rating Lowered B2 B2 Stable (Negative) Nov-07 Outlook Changed B1 B1 Negative 12.

Foreign g exchange g reserves stood at US$15. growth over the last five years.8bn (0. With declining inflation. In FY09. 10 . 2009.8%. more flexibility would be available to the SBP when it comes to monetary policy which could allow it to further cut the interest rates.3% in FY09 from 7. the SBP cut the benchmark discount rate byy 50bpsp to 12. However.4% in FY08. like framework for introducing value-added tax. 2-year y high. Monetary Policy Statement..5% amid declining g inflation and stabilizing g macro-economic indicators. This adjustment in the discount rate came around 100 days after the same was reduced by 100bps.. FY09 inflation rate was 20. The declining interest rates and government policy to control the power crisis are likely to increase private sector credit. FY10 projection is at 5. g . elimination of subsidies and allowing SBP to follow an independent monetary policy. as on Jan 9.0% which is largely due to counter-insurgency operation in Sawat & Waziristan. major j structural reforms have been initiated.8%. the CPI is forecasted at 11. Fiscal deficit has come down to 4.64%) in the private sector credit compared with 25% avg. A surge in commodity prices is the key risk to the trade deficit and overall balance of payment.Economy: Downturn bottoming out As required q by y IMF. while for FY10. $ .2bn. In its Nov 24. we witnessed a marginal growth of PRS18. 2010.. improving tax administration. uncertainty over government government’ss financing needs and risk on inflation would keep SPB to follow a cautious monetary easing.

15. 32% FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 insurance.0% GDP Composition 20. 49 21% 46 43 Real estate.0% 54% Manufacturing. 24% FY10E FY03 FY04 FY05 FY06 FY07 FY08 FY09 R l GDPG Real GDP Grow th A iG Agri Grow th I d t i lG Industrial Grow th S i Services G Grow th (%) Services share % of GDP Service sector Composition Public Transport & 58 admin.0% 0.Economic structure & performance f GDP Sub sector performance 25. 12% 11 . 11% comm. Wholesale & 40 5% Fin & Retail.0% Services.0% 22% 10.0% Agriculture. 19% 55 Social 52 servies.0% 5 0% 5. -5.

09 Jun--08 Ju n. 0% 2% 4% 6% 8% 10% 0 2 4 6 8 10 (%) FY02 FY9 98 FY9 99 FY03 Agri GDP FY0 00 GDP FY04 FY0 01 FY0 02 FY05 Services sector FY0 03 FY06 FY0 04 FY0 05 FY07 (YOY real growth) YOY real growth FY0 06 FY08 FY0 07 FY09 FY0 08 FY0 09 FY10E FY10 0E f Growt h -YoY 0% 10% 20% -30% -20% -10% 0 2 4 6 8 10 0 12 '000 Ja n.09 C ar sales YoY growth Apr--08 Ma y.09 Aug--08 Ju l-0 9 Oct--08 A ug -0 9 Dec--08 S ep -0 9 Large Scale Manufacturing Feb--09 O ct -0 9 Apr--09 Consumption on a clear upturn No v-0 9 Jun--09 D ec -0 9 Aug--09 0% 12 50% -50% 100% 150% 0% 200% -100% .09 Aug--07 Oct--07 Economic structure & performance Fe b -0 9 Ma r-0 9 Dec--07 Feb--08 A pr.

41% FY1 FY FY FY FY FY FY FY Transport. average (% y-o-y) (RHS) 20% 15% 15% 10% 10% 5% 5% Break up of CPI 0% 0% Misc. 22% -5% -5% -10% Y03 Y04 Y05 Y06 Y07 Y08 Y09 10E Food. 23% 15% 10% 5% 0% Jul-02 Nov-02 Mar-03 Jul-03 Nov-03 Mar-04 Jul-04 Nov-04 Mar-05 Jul-05 Nov-05 Mar-06 Jul-06 Nov-06 Mar-07 Jul-07 Nov-07 Mar-08 Jul-08 Nov-08 Mar-09 Jul-09 Nov-09 13 . Inflation Trend 7% 30% C PI (YoY change %) Fuel.Economic structure & performance f GDP Growth ((% y y-o-y) y) Industrial Production (% y-o-y) 20% 25% C PI. 7% 25% Average 20% HRI.

1% (224) -1.0% Total exp.5% 3.1% 299 2.500 25% 1.5% 250 5% 0 0% 8. 58 0.0% 750 10% 500 8 5% 8.G Government finance f PRsbn Tax revenue 10.9% Total receipts 385 2. 456 3.0% 6.5% Devp exp.9% 5.250 Direct 9.0% 651 4.8% 128 0.0% F Y10E F Y00 F Y01 F Y02 F Y03 F Y04 F Y05 F Y06 F Y07 F Y08 F Y09 F Y9 8 F Y9 9 F Y0 0 F Y0 1 F Y0 2 F Y0 3 F Y0 4 F Y0 5 F Y0 6 F Y0 7 F Y0 8 F Y0 9 F Y1 0 F Y1 0 E F Y9 7 F Y9 8 F Y9 9 F Y0 0 F Y0 1 F Y0 2 F Y0 3 F Y0 4 F Y0 5 F Y0 6 F Y0 7 F Y0 8 F Y0 9 Summarized central government finance Fiscal Deficit as % of GDP PRs bn 1QFY09 % of GDP 1QFY10 % of GDP 8.5% Indirect 20% 1.0% Tax to GDP (%) (YoY) Gross tax collection 1.9% 427 2.8% unidentified 9 0.0% Current exp.0% Net tax revenue 279 2.5% 14 .4% FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10E Fiscal deficit (138) -1. 523 4.5% 521 3.000 Total 15% 9.1% 2 0% 2.1% 14 0.4% 116 0.5% Non-tax revenue 106 0.

10% Agri & C hemicals. manf.External sector US$ bn Exports contribution to GDP US$ bn Export performance 25 20% Export 25 Export 30% Export (% of GDP) Export growth 20 16% 20 22% 15 12% 15 14% 10 8% 10 6% 5 4% 5 -2% 0 0% 0 -10% FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 Import Composition (5MFY10) Exports Break-up (5MFY10) Leather Transport. 15% Machinary. prod. & Pharm. 10% Others. 3% Leather 4% s. 7% Petroleum & coal. 17% 15 . C hemicals 1% Petrolum Textile 4% Textile. Miscellaneou Jewellary. 29% 4% Metals. 11% 55% Food. 5% Others. C ement. 18% Food. Textile. 2% 3% 3% tanned.

8% -5 US$ 10. 0% 15.475 924 77 8% 16.3% 16 .6 8. .4% +1 US$ 11.705 154 13 1% 15.External sector Non-oil Non oil imports (Index base Jun 08 = 100) US$/bbl Import of oil US$ bn 100 90 Oil improt bill (RHS) 14 90 75 Crude Oil Import Px (LHS) 12 10 60 80 8 45 70 6 30 4 60 15 2 50 0 - Jul--08 Mar--09 May--09 Jul--09 Jun--08 Aug--08 Sep--08 Oct--08 Nov--08 Dec--08 Jan--09 Feb--09 Apr--09 Jun--09 Aug--09 Sep--09 Oct--09 Nov--09 FY10E Y02 Y03 Y04 Y05 Y06 Y07 Y08 Y09 FY FY FY FY FY FY FY FY Per month Trade Sensitivity of Oil price Oil Import Chg % Chg from TD % impact deficit t trade to t d deficit d fi it Bill (US$ mn)) (US$ (US$mn)) B Base C Case GDP (US$ mn) (US$ bn) +5 US$ 12.7 9.9 8.551 .9% Base Case (US$75/bbls) 11.396 (154) (13) -1% 15.8% -1 US$ 11.624 (924) (77) -8% 14.7 8.8 8.

0) -9% (15) (16.0 0% 5 (4 0) (4.0) -6% (5) (10) (12.0 3% 15 C urrent account 10 0.0) 3% -3% 0 (8.External sector US$ bn C urrent account Components off balance off payments US$bn 8.0 % of GDP (RHS) 6% 20 C apital account 4.0) -12% (20) FY03 3 FY04 4 FY05 5 FY06 6 FY07 7 FY08 8 FY09 9 FY10E E FY03 FY04 FY05 FY06 FY07 FY08 FY09 External debt as % of GDP Reserves Vs US$ US$bn PRs 40% 22 Reserves 90 18 Exchange rate 80 35% 14 70 30% 10 60 25% 6 50 20% 2 40 Mar-08 Mar-09 FY00 FY02 FY04 FY06 Sep-07 Sep-08 Sep-09 Jan-07 Mar-07 May-07 Jul-07 Sep-07 Nov-07 Jan-08 Mar-08 May-08 Jul-08 Sep-08 Nov-08 Jan-09 Mar-09 May-09 Jul-09 Sep-09 Nov-09 Jan-10 17 .

000 1.333) (5.0% -12.9% -8.7% CPI (%) 7.9% -5.2% 19.5% Agriculture (%) 1.5% Services (%) 9.0% Tax revenue target (PRs bn) 713 840 1.380 Tax revenue as % of GDP 9.6% 5.7% -2.243) Current account as % of GDP -3.7 Export p g growth ((%)) 14.3% -5.8% M2 growth (%) 15.874) (9.0% Fiscal account (US$ mn) (5.4% 4 8% 4.0% 5.898) (12.4% 3.0 -15.339) (8.9 -17.6% 12.2% -4.9% 7.0% 8 4% 8.9% -4.3% -5.1 -13.2% 3.878) (13.6% 1 5% 1.900) Trade balance (US$ bn) -12.6% -4.0% Import growth (%) 38.6% 9.0% 9.5 -20.6% 4.0% 18 .0% 3.157 1.8% -3 6% -3.5% Manufacturing (%) 10 0% 10.4% 13.3% 14.0% 20.0% 8.8% 6.0% 1.738) (7.2% -7.3% Fiscal account as % of GDP -4.8% 12.1% -6.Macro indicators MACRO INDICATORS FY06A FY07A FY08A FY09A FY010E GDP Growth rates (%) 6.6% 7.6% 8.990) (6.9% 2.7% 4.6% -4.8% 8.2% 9.9% 31.8% 11.7% 4.0% Current account (US$ mn) (4.8% 9.219) (8.

All in all. issues however. In our opinion.e. In politics. However. quite encouragingly. the country's political scenario will also remain overheated during upcoming few weeks as the constitutional debate on the fate of many NRO beneficiaries will further heat-up with increasing pressure on the presidency. months. the level of intensity of these issues has notably come down by the end of the year. these developments should be considered as a sign of great relief for the nascent-cum-feeble democratic system in the country. reinstatement of deposed judges and cancellation of the NRO (National Reconciliation Ordinance) that had the potential to destabilize the entire domestic system has been resolved. however the major and core issues i. We do not anticipate any serious threat for the prevailing democratic setup of the country though constitutional and political debate will continue to mesmerize the whole political environment. However the democratic process in the country is likely to remain intact with an expectation of both major parties – the PPP and the PML-N – reaching a consensus on redefining the constitutional powers of both the president and the prime minister. 19 . besides this. In our opinion. the political debate to redefine the constitutional powers of the offices of president and prime minister is also likely to be re-igniting in upcoming months However. the year 2009 was engulfed in several unsettling issues that primarily revolved around three major factors – political. politics though there still remain many controversial issues. law & order and economy. ff Politics: Hot situation cooling off For the country.

attacks the army seems quite successful in impeding the reach of terrorist network to the north-west region of the country. contrary to previous attempts. while the security scenario is also likely to remain more controlled than pervious year. However. as indicated by the number of urban attacks. but also an energetic response in the form of a high level of attention from the local as well as the national political leadership. the resistance from the militants in the form of guerrilla attacks on the army within the hot region as well as suicidal attacks in the cities is likely to take some time to be completely eradicated. the Pakistan Army has gained notable successes in eliminating militancy from Swat and then from South Waziristan this time. 20 . Under this new counter-insurgency strategy. we anticipate 2010 to be a year of comparatively calm political scenario despite carrying a few key negative triggers with it.P liti Politics: H Hott situation it ti cooling li off ff As far as the law and order situation is concerned. The government is likely to keep pursuing a multi-pronged approach under the new strategy - including not only negotiations. keeping in view the pan-global nature of the issue. In a nut shell. So far. the government of Pakistan has achieved its target of establishing the writ of the state in Swat over the last few months.

Key events in 2009 & 2010 2009 Key Events of the year February Governor rule imposed in Punjab after the Supreme Court’s decision against the Sharif brothers Elections for senate and PPP emerges as the largest party All deposed judges including the Chief Justice reinstated March U.5 billion in aid for development work in Pakistan Governor Rule lifted in Punjab. R Reports t emerge that th t TTP leader l d Baitullah B it ll h Mehsud M h d has h been b killed kill d in i a drone d strike t ik which hi h later l t August on was confirmed. July 2007 as illegal. The Supreme Th S Court C declares d l the h National N i l Reconciliation R ili i O Ordinance di to b be null ll and d void. the army launched a full-scale operation against militants in the Malakand May Division (Swat). President Obama unveils new Af-Pak strategy. id says all ll pertinent cases are back to their pre-NRO position. announces legislation giving $1. On PM’s call.S. December The unanimous approval of 7th NFC (National Finance Commission) Award after a period of 19 years 2010 Key political events to watch January Supreme Courts detailed decision against NRO F b February B By-elections l ti on two t seats t off National N ti l Assembly A bl April The constitutional period to hold Local bodies’ elections in all provinces will end in March 2010 October Retirement of General Parvez Kiyani and the appointment of new army Chief Others Pressure on the government to implement Chartered of Democracy 21 . The Supreme Court bench declared the actions taken by General (r) Musharraf on November 3. The Pakistan Army expresses its reservations on the conditions in the Kerry Lugar Bill November Ordinances promulgated during the Musharraf government including the NRO lapse. Nawaz Sharif acquitted by the Supreme Court in the Oct 12 1999 plane hijacking case. September Kerry-Lugar Bill passed by the US Senate October Pakistan Army launches second ground offensive against militants in South Waziristan.

improvement in rating scale/outlook by S&P and Moody’s. On 2011E PE of 6. the economic downturn. the spread arrives at 29%. IMF led structural reforms. b This indicates Pakistan as still the cheapest equity market in the region. achievement of targets set by the IMF. However.7x. Growing signs of economic recovery. we believe.9x reflects a discount of 17% from its average of 9. However 2009 Pakistan market still provides some interesting buying opportunities. In 2009.3% 3 3% on 2010E numbers.5x over the last 15 years. In 2008. Pakistan equities are available at a discount of 45% on PE and 17% on PBV while the dividend yield of 7. equity q y values resurged g in 2009 and provided a handsome gain of 60% (US$ return of 50%). despite the strong upsurge in share values in 2009. 22 . successful back-to-back operations against Talibans and democratic resolution of key political issues were the factors behind investors’ restorative confidence in the Pakistan market. factors such as political disturbance.2% is also attractive versus regional average off 3. In the regional context. ? Market: Nice run but where next? After p posting g a hefty y decline of 58% ((US$ 67%)) in 2008. worsening law and order situation and liquidity shortages were responsible for the market’s resistance to a bull rally despite cheap valuations. Pakistan market’s US$ return of 50% was lower than regional average of 77% - an underperformance of 27%. Pakistan equities look cheap on a historical basis: Market’s 2010E PE of 7.

this is inherited in the domestic political system of the country. At a target PE of 8. we have calculated the end- Dec 2010 KSE-Index target of 11. our investment opinion on the Pakistan equity market. 23 . Ultimately. political stability.2%.300. entails the potential for annualized return performance of 15% over the next year. the market will keep attracting the domestic liquidity. the Pakistan equity q y market is one amongst g veryy few markets around the world looking poised to advance on a long-term bull phase over the next several years. (c) softening interest rates making equities more attractive (d) chance of further improvement in sovereign ratings and (e) possible re-entry in MSCI EM Index. (b) the potential for further decline in Pakistan’s equity risk premium amid improving macro indicators and political stability. falling interest rates. external inflows (IMF. on a prospective total return basis. S 11. Friends of Pakistan) and improved domestic liquidity would be responsible for the further re-rating of the market in 2010. In the absence of other viable investment options. Such S h outlook tl k reflects fl t (a) ( ) our expectation t ti for f an annualized li d medium-term di t earnings i growth th outlook in the vicinity of 14-18% in rupee terms. we believe. Pakistan’s outlook is supported by a plethora of fundamental drivers. Meanwhile.5x and expected dividend yield of 7.300 by year end KSE: In our view. the fundamental recovery would also attract the foreign investment flows. Lugar. However. year While the political scenario of the country is becoming stable but we think the government will keep facing problems and we might see political hiccups to continue. Economic recovery. successful operations against militants. Kerry Kerry-Lugar.

2001 -12% 3% -17% 12% further cut in discount rate. Even in the periods of ultra instability. 3Q and 4Q. in last 5 years (2005-2009).and 1Q KSE. 1Q average return was 17% 2003 2% 24% 17% 12% compared co pa ed to respective espect e -2%. 5% and 2% in 2Q. Kerry-Lugar tranche.Quarterly Returns Byy analyzing y g the data of last fifteen yyears ((1995-2009). reaffirmation of sovereign rating etc. Q. Whereas. ) we found an interesting observation related to KSE’s performance in the opening Year 1Q 2Q 3Q 4Q quarter (Jan-Mar) of the calendar years. MS Bhutto was assassinated on Dec 27.. 3Q aandd 4Q. 4% %a and d -4% % in 2Q. 1999 12% 0% 14% 17% 1998 -11% -43% 26% -15% Last 15-Year Avg Return Last 10-Year Avg Return Last 5-Year Avg Return 1997 17% -1% 18% -5% 15% 1996 3% 10% -19% -3% 10% 20% 20% 1995 -19% -3% 3% -10% 5% 10% 10% 0% 0% 0% 15-Year Avg 12% -3% 5% 2% -5% -10% -10% 10-Year Avg 18% -1% 3% 5% 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 5-year Avg 17% -2% 4% -4% 24 . For instance. 2009 17% 4% 31% 0% Since last 8 years (2002-09). talks on MSCI-EM re-entry. US$ inflows from 2000 42% -24% 3% -4% FoDPs. Q 2002 46% -5% 14% 33% 1Q2010 would be loaded by plethora of fundamental drivers like. respectively. Q appears maximum return period . 2007. the market’s 1Q return in last 15 years arrives at 2004 15% 3% -1% 18% 12% versus -3%. 1Q 2007 12% 22% 3% -3% 5% returns have remained in the ppositive zone. the market has yielded positive returns 2008 7% -19% -25% -36% in 1Q on consistent basis. %. 2006 20% -13% 5% -4% 2005 27% -4% 10% 16% On average basis..

0 6% 2.Pakistan equities: Cheapest C in the region PE2010E PE 2010E vs EPS g growth 2011F India 30% C hina Taiwan 25% India Taiwan 20% Hong Malaysia C hina Kong Hong Kong Indonesi 15% Pakistan Indonesia Thailand a Malaysia Philippine 10% Korea Philippin e Thailand 5% Korea Pakistan 0% 5 7 9 11 13 15 17 19 21 23 25 5 7 9 11 13 15 17 19 Dividend Yield 2010E PBv 2010E 10% 4.0 4% 1.0 8% 3.0 Indonesia Philippine Indonesia Philippine Hong Hong Malaysia Malaysia Pakistan Taiwan Thailand Kong Korea India Taiwan Pakistan Thailand Kong India Korea China China 25 .0 2% 0% 0.

4 3.Regional valuations Regional Valuations PE (x) PBV (x) Dividend Yield (%) PEG Ratio Country 2010E 2011E 2010E 2011E 2010E 2011E 2010E Pakistan 7.1 1.1 1.1 1.7 2.6 0.5 1.8 35 3.7 Indonesia 13.1 1.5 7.0 India 21.5 1.0 1.4 1.9 0.3 11 7 11.2 2.4 South Korea 10.7 0.7 0.7 1.7 0.8 1.3 1.7 19 1.3 1.3 0.4 2.7 3.9 6.8 Thailand 11.3 12.8 1.9 1.0 13.9 1.7 1.9 3.7 2.6 Malaysia 16.3 9.8 a a discount Pakistan d ou to o Region go -45% 5% -44% % -17% % -19% 9% 26 .3 12.0 7.9 3.7 Philippine 13 3 13.5 0.8 4.3 3.9 18 1.3 3.2 1.7 15.0 16.3 3.6 3.0 1.8 Taiwan 17.4 2.5 38 3.1 2.6 2.9 7.9 11.8 Median 14.0 Hong Kong 14.1 14.2 8.3 9.7 2.8 10 1.1 China 18.9 1.7 2.3 0.6 1.

S Sector concentration and EPS S outlook Sector Concentration FCEL universe Earnings growth C onst & 25% Paper Electricity Goods 4% Mat 20% Telecom 3% Fin 4% Services Food Prod 3% 15% 2% 5% 10% C hemicals Others Oth 5% 9% 14% 0% -5% 011F 2007 2008 2009 010E Oil & Gas Banks 31% 20 2 2 2 20 25% Pakistan CDS (%) Euro Bond Yield 30 25 20 15 10 5 0 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Oct-06 Apr-07 Oct-07 Apr-08 Oct-08 Apr-09 Oct-09 27 .

000 4.000 12.000 10.000 8.000 10.000 - Jan-02 Jul-0 01 Jun-02 Jan-002 S versus monetary indicators Nov-02 Jul-0 02 Apr-03 Jan-003 Sep-03 Jul-0 03 Feb-04 T Jan-004 Jul-04 Dec-04 Jul-0 04 T-Bills May-05 Jan-005 Oct-05 Jul-0 05 T-bills (6m) M2 Growth Mar-06 Jan-006 KSE 100 Index Bills vs KSE Aug-06 Jul-0 06 Jan-07 Jan-007 100 KSE-100 Jun-07 Nov-07 Jul-0 07 Jan-008 M2 Growth vs KSE 100 Index KSE-100 Apr-08 Sep-08 Jul-0 08 Feb-09 Jan-009 Jul-09 Jul-0 09 Dec-09 0% 5% .000 14 000 16.000 6.000 4 000 6.000 11.000 12.000 8.000 17.000 7.000 4.000 28 . -5% 10% 15% 20% 25% 30% 35% 1. 0% 2% 4% 6% 8% 10% 12% 14% 16% 0% 20% 40% 60% 80% 100% 120% 140% Jan-000 KSE Jan-02 Jul-0 00 Jul-02 Jan-001 Jan-03 Jul-0 01 Jul-03 Jan-002 Jul-0 02 Jan-04 Jan-003 Jul-04 Jul-0 03 Jan-05 Jan-004 Jul-05 Jul-0 04 Jan-005 Jan-06 Jul-0 05 Jul-06 Jan-006 Jan-07 Jul-0 06 Price to money ratio Discount rate vs KSE Jan-007 Jul-07 Jul-0 07 100 KSE-100 Jan-08 Jan-008 Jul-08 Jul-0 08 Jan-09 Jan-009 Jul-0 09 Jul-09 0 2.000 18.000 15.000 16.000 0% 2% 4% 6% 8% 10% 12% 14% 16% 2.000 5.000 9.000 13.000 14.000 3.000 14.


30 . The earnings growth is purely volume driven given our stable-declining oil price assumption. trades at an EV/boe of US$3. Volume gains would. OGDC’s asset portfolio includes some major discoveries in this decade.1x and PEG of 0.4x. Overall. we expect OGDC’s net output to depict a five-year CAGR – FY10 to FY14 – of 10% in boe terms. therefore.3.8/share PRs0 8/share as part of a retrospective impact. Qadirpur gas price should be up by at least PRs62/mmbtu after adjusting for ~40% Rupee devaluation since last announcement (1HFY08). be converted into cash flow growth. revenues are projected to grow at 11% annually over the next three years. we consider the company as a direct play on Pakistan’s significant E&P potential. Given its aggressive exploration strategy. Underlying earnings are projected to grow at 10% on average in next 3 years. EV/EBITDA of 5. EV/DACF of 7. in addition to a one-time one time gain of PRs0. The future EPS of OGDC would be revised up by 9-10% 9 10%.Oil & G Gas D l tC Development Co (OGDC PA) OGDC. Any revision in Qadirpur gas pricing discount would lead to an upward revision of earnings.46 on 2010 estimates. These fields are currently in the appraisal/development stage. impact Envisaging organic growth in the company.

6 15.1% 7.0 1Yr Average Val (US$ mn) 8.5 Target Price (PRs) 131.1 Price earning ratio (PERx) 11.6% 9.2 7.3 12.7 Curruent Price (PRs) 116.Key Statistics Year end June 2008A 2009A 2010F 2011F Earnings per share (PRs) 10.3 31 .2 Market Cap (US$ bn) 5.1% Price/Book value (PBvx) 45 4.0 Free Float Value (US$ mn) 867.3 9.9 1Yr Average Vol (mn) 8.9 12.4 5.0 9.8 KATS Code OGDC Reuters Code OGDC.0 35 3.6 5.5 31 3.5 40 4.2% 7.6 1Yr Low (PRs) 41.KA Bloomberg Code OGDC PA OGDC.Oil & Gas G Development D l Co C (OGDC PA) Market Cap (PRs bn) 499.300.6 1Yr Average (PRs) 85.1 4.9 1Yr High (PRs) 118.7 Free Float (%) 14.7 Dividend yield (%) 8.1 EV/EBITDA (x) 5.3 No of Shares (mn) 4.

PPL posses rising gas profitability profile in the wake of production addition from high priced discoveries. most of its gas production arrives from the fields which are exempted from the US$36/bbl pricing cap.P ki t P Pakistan t l Petroleum Li it d (PPL PA) Limited At a 6. PPL holds the most attractive exploration portfolio with stakes in all discoveries that would drive the growth of the country’s oil and gas production in coming years.6x EV/EBITDAX. 7. PPL would be the major beneficiary of the upcoming wellhead gas prices (effective Jan 1. After nearly eight years. While it realizes lowest price on per boe. 3. 2010) revision where we expect 20-23% increase in the tariffs of PPL’s major gas fields.2x EV/EBITDA. This would allow the company to arrest the natural decline of its heavyweight depleting asset which hich ma may also lead to an earnings re revision ision for the compan company. The operating cost is considerably lower than those of Asian peers. 32 . the company re-launched development work at the Sui Field when it received security clearance from the government in Dera Bugti region of Balochistan.0 on FY10E numbers.2x EV/DACF. PPL trades at unwarranted discount compared to regional peers.7x PE and EV/boe of US$2. 4. Revenue growth is expected to be impressive at 9% (CAGR) despite a mere 2% growth in headline volumes (FY10-14) (FY10 14).

8 27.8 25.6 1Yr Average (PRs) 180.4 4.8 1Yr High (PRs) 235.5 3.1 Price earning ratio (PERx) 10.7 197 7 Market Cap (US$ bn) 2.2% 5.6 Dividend yield (%) 6.2 2.6 2.8 33 .P ki Pakistan P Petroleum l Limited i i d (PPL (PP PA) Market Cap (PRs bn) 196.7 5.0 7.8 Target Price (PRs) 248.1 2.2 EV/EBITDA (x) 5.8 35.0 Free Float Value (US$ mn) 483.6% Price/Book value (PBvx) 4.1 No of Shares (mn) 995.3 1Yr Average Vol (mn) 2.1 4.7 1Yr Low ((PRs)) 126.9 196 9 Curruent Price (PRs) 197.0 1Yr Average Val (US$ mn) 6.2% 10.7% 8.KA g Code Bloomberg PPL PA PPL.1 7.3 Free Float ((%)) 20.0 KATS Code PPL Reuters Code PPL.Key Statistics Year end June 2008A 2009A 2010F 2011F Earnings per share (PRs) 19.

POL’s sensitivity to crude oil is one of the highest amongst the local peers. Manzalai..7x.6x.8k boe/day in FY09 to 34. p Currently. Indian. About three wildcat wells (2 operating operating. with a post-2009 CAGR of 38%. Indonesian and Russian peers. Thus.6.1k boe/day by FY012. EV/EBITDA of 4. POL is all set to reap the benefit of production commercialization from the biggest discoveries of the 2000s. Positive news flows from these exploration activities could trigger a string rally in the scrip and may led to earnings revision. Mami Khel. its EBITDA/boe is also better than Chinese. 1 non non-operating) operating) are currently under drilling status status.1x and EV/boe of US$3. While POL realizes highest EBITDA/boe in the domestic sector. Production would reach around 250 250mmcfd fd by b 2010.P ki t Oilfi Pakistan ld Li Oilfields it d (POL PA) Limited POL’s current p price suggests gg a wide valuation g gap p from its regional g p peers with FY10E EV/DACF of 5. k Production volumes to ramp up from 12. In this regard. other key structures in Tal Block (Makori. Besides. This would translate into an average annual growth of 26% in revenues of the company. 34 . However.. PE of 8. production from Manzalai’s (first discovery in the block) CPF has recently commenced with average daily gas volume of ~210mmcfd. the expected shift in product mix from crude oil to gas would reduce its earnings sensitivity to oil prices. 2010 POL h has 21% post-discovery t di stake t k iin T Tall Bl Block. there are also other structures which are yet to be tested in the block. EV/EBITDAX of 3. exploration upside is quite high from its exposure in Tal Block. Maramzai) would ensue growth in underlying volumes of the company in coming years. Besides.8x.

4% 7.8 30.4 Market Cap (US$ bn) 0.7 3.7 Target Price (PRs) 298.8 EV/EBITDA (x) 3.Key Statistics Year end June 2008A 2009A 2010F 2011F g per Earnings p share (PRs) ( ) 36.1 5.3% 8.0 1Yr Average Val (US$ mn) 7.0 18 1.P ki Pakistan Oilfi ld Limited Oilfields i i d (POL (PO PA) Market Cap (PRs bn) 58.5 43.7 Dividend yield (%) 5.3% Price/Book value (PBvx) 23 2.6 Free Float (%) 45.6 1Yr Low (PRs) 81.KA Bloomberg Code POL PA POL.7 1Yr Average Vol (mn) 3.3 Curruent Price (PRs) 246.2 20 2.4 23.0 4.3 35 .5 Free Float Value (US$ mn) 315.8 6.0 Price earning ratio (PERx) 6.5 1Yr Average (PRs) 172.8 KATS Code POL Reuters Code PKOL.3 22 2.8 10.4 8.5 1Yr High (PRs) 251.0% 11.7 No of Shares (mn) 236.

Hubco’s remaining dividend stream (parent project) offers a lucrative US dollar IRR of 19%. the nominal rupee dividend – applying 2. Hubco’s dividend yield of 14% for FY10E and 18% for FY11E is one of the highest in our universe and also compares well with other fixed-income securities in Pakistan. US inflation and fuel prices. Receivables risk for IPPs has come down significantly after recently issued TFCs by the government to clear l the h circular i l d debt. b We have worked out Hubco’s 225MW Narowal expansion value at PRs2. Based on the current price.5% devaluation – would grow at a CAGR of 14% during FY10-27. j ) Given its bond-like characteristics and the softening interest rate scenario – a reduction in discount rates and NSS yield – should improve the attractiveness of Hubco. 36 .7/share. There is inherent growth in the reference tariff of Hubco in real US dollar terms.7/share while its share in NPV of Laraib Energy (75. That said.5% US CPI and 2.5% controlling interest) arrives at PRs1.H bP Hub Power C Company (HUBC PA) Hubco is trading g at a 25% discount from our fair value estimate of PRs44/share (p (parent p project). Hubco has been provided a hedge against devaluation and an increase in input costs through indexation of revenue to the US dollar.

9 Market Cap (US$ bn) 0.2 1Yr High (PRs) 34.0 5.8 No of Shares (mn) 1.KA Bloomberg Code HUBC PA HUBCO.9 4.4 EV/EBITDA (x) 7.0 1Yr Low (PRs) 14.7 Target Price (PRs) 44.1 8.6% Price/Book value (PBvx) 13 1.4 6.3 14 1.6 10.9% 17.3 3.Key Statistics Year end June 2008A 2009A 2010F 2011F Earnings per share (PRs) 2.2 KATS Code HUBC Reuters Code HPWR.5% 10.3 13 1.5 1Yr Average Vol (mn) 2.2 37 .H b Power Hub P C Company (HUBC PA) Market Cap (PRs bn) 38.3 Free Float Value (US$ mn) 293.1 Curruent Price (PRs) 32.9 Price earning ratio (PERx) 14.9 6.2% 13.0 1Yr Average Val (US$ mn) 0.3 Free Float (%) 65.157.9 1Yr Average (PRs) 26.3 13 1.3 5.7 Dividend yield (%) 6.3 3.

5) in 2009E We recently has revisited our financial model of the company to incorporate the recently released 9M2009 financials.3) PRs15 3) as against PRs3 PRs3.3mn tons (137% of the existing capacity). For 2010. which is scheduled to be online by mid-2010. Though 2009 earnings will remain 26% lower YoY. we have raised our target price of Engro Chemicals to PRs230/share (core value of PRs135/share and investment value of PRs95/share) . The company is currently pursuing a huge capacity expansion plan of almost 1.5) 123mn (Diluted EPS: PRs10 2009E.E Engro Ch i l (ENGRO PA) Chemical g Engro’s g capacity attractiveness lies in its huge p y enhancement along g with an ideallyy diversified investment portfolio. the scrip is trading at EV/EBITDA of 9. 38 . we estimate the bottom-line of the company to depict 46% growth at PRs4. the availability of new production capacity in 2010 is expected to notably fuel the top as well as bottom line figures. the company also possesses a significant investment portfolio comprises of investments in vigorously growing sectors of the country country.1x.26% higher as against the previous valuation of PRs185/share.123mn PRs10. At current trading level. PE of 12.570mn (Diluted EPS PRs15. the scrip is offering a decent upside potential of 19%. Engro g is the only y listed fertilizer company p y of the country y that will be able to move its profitability measures positively through volumetric thrust. On the basis of FY10E. After incorporating these factors. rolling over the base year to 2010 besides some changes in the risk assumptions and updating the market-multiples.6x and offers a dividend yield of 6%. Beside holding a growth prone core business.

5 12.7 17.7% 5.KA g Code Bloomberg ENGRO PA ENGRO.6 18.4 No of Shares (mn) 297.1 5.0 1Yr Average Val (US$ mn) 5.Key Statistics Year end December 2008A 2009E 2010F 2011F Earnings per share (PRs) 14.0 1Yr Low ((PRs)) 98.6 57 6 Curruent Price (PRs) 193.E Engro Ch Chemical i l (ENGRO PA) Market Cap (PRs bn) 57.7 Price earning ratio (PERx) 13.9 1Yr High (PRs) 194.2 21 2.1 Free Float ((%)) 40.5 15.2 10.6% 10.7 1Yr Average Vol (mn) 3.0 Target Price (PRs) 230.5 23 2.3 22 2.3 193 3 Market Cap (US$ bn) 0.1 EV/EBITDA (x) 11.3 24.8 Free Float Value (US$ mn) 273.3 39 .7% 2.5 1Yr Average (PRs) 146.6 7.2% Price/Book value (PBvx) 25 2.8 Dividend yield (%) 3.8 9.7 KATS Code ENGRO Reuters Code EGCH.

On the basis of FY10E.4%. A persistently declining domestic DAP price assumption is argued on the basis of the ongoing contraction in the international prices and the scheduled global additions of DAP production in the- post 2010 scenario scenario. domestic urea prices are anticipated to remain higher as a result of the producers’ ability to pass-on production cost hikes. However. the net income of the company is likely to depict a healthy 5-year CAGR of 10% with payout ratio for these years averaging at approx. During the period 2009-2013. Phos Acid prices are also anticipated to remain in tandem with the international DAP price trend. 80%. 2007 and 2008 were two difficult years for FFBL in terms of extreme uncertainty that remained tagged with its major business domain DAP. Furthermore Furthermore. the scrip is trading at EV/EBITDA of 4.F ji F Fauji tili Fertilizer Bi Q i (FFBL PA) BinQasim FFBL holds a unique q edgeg over other domestic fertilizer companies p as being g the only ypproducer of both granular urea and DAP in the domestic market.1x and offers a decent dividend yield of 10. As international DAP prices and margins have now started to indicate a pretty stable outlook. 40 . the factor of uncertainly that used to remain tagged with the earnings of the company during last few quarters is likely to dilute going forward. DAP the company is expected to depict strong financial performance in 2009 and onwards.

5 EV/EBITDA (x) 5.1 32 3.0 1Yr Average Val (US$ mn) 1.1 4.6 25 2.1 Dividend yield (%) 9.4% 12.0 29 0 Market Cap (US$ bn) 0.6 27 2.2 Target Price (PRs) 32.2 KATS Code FFBL Reuters Code JORD.0 1Yr Low ((PRs)) 12.1 4.F ji Fertilizer Fauji F ili BinQasim Bi Q i (FFBL (FFB PA) Market Cap (PRs bn) 27.5 Free Float Value (US$ mn) 112.KA g Code Bloomberg FFBL PA FFBL.0 41 4.0 No of Shares (mn) 934.2 40 4.0 Free Float ((%)) 35.4 1Yr Average (PRs) 20.Key Statistics Year end December 2008A 2009E 2010F 2011F Earnings per share (PRs) 31 3.3 1Yr Average Vol (mn) 4.0 41 .3 7.1 Price earning ratio (PERx) 9.3 9.0 7.7 26 2.3 4.8% 10.4% 10.1 1Yr High (PRs) 29.1% P i /B k value Price/Book l (PB (PBvx)) 26 2.0 27 0 Curruent Price (PRs) 29.

The value assigned to PTC’s fixed-line operations – through DCF valuation methodology – is PRs27/share.P ki t T Pakistan l i ti Telecommunication C Company (PTC PA) Our SOTP based target price for PTC arrives at PRs45/share –an an upside potential of 130% compared to its current price level. The company’s valuation is duly supported by growth potentials that are primarily emanating from its renewed product portfolio. We consider the prevailing economic situation much less vulnerable for PTC than its peers. EBIT and net – are expected to depict notable stretch in the post-FY09 period. rectified operational efficiencies and ideally balanced and e panded network expanded net ork penetration in both wire-line ire line and wireless ireless segments segments. gross. while the wireless arm of the company – UFONE – has been valued at PRs18/share by using benchmark based valuation. all leading P&L sheet margins – cash. growth FY10 and onwards.who actually are now taking cost control steps that PTC has already taken a year ago. 42 . FY09 was a year of financial recovery for the company with the profitability revival being primarily attributable to the rectification of its long-lasting operating inefficiencies and poor market responsiveness rather than pure demanddemand-based based growth. EBITDA. The company’s timing of reshuffling and restructuring in FY08 provided it an all-important edge over its domestic peers .

7 Dividend yield (%) 0.0 Free Float Value (US$ mn) 134.P ki Pakistan T Telecommunication l i i Company C (PTC PA) Market Cap (PRs bn) 99.3 1Yr Average (PRs) 17.KA g Code Bloomberg PTC PA PTC.4 No of Shares (mn) 5.5 19 5 Market Cap (US$ bn) 1.5 Price earning ratio (PERx) N/M 10.7% 9.6 Target Price (PRs) 45.Key Statistics Year end June 2008A 2009A 2010F 2011F Earnings g per p share (PRs) ( ) ((0.9 EV/EBITDA (x) N/M 3.1 2.2% Price/Book value (PBvx) 10 1.0 1Yr High (PRs) 22.0 09 0.0 10 1.2 43 .6% 7.8 Free Float ((%)) 15.0 10 1.9 9.1 7.8 2.2 2.2 1Yr Average Vol (mn) 6.0% 7.100.4 99 4 Curruent Price (PRs) 19.0 1Yr Average Val (US$ mn) 1.4 1Yr Low ((PRs)) 12.6 KATS Code PTC Reuters Code PTCA.6)) 1.5 2.

we expect PSO’s earnings to rebound in FY10 to PRs46. The attractiveness of the scrip lies in the company’s revived profitability after posting loss of PRs6. That said. Elimination of inter-corporate circular debt through funds injection and removal of power subsidy in the form of power tariff hikes are likely to adjust the liquidity issue of the company.6bn in FY09 and the likely settlement of issues related to circular debts in the near future. the scrip is trading at a PER of 6. 44 . Increasing dependence on thermal power generation is raising the demand for furnace oil in the country (5-year FY10 to FY14 CAGR of 8%). with the improved cash flow position.9/share. On the basis of FY10E.P ki t St Pakistan t Oil (PSO PA) State PSO offers an upside potential of 13% to our target price of PRs345/share. growth in the earnings of the company is expected to gain considerable moment m on the back of stable oil prices and the e momentum exchange change rate co coupled pled with ith rising ffurnace rnace oil sales. Beyond FY09. EV/EBITDA of 4. PSO being the largest supplier of furnace oil (market share of 87%) – is certainly to be the prime beneficiary of this rising demand. Thereafter.5x. the short term borrowing of PSO would be reduced and thus lowering the financial charges. Therefore. we estimate the company to depict a four-year (FY11 to FY14) earnings CAGR of 11%.3x and offers a dividend yield of 5%.

5 1Yr High (PRs) 343.9 (39.4 52 4 Curruent Price (PRs) 305.8% Price/Book value (PBvx) 1.9 1Yr Average (PRs) 233.5 No of Shares (mn) 171.6 Price earning ratio (PERx) 3.0 1.7 305 7 Market Cap (US$ bn) 0.5 45 .P ki Pakistan S State Oil (PSO PA) Market Cap (PRs bn) 52.7 2.0 1Yr Low ((PRs)) 96.8 KATS Code PSO Reuters Code PSO.6 NA 4.6 Target Price (PRs) 345.6% 4.5 2.1) 46.7 N/M 6.0 Free Float ((%)) 43.9% 9.Key Statistics Year end December 2008A 2009A 2010F 2011F Earnings per share (PRs) 81.5 5.7 EV/EBITDA (x) 2.7% 1.6 Dividend yield (%) 7.3 3.9 54.6 1Yr Average Vol (mn) 1.KA g Code Bloomberg PSO PA PSO.2 Free Float Value (US$ mn) 266.0 1Yr Average Val (US$ mn) 4.

y. This may result in huge reverse provisions as the bank is likely to avail the full benefit of recent FSV regulation regulation. We believe.only 3. Thereafter. it offers a dividend yield of 8% (2010E).5bn or PRs4.5x.31) in 2012.9x.8bn (EPS PRs20. Incase of redemption.85) . We believe potential capital gain due to NIT sell-off and reverse provisions will be quite notable short-term share price’ catalysts. With a CAR of 16. NBP would book a capital gain of PRs4. 2009 to be marked as the year of consolidation for the bank in which we expect its earnings to arrive at PRs13. Currently.10% lower Y-o-Y. 46 . wider discount of 43% to the sector’s PBV multiple is unjustifiable given the bank’s average (2009-11) ROE of 14% . we project 3yrs (2010-12) average growth of 15% in the bank’s bottom-line at PRs20. The bank has one of the highest coverage ratio of 75% in the sector.0x and 0. respectively. it trades at a discount of 16% to our SOTP based target price of PRs97/share with PBV10 & PBV11 multiples of 0. NBP is well positioned to benefit from recovery in credit demand.6%. Moreover. respectively against the sector’s average of 1. It would be the major beneficiary of recent relaxation in FSV benefit and loan restructuring/rescheduling rules. despite restrained ROE. NIT is in process of an “in-kind” redemption of NIT units held by the LOC (Letter of Comfort) holders. Reportedly.8bn (EPS PRs12.2/share. 2009 stood at PRs68bn (NPL ratio of 14%) out of which PRs32bn (accumulated in last 3yrs) are applicable for FSV benefit.N ti lB National k off P Bank ki t (NBP PA) Pakistan National bank is available on cheapest p multiples p amongg Pakistani banks. Total amount of NPLs as of September 30. NBP is the largest stakeholder of NIT-LOC fund with 334mn units.4pps less than the sector.6x and 0.

3% 7.9 15.9 5.KA g Code Bloomberg NBP PA NBP.4 12.0 1Yr Average Val (US$ mn) 5.5 47 .6 4.0 17.6% Price/Book value (PBvx) 07 0.6 Free Float Value (US$ mn) 245.5 No of Shares (mn) 1.6 06 0.0 1Yr Average Vol (mn) 6.2% 7.4 1Yr High (PRs) 107.1 Dividend yield (%) 9.3 87 3 Curruent Price (PRs) 81.7 06 0.4 KATS Code NBP Reuters Code NBPK.N i National l Bank B k off P Pakistan ki (NBP PA) Market Cap (PRs bn) 87.0 1Yr Average (PRs) 73.1 Target Price (PRs) 97.2 Price earning ratio (PERx) 4.8 Free Float ((%)) 24.6 05 0.0 1Yr Low ((PRs)) 46.4 4.9% 8.1 81 1 Market Cap (US$ bn) 1.Key Statistics Year end December 2008A 2009E 2010F 2011F Earnings per share (PRs) 14.076.

The bank has become cautious when it comes to private sector loan disbursement. its average ROE (2009-11) of 18% is superior to the banking average of 17%. During the 3Q2009.1bn in the preceding quarter (2Q2009). With it its greater t ffocus on consumer and d commercial i lb banking. As a result. the bank recorded additional NPLs of PRs2. Importantly. the bank had booked massive NPLs in 2Q2009. 48 .U it d B United k Li Bank it d (UBL PA) Limited UBL is trading at PBV10 and PBV11 multiples of 1. share of fixed deposits fell from 39% to 33%. credit provisions swelled to PRs5.9x. respectively – at par with sector. However. the priority is given to commodity finance against government guarantee and to public sector which have lowest infection ratio. UBL’s loan book is expected to grow at 3-year CAGR of 13% post 2009. ki UBL wouldld benefit b fit the th mostt from recovery in credit cycle and improving macro indicators. Flow of fresh NPLs is largely checked due to recovery in business environment and cautious lending by the bank.0bn as compared to PRs5. As a result. However.0x and 0.0bn in the same period of last year. The bank has substantially reduced its term deposits by PRs39bn or 21% to PRs147bn PRs147bn.3bn in 1H2009 as against PRs3. We believe this strategy to augur well for UBL as reduction in high cost deposits will help the bank to mitigate the impact of declining loan re-pricing rate amid monetary easing.

4% 6.8 1Yr Average Vol (mn) 3.1 10 1.9 1Yr High (PRs) 65.112.4 Free Float ((%)) 30.7 11.0 1Yr Average Val (US$ mn) 1.Key Statistics Year end December 2008A 2009E 2010F 2011F Earnings per share (PRs) 7.6 63 6 Market Cap (US$ bn) 0.5 8.9 49 .7% Price/Book value (PBvx) 15 1.KA g Code Bloomberg UBL PA UBL.0 Target Price (PRs) 70.0 09 0.7% 3.8 6.6 Free Float Value (US$ mn) 252.9 6.U i d Bank United B k Limited i i d (UBL (UB PA) Market Cap (PRs bn) 70.0% 7.8 No of Shares (mn) 1.5 9.1 Price earning ratio (PERx) 7.0 KATS Code UBL Reuters Code UBL.3 Dividend yield (%) 1.0 5.0 1Yr Low ((PRs)) 28.1 1Yr Average (PRs) 49.8 70 8 Curruent Price (PRs) 63.5 11 1.

respectively.6x and 0. 2009 we e anticipate average a erage growth gro th of 15% oover er the ne nextt 3 years ears (2010-12).6x. the bank is depicting a gradual revival inline with the recovery in macro indicators. respectively respectively. However. We have assigned PRs5.B k Al Bank F l h (BAFL PA) Al-Falah Bank Al-Falah Al Falah is available at discount of 13% from our SOTP target price of PRs16/share with PBV10E and PBV11E of 0. The opening quarter of 2009 was the toughest period for the bank where the deposit base and net advances dropped by 9% and 8%. 50 . There have been rumors for potential divestiture of its stake. S bseq ent to 2009. the bank is expected to depict a strong rebound in its bottom-line in 2009. The bank holds 317mn shares of Warid Telecom (Pvt).2bn (EPS PRs1 6) Subsequent PRs1. This may render upswing rally in the scrip. We believe that the ageing risk of infected portfolio would be mitigated by expected reverse provisions in the wake of recent relaxations in FSV rules. respectively. Accretion in NPL’s has slowed down to 6% in 3Q2009 versus 14% and 23% in the 1st and 2nd quarters of current year year. We expect earnings to rebound by 71% to PRs2.7/share value to its holding in Warid Telecom. After posting 58% profitability decline in 2008.6).

6 51 .8 18 8 Curruent Price (PRs) 14.0% 3.6 1Yr Average (PRs) 12.9 Free Float Value (US$ mn) 100.3 Dividend yield (%) 0.5 6.1 Price earning ratio (PERx) 14.0 1Yr Low ((PRs)) 9.7 KATS Code BAFL Reuters Code BAFL.KA g Code Bloomberg BAFL PA BAFL.9 Target Price (PRs) 16.4 Free Float ((%)) 45.0 1Yr Average Val (US$ mn) 1.5% Price/Book value (PBvx) 11 1.1 8.7 06 0.7% 5.6 06 0.8 2.7% 3.349.1 No of Shares (mn) 1.2 1Yr Average Vol (mn) 6.B k Al Bank Al-Falah F l h (BAFL (BAF PA) Market Cap (PRs bn) 18.1 07 0.0 14 0 Market Cap (US$ bn) 0.6 1.0 1.Key Statistics Year end December 2008A 2009E 2010F 2011F Earnings per share (PRs) 1.3 7.2 1Yr High (PRs) 16.

From a premium of 3% in August 2009. the scrip is trading even lower than the discounted worth of its portfolio at PRs38/share.6x.5bn) with exposure in banking. going forward. 52 . indicating an upside potential of 70%.7x and US$39. This includes PRs18 for cement operations and PRs38 for its portfolio value. Currently. 7. respectively. On core operations (cement business).DG Kh Khan C Cementt C Company (DGKC PA) Our SOTP based target price for DGKC arrives at PRs56/share. The per share investment worth of D. EV/EBITDA and EV/ton multiples of the company arrives at of 15. Khan Cement now arrives at PRs54/share. The company receives a decent amount of other income in the form of dividend receipts from these holdings. This is being done by segregating DG Khan’s cement operations and its equity portfolio under SOTP methodology.0x and US$72. the stable rrupee pee dollar parit parity is anticipated to res result lt in lo lower er e exchange change losses for the company that had previously been the major reason for losses. DG Khan’s FY10E EV/EBITDA and EV/ton arrives at 4. PE. textile and insurance sector. declining interest rates also bode well for the underlying profits of the company. Besides its cement business. business DGKC also holds a healthy investment portfolio (market worth PRs16. During D ring FY10 FY10. respectively. DG Khan Cement’s share price is now at ~39% discount from its equity portfolio worth.G. Moreover. On the basis of FY10E numbers.

9 5.1 53 .DG Kh Khan C Cement C Company (DGKC PA) Market Cap (PRs bn) 10.2) 17 1.6 KATS Code DGKC Reuters Code DGKH.0 6.8% 0.Key Statistics Year end June 2008A 2009A 2010F 2011F Earnings per share (PRs) (0 2) (0.8 Target Price (PRs) 56.0 10 0 Curruent Price (PRs) 32.7 21 2.8 No of Shares (mn) 304.0% 0.0 Free Float Value (US$ mn) 59.0 1Yr Low ((PRs)) 13.9 32 9 Market Cap (US$ bn) 0.4 EV/EBITDA (x) 9.9 7.KA g Code Bloomberg DGKC PA DGKC.0% Price/Book / k value l (PBvx) ( ) 03 0.6 13.2 15.4 1Yr Average (PRs) 27.5 0 0.0 1Yr Average Val (US$ mn) 2.5 Price earning ratio (PERx) N/M 19.2 Free Float ((%)) 50.1 1Yr Average Vol (mn) 7.3 1Yr High (PRs) 41.2 Dividend yield (%) 3.5 0 0.0% 0.1 25 2.3 0 0.

the company posted a decent cement sales growth as against the declining sales by other cement companies. g . The company company’s s major focus on exports has has. stable rupee dollar parity and decline in interest rates are likely to result in lower financial charges & exchange losses for the company. insulated it from the domestic economic slowdown. the scrip is trading at cheap multiples with FY10F PE of 7. In order to uphold this position the company has recently signed a MoU for the supply of indigenous coal (cheaper than imported coal) for its cement plants with M/S Oracle Coal Fields PLC. The company is located in both regions (North and South) that allows it to enjoy tremendous logistical g advantage. to some extent extent. EV/EBITDA of 5.8x. Incorporating this. On the basis of relative valuations. Furthermore. Therefore.L k C Lucky Cementt Li it d (LUCK PA) Limited The current trading levels of the Lucky Cement’s share price suggest an upside potential of approx 14% to our target price of PRs80/share.0x and EV/ton of US$45. 54 . Moreover. thereby. p providing g an edge g over its p peers.5MW electricity for a period of 10-years. Currently. Our initial calculations suggest a positive earnings impact of around 8-9%. y. Lucky Cement is the lowest cost producer amongst its peers. our earnings projections for the company would increase by 4% on average. respectively. another MoU has also been signed with the KESC (Karachi Electric Supply Corporation) for the supply of 49.

4 1Yr High (PRs) 85.0 1Yr Low ((PRs)) 26.2 Free Float ((%)) 45.3 1Yr Average Vol (mn) 4.8 EV/EBITDA (x) 9.8 No of Shares (mn) 323.0 1Yr Average Val (US$ mn) 3.5 14 2 14.Key Statistics Year end June 2008A 2009A 2010F 2011F Earnings per share (PRs) 85 8.5 Price earning ratio (PERx) 8.9 7.2 70 2 Market Cap (US$ bn) 0.8 7.2 KATS Code LUCK Reuters Code LUKC.3 5.KA g Code Bloomberg LUCK PA LUCK.0 4.9 Target Price (PRs) 80.0 95 9.9% P i /B k value Price/Book l (PB (PBvx)) 12 1.0% 5.4 Dividend yield (%) 0.5 Free Float Value (US$ mn) 121.7% 2.2 10 1.2 1Yr Average (PRs) 59.Lucky k CCement Limited i i d (LUCK ( UCK PA) Market Cap (PRs bn) 22.9% 2.2 4.0 09 0.6 4.2 90 9.7 22 7 Curruent Price (PRs) 70.8 55 .9 08 0.

As per g NML’s p our calculation. However.1/share to NML’s fair value. Furthermore. we believe this would translate into negative goodwill and would result in a one-time gain on acquisition for NML. The project has started commercial production and dividend receipts are likely to begin from 2010.5bn or PRs69/share. We estimate both projects would cumulatively add PRs9. Nishat Mills also carries a huge equity portfolio with investments in cement. as power projects (IPPs’ capacity 727MW) purchase prices are below their respective book values of PRs27.175 (PRs14.0bn in new power project (Nishat Power Limited).Ni h t Mill Nishat Mills Li it d C Limited Company (NML PA) NML’s SOTP based target price of PRs86/share indicates a decent upside potential of 29% from its prevailing trading levels. both the acquisitions are calculated at US$0.188 (PRs15.8) and US$0. The cumulative market value of the portfolio arrives at PRs16.78 and PRs32 PRs32. Ltd and Pak Gen Pvt.0bn also. 56 . Gen). The company has invested PRs2. 0bn investment in this acquisition also As reported by the management. banking and power sector. NML plans to participate up to US$60mn or PRs5 PRs5. the market is discounting portfolio by y 45% to its market value as against g the historical discount of 20-30%. AES Lalpir and AES Pak Gen are to offer respective PRs based IRR of 24% and 23%. the company is diversifying its operation towards safe investment avenues. As per our calculation. Mansha Group also announced an acquisition of two power companies (AES Lalpir Pvt.7) for AES Lalpir and AES Pak Gen. respectively. As per the management.2424 per share basis basis. In order to abate inherited business risk in textile business.

8% 3.6 KATS Code NML Reuters Code NISM.6 0.0% 3.KA g Code Bloomberg NML PA NML.7 0.2 1Yr Average Vol (mn) 4.2 9.5 66 5 Market Cap (US$ bn) 0.8% Price/Book value (PBvx) 0.6 EV/EBITDA (x) 8.5 10.7 5.Key Statistics Year end June 2008A 2009A 2010F 2011F Earnings per share (PRs) 24.7 12.1 Target Price (PRs) 86.9 Price earning ratio (PERx) 2.1 16 1 Curruent Price (PRs) 66.7 Free Float ((%)) 50.0 1Yr Average Val (US$ mn) 2.2 6.7 Free Float Value (US$ mn) 95.8 0.6 Dividend yield (%) 3.6 6.0 5.5 1Yr High (PRs) 73.7 5.7 1Yr Average (PRs) 43.Ni h Mill Nishat Mills Limited i i d Company C (NML (NM PA) Market Cap (PRs bn) 16.0 57 .2 5.8% 3.3 No of Shares (mn) 242.0 1Yr Low ((PRs)) 21.

pk Pakistan Sales Team Farooq Habib (COO) 58 Abrar Hussain Muhammad Rehan Khan Harris Ahmed Batla Hayat Khan Kamran Rehmani Farhana Saba Kishan Sidi Hamid Siddiqui q hamid q p p Rabia Hussain Capital Equities Limited (92 21) 111 226 226 Mian Ehsan-ul-Huq (CEO) North American Sales Partner Auerbach Grayson Anshuman Ray Pakistan Research Team Faraz Farooq faraz.