Pakistan Market Outlook 2018Table of Contents Executive Summary ----- 3 Pakistan Market Outlook 2018 ----- 6 ... currency devaluation, which has already happened (Pak Rupee down 5-6%

Best Local Brokerage House

Brokers Poll 2011, 2012, 2013, 2014, 2016 & 2017

Pakistan Market Outlook 2018

Best Local Brokerage House 2015, 2016

December 20, 2017Prices as of December 15, 2017

Topline ResearchAC

[email protected] Securities, Pakistan

REP-057www.jamapunji.pk

2018

Table of Contents

Executive Summary --------------------------------------- 3

Pakistan Market Outlook 2018 --------------------------------------- 6

Political Uncertainty --------------------------------------- 14

Currency & Balance of Payments Risk --------------------------------------- 20

2

Pakistan Market during 2017 -------------------------------------- 26

Top Sectors for 2018 --------------------------------------- 30

Top Picks for 2018 --------------------------------------- 34

Pakistan Market Comp Sheet --------------------------------------- 53


Executive Summary

Recovery likely once political dust settles

� While most equity investors have turned negative due to ongoing political uncertainty, we think this is an

opportunity to revisit Pakistan market. Despite concerns, we believe political situation will improve and

uncertainty will ease in the next few months.

� Contrary to prevailing perception, we don’t believe that the parliament will be dissolved due to political

instability. Further, possibility of a technocratic govt. set up or a military coup are highly unlikely as we expect

timely election by August 2018.

� Pakistan Equities currently trade at 2018E and 2019F PE of 8.2x and 7.2x, respectively, which is lower than

historic 10-year average of 8.5x and 5-year average of 9.6x. We are of the view that Pakistan’s PE can

4

historic 10-year average of 8.5x and 5-year average of 9.6x. We are of the view that Pakistan’s PE can

potentially be in the range of 8.5-9.0x by end of 2018 thus providing 22-29% upside from current levels.

Compared to MSCI EM Asia, Pakistan now trades at 50% discount compared to last 10 year average of 25%.

� Historically, Pakistan equities always rallied before general elections during last 25 years. Index rallied between

12-22% on an average in 3-6 months period before elections. This supports our thesis that the market will post

gains as we move closer to the election.

� Many political analysts believe that due to the ongoing tussle between former PM Nawaz Sharif &

Judiciary/Military, a situation may arise where Senate (Upper house) elections, scheduled in March, 2018, do

not take place. In this case, if street protests & violence erupt, uncertainty would increase, thereby causing

more losses to the stock market. In that scenario, we think market can fall as low as 33,000pts.


� Finally devaluation of Pak Rupee has occurred and we believe there is more around the corner. This will help

reduce pressure on the external account.

� Devaluation of Pak Rupee and increase in interest rates will help ‘Banks’ and ‘Oil & Gas Explorers’. Moreover

we also like ‘Consumer/Automobiles’ as disposable income rises, ‘Insurance’ given low penetration and ‘Steel’

sector which is going through an expansionary phase amid govt. protection.

Top Picks: Key Numbers

SymbolYear

EndPrice

Mkt. Cap.

US$mn

2018E

EPSPE PBV

Div.

YldROE

Recovery likely once political dust settles

5

SymbolEnd

PriceUS$mn EPS

PE PBVYld

ROE

OGDC Jun 157 6,197 18.8 8.3 1.2 4% 14%

HBL Dec 159 2,140 25.0 6.4 1.1 4% 17%

LUCK Jun 455 1,352 48.6 9.4 1.4 3% 15%

ENGRO Dec 269 1,294 22.0 12.2 2.2 10% 18%

BAHL Dec 55 558 8.4 6.6 1.2 7% 19%

ISL Jun 95 381 9.6 9.9 4.2 4% 43%

PSMC Dec 472 357 67.5 7.0 1.1 5% 16%

PAEL Dec 45 208 7.0 6.5 0.8 6% 12%

AICL Dec 49 157 8.1 6.1 0.9 7% 15%

Source: Topline Research


Pakistan Market Outlook for 2018for 2018

With political stability, Index can reach 50,000pts

� While most equity investors have turned negative due to ongoing political uncertainty after former

Prime Minister was disqualified, we think this provides an excellent opportunity to investors. Despite

concerns, we believe political situation will improve and uncertainty will ease in the next few months.

� After 19% fall in 2017, Pakistan Equities are currently trading at a 2018E Price to Earnings (PE) of 8.2x,

which is lower than historic 10-year average of 8.5x and 5-year average of 9.6x (based on our Topline

Universe sample companies). We are of the view that Pakistan’s PE can potentially be in the range of

8.5-9.0x by the end of 2018.

� This assertion is based on our base case of timely elections, which would serve to reduce ongoing

political uncertainty paving way for timely election. Further, we are of the view that highly anticipated

7

political uncertainty paving way for timely election. Further, we are of the view that highly anticipated

currency devaluation, which has already happened (Pak Rupee down 5-6% already) will support

external account position and reduce economic uncertainty as new government is expected to take

measures to address balance of payment situation.

� The market PE during the Pakistan Muslim League-Nawaz (PML-N) era from 2013-2017 has averaged

9.6x. On the other hand, the market traded at an average PE of 7.2x during the Pakistan People Party

(PPP) govt. from 2008-2012. While, during Musharraf’s military rule (1999-2007) it averaged 8.1x.

� Our thesis of probable PE range in 2018 of 8.5-9.0x is based on the premise that the next govt. would

be better than the PPP years while it may not meet the performance of the PML-N govt when they have

the majority. The next govt. will likely be a hung parliament formed by PML- N or PTI with support of

smaller parties.


Market to recover whether PML-N or PTI is in govt

Average forward PE during Musharraf, PPP & PML-N Periods

10.0

12.0

14.0

� We forecast that Pakistan’s benchmark KSE-100 index to reach in the range of 47,000-50,000pts by the

end of 2018, based on aforementioned reasons. This translates into 22%-29% gains from current levels.

8Pakistan Market Outlook 2018

Source: Topline Research, =PE based on Actual Earning of Topline Universe

-

2.0

4.0

6.0

8.0

1999A

2000A

2001A

2002A

2003A

2004A

2005A

2006A

2007A

2008A

2009A

2010A

2011A

2012A

2013A

2014A

2015A

2016A

2017E

� Analyzing the pre and post historical election trends of Pakistan, we conclude that on average the

market rallied 12-22% in 3-6 months period before elections held during last 25-years. After

elections, the market on average increased by 20-27% in 3-6 months. This is consistent with our thesis

for 2018 where we believe that prevailing negativity in the stock market will likely be short lived. As

soon as clarity comes and election schedule emerges, the market will gain traction just like in the past.

Market has always rallied before elections

KSE Performance Pre & Post Elections

Election YearBefore Election After Election

3-months 6-months 1-Year 3-months 6-months 1-Year

Pakistan Market Outlook 2018 9

Election Year3-months 6-months 1-Year 3-months 6-months 1-Year

PPP (Oct 19, 1993 - Nov 5, 1996) 10% 27% 19% 72% 79% 59%

PML-N (Feb 17, 1997 - Oct 12, 1999) 17% 19% -3% -11% 17% 4%

Military (Oct 12, 1999 - Nov 15, 2007) 10% 27% 47% 25% 55% 24%

PPP (February 18, 2008 - February 17, 2013) 8% 13% 25% -4% -31% -61%

PML-N (May 11,2013 - to Date) 13% 23% 40% 17% 15% 40%

Average 12% 22% 26% 20% 27% 13%

Source: PSX, Topline research

Market Valuation: Better than past

� Pakistan stocks are trading at almost 2-year low PE of 8.2x with double digit earnings growth.

Pakistan Stock Market: Key Numbers

2015A 2016E 2017F 2018F 2019F 2020F

PE 9.0 9.9 9.1 8.2 7.2 6.6

Earnings Growth 2% -9% 9%* 12%* 13% 10%

PBV 1.6 1.5 1.3 1.2 1.2 1.1

Dividend Yield 6% 6% 5% 6% 7% 7%

ROE 18% 15% 12% 15% 15% 16%



� Liquidity of corporate Pakistan has improved since the financial crisis of 2008. On average, based on top 20

market capitalization companies (excluding banks), current assets/current liabilities has improved from 1.50x

in 2008 to 1.59x in 2017 while debt to equity has come down from 49% to 41% during the same period.


*Excluding outliers

Market Valuation: Better than peers

� Due to political and economic concerns, Pakistan is currently trading at a 50% discount to MSCI

EM Asia vs. 10-Year historical discount of 25%. EM-Asia includes countries including

China, India, Indonesia, Korea, Malaysia, Pakistan, Philippines, Taiwan and Thailand.

� Pakistan is also trading at a 40% discount to MSCI FM compared to historical average of 18%.

Pakistan Market discount to MSCI EM (Asia) at 50% compared to 10-year average of 25%

60%35.00 Discount % (RHS) MSCI EM ASIA PE (LHS) KSE-100 Index PE (LHS) 10 Year Average (RHS)

Source: Bloomberg, Topline Research


0%

10%

20%

30%

40%

50%

-

5.00

10.00

15.00

20.00

25.00

30.00

Nov-

07

Jun-0

8

Dec-0

8

Jul-09

Feb-1

0

Sep-1

0

Mar-

11

Oct-

11

May-

12

Nov-

12

Jun-1

3

Jan-1

4

Jul-14

Feb-1

5

Sep-1

5

Apr-

16

Oct-

16

May-

17

Dec-1

7

11

Political crisis may lead to low of 33,000

� Besides our base case scenario where elections are held on time, we cannot rule out a situation where

political uncertainty prevails for the first few months of 2018.

� Many political analyst believe that due to the ongoing tussle between former PM Nawaz Sharif &

Judiciary/Military, a situation may be created to not allow PML-N to win upper house selection. In this

case, if street protests & violence erupt, uncertainty would increase thereby causing more losses to the

stock market.

� In such a scenario, the market may re-rate to a lower multiple of 6.9x (based on estimated PE of Topline

Universe), which translates to an index level of around 33,000pts. This was the lowest PE seen at the


Universe), which translates to an index level of around 33,000pts. This was the lowest PE seen at the

time of the PTI led sit-in (Aazadi March) during Aug-Dec 2014 where rumors of military takeover was

prevailing.

10-Year Pakistan Market PE and Key Events

8.00

10.00

12.00

14.00

16.00

PE (x)

PE 10 Year Avg. PE

Average PE 8.5

Aftermath of the

price floor

MSCI upgraded Pakistan to

EM (Effective 1 Jun 2017)

PML-N wins

elections

PPP wins election

Source: Topline Research =PE based on Actual Earning of Topline Universe

-

2.00

4.00

6.00

8.00

Jan-0

7

Aug-0

7

Feb-0

8

Sep-0

8

Apr-

09

Nov-

09

Jun-1

0

Jan-1

1

Aug-1

1

Mar-

12

Oct-

12

May-

13

Nov-

13

Jun-1

4

Jan-1

5

Aug-1

5

Mar-

16

Oct-

16

May-

17

Dec-1

7

Musharraf suspends Chief Justice

Iftikhar Chaudhry & Lawyers

movement in Mar 2009

Benazir

Bhutto

assassinated

Sit in by Imran KhanPanama Leaks

SC disqualified

PM Nawaz Sharif

SC disqualified

PM Gilani

SC ordered arrest

of PM AshrafForeign selling and declining

Oil prices


Political Uncertainty

� Due to rising tensions between judiciary, establishment and ruling Govt., uncertainty prevails whether

the general elections will be held on time or not. According to the law, present govt. completes its

tenure in Jun 2018 after which a caretaker setup will be setup, which will be responsible to conduct

general elections within 60 days, latest by August 2018.

� Given that Pakistan has a history of military takeovers there are some corners that fear a repeat

scenario. The most recent coup was in 1999 when Chief of Army Staff (COAS), General Pervez

Musharraf, seized control of civilian government of publicly elected then PM Nawaz Sharif and stayed in

power till 2007. Prior to the military coup in 1999, COAS Muhammad Zia-ul-Haq declared martial law in

Will elections be held on time?

15

power till 2007. Prior to the military coup in 1999, COAS Muhammad Zia-ul-Haq declared martial law in

1977 and served as President of Pakistan from 1978 until his death in 1988.

� Islamist political party Tehreek-e-Labaik of Pakistan, led by Khadim Hussain Rizvi also started a mass sit-

in Islamabad against the ruling government in Nov 2017 for changes in the Elections Bill 2017 and

demanded resignation of Zahid Hamid, the now former law minister, for his alleged role in the matter.

The sit-in lasted for about 21 days and led to resignation of Zahid Hamid eventually. This indirectly

signaled uncertain political situation which may result in delay in elections.

� The uncertainty also arose due to delay in the passage of Delimitation Bill (legislation that allows

election to be held based on the recently conducted census). The bill has now been passed and it could

pave way for timely election.


� Another key event to track prior to General Elections is Senate (upper house) elections scheduled in

March 2018.

� Senate gives equal representation by way of 104 seats to all federating units as membership of National

Assembly (lower house) is based on population of all four provinces. Unless both the Senate and

National Assembly pass a Bill and it receives the President's assent, it cannot be passed as law. Elections

are held every 3 years, for one half of the Senate (52 seats) while each Senator has a term of six years.

Ruling party PML-N would secure additional seats as it is currently in power and has 26 seats, while

most retiring senators are from PPP the previous govt. with 27 seats.

�

Will the govt. survive till March 2018?

16

� If Senate elections are held as per schedule in Mar 2017, PML-N is expected to win given its current

majority in the lower house. This will be positive for PML-N as they will hold the upper house for next 3

years regardless of the outcome of the general elections of the lower house.

� However there is concern that due to civil military tussle, PML-N may not be allowed to contest the

upper house elections. Though there is nothing in the constitution that can stop these

elections, following scenarios may arise before March 2018 thereby keeping PML-N away from getting

majority.

� Dissolution of parliament before March 2018: There is likelihood of street protests that can become so

pressurizing that the ruling party and opposition dissolves the govt. and calls for early elections. In this

case, the uncertainty will likely be there till 1Q2018 after which some clarity will prevail.


Will the govt. survive till March 2018?

� Technocrat government: Another scenario can be of street protests leading to uncertainty to such an

extent that Supreme Court (SC) orders formation of a technocratic govt. for a defined time period.

According to news reports, several more sit-ins by religious parties are also planned in the near future

which could serve to add to the already looming uncertainty & civil agitation in the political climate, we

believe. This can be accompanied by delay in elections as the Election Commission of Pakistan (ECP)

may be given time to incorporate the census results. However, despite delay in elections, uncertainty

may be over by the first few months of the year as the technocratic govt. may start taking the much

required measures on the political and economic front.

�


� Military takeover: The third and least likely scenario could be a military takeover whose period of stay is

unknown, however, it may bring an end to the political uncertainty in the country. Recently, army chief

while attending the briefing to upper house stated that Parliament remains the supreme law making

body in the country and army will continue to play its constitutional role. The recent statement of army

chief indicates that the probability of military takeover is low.

� Timely elections in 2018 is our base case scenario, which will greatly help reduce political uncertainty.

Based on this, we are forecasting 2018 end index range of 47,000-50,000pts (up 22-29%).

� The recent Panama Papers case has dented the popularity of ruling PML-N govt. We think that the

outcome of NAB trials related to the ongoing corruption cases could also impact the vote bank of PML-N.

� In 2013, PML-N won the largest number of seats (166) but still fell six seats short of required majority of

172 seats. However, later few independent candidates joined PML-N allowing it to form a

simple-majority govt. by bringing on-board 19 independent candidates (13 more than the required seats

to form a govt).

Base case scenario: Elections on time, coalition govt forms

18

to form a govt).

� In spite of Panama’s scandal, we believe PML-N may remain as the largest party in the upcoming general

elections but will lose its popularity with its seats falling to 30-40% as compared to 49% in last elections.

PTI will gain 15-30% thanks to its anti-corruption campaign against former PM Nawaz Sharif and family.

� In a recent Gallup Survey Pakistan conducted in Oct’17, PML-N have kept the top spot as the most

popular party with 34% of the respondents said they would vote for PML-N, followed by PTI at 26%.

Around 15% said they would vote for the PPP.

� Based on initial assessment, a hung parliament is likely in upcoming elections. Unlike in 2013, there will

be a lot of confusion ahead of 2018 elections and clarity will only come post elections when top two

parties (PML-N and PTI) lobby with smaller parties to form the govt.


� Since the Panama Case verdict & recent lifetime disqualification of opposition (PTI) leader Jahangir

Khan Tareen, we believe former Prime Minister Nawaz Sharif will not be allowed to contest the

elections. While outcome of NAB trials may also lead to further cracks in the PML-N.

� However, we are of the view that adverse verdict and inability of former PM Nawaz Sharif to contest

the elections will likely lead to Shahbaz Sharif, brother of PM Nawaz Sharif brother, to be candidate for

next Prime Minister of Pakistan in case PML-N wins. The SC has recently rejected a National

Accountability Bureau (NAB) appeal to reopen Hudaibiya Mills case against Shahbaz Sharif, thereby

increasing his chances of being qualified to contest election.

Base case scenario: Elections on time, coalition govt forms


2018 General Elections Possible Scenarios

PARTY 2008 2013 2018F

PML-N 26% 49% 30-40%

PPP 35% 12% 10-15%

PTI NA 10% 15-30%

OTHERS 39% 29% 20-40%

Source: Election Commission of Pakistan, Topline Securities

Currency and Balance of

Payment RiskPayment Risk

Pak Rupee to fall another 5% till June 2018

� After remaining stable for almost two and a half years, Pak rupee has already depreciated by 5% against

US dollar in the interbank market during Dec’17 and is trading at Rs110.5.

� As per our channel checks with major banks, this is likely the phase 1 of the currency devaluation and a

phase 2 of a similar magnitude i.e. 5% will follow in the second half of the current fiscal year. This will

take the Pak Rupee to Rs115 by June 2018, which is a devaluation of 10% in FY18.

� The much awaited currency devaluation, we believe, was a key event, which has happened and will

serve to strengthen the country’s external account. The current govt. has also introduced additional

21

import tariff for non-essential items in Oct’17, which we believe will help to dampen the rise in imports.

Based on the above, we are revising up our exports estimates by US$1.5bn to US$24bn while reducing

our imports estimates by US$2bn to US$51bn for FY18.

� We are revising our current account deficit (CAD) estimate accordingly to US$13-14bn in FY18 (4.3% of

GDP) vs. our earlier estimate US$16.2bn (5.2% of GDP). We are maintaining our view that ongoing

pressures on external account will likely result in further depletion of FX reserves, which we expect to

further fall by US$3bn in FY18 to US$13bn (with Central Bank), which would be around 2.5-3.0 months

of import cover.


Devaluation to help reduce the external funding gap

� Based on CAD estimate of US$13-14bn, depletion in foreign exchange reserves of US$3bn and foreign

direct investment (FDI) of US$3bn, we estimate gross funding gap would be US$13-14bn for FY18. State

Bank (SBP) expects this funding gap to be US$12bn. We are of the view that the Govt. will likely be able

to arrange this funding through loans and will not need assistance from the International Monetary

Fund (IMF), which is contrary to expectations. The govt. has already successfully raised US2.5bn in

Eurobonds/Sukuks.

� Taking on additional debt is a short term measure and not a sustainable solution. It will be up to the

newly elected govt. in FY19 to continue to take prudent economic measures including gradual currency

22

devaluation. We are maintaining our annual devaluation assumption of 6% in FY19 and FY20.


External Funding Requirement

US$mn FY16A FY17A FY18E FY19F FY20F

Current Account Deficit -4,867 -12,120 -13,389 -12,732 -13,515

Reserve Addition/(Depletion) 2,652 -1,532 -3,000 - -

Foreign Direct Investment 2,286 2,311 3,343 4,500 4,500

Foreign Portfolio Investment -429 -234 -300 - 200

Net External Financing* 5,662 8,511 7,346 8,232 8,815

Gross External Financing* (inc. debt repayments) 8,376 13,331 13,246 13,732 16,387

Source: State Bank of Pakistan, Topline Research; *Includes Public and Private funding sources

Import cover coming down

� The decline in reserves coupled with rising imports has led to decline in import cover over the last few

years. Taking SBP reserves at US$14.7bn at present, import cover now stands at around 3 months while

if we net off foreign currency swaps of around US$6bn, which are short term loans, this ratio falls to

below 2 months. The ability to bridge the net external financing requirement in the coming years will be

pivotal in preventing further decline in import cover.

6.0 6.0

MonthsMonths Import cover (LHS) Import Cover net of swaps (RHS)

Import cover over the years


-

1.0

2.0

3.0

4.0

5.0

-

1.0

2.0

3.0

4.0

5.0

Jan-1

4

May-

14

Oct-

14

Feb-1

5

Jun-1

5

Oct-

15

Feb-1

6

Jun-1

6

Oct-

16

Feb-1

7

Jun-1

7

Oct-

17

Source: State Bank of Pakistan

� Given higher than anticipated devaluation and also that the govt. opted to start devaluation before

expectations, we now anticipate inflation for FY18 to average at least 6% compared to earlier

expectations of 5.5%. Similarly, we anticipate inflation for FY19 to be around 7% compared to our

earlier expectation of 6.5%.

� We are now of the view that interest rates may rise by 100 basis points in 2018 as compared to earlier

expectations of 50 basis points due to higher inflation and to control demand.

� We anticipate the country’s GDP growth will be 5.3%-5.5% during FY18-FY20 compared to our earlier

estimate of flat 5.0% during this period. Earlier than expected devaluation and completion of some key

Higher inflation & interest rates; GDP growth 5.0-5.5%

24

estimate of flat 5.0% during this period. Earlier than expected devaluation and completion of some key

power projects will serve to buoy the country’s export manufacturing base and overall GDP growth.

Further, Standard and Poor’s (S&P), in its recent most review, forecasted Pakistan’s GDP growth to

average 5.7% during FY18-20 while IMF expects FY18 GDP growth at 5.6%.

� Progress on the China Pakistan Economic Corridor Projects (CPEC) worth over US$60bn coupled with

better security situation, will be pivotal and serves as a key differentiating factor compared to previous

periods of economic challenges. Further, our outlook on Foreign Direct Investment (FDI) remains

positive given continuing CPEC projects. During financial crisis of 2008, outlook on FDI was negative

given both local and global economic recession.


Key Economy Indicators

FY16A FY17A FY18E FY19F FY20F

GDP Growth 4.7% 5.3% 5.3% 5.4% 5.5%

GDP (USD$bn) 284 305 314 330 350

GDP/Capita (US$) 1,531 1,629 1,661 1,710 1,777

Exports (US$bn) – as per SBP 22 22 24 26 28

Imports (US$bn) – as per SBP 41 49 51 52 54

Trade Deficit (US$bn) 19 27 27 26 26

25

Trade Deficit (US$bn) 19 27 27 26 26

Current Account Deficit -0.9% -4.0% -4.3% -3.9% -3.9%

Inflation 2.9% 4.2% 6.0% 7.0% 8.0%

6-Month KIBOR 6.1% 6.1% 6.6% 7.6% 8.6%

FDI (US$bn) 1.9 2.3 3.0 4.5 4.5

FX Reserves with SBP (US$bn) 18.0 16.1 13.1 13.1 13.1

Budget Deficit -4.6% -5.8% -6.0% -5.3% -4.8%

PKR/USD parity (PKR) 104.2 104.9 115.0 122.0 130.0

Source: State Bank of Pakistan; Topline Research


Pakistan Market during 20172017

Pakistan is one of the worst performing markets in 2017

� After strong performance during the last 5-years (2012-16) with CAGR of 33%, 2017 turned out to be a tale of

two halves for the KSE-100 index where the first half saw a bull run fueled by MSCI-EM inclusion euphoria

where the market rallied up to a peak of 52,876 points on May 24, 2017 with a YTD gain of 11%.

� Subsequent to the upgrade in May, sentiments went south drastically, as weight in MSCI EM turned out to be

lower than expected, foreigners sold instead of buying, federal budget was unfavorable, Panama Leaks led to

disqualification of Pakistan’s Prime Minister and economic shortcoming were scrutinized more than ever.

� The above factors culminated in the KSE-100 index shedding a whopping 27% from its peak and taking YTD

return to -19% of KSE-100 Index (-23% in US$) with 9 trading sessions left. Price only KSE-100 index is down

23% (-27% in US$).

� Negative sentiments also led to decline in daily volumes, which were down 15% over last year from 281mn

27

� Negative sentiments also led to decline in daily volumes, which were down 15% over last year from 281mn

shares to 239mn shares this year. However, average daily value traded was slightly up by 5% over last year to

US$117mn. During 4Q2017 to date, average volumes have fallen to US$64mn a day.


KSE over the years

2012A 2013A 2014A 2015A 2016A 2017A*

KSE-100 Index 16,905 25,261 32,131 32,816 47,807 38,645

Return 49% 49% 27% 2% 46% -19%

Total Mkt. Cap (US$bn) 44 57 70 66 92 75

Avg. Daily Volumes (Shares mn) 173 222 209 247 281 239

Avg. Daily Volumes (US$mn) 50 75 93 111 112 117

Avg. Daily Future Volumes (US$mn) 9 18 22 30 29 41

No. of IPOs/Offerings 3 3 5 5 3 3

Amount offered (US$mn) 5 41 570 1,087 40 77

Source: PSX; * Dec 15, 2017

� Pakistan Equity markets witnessed 3 Initial Public Offerings (IPOs) during 2017 (excluding Modarabas) raising

Rs8.6bn, compared to 3 IPOs during 2016, which raised Rs4.2bn. Due to deteriorating investment climate and

some regulatory setbacks, 3 IPOs amounting to Rs11bn were delayed.

� Foreigners, being one of the largest stakeholders in Pakistan market with exposure of nearly US$7.2bn (30% of

free float) as per State Bank of Pakistan (SBP), have been net sellers of over US$483mn in 2017 (YTD), which is

three years in a row. Improved liquidity among local investors led to buying by local mutual funds of

US$195mn and Insurance of US$181mn whereas Individuals and Banks sold equities worth of US$52mn and

US$10mn, respectively.

� Top key sectors that underperformed the market during 2017 were Cement (down 48%), Pharmaceuticals

Pakistan is one of the worst performing markets in 2017

28

� Top key sectors that underperformed the market during 2017 were Cement (down 48%), Pharmaceuticals

(down 28%), Banks (down 27%), Power (down 26%) Textile (down 26%) and Fertilizers (down 20%). Cement

sector was subject to concerns on excess supply & additional capacities that have come online and are in the

pipeline that led to reduction in cement prices and margin contraction.


Best Performing Equity Markets 2017 YTD* Worst Performing Equity Markets 2017 YTD*

# Index US$ Return # Index US$ Return

1 Mongolia 77% 1 Pakistan -23%

2 Ukraine 60% 2 Qatar -22%

3 Kazakhstan 55% 3 Oman -12%

4 Latvia 55% 4 Lebanon -6%

5 Jamaica 49% 5 Dubai -5%

Source: Bloomberg, *Dec 15, 2017 Source: Bloomberg, *Dec 15, 2017

Pakistan market one of the worst performing in 2017

KSE-100 Index: Top 10 gainers in 2017 YTD

Name Symbol Return

Colgate Palmolive COLG 47%

Orix Leasing OLPL 43%

Pak Tobacco PAKT 37%

Nestle Pakistan NESTLE 34%

Jubilee Life Ins JLICL 34%

Amreli Steels ASTL 27%

Millat Tractors MTL 22%

Philip Morris Pak. PMPK 18%

Sui North Gas SNGP 16%

Pak Oilfields POL 15%

KSE-100 Index: Top 10 losers in 2017 YTD

Name Symbol Return

Feroze 1888 FML -66%

Engro Foods Ltd. EFOODS -63%

Pioneer Cement PIOC -62%

Kohat Cement KOHC -58%

Attock Cement ACPL -55%

Nishat Power NPL -53%

Bestway Cement BWCL -53%

Fauji Cement FCCL -49%

Pak Int.Bulk PIBTL -48%

Cherat Cement CHCC -48%


Foreigner Flows (US$mn)

Year Gross Buy Gross Sell Net flow

2013 1,979 (1,581) 398

2014 2,403 (2,020) 383

2015 2,680 (2,996) (315)

2016 3,040 (3,379) (339)

2017 YTD* 4,350 (4,841) (492)

Source: NCCPL, Topline Research

* Dec 15, 2017

Pak Oilfields POL 15%

Source: PSX, Topline Research

Cherat Cement CHCC -48%


Sector-wise market capitalization change in 2017 YTD

Sector Return

Tobacco 31%

Engineering 5%

Food & Personal Care Products 1%

Oil & Gas Exploration Companies 1%

Automobile Assembler -10%

Fertilizer -21%

Oil & Gas Marketing Companies -20%

Power Generation & Distribution -26%

Commercial Banks -27%

Pharmaceuticals -27%

Cement -51%

Tobacco 31%Source: PSX, Topline Research

Top Sectors for 2018Top Sectors for 2018

Oil & Gas Exploration & Production

� Topline E&Ps Universe (OGDC, PPL & POL) is expected to post 3-Year (FY18-20) earnings CAGR of 19%, driven by

higher volume and increasing oil prices (expect Arab Light Crude oil prices to average US$58/bbl during FY18-20).

� Further, the sector’s revenues are dollar denominated which makes it one of the biggest beneficiaries of PKR

devaluation against US$.

� We estimate that every 5% PKR depreciation boosts earnings of our Topline E&Ps Universe by 7%. We have

assumed avg. PKR devaluation of 6% against US$ during FY18-20.

Banking

� Banking sector is likely to be the main beneficiary of expected increase in interest rates from 2018. Interest rates

Sector Picks for 2018

� Banking sector is likely to be the main beneficiary of expected increase in interest rates from 2018. Interest rates

are anticipated to increase due to currency devaluation, increasing aggregate demand and rising oil prices. We

anticipate discount rate to increase by 300bps cumulatively from 2018 to 2020, which will lift Net Interest Margins

(NIMs) of the sector going ahead.

� Topline Banks profits likely to grow at a 3-year (2018-20) CAGR of 18%.

� Economic growth during FY18 is anticipated at 5% which is well above last 10-year average growth of 3.7%. This

bodes well for the balance sheet and advances growth of the banking sector. Historically, advances have grown by

2.5 times of real GDP growth.

� Banking sector’s loss ratio currently stands at 9% whereas coverage ratio is at 88% (as of Sep 2017) which is better

than the historical average. This is compared to NPL ratio of 12% and coverage ratio of 71% seen in 2009.

Hence, the likelihood of any sharp spike in provisioning expense given strong economic fundamentals and single

digit interest rates is also very low.


Consumer

� Consumerism has been on the growing trajectory in Pakistan where consumption to GDP currently stands at 92%

in FY17, one of the highest in the region.

� The rising trend of urbanization in Pakistan coupled with growing middle class, proliferation of shopping malls,

supermarkets and online shopping are changing consumer preference and are driving demand of Fast Moving

Consumer Goods (FMCGs).

� Our analysis of select consumer firms reveal that sales of consumer companies in Pakistan has grown at a 5-year

(2012-16) CAGR of 12% while profits have posted a CAGR of 31%.

Automobiles


Automobiles

� Auto sector is likely to benefit from change in import duties & procedure of imported vehicles, which could reduce

car imports by 20-25%. We believe that the reduction in (imported) used vehicles will allow incumbents to pass on

cost pressures of devaluation in FY18 before new entrants makes an entry in FY19. Sales will also be supported by

introduction of new car models during 2018-2021.

� We expect the local automobile industry to post a 3 year (2018F-2020F) CAGR of 11% where we expect cars per

1,000 to reach 20 cars as compared to the current level of 16 cars.

� Topline Auto Universe (PSMC, INDU & HCAR) is expected to post 3-Year (FY18-20) earnings CAGR of 10% in-spite of

new entrants.



Insurance

� Insurance sector will also remain a major beneficiary of improving macros, rising auto sales and initiations of CPEC

projects. We expect non-life premiums to grow at 3-year CAGR of 14% as insurance penetration in Pakistan is less than 1%

of GDP and country is witnessing increasing growth.

� Investment income also contributes significantly to the total earnings of the insurance companies which also include

capital gains and dividend income from stocks. Recovery in equity markets in 2018 could also contribute to insurance

companies profitability.

Steel

� Topline Steel Universe which includes International Steels (ISL) and Amreli Steels (ASTL) is expected to post 3 year (FY18-

20) earnings CAGR of 49%, due to their ongoing expansions which are expected to come online by the last quarter of FY18.

�

20) earnings CAGR of 49%, due to their ongoing expansions which are expected to come online by the last quarter of FY18.

� Pakistan Steel sector is likely to benefit from 1) growing steel demand led by economic & construction activity stemming

from onset of China-Pakistan Economic Corridor (CPEC), housing projects where State Bank of Pakistan (SBP) has estimated

there is shortfall of 10mn units, along with manufacturing growth spurred by investments in the automotive sector &

appliance space; 2) protectionist measures taken by the government in the form of Regulatory Duty (RD) and Anti-

Dumping Duty (ADD) on imports of steel products, which have provided the domestic industry with a level playing field, &

3) expansion of capacities to meet upcoming demand.

� Pakistan Large Scale Manufacturing (LSM) Index has already registered 8.4% YoY growth in 1QFY18, where Iron and Steel

production has grown 47% YoY (5.4% weight to LSM) on the back of imposition of duties and up-tick in international prices

which has reduced feasibility of imports and allowed local industry to boost production & substitute imports.

� Further, devaluation of currency would not pose a major threat as around 45% of steel used in Pakistan is imported. We

believe steel manufacturers would pass on the increase in raw-material import cost as the imported finished products they

compete with would also become more costlier.


Top Picks for 2018Top Picks for 2018

Oil & Gas Development (OGDC)

KATS Code OGDC

Bloomberg Code OGDC PA

Reuters Code OGDC.KA

Market Price Rs156.7

Market Cap Rs674.0bn/US$6.1bn

Free float Market Cap Rs101.1bn/US$914.9mn

1-Yr Avg. Daily Vol. (mn) 2.1

1-Yr Avg. Daily Val. (mn) Rs343.9/US$3.3

1-Yr High/ Low Rs188.7/133.7

Estimated free float 15%

Higher Oil Prices and Falling PKR to Boost Earnings� Investment thesis: OGDC, Pakistan’s largest E&P Company, is our preferred play in the

E&Ps sector on the back of 1) higher oil prices (assumption revised upwards by ~10%), 2)

PKR devaluation against US$ and 3) cash rich book. This will lead to 3-Year (FY18-20)

earnings CAGR of 16% .

� Discount to market: OGDC is trading at an implied oil price of ~US$40/bbl, compared to

FY18TD Arab Light Crude average of US$54/bbl. On PE basis, OGDC is trading at FY19F PE of

7.6x vs Topline E&Ps Universe avg. PE of 8.3x and 6% discount to forward PE of Pakistan

market while historically it traded at an average premium of 10% to the market.

� PKR devaluation & volume growth: OGDC has ~45% share of the country’s oil production

and ~30% share in gas. We have incorporated additional production from Nashpa/Mela

(1,120bpd oil, 10mmcfd gas, 340 tpd LPG), Soghari (20mmcfd gas) and Makori East 6

(1,817bpd oil, 4.6mmcfd gas) which will add 4% to OGDC’s FY19F earnings growth. We have Share outstanding (mn) 4,300.93

Index weight 5.41%


OGDC vs KSE-100 Index

-20%

-10%

0%

10%

20%

Dec-1

6

Feb-1

7

Apr-

17

Jun-1

7

Aug-1

7

Oct-

17

Dec-1

7

OGDC KSE-100

(1,817bpd oil, 4.6mmcfd gas) which will add 4% to OGDC’s FY19F earnings growth. We have

revised up our PKR assumption against US$ by avg. ~6% during FY18-20 which will further

support revenue owing to its parity with international oil prices (every 5% change in our

PKR/US$ assumption impacts OGDC’s earnings by ~7.5%). Based on this, we estimate

revenues and earnings of OGDC to post 3-Year (FY18-20) CAGR of 12% and

16%, respectively. Moreover, on-going exploratory drilling in fields in KPK and Baluchistan

provinces can propel production outlook of the company in the long run, we believe.

� Oil price assumption: For our analysis, we have assumed Arab Light Crude at avg. US$58

per barrel for FY18-20 (up 10% from our previous estimates in light with International

Energy Agency’s (IEA) oil outlook). As per our estimates, every 5% change in oil prices

impacts OGDC’s earnings by ~4%.

� Cash rich book: OGDC is sitting on a cash & cash equivalent of Rs147bn (which is 22% of its

Market Capitalization). However, the company is aggressively pursuing both on-shore and

off-shore blocks to conduct drilling activities which could act as a catalyst for the company

in near future.


OGDC: Financial Snapshot

Income Statement Key Assumptions

Rsmn FY16A FY17A FY18E FY19F FY20F FY16A FY17A FY18E FY19F FY20F

Net sales 162,867 171,829 205,571 221,235 242,013 Arab Light (US$/bbl) 40.7 48.7 53.7 57.5 62.7

Gross profit 87,890 95,004 123,643 135,625 152,789 PKR/US$ 104.4 104.8 115.0 122.0 130.0

Royalty 18,079 18,519 23,167 24,932 27,274 Volume (boed) 237,038 234,906 243,057 239,604 231,986

Operating expense 54,986 56,585 56,293 58,023 59,046

Exploration cost 14,548 13,269 15,392 16,477 17,036

Other income 14,703 16,020 12,343 13,027 12,278 Key Ratios

Profit before tax 80,507 89,137 112,646 123,455 138,157 FY16A FY17A FY18E FY19F FY20F

Profit After tax 59,971 63,803 80,878 88,455 98,952 Others

EPS (Rs) 13.9 14.8 18.8 20.6 23.0 Earnings Growth -31% 6% 27% 9% 12%

36

Source: Company Accounts, Topline Research PE at Rs156.7 11.2x 10.6x 8.3x 7.6x 6.8x

Dividend Yield 3.3% 3.8% 4.5% 5.1% 5.7%

Balance Sheet PBV 1.4 1.3 1.2 1.1 1.0

Rsmn FY16A FY17A FY18E FY19F FY20F ROE 13% 12% 14% 14% 15%

Non-Current Assets 334,764 284,827 375,991 413,151 439,774 Gross Margin 54% 55% 60% 61% 63%

Current Assets 254,801 342,460 306,913 333,260 376,207 Net Margin 37% 37% 39% 40% 41%

Total Assets 589,565 627,287 682,904 746,412 815,981 Pretax margin 49% 52% 55% 56% 57%

Effective Tax Rate 26% 28% 28% 28% 28%

Equity 478,632 512,984 563,755 617,802 678,046 Return on Assets 10% 10% 12% 12% 13%

Non-Current Liabilities 51,964 60,693 61,239 67,862 74,706 Debt to Equity 23% 22% 21% 21% 20%

Current Liabilities 58,969 53,610 57,910 60,747 63,230 Current Ratio 4.3 6.4 5.3 5.5 5.9

Total Equity & Liabilities 589,565 627,287 682,904 746,412 815,981 Quick Ratio 4.0 6.0 5.0 5.2 5.7

Source: Company Accounts, Topline Research Source: Company Accounts, Topline Research


Habib Bank (HBL)Trading at Attractive Valuation Post Fine on New York Operation

� Investment Thesis: HBL is one of our top picks in the banking sector due to 1) expected

uptick in interest rates & bank’s margins, 2) strong CASA growth, 3) double digit advances

growth and 4) rising fee income. Since the imposition of a one-off U$225mn fine on its U.S

operations on Aug 28th 2017, HBL has come down by 23% vs. KSE-100 index which is down

8%. The stock now trades at a 5-year low PE of 6.4x and PBV of 1x on 2018E earnings with

ROE of 17%. Market has concerns that US operations maybe fined further, we believe that

after imposition of a large penalty, more fines are unlikely.

� Interest rates to rise in 2018: We expect monetary cycle to reverse in 2018 and anticipate

a 300bps cumulative rise from 2018 to 2020. This will improve HBL’s NIM from 3.7% in

2018 to 4.2% by 2020. On every 1% increase in interest rates, HBL’s earnings improve by

~11%. We anticipate, earnings of the bank to grow at a 3-year (2018-20) CAGR of 20%.

KATS Code HBL

Bloomberg Code HBL PA

Reuters Code HBL.KA



Free float Market Cap Rs116.3bn/US$1.1bn



1-Yr High/ Low Rs308.6/152.4


37

~11%. We anticipate, earnings of the bank to grow at a 3-year (2018-20) CAGR of 20%.

� Strong balance sheet & CASA growth to support earnings: In line with historical trend

and increased focus on low cost deposits, we anticipate deposits of HBL to grow at a 3-

year (2018-20) CAGR of 15%. Similarly, low cost current & saving account (CASA) will grow

at a 3-year (2018-20) CAGR of 16%. Earnings are anticipated to grow at 4-year (2018-20)

CAGR of 18% (after adjusting for outliers).

� Advances to remain in high double digit: HBL’s advances growth have been a major

beneficiary of CPEC led lending and improving macros. We anticipate HBL’s advances to

grow at a 3-year (2018-20) CAGR of 16%.

� Rising fee income to contribute to earnings: HBL has recently increased its focus on

consumer financing which has not only led to higher consumer loans but higher fee

income from consumer finance and credit card. We anticipate fee, commission &

brokerage income to grow at a 3-year (2018-20) earnings CAGR of 13% driven by rising

consumer financing, general banking fees & home remittances.

Share outstanding (mn) 1,466.85

Index weight 6.22%


HBL vs KSE-100 Index

-40%

-26%

-12%

2%

16%

30%

Dec-1

6

Feb-1

7

Apr-

17

Jun-1

7

Aug-1

7

Oct-

17

Dec-1

7

HBL KSE-100


HBL: Financial Snapshot

Consolidated Income Statement Key Assumptions

Rsmn 2016A 2017E 2018F 2019F 2020F 2016A 2017E 2018F 2019F 2020F

Interest earned 141,089 151,033 190,298 248,612 312,344 Discount Rate 6% 6% 7% 8% 9%

Interest expensed 59,138 66,119 89,999 125,343 162,546 Deposit growth 15% 18% 16% 15% 14%

Net Interest income 81,951 84,914 100,299 123,270 149,798 Credit growth 17% 23% 18% 16% 15%

Non-Interest Income 31,062 34,060 35,348 38,101 42,272

Gross Income 113,013 118,975 135,646 161,371 192,071 Key Ratios

Operating expenses 55,771 62,866 71,593 81,660 93,155 2016A 2017E 2018F 2019F 2020F

Provisions/Reversals 718 4,686 6,413 8,889 11,771 Earnings Growth -3% -77% 359% 23% 23%

PBT 57,242 56,109 64,053 79,711 98,915 PE at Rs158.63 6.8 29.2 6.4 5.2 4.2

PAT 34,070 7,961 36,538 44,895 55,242 Dividend Yield 6% 3% 4% 7% 8%

EPS (Rs) 23.2 5.4 25.0 30.6 37.7 Return on equity (ROE) 18% 4% 17% 19% 22%

38

EPS (Rs) 23.2 5.4 25.0 30.6 37.7 Return on equity (ROE) 18% 4% 17% 19% 22%

Source: Company Accounts, Topline Research PBV 1.2 1.2 1.1 1.0 0.9

Net interest margin (NIM) 4% 4% 4% 4% 4%

Consolidated Balance Sheet NII/ Gross Income 73% 71% 74% 76% 78%

Rsmn 2016A 2017E 2018F 2019F 2020F Cost / Income ratio 48% 52% 51% 49% 47%

Paid-up capital 14,669 14,669 14,669 14,669 14,669 Investment growth 8% 16% 18% 14% 13%

Shareholders' equity 168,769 173,148 196,898 217,101 241,959 Return on assets (ROA) 1% 0% 1% 1% 1%

Revaluation Surplus 24,064 24,064 21,176 21,176 21,176 ADR 40% 41% 42% 43% 43%

Total equity 196,269 200,648 221,510 241,713 266,571 IDR 71% 71% 72% 72% 71%

Deposits 1,885,959 2,216,002 2,570,562 2,960,002 3,359,603 CASA 83% 83% 81% 81% 81%

Total liabilities 2,310,913 2,699,200 3,176,806 3,644,134 4,123,655 Gross infection ratio (%) 10% 9% 9% 9% 10%

Net advances 748,466 916,903 1,080,884 1,257,590 1,441,851 Net infection ratio (%) 1% 1% 1% 1% 1%

Net investments 1,344,405 1,565,019 1,849,557 2,116,812 2,388,096 Coverage ratio (%) 91% 91% 91% 91% 91%

Total assets 2,507,182 2,899,848 3,398,316 3,885,847 4,390,226 Number of Branches 1,731 1,746 1,761 1,776 1,791



Lucky Cement (LUCK)Diversification to limit concentration risk

� Investment Thesis: We reiterate our liking for LUCK, Pakistan’s 2nd largest cement manufacturer

on the back of 1) diversification in multiple business ventures which adds 42% to LUCK’s valuation

and reduces concentration risk in light of recent shift in cement sector dynamics, 2) expanding

footprints in both South and North 3) attractive Sum-Of-The-Parts valuation. We believe recent

battering of the stock is unjustified as the stock is down 47% in 2017YTD, underperforming the

benchmark index by 28%. On EV/ton basis, the stock is trading US$51/ton (excluding major/non-

core investments).

KATS Code LUCK

Bloomberg Code LUCK PA

Reuters Code LUKC.KA






1-Yr High/ Low Rs994.7/473.7


LUCK: SOTP Valuation

Businesses Rs/share Valuation Methodology

Cement operations 358 DCF

Coal Power 61 NPV

ICI Pakistan 119 Market price

39

� Striving to re-gain market leadership in Cement: To re-emerge as the market leader, LUCK has

recently completed 1.25mn tons per annum of capacity expansion at its existing South plant (adds

~Rs31/sh to valuation) while its going into another expansion of 2.3mn tons in North region

(commencement is expected by FY20 and adds ~Rs42/sh to valuation) with total investment

outlay of US$230-250mn. These two expansions will enhance the company’s existing capacity by

3.6mn tons to 11mn tons per annum.

� Diversifying into Autos: After diversifying into Chemicals and Power sectors, LUCK is teaming up

with Korea based KIA motors to set up an automobile assembly line (expected to come online in

2019). For this project, LUCK has intended to inject equity investment of Rs14bn (70% holding). As

per our DCF analysis, this venture adds around Rs21/sh to LUCK’s valuation.

Share outstanding (mn) 323.38

Index weight 3.15%


LUCK vs KSE-100 Index

-50%

-36%

-22%

-8%

6%

20%

Dec-1

6

Feb-1

7

Apr-

17

Jun-1

7

Aug-1

7

Oct-

17

Dec-1

7

LUCK KSE-100

ICI Pakistan 119 Market price

Joint venture in Iraq 23 Price Multiple

Joint venture in Congo 27 Price Multiple

KIA Motors 21 NPV

Cash 77

Value 691



LUCK: Financial Snapshot



Net sales 82,063 87,383 95,584 104,444 123,122 Capacity Utilization 89% 89% 94% 98% 98%

Gross profit 27,848 28,937 27,247 28,773 31,396 Local Net Retention (Rs/bag) 349 353 331 325 325

Distribution Expense 3,898 4,138 5,419 6,119 7,406 PKR/US$ 104 105 115 122 130

Admin Expense 2,090 2,237 2,583 2,917 3,558 Coal F.O.B (US$/ton) 53 80 89 79 76

Other Charges 1,926 1,899 2,064 2,447 3,029

Other Income 1,478 2,068 2,740 3,053 3,151

Profit Before Tax 21,830 23,630 21,329 22,588 23,003

Profit After Tax 15,991 17,391 16,520 17,680 18,072

Attributable to:

Owners of Holding Company 14,873 16,227 15,723 16,813 17,128 Key Ratios


Owners of Holding Company 14,873 16,227 15,723 16,813 17,128 Key Ratios

Non-Controlling Interest 1,118 1,164 797 867 944 FY16A FY17A FY18E FY19F FY20F

EPS (Rs) 46.0 50.2 48.6 52.0 53.0 Others:

Source: Company Accounts, Topline Research Earnings Growth 8% 9% -3% 7% 2%

PE at Rs455 9.9x 9.1x 9.4x 8.7x 8.6x

Balance Sheet Dividend Yield 2% 4% 3% 3% 3%

Rsmn FY16A FY17A FY18E FY19F FY20F PBV 1.8x 1.5x 1.4x 1.3x 1.2x






Non-Current Liabilities 21,270 21,480 10,524 10,549 11,072 Debt to Equity 51% 47% 35% 33% 34%

Current Liabilities 20,678 23,256 27,162 29,059 33,180 Current Ratio 2.6x 2.7x 2.3x 2.3x 2.3x

Total Equity & Liabilities 123,408 140,989 144,715 156,503 170,312 Quick Ratio 2.2x 2.4x 2.0x 2.0x 1.9x


Pakistan’s Largest Conglomerate at a discount

� Investment Thesis: We reiterate liking for ENGRO, a hold co whose subsidiaries are

involved in fertilizers, foods, chemicals, energy & petrochemicals. While group is

diversifying in coal mining & coal-based power generation & considering investments in

petrochemical space.

KATS Code ENGRO

Bloomberg Code ENGRO PA

Reuters Code EGCH.KA



Free float Market Cap Rs77bn/US$700mn



1-Yr High/ Low Rs399.2/255.4


Engro Corporation : SOTP Valuation

Businesses Rs/Share Valuation Methodology

Engro Fertilizer 92 Market Price

Engro Foods 42 Market Price

Engro Polymer Chemical 27 Market Price

Engro PowerGen Qadirpur 14 Market Price

Engro PowerGen Thar 21 NPV

Engro Corporation (ENGRO)

41

� Removal from MSCI EM Index opened up valuations: We highlight that ENGRO’s removal

from MSCI EM Index resulted in stock correcting 7% since Nov 14, and 33% down from its

peak level. Our SOTP for ENGRO is Rs367/share, while recent price correction has widened

discount to market price to 27% and opened up an attractive entry point.

� Coal Projects to boost earnings: We opine ENGRO’s investments in coal mining and power

generation would add Rs9/sh from 2020 onwards. Further if talks of a US$2.0bn Naphtha

cracker materialize into a project (whose details are yet to be released), it would further

add value to the company. Source: PSX, Topline Research

ENGRO vs KSE-100 Index



Index weight 4.14%

Engro PowerGen Thar 21 NPV

Engro Vopak 13 Price Multiple

Engro Elengy 34 Price Multiple

Sindh Engro Coal Mining 7 NPV

Net Cash 117

Value 367

Source: Company Accounts, Topline Research

-25%

-15%

-5%

5%

15%

25%

Dec-1

6

Feb-1

7

Apr-

17

Jun-1

7

Aug-1

7

Oct-

17

Dec-1

7

ENGRO KSE-100


ENGRO: Financial Snapshot


Rsmn 2016A 2017E 2018F 2019F 2020F EPS Contribution (%) 2016A 2017E 2018F 2019F 2020F

Net sales 157,208 123,121 128,354 135,657 150,898 Fertilizer 60% 52% 46% 43% 31%

Gross profit 35,843 33,221 34,616 36,555 41,523 Polymer 4% 15% 15% 14% 12%

Distribution expense 12,053 7,628 8,044 8,483 8,946 Power 9% 5% 5% 6% 35%

Admin expense 3,606 3,643 3,807 4,012 4,237 Others 27% 28% 35% 37% 22%

Other expenses 2,349 1,843 1,942 2,059 2,194

Other income 68,838 9,644 9,850 10,383 10,860

Operating profit 86,674 31,252 30,673 32,384 38,006

Finance cost 6,038 4,674 4,978 5,266 5,665

Profit before tax 81,909 26,578 25,695 27,118 32,342

Tax 8,311 10,577 7,966 8,135 9,056 Key Ratios

Profit after tax 73,598 16,001 17,730 18,983 23,286 2016A 2017E 2018F 2019F 2020F


Profit after tax 73,598 16,001 17,730 18,983 23,286 2016A 2017E 2018F 2019F 2020F

EPS (Rs) 19.9 19.5 22.0 23.9 32.5 Earning Growth -24% -2% 13% 9% 36%

Source: Company Accounts, Topline Research PE at Rs268.7 13.5 13.8 12.2 11.3 8.3

Dividend yield 9% 9% 10% 10% 10%

Balance Sheet ROE 16% 16% 18% 20% 29%

Rsmn 2016A 2017E 2018F 2019F 2020F PBV 2.1 2.2 2.2 2.3 2.4






Non-Current Liabilities 69,791 72,935 74,913 77,091 79,969 Debt to Equity 0.7 0.8 0.8 0.8 0.8

Current Liabilities 51,451 59,490 64,068 69,146 74,724 Current Ratio 2.2 2 1.9 1.9 1.8



Bank AL Habib (BAHL)Strong Balance Sheet Growth & Low Loss Ratio

� Investment Thesis: BAHL is our second best pick in the banking sector and our conviction

on the stock is driven by 1) above average balance sheet and deposit growth, 2) lowest

loss ratio & highest coverage in industry and 3) improving CAR ratio. BAHL trades at a 2018

PE and PBV of 6.6x and 1.2x respectively with ROE of 19% (industry avg. 15%).

� Deposits to grow at above average 3-year CAGR of 16%: We expect BAHL’s deposit base

to grow at a 3-year (2018-20) CAGR of 16% vs. industry average of 14%. This will mainly be

driven by rapidly expanding branch network which has increased from 423 branches in

2015 to 590 branches as of Sep 2017. We expect bank to add around 50 branches

KATS Code BAHL

Bloomberg Code BAHL PA

Reuters Code BAKEQ.KA


Market Cap Rs60.7bn/US$549.0mn




1-Yr High/ Low Rs63.1/50.8


43

annually going forward. Strong deposit growth coupled with likely uptick in interest rates

will assist bank to post 3-year (2018-20) earnings CAGR of 20%.

� Low loss ratio & strong coverage ratio to keep provisioning in check: BAHL enjoys one of

the lowest loss ratios in the industry of 2% (industry average of 9%) and highest coverage

ratio of 138% (vs industry average 88%) which could keep provisioning charge in check and

may result in provisioning reversals.

� CAR to improve on issuance of Perpetual Bond: BAHL is in process of issuing Perpetual

TFC/bond (classified as Tier I capital) as per our channel checks. The proceeds against the

same are anticipated to be around Rs7bn. This is likely to lift BAHL CAR from 14% in 2016

to over 15% in 2017, which will place it above the industry average and well above target

of 11% set by SBP. This will also allow BAHL to aggressively expand its advances book.

Share outstanding (mn) 1,111.43

Index weight 2.11%


BAHL vs KSE-100 Index

-15%

-10%

-5%

0%

5%

10%

15%

20%

Dec-1

6

Feb-1

7

Apr-

17

Jun-1

7

Aug-1

7

Oct-

17

Dec-1

7

BAHL KSE-100


BAHL: Financial Snapshot


Rsmn 2016A 2017E 2018F 2019F 2020F 2016A 2017E 2018F 2019F 2020F

Interest earned 47,820 48,496 59,499 77,387 97,370 Discount Rate 6% 6% 7% 8% 9%

Interest expensed 23,132 23,120 29,757 40,429 52,594 Deposit growth 13% 18% 16% 16% 16%

Net Interest income 24,688 25,377 29,742 36,958 44,777 Credit growth 27% 19% 17% 17% 17%

Non-Interest Income 5,122 8,129 7,331 7,638 8,105

Gross Income 29,810 33,506 37,072 44,597 52,881 Key Ratios

Operating expenses 17,252 20,362 22,951 26,215 30,468 2016A 2017E 2018F 2019F 2020F

Provisions/Reversals -638 80 -251 579 1,010 PE at Rs54.58 7.5 7.7 6.6 5.3 4.4

Profit before taxation 13,196 13,064 14,372 17,802 21,403 Dividend Yield 6% 6% 7% 9% 10%

Profit after taxation 8,143 7,963 9,340 11,570 13,910 PBV 1.4 1.3 1.2 1.1 0.9

EPS (Rs) 7.3 7.2 8.4 10.4 12.5 Return on performing loans 6% 6% 7% 8% 8%

44

EPS (Rs) 7.3 7.2 8.4 10.4 12.5 Return on performing loans 6% 6% 7% 8% 8%

Source: Company Accounts, Topline Research Cost of deposits 5% 4% 5% 6% 7%

Net interest margin (NIM) 4% 4% 4% 4% 4%

Consolidated Balance Sheet NII/ Gross Income 83% 76% 80% 83% 85%

Rsmn 2016A 2017E 2018F 2019F 2020F Cost / Income ratio 60% 60% 61% 58% 57%

Paid-up capital 11,114 11,114 11,114 11,114 11,114 Return on equity (ROE) 20% 18% 19% 21% 23%

Shareholders' equity 36,221 40,381 45,262 51,307 58,575 Return on assets (ROA) 1% 1% 1% 1% 1%

Revaluation Surplus 6,674 6,674 6,674 6,674 6,674 ADR 45% 46% 46% 47% 47%

Total equity 42,895 47,056 51,936 57,981 65,249 IDR 69% 69% 68% 68% 67%

Deposits 584,166 686,395 796,218 923,613 1,071,391 CASA 80% 81% 82% 83% 84%

Total liabilities 708,924 813,536 942,139 1,091,279 1,264,234 Gross infection ratio (%) 2% 2% 2% 2% 2%

Net advances 261,441 312,028 366,078 429,646 504,160 Net infection ratio (%) -1% -1% -1% -1% -1%

Net investments 405,343 470,462 541,611 623,273 717,226 Coverage ratio (%) 137% 137% 137% 137% 137%

Total assets 751,820 860,592 994,075 1,149,260 1,329,483 Number of Branches 518 538 558 578 598



Capacity expansion and anti dumping duty to boost earnings

� Investment Thesis: We rate ISL as our top pick in the steel sector as it would benefit from

1) demand growth from autos, appliances & construction, 2) capacity expansion to 1.0mn tons

from 575k tons, 3) 5-yr definitive anti-dumping duty (ADD) on imports of Cold Rolled coils (CRC) &

galvanized steel (GP), & 4) anticipated ADD on high value color coated steel.

� Demand growth from auto, appliances & construction: Demand for ISL’s steel sheets is set to

grow given 1) automobiles sales & demand for their parts is expected to remain robust owing to

current OEM’s sales trend & upcoming new entrants like Kia, Hyundai & Renault, Sazegar & FAW,

2) competition in the appliance space is heating up as Dawlance regains footing post Arcelik

acquisition, PAEL’s always looking to boost sales & Singer is also restructuring its operations; 3)

while construction surge would require downstream galvanized products likes pipes, tubes,

International Steels Limited (ISL)

KATS Code ISL

Bloomberg Code ISL PA

Reuters Code INTE.KA








45

while construction surge would require downstream galvanized products likes pipes, tubes,

railings, roofing, flooring, wall décor, etc. Based on this we expect ISL sales & earnings to grow at 3

year (FY18-FY20) CAGR of 34% & 42%, respectively.

� First Steel manufacturer to target 1.0mn tons: ISL is boosting its CRC capacity by 450k tons to

1.0mn tons by 4QFY18. Additional CRC capacity will allow ISL to fully utilize higher margin

galvanizing line of ~450k tons, which is under utilized as demand mix leads to CRC bottleneck.

� Anti-Dumping duties on CRC & GP to curtail imports: National Tariff Commission imposed ADD

on CRC imports from China & Ukraine ranging 14%-19%, and Galvanized sheets from China

ranging 6%-40%. This will curtail imports, improve market share & boost pricing power.

� Anticipated ADD on Colored Steel: NTC recently determined dumping margins on import of color

coated sheets from China (2.5%-6.8%) & South Africa (42.6%). Though NTC did not impose any

provisional duty, we expect it will be imposed in final determination (expected in 6months). ISL

has color coating line of 84k tons with only 25% utilization due to cheap imports. Source: PSX, Topline Research

ISL vs KSE-100 Index

-20%

2%

24%

46%

68%

90%

Dec-1

6

Feb-1

7

Apr-

17

Jun-1

7

Aug-1

7

Oct-

17

Dec-1

7

ISL KSE-100



Index weight 0.89%

ISL: Financial snapshot



Net sales 20,499 33,733 42,832 69,801 81,580 Capacity (Tons) 550,000 575,000 670,833 1,000,000 1,000,000

Gross profit 2,913 5,906 7,499 12,564 14,684 Utilization (%) 67% 85% 80% 80% 85%

Distribution expense 161 334 424 691 807 Average Prices (PKR) 55,282 68,702 79,319 87,251 95,976

Admin expense 207 215 273 445 520 Volumes (Tons) 370,811 491,000 540,000 800,000 850,000

Other expenses 265 425 459 491 521 Volumetric Growth (%) 55% 32% 10% 48% 6%

Other income 106 132 142 152 161


Finance cost 732 456 501 551 606


Tax 476 1,565 1,795 3,162 3,718 Key Ratios

Profit after tax 1,179 3,044 4,189 7,377 8,674 FY16A FY17A FY18E FY19F FY20F

46

Profit after tax 1,179 3,044 4,189 7,377 8,674 FY16A FY17A FY18E FY19F FY20F

EPS (Rs) 2.7 7.0 9.6 17.0 19.9 Earnings Growth 484% 158% 38% 76% 18%

Source: Company Accounts, Topline Research PE at Rs95.34 35.2 13.6 9.9 5.6 4.8

Dividend Yield 1% 4% 4% 7% 8%

Balance Sheet ROE 19% 39% 43% 55% 48%

Rsmn FY16A FY17A FY18E FY19F FY20F PBV 6.5 5.3 4.2 3.1 2.4






Non-Current Liabilities 4,880 5,101 8,036 7,053 6,267 Debt to Equity 1.5 1.2 1.2 1.1 0.9





Pak Suzuki Motors (PSMC)

KATS Code PSMC

Bloomberg Code PSMC PA

Reuters Code PKSU.KA






1-Yr High/ Low Rs903.9/436.7


Lower Quantum of Imported Used Vehicles to Support Growth

� Investment Thesis: We upgrade PSMC from Hold to Buy and it is our top pick in the auto sector

owing to 1) expected reduction in quantum of imported used vehicles, 2) introduction of new

models and 3) ability to pass on PKR devaluation impact. We expect PSMC sales and earning CAGR

for next 3 years to be 16% and 12% respectively.

� Reduction in quantum of imported of used vehicles: The recent changes by Govt. in import

procedure of used vehicles to control rising import bill will cause disruption in imports of used cars

from 1Q2018 and will further contribute to strong demand for locally made vehicles. We believe

PSMC will be the major beneficiary as ~70% of used car imports fall under lower engine capacity

(below 1300cc) segment. Lower car penetration levels (1,000cc and below) will further contribute

47


Index weight 0.55%


PSMC vs KSE-100 Index

-20%

-5%

10%

25%

40%

55%

70%

Dec-1

6

Feb-1

7

Apr-

17

Jun-1

7

Aug-1

7

Oct-

17

Dec-1

7

PSMC KSE-100

to demand. The onset of ride hailing services like Uber and Careem will also serve to bolster

PSMC’s demand, in our view.

� Introduction of new model: PSMC is likely to introduce ‘Alto 660cc’ in 1Q2019, which will

augment its existing lower end segment (Mehran-800cc contributes ~33% to sales). We expect

Alto to contribute 18-20% to annual unit sales volume and constitute 10-12% of revenues in 2019

onwards. The recent launch of new variants (Automatic Cultus) and Mega Carry will also help

sustain demand.

� PKR devaluation: PSMC will be able to pass on the full impact of PKR devaluation to a great extent

for the next couple of years and maintain its current gross margins close to 10%. We believe that

reduction of used car imports will lead to unmet local demand which will likely be filled by PSMC.

When competition intensifies in 2019 onward, due to arrival of new players, PSMC will partially be

able to pass on the impact of devaluation, we believe.


PSMC: Financial Snapshot


Rsmn 2016A 2017E 2018F 2019F 2020F 2016A 2017E 2018F 2019F 2020F

Net sales 76,516 98,111 116,791 135,710 151,382 Capacity (Units) 150,000 150,000 150,000 150,000 150,000

Gross profit 7,349 9,230 11,496 12,845 13,288 Utilization (%) 73% 86% 97% 106% 115%

Distribution expense 2,004 2,600 3,035 3,528 3,528 Sales Volume (Units) 110,111 129,221 145,323 159,422 172,176

Admin expense 1,540 1,432 1,576 2,731 3,048

Other income 334 132 142 152 161


Finance cost 96 33 32 35 33

Profit before tax 4,415 5,969 7,920 8,116 8,179 Key Ratios

Tax 1325 1791 2376 2435 2454 2016A 2017E 2018F 2019F 2020F

Profit after tax 2,773 4,120 5,558 5,682 5,724 Earnings Growth -53% 49% 35% 2% 1%

48

Profit after tax 2,773 4,120 5,558 5,682 5,724 Earnings Growth -53% 49% 35% 2% 1%

EPS (Rs) 33.7 50.1 67.5 69.0 69.6 PE at Rs472.3 14 9.4 7.0 6.8 6.8

Source: Company Accounts, Topline Research Dividend Yield 1% 4% 5% 5% 5%

ROE 11% 15% 16% 15% 13%

Balance Sheet PBV 1.5 1.3 1.1 1.0 0.9

Rsmn 2016A 2017E 2018F 2019F 2020F Gross Margin 10% 9% 10% 9% 9%

Non-Current Assets 7,000 7,881 7,122 6,590 7,249 Net Margin 4% 4% 5% 4% 4%

Current Assets 32,986 40,537 49,004 56,881 63,889 Pretax margin 6% 6% 7% 6% 5%

Total Assets 39,986 48,418 56,127 63,471 71,138 Effective Tax Rate 37% 31% 30% 30% 30%

Return on Assets 7% 13% 15% 21% 19%

Equity 26,217 29,783 34,517 39,088 43,676 Debt to Equity - - - - -





Pak Elektron (PAEL)Appliances segment to improve earnings

� Investment Thesis: We reiterate our ‘Buy’ call on PAEL, as the stock offers best exposure to

Pakistan’s appliances and power sector. Our liking for PAEL stems from its 1) strong growth in

appliances segment due to increasing consumerism emanating from rising trend of urbanization in

Pakistan coupled with growing middle class and proliferation of supermarkets and 2) power

division which is to gain from improving power generation to bridge 4,000-5,000MW energy

shortfall through projects under flagship China Pakistan Economic Corridor (CPEC)

implementation.

� Appliances sales showing upward trajectory: The stock is down 36% in 2017YTD vs. benchmark

index decline of 19.4%, which in our view is unjustified as growth in the company’s appliances

division remained robust in 9M2017. In appliances division (~60% of total sales), PAEL managed to

KATS Code PAEL

Bloomberg Code PAEL PA

Reuters Code PKEL.KA

Market Price Rs45.4







division remained robust in 9M2017. In appliances division (~60% of total sales), PAEL managed to

sell around 400k refrigerators, up 12% YoY while air condition sales grew by 2.5x YoY in 9M2017.

Deep freezer sales were up 60% YoY to around 53k during the same period.

� Margins affected due to competition: Pakistan’s expanding middle class with larger disposable

income has prompted several Chinese manufacturers such as Haier and Gree to enter Pakistan’s

market in the last of couple years. This coupled with Arçelik A.S’s (Turkish brand) acquisition of

Dawlance in 2016 has intensified the competition in the appliances segment. Resultantly, PAEL’s

margins in 3Q2017 contracted by 365bps to 27% as the company offered huge discount on

appliances to remain in the competition.

� Downplay concerns of currency devaluation: The company has adequate inventory to last until

Feb 2018 and that there is no imminent pressure on margins due to currency devaluation. We

believe that owing to favorable dynamics of appliances and power division segments, PAEL will be

able to pass on the devaluation impact in 2018.


PAEL vs KSE-100 Index


Index weight 0.60%

-35%

-10%

15%

40%

65%

90%

Dec-1

6

Feb-1

7

Apr-

17

Jun-1

7

Aug-1

7

Oct-

17

Dec-1

7

PAEL KSE-100


PAEL: Financial Snapshot


Rsmn 2016A 2017E 2018F 2019F 2020F Growth 2016A 2017E 2018F 2019F 2020F

Net Sales 26,834 31,486 33,834 37,849 42,497 Refrigerators 20% 12% 12% 12% 12%

Gross Profit 8,284 9,194 9,879 11,052 12,409 Air Conditioners 79% 164% 15% 15% 15%

Distribution cost 1,628 2,438 2,620 2,930 3,290 Deep Freezer 17% 83% 15% 15% 15%

Administrative Expenses 884 1,084 1,164 1,303 1,463

EBITDA 6,450 8,134 8,981 9,681 9,681

Operating Profit 5,615 5,490 5,817 6,541 7,275

Other Income 37 16 16 16 16


Tax 450 625 766 924 1,082

Profit after tax 3,669 3,131 3,490 4,211 4,929 Key Ratios


Profit after tax 3,669 3,131 3,490 4,211 4,929 Key Ratios

EPS 7.4 6.3 7.0 8.5 9.9 2016A 2017E 2018F 2019F 2020F

Source: Company Accounts, Topline Research Earnings Growth 27% -15% 11% 21% 17%

PE at Rs45 6.2 7.2 6.5 5.4 4.6

Balance Sheet Dividend Yield 7% 6% 6% 8% 9%

Rsmn 2016A 2017E 2018F 2019F 2020F PBV 0.9 0.8 0.8 0.7 0.7

Non Current Assets 18,067 18,586 19,965 20,768 21,009 Gross Margin 31% 29% 29% 29% 29%


Total Assets 40,326 45,316 45,742 46,794 45,984 Pretax Margin 15% 12% 13% 14% 14%


Non-Current Liabilities 5,865 6,546 5,891 5,302 4,772 Return on Equity 14% 12% 12% 13% 15%

Current Liabilities 5,938 12,150 10,935 9,842 8,858 Debt to Equity 46% 70% 58% 48% 42%


Total Liabilities and Equity 37,315 45,316 45,742 46,794 45,984 Current Ratio 3.7x 2.2x 2.4x 2.6x 2.8x


Adamjee Insurance (AICL)

Improving macros & CPEC to help insurance business

� Investment Thesis: AICL is our top pick in insurance sector mainly led by 1) improving

macros & low insurance penetration, 2) rising auto sales and motor segment growth and

3) expected upside from investment income due to likely recovery in stock market.

� Premiums to post 14% growth: Led by CPEC Pakistan GDP growth is anticipated to grow

on average by 5% during the next 3-years which is significantly higher than the last 5-year

average GDP growth of 4.3%. Insurance penetration in Pakistan also remains very low

below 1% which offers significant room for growth. AICL, being one of the largest player in

insurance sector, the company is well placed to reap benefits of CPEC related growth.

KATS Code AICL

Bloomberg Code AICL PA

Reuters Code ADIN.KA








51

insurance sector, the company is well placed to reap benefits of CPEC related growth.

� Motor segment also driving insurance business: Motor segment contributes around 30%

to the total net premiums of the company. This will continue to support net premiums of

the company mainly due to rising car sales & imports. Furthermore, improving law and

order situation and increased use of trekker systems will contain claim ratio going

forward. We expect underwriting income to grow at a 3-year (2018-20) CAGR of 16% to

Rs2.3bn.

� Investment income to also support bottom-line: Major chunk for AICL comes from its

investment portfolio. Stock market recovery in 2018 will drive investment income as we

anticipate investment income to grow at a 3-year (2018-20) CAGR of 9% to Rs3.1bn.


Index weight 0.69%


AICL vs KSE-100 Index

-25%

-14%

-3%

8%

19%

30%

Dec-1

6

Feb-1

7

Apr-

17

Jun-1

7

Aug-1

7

Oct-

17

Dec-1

7

AICL KSE-100


AICL: Financial Snapshot


Rsmn 2016A 2017E 2018F 2019F 2020F 2016A 2017E 2018F 2019F 2020F

Net premium revenue 20,529 24,019 27,742 31,140 34,955 Net Premium growth 24% 17% 16% 14% 14%

Net claims 9,362 12,610 14,245 15,679 17,390 Claim ratio 46% 53% 51% 50% 49%

Expenses 2,266 2,772 3,243 3,744 4,323 Expense ratio 11% 12% 12% 12% 12%

Underwriting Result 1,078 1,456 1,715 1,895 1,929

Investment Income 3,427 2,444 2,639 2,843 3,153

Profit Before Tax 3,953 3,609 4,036 4,409 4,744

Profit After Tax 3,392 2,526 2,825 3,086 3,321 Key Ratios

EPS 9.7 7.2 8.1 8.8 9.5 2016A 2017E 2018F 2019F 2020F




PE at Rs48.8 5.0 6.8 6.1 5.5 5.1

Consolidated Balance Sheet Dividend Yield 8% 6% 7% 7% 9%

Rsmn 2016A 2017E 2018F 2019F 2020F ROE 20% 14% 15% 14% 14%

Paid up Capital 3,500 3,500 3,500 3,500 3,500 PBV 1.0 1.0 0.9 0.8 0.6

Shareholder Equity 11,798 12,924 14,473 17,731 21,530 Commission ratio 14% 12% 13% 13% 13%

Total Equity 16,728 17,854 19,403 22,662 26,461 Cost Ratio 3% 2% 2% 2% 2%

Underwriting provisions 17,422 18,990 20,699 22,562 24,593 Claims growth 34% 35% 13% 12% 12%

Creditors and accruals 4,814 5,633 6,506 7,417 8,455 Commission expense growth 14% 25% 20% 14% 14%

Total Liabilities 22,421 24,807 27,390 30,163 33,232 Expense growth 7% 22% 17% 16% 15%

Investments 30,640 33,078 35,710 38,551 41,618 Underwriting Income growth 346% 35% 18% 18% 17%

Total Assets 61,397 60,711 65,654 72,535 80,290 Investment Income growth 41% -29% 9% 12% 15%


Pakistan Market Comp Sheet

Pakistan Comp Sheet

Current

Price

(PKR)

Mkt

Cap

US$mn

Year

end

Earnings per share (EPS) Earnings Growth Dividend Yield PE PBV EV/EBIDTA ROE

Symbol Stance 2017* 2018F 2019F 2020F 2017* 2018F 2019F 2020F 2017* 2018F 2019F 2020F 2017* 2018F 2019F 2020F 2017* 2018F 2019F 2020F 2017* 2018F 2019F 2020F 2017* 2018F 2019F 2020F

OGDC BUY 157 6,197 Jun 14.8 18.8 20.6 23.0 6% 27% 9% 12% 4% 4% 5% 6% 10.6 8.3 7.6 6.8 1.3 1.2 1.1 1.0 5.5 4.6 4.2 3.8 12% 14% 14% 15%

PPL BUY 202 3,654 Jun 18.1 21.2 24.9 28.7 107% 17% 17% 15% 4% 5% 6% 7% 11.1 9.5 8.1 7.0 1.8 1.7 1.7 1.3 5.8 5.0 4.4 3.9 17% 17% 21% 19%

MCB BUY 197 2,143 Dec 19.1 22.6 27.3 32.1 2% 19% 21% 18% 8% 10% 10% 10% 10.3 8.7 7.2 6.1 1.6 1.6 1.5 1.5 NM NM NM NM 15% 18% 21% 24%

HBL BUY 159 2,140 Dec 5.4 25.0 30.4 37.2 -77% 361% 22% 23% 5% 5% 6% 7% 29.3 6.4 5.2 4.3 1.2 1.1 1.0 0.9 NM NM NM NM 4% 17% 18% 21%

UBL BUY 165 1,857 Dec 20.9 24.3 29.8 36.6 -8% 16% 22% 23% 8% 8% 9% 9% 7.9 6.8 5.5 4.5 1.1 1.0 0.9 0.8 NM NM NM NM 14% 15% 17% 18%

KEL SELL 6 1,562 Jun 0.2 0.2 0.0 (0.0) -82% -15% -74% -118% 0% 0% 0% 0% 28.3 33.3 127.9 NM 1.0 1.0 1.0 1.0 10.0 9.5 9.0 9.0 4% 3% 1% NM

LUCK BUY 455 1,352 Jun 50.2 48.6 52.1 53.3 9% -3% 7% 2% 4% 3% 3% 3% 9.1 9.4 8.7 8.5 1.5 1.4 1.2 1.1 4.5 4.9 4.7 4.5 17% 15% 14% 13%

POL HOLD 615 1,338 Jun 50.2 71.0 71.9 76.6 18% 41% 1% 7% 7% 9% 9% 10% 12.2 8.7 8.6 8.0 4.1 3.3 3.4 3.4 6.6 4.9 4.8 4.5 33% 38% 39% 42%

54

ENGRO BUY 269 1,294 Dec 19.5 22.0 23.9 32.5 -2% 13% 9% 36% 9% 10% 10% 10% 13.8 12.2 11.3 8.3 2.2 2.2 2.3 2.4 6.8 6.0 5.5 4.4 16% 18% 20% 29%

INDU HOLD 1681 1,215 Jun 165.4 179.8 196.5 197.5 14% 9% 9% 0% 7% 7% 7% 7% 10.2 9.4 8.6 8.5 4.6 4.0 4.0 3.6 5.1 4.9 4.7 4.7 45% 43% 47% 42%

HUBC HOLD 94 998 Jun 9.2 10.5 11.1 11.5 -10% 14% 6% 4% 8% 8% 9% 9% 10.2 8.9 8.4 8.1 3.4 3.0 2.7 2.7 8.1 7.0 6.4 6.4 33% 33% 32% 33%

FFC HOLD 75 883 Dec 7.7 7.4 7.5 7.5 -16% -4% 0% 0% 9% 9% 9% 9% 9.8 10.2 10.1 10.1 3.3 3.2 3.1 3.0 9.0 9.6 9.2 8.9 34% 31% 31% 30%

NBP SELL 44 852 Dec (6.7) 9.1 10.3 12.6 NM NM 14% 22% 0% 3% 7% 14% NM 4.8 4.2 3.4 0.6 0.5 0.5 0.5 NM NM NM NM -9% 11% 12% 14%

PSO BUY 278 833 Jun 55.8 52.0 57.2 62.0 77% -7% 10% 8% 8% 8% 9% 9% 5.0 5.3 4.9 4.5 0.9 0.8 0.7 0.7 5.7 5.4 4.7 4.7 18% 15% 15% 15%

ABL BUY 79 827 Dec 10.9 12.7 14.9 17.1 -15% 17% 17% 15% 9% 10% 11% 11% 7.2 6.2 5.3 4.6 0.9 0.8 0.8 0.7 NM NM NM NM 12% 13% 15% 16%

EFERT HOLD 64 792 Dec 7.0 6.9 6.9 6.8 1% -2% -1% -1% 11% 11% 11% 11% 9.2 9.3 9.4 9.5 2.1 2.3 2.1 2.1 5.6 5.7 5.7 5.7 22% 25% 22% 22%

HCAR HOLD 509 668 Dec 43.0 56.7 56.1 68.0 73% 32% -1% 21% 3% 4% 5% 5% 11.8 9.0 9.1 7.5 5.6 4.2 3.4 3.4 9.7 7.1 5.9 4.8 47% 47% 37% 45%

BAFL BUY 39 581 Dec 5.6 6.4 7.4 8.4 18% 14% 16% 13% 4% 6% 6% 7% 7.0 6.1 5.3 4.7 0.9 0.8 0.8 0.7 NM NM NM NM 13% 13% 14% 15%

PTC BUY 12 425 Dec 1.1 1.2 1.4 1.6 NM 13% 16% 19% 17% 17% 17% 17% 8.6 7.7 6.6 5.6 0.4 0.4 0.4 0.5 0.8 0.8 0.7 0.7 5% 6% 7% 8%

BAHL BUY 55 558 Dec 7.2 8.4 10.4 12.5 -2% 17% 24% 20% 6% 7% 9% 11% 7.6 6.5 5.2 4.4 1.3 1.2 1.0 0.9 NM NM NM NM 17% 18% 20% 21%

SNGP UR 95 551 Jun 13.6 14.7 23.1 27.0 NM 8% 57% 17% 6% 7% 7% 10% 7.0 6.4 4.1 3.5 6.7 3.9 2.0 1.3 4.0 3.1 2.8 2.8 96% 60% 49% 36%


Pakistan Comp Sheet

Current

Price

(PKR)

Mkt

Cap

US$mn

Year

end

Earnings per share (EPS) Earnings Growth Dividend Yield PE PBV EV/EBIDTA ROE

Symbol Stance 2017* 2018F 2019F 2020F 2017* 2018F 2019F 2020F 2017* 2018F 2019F 2020F 2017* 2018F 2019F 2020F 2017* 2018F 2019F 2020F 2017* 2018F 2019F 2020F 2017* 2018F 2019F 2020F

FATIMA HOLD 28 546 Dec 3.8 4.1 4.4 4.7 -15% 8% 8% 5% 7% 9% 10% 11% 7.5 6.9 6.4 6.1 1.2 1.1 1.1 1.0 6.9 6.4 6.0 5.7 15% 16% 17% 17%

SEARL HOLD 297 504 Jun 12.8 15.5 18.4 21.8 18% 21% 19% 19% 3% 4% 5% 6% 23.2 19.2 16.1 13.6 5.8 5.1 4.4 4.2 17.8 13.9 11.8 10.1 25% 26% 27% 31%

EFOODS SELL 71 501 Dec 0.3 0.9 1.5 1.6 -89% 162% 63% 4% 0% 0% 0% 0% 203.1 77.4 47.3 45.6 5.5 5.3 4.8 4.3 27.4 21.3 17.3 16.9 NM 7% 10% 9%

DAWH BUY 113 498 Dec 7.8 10.2 12.0 15.0 -29% 30% 18% 24% 7% 5% 5% 6% 14.4 11.1 9.3 8.0 0.3 0.3 0.3 0.3 9.4 7.2 6.1 5.8 8% 7% 7% 7%

DGKC BUY 123 496 Jun 18.0 18.6 19.5 17.1 -6% 3% 5% -12% 6% 6% 6% 6% 6.8 6.6 8.5 8.5 0.7 0.7 0.6 0.6 4.5 5.5 4.1 4.5 10% 10% 10% 8%

NML BUY 142 460 Jun 17.5 18.9 21.1 22.5 1% 8% 12% 7% 4% 4% 4% 4% 8.1 7.5 6.7 6.3 0.7 0.7 0.6 0.6 6.0 5.8 5.6 5.2 9% 9% 9% 9%

PKGS BUY 495 407 Dec 76.1 59.9 42.6 50.5 44% -21% -29% 19% 8% 6% 4% 4% 6.0 7.6 10.7 9.0 0.8 0.6 0.6 0.6 9.7 10.5 9.5 8.5 13% 8% 6% 6%

ISL BUY 95 381 Jun 7.0 9.6 17.0 19.9 158% 38% 76% 18% 4% 4% 7% 8% 13.6 9.9 5.6 4.8 4.8 3.7 2.7 2.0 8.8 6.9 4.2 3.7 36% 38% 47% 42%

MLCF BUY 66 361 Jun 8.0 7.0 8.8 9.1 -1% -13% 25% 4% 6% 5% 6% 6% 8.2 9.5 7.6 7.3 1.6 1.0 1.0 0.9 5.1 6.0 4.2 3.8 20% 11% 13% 12%

55

*A/E **Adjusted for Outlier UR= Under Review


MLCF BUY 66 361 Jun 8.0 7.0 8.8 9.1 -1% -13% 25% 4% 6% 5% 6% 6% 8.2 9.5 7.6 7.3 1.6 1.0 1.0 0.9 5.1 6.0 4.2 3.8 20% 11% 13% 12%

PSMC BUY 472 357 Dec 50.1 67.5 69.0 69.6 49% 35% 2% 1% 4% 5% 6% 5% 9.4 7.0 6.8 6.8 1.3 1.2 1.1 1.0 5.8 4.4 4.3 4.2 14% 16% 15% 14%

IGIIL BUY 296 334 Dec 15.7 18.7 21.0 22.4 11% 19% 12% 7% 2% 3% 3% 3% 18.9 15.8 14.1 13.2 2.1 1.9 1.7 1.6 NM NM NM NM 11% 12% 12% 12%

HASCOL BUY 223 297 Jun 11.0 12.4 17.5 20.6 32% 13% 41% 18% 4% 5% 7% 8% 20.3 17.9 12.8 10.8 5.7 5.1 4.2 3.6 7.8 6.4 4.4 4.2 28% 28% 33% 34%

FCCL SELL 23 289 Jun 1.9 2.3 3.1 2.7 -51% 22% 34% -14% 4% 9% 11% 13% 12.0 9.9 7.4 8.6 1.7 1.6 1.5 1.5 6.1 5.2 4.3 4.7 14% 16% 20% 18%

FFBL HOLD 33 285 Dec 1.5 2.5 3.2 4.0 515% 67% 27% 25% 5% 8% 9% 11% 22.0 13.2 10.4 8.3 1.9 1.9 1.9 1.9 18.8 14.8 12.9 11.3 9% 14% 18% 22%

ASTL BUY 85 231 Jun 3.6 5.0 8.2 16.6 -16% 39% 63% 102% 2% 3% 4% 9% 23.4 16.8 10.3 5.1 2.3 2.1 1.9 1.6 14.7 11.1 7.4 4.1 10% 12% 18% 31%

SSGC UR 27 222 Jun (11.4) 3.1 4.8 5.2 NM NM 56% 10% 0% 0% 0% 0% NM 8.9 5.7 5.2 NM NM NM NM NM 4.4 4.2 3.6 NM NM NM NM

PAEL BUY 45 208 Dec 6.3 7.0 8.5 9.9 -15% 11% 21% 17% 6% 6% 8% 9% 7.2 6.5 5.4 4.6 0.8 0.8 0.7 0.7 6.7 6.3 5.6 5.0 12% 12% 13% 15%

PIBTL BUY 15 199 Jun 0.0 (0.8) (0.4) 0.2 NM NM NM NM 0% 0% 0% 4% NM NM NM 62.8 1.4 1.6 1.6 1.6 NM NM NM 12.1 0% -9% -4% 3%

KOHC BUY 123 175 Jun 22.9 17.6 18.8 20.7 -20% -23% 7% 10% 11% 6% 6% 7% 5.4 7.0 6.5 5.9 1.2 1.1 1.0 0.9 4.9 6.5 5.7 4.7 22% 16% 15% 15%

AICL BUY 49 157 Dec 7.0 8.0 8.8 9.5 -28% 14% 11% 8% 8% 8% 9% 9% 7.0 6.1 5.5 5.1 1.0 0.9 0.8 0.7 NM NM NM NM 14% 14% 14% 14%

CHCC SELL 91 148 Jun 11.1 9.2 9.6 7.3 39% -17% 4% -25% 5% 4% 4% 3% 8.2 9.8 9.4 12.5 1.5 1.4 1.3 1.2 7.0 6.8 6.4 4.7 19% 14% 14% 9%

Topline Universe* 9%** 12%** 13% 10% 6% 6% 7% 7% 9.1 8.2 7.2 6.6 1.3 1.2 1.2 1.1 6.0 5.2 4.7 4.4 12% 15% 15% 16%

The research analyst(s), denoted by an “AC” on the cover of this report, primarily involved in the preparation of this report, certifies that (1) the views expressed in this report accuratelyreflect his/her personal views about all of the subject companies/securities/sectors and (2) no part of his/her compensation was, is or will be directly or indirectly related to the specificrecommendations or views expressed in this report.Furthermore, it is stated that the research analyst or its close relative have neither served as a director/officer in the past 3 years nor received any compensation from the subject company inthe past 12 months.Additionally, as per regulation 8(2)(i) of the Research Analyst Regulations, 2015, we currently do not have a financial interest in the securities of the subject company aggregating more than1% of the value of the company.

Rating SystemTopline Securities employs three tier ratings system to rate a stock, as mentioned below, which is based upon the level of expected return for a specific stock. The rating is based on thefollowing with time horizon of 12-months.Rating Expected Total ReturnBuy Stock will outperform the average total return of stocks in universe Neutral Stock will perform in line with the average total return of stocks in universeSell Stock will underperform the average total return of stocks in universeFor sector rating, Topline Securities employs three tier ratings system, depending upon the sector’s proposed weight in the portfolio as compared to sector’s weight in KSE-100 Index:Rating Sector’s Proposed Weight in PortfolioOver Weight > Weight in KSE-100 IndexMarket Weight = Weight in KSE-100 IndexUnder Weight < Weight in KSE-100 IndexRatings are updated daily to account for the latest developments in the economy/sector/company, changes in stock prices and changes in analyst’s assumptions or a combination of any of

Analyst Certification and Disclosures

56

Ratings are updated daily to account for the latest developments in the economy/sector/company, changes in stock prices and changes in analyst’s assumptions or a combination of any ofthese factors.

Valuation MethodologyTo arrive at our 12-months Target Price, Topline Securities uses different valuation methods which include: 1). Present value methodology, 2). Multiplier methodology, and 3). Asset-basedmethodology.

Research Dissemination PolicyTopline Securities endeavors to make all reasonable efforts to disseminate research to all eligible clients in a timely manner through either physical or electronic distribution such as email, faxmail etc. Nevertheless, all clients may not receive the material at the same time.

DisclaimerThis report has been prepared by Topline Securities and is provided for information purposes only. Under no circumstances this is to be used or considered as an offer to sell or solicitation of

any offer to buy. While reasonable care has been taken to ensure that the information contained therein is not untrue or misleading at the time of publication, we make no representation as

to its accuracy or completeness and it should not be relied upon as such. From time to time, Topline Securities and/or any of its officers or directors may, as permitted by applicable laws, have

a position, or otherwise be interested in any transaction, in any securities directly or indirectly subject of this report. This report is provided only for the information of professional advisers

who are expected to make their own investment decisions without undue reliance on this report. Investments in capital markets are subject to market risk and Topline Securities accepts no

responsibility whatsoever for any direct or indirect consequential loss arising from any use of this report or its contents. In particular, the report takes no account of the investment objectives,

financial situation and particular needs of investors, who should seek further professional advice or rely upon their own judgment and acumen before making any investment. The views

expressed in this report are those of Topline Research Department and do not necessarily reflect those of Topline or its directors. Topline as a firm may have business relationships, including

investment-banking relationships, with the companies referred to in this report.

All rights reserved by Topline Securities. This report or any portion hereof may not be reproduced, distributed or published by any person for any purpose whatsoever. Nor can it be sent

to a third party without prior consent of Topline Securities. Action could be taken for unauthorized reproduction, distribution or publication.


CONTACT US

Mr. Mohammed Sohail CEO Dir: +92 (21) 35303333-4 [email protected]

Research Team:

Mr. Saad Hashemy Chief Economist & Director Research Dir: +92 (21) 35303346 [email protected]

Mr. Umair Naseer Senior Research Analyst +92 (21) 35303330-2 [email protected]

Mr. Nabeel Khursheed Senior Research Analyst +92 (21) 35303330-2 [email protected]

Mr. Adnan Sami Sheikh Research Analyst +92 (21) 35303330-2 [email protected]

Mr. Rai Omar Basharat Research Analyst +92 (21) 35303330-2 [email protected]

Mr. Fahad Qasim Manager Research +92 (21) 35303330-2 [email protected]


Mr. Asif Habib Assistant Database Manager +92 (21) 35303330-2 [email protected]

Equity Sales Team:

Mr. Muhammad Rizwan Head of Sales Dir: +92 (21) 35303337 [email protected]

Ms. Samar Iqbal Head of International Equity Sales Dir: +92 (21) 35370799 [email protected]

Mr. Haris Saeed Senior Manager Equity Sales Dir: +92 (21) 35370799 [email protected]

Mr. Muhammad Hammad Aman Manager Equity Sales Dir: +92 (21) 353030297 [email protected]

Mr. Kumail Raza Manager Equity Sales Dir: +92 (21) 353030297 [email protected]

Mr. Haris Kunda Senior Manager Equity Sales Dir: +92 (21) 35303323 [email protected]

Corporate Office:

508, Continental Trade Center,

Block-8, Clifton, Karachi, Pakistan

Tel: +9221-35303330-2

Fax: +9221-35303349

Pakistan Market Outlook 2018Table of Contents Executive Summary ----- 3 Pakistan Market Outlook 2018 ----- 6 ... currency devaluation, which has already happened (Pak Rupee down 5-6%

Documents