7/29/2019 Pakistan Strategy Outlook 2013
1/284
Foreword
DearClient,
The2013outlookispromotedunderthenamePakistanEquityMarket2013ScalingNewHeights.In
continuationtowhatwasanexcellentyear,theKSE-100gained49%(37%in
USDterms)beatingtheleadingbenchmarkindexprovidersMSCIFrontierMarkets(5%)and
MSCIEmergingMarkets(14%).WhilethismakesPakistanoneof
7/29/2019 Pakistan Strategy Outlook 2013
2/284
thebestperformingmarketsintheworld,thecountryisincreasinglybeingrecognizedamongglobalfrontiermarketinvestorsasatruenextgenerationemerging
market.
In2012,Pakistanhasshownthatitisnotjust
acountryaboutheadlinesbutalsoaboutbottom-lines.Inspiteofsomevery
challengingissuesonthemacroeconomicandpoliticalfront(noises
7/29/2019 Pakistan Strategy Outlook 2013
3/284
thatinvestorsrightlyignored)thekeydriversforthisstrongperformancewere(1)resumptionanduptickinPak-U.S.bilateralrelations,(2)monetarypolicyseeing
interestratescutby250basispoints,(3)CapitalGainsTaxreformpackage,
(4)strongcorporateresultsand(5)attractivevaluationsvs.regionalmarkets(adeep
discounttopeersimpliesaforwardPriceEarningsmultipleof
7/29/2019 Pakistan Strategy Outlook 2013
4/284
6.8andDividendYieldof8%).
2012sawstellargainsbyallkeysectorsoftheeconomyincludingBanking(+49%),Energy/Oil
&Gas(+27%),Power(+42%),Cements(+153%),Foods(+70%),
Textiles(+101%)andInsurance(+58%).
BMAisproudto
statethatourrecommendedportfoliomentionedinlastyearsreport
7/29/2019 Pakistan Strategy Outlook 2013
5/284
titledPakistanStrategyOutlook2012:TheRightMoveshasoutperformedthebenchmarkindexby5%toprovideareturnof53%(41%inUSD
terms)comparedtoKarachiStockExchange100scumulativereturnof49%.
Thus,wehopetoadviseourclientsonhowtooutperformthebroader
marketbyinvestingwiselyin2013.
TheBMA
7/29/2019 Pakistan Strategy Outlook 2013
6/284
economicsteamthinksthatthemostlikelypathforthePakistaneconomyinFY13willseerealpositiveGDPgrowthof3.5-4.0%andinterest
rateswillremaininsingledigits.Risinginflationexpectationsmakeequitiesanattractive
assetclassinabsoluteandrelativeterms.
Pakistanisata
crossroadofpoliticalandeconomictransition.Anefficienttransitionin
7/29/2019 Pakistan Strategy Outlook 2013
7/284
politicalleadershipisessentialundertheprevailingeconomicconditionsandwillimpacttheeconomicgrowthin2013.Our2013year-endtargetforthePakistani
index(KSE100)is19,800,a17%upsidetopresentlevelsmarkedbystrong
corporateearningsgrowthandhigherdividendpayouts.
Theperceivedrisksin
suchinterestingtimeswillleadtovolatilitythatshouldbe
7/29/2019 Pakistan Strategy Outlook 2013
8/284
consideredbyinvestorsasanexcellentbuyingopportunitytogeneratesoundreturns.
Inframingtheoutlookfor2013,weaskedouranalysts
tohighlight;(1)keyinvestmentthemesfor2013andbeyond;(2)stockswith
thegreatestupsidepotentialtodriveperformancein2013;(3)majoreventsor
industryriskstoconsiderand(4)hedgeagainsttheperceived
7/29/2019 Pakistan Strategy Outlook 2013
9/284
riskstogeneraterisk-adjustedreturns.
BMArecommendsexposuretotheEnergy&Power(Oil&GasProducers,IPPs),Cements,TextilesandBanking
sectorsthroughselectivestockpicking.InthefirstinvestmentideaBMAsevenyou
willfindourtopstock&industrypicksforadiversifiedcoreportfolio.
InthesecondideaBMAthenexteightweelaborate
7/29/2019 Pakistan Strategy Outlook 2013
10/284
onourResearchsfavouritevalueplayswhichcanbeaddedinasatelliteapproach.
Wehopethatyoufindthisnewchapter
inthe2013Research&Strategyseriesaninterestingandilluminatingread,and
welookforwardtobringingyoumoreinsightsovertheyear.
Itremainstobeseenwhethersomeofthesescenarios
7/29/2019 Pakistan Strategy Outlook 2013
11/284
willactuallycometopass.Whateverhappens,though,Iwishyouandyourfamilygoodfortune,happinessandgoodhealthinthenewyear.
Yourssincerely,
MoazzamM.MalikChairman&Chief
ExecutiveOfficer
7/29/2019 Pakistan Strategy Outlook 2013
12/284
TABLEOFCONTENTS
1PakEquities:Moretriggerslinedup12KSE100:Targeting19,800forCY1333Elections:A
triggerinitself!104Amplecash:Huntingforyields125IMF
re-entry:Aprobablecasewithpositivitythistime136BMAseven7
157Energy:Oil&GasPakistanOilfieldsLimited-Amix
7/29/2019 Pakistan Strategy Outlook 2013
13/284
ofgrowthandvaluePakistanPetroleumLimited -Valuationscatchingupwithpeers168Banks:UnitedBankLimitedThepreferredplayinhardtimes
199Fertilizer:FaujiFertilizerCompanyDefensiveplaywithastoundingyields21
10Textiles:NishatMillsLimited -Mostdiversifiedandthebesthedge2311Cement:
DGKhanCementCompany Highmargins+strongportfolio=BUY!
7/29/2019 Pakistan Strategy Outlook 2013
14/284
2512Power:HubPowerCompany Beinsafehands2713Andthenexteight29
7/29/2019 Pakistan Strategy Outlook 2013
15/284
PakistanEquityMarketOutlook2013
Moretriggerslinedup
ResearchAnalysts
FurqanPunjani
MuhammadAffanIsmail
FaridAliani
ZoyaAhmed
FridayJanuary04,
2013
Thegoodtimesarenotyetover
7/29/2019 Pakistan Strategy Outlook 2013
16/284
Theperiodofexceptionalperformanceisnotoveryet.Influencedbyalikelychangeinpoliticalsetup,fallingattractionofalternateinvestments,
heavyshorttermliquidityandthattoowithoutleverage,expectedbetterperformanceby
regionalmarketsandalluringlocalvaluationwillleadtheequitymarkettopost
anotheryearofattractivegains.Ourindexvaluationmatrixwhich
7/29/2019 Pakistan Strategy Outlook 2013
17/284
comprisesofregionalaswellaslocalvaluationmethodssuggeststhatthelocalboursewillprovideafairlydecentreturnof17%toreach
19,800pointsby2013end.Though,wehaveaccountedforthemajoreconomic
risksandchallenges(bothexternalandfiscalconcerns)thatareexpectedtosurface
in1HCY13intoourindexcalculation,anyvariationaway
7/29/2019 Pakistan Strategy Outlook 2013
18/284
fromtheexpectationsmaychangeourindextarget.
IntimesofparadoxicaleconomicvariablescharacterizedbyPKRdepreciationamiddecliningreserves,fiscal
imbalances,expectedpoliticalandeconomicshifts,lowinterestratesandstrongearningsgrowth,
werecommendinvestorstofocusonhighdividendyieldingandeconomicallyimmunestocks.
TheBMA7highconvictionideasfortheupcomingyear
7/29/2019 Pakistan Strategy Outlook 2013
19/284
arePakistanOilfieldsLimited,PakistanPetroleumLimitedandHubPowerCompanyinenergystocks,UnitedBankLimitedfrombankingsector,FaujiFertilizerCompanyfrom
fertilizers,NishatMillsLimitedfromtextilesandD.G.KhanCementfromcementsector
universe.ApartfromthesestockswealsohavestronglikingEFOODS.PA,ENGRO.PA,NCL.PA,
FCCL.PA,FECTC.PA,NCPL.PA,NPL.PAandPTC.PA.
BMAHighConvictionIdeasPrice(PKR)TargetPriceReturnEPS(PKR)
7/29/2019 Pakistan Strategy Outlook 2013
20/284
PEPBDiv.YieldEarningYieldPOL43147022%58.67.4x2.9x13%14%
PPL17820222%30.05.91.9X8%17%
UBL8510029%14.26.0x1.2x11%17%
FFC115
13732%15.87.3x5.9x13%14%
NML647828%
13.54.8x0.5x7%21%
DGKC5470
7/29/2019 Pakistan Strategy Outlook 2013
21/284
33%12.04.5x0.6x4%22%
HUBC445233%7.36.0x1.8x15%17%
Source:BMAResearch
Elections:Atriggerinitself!
Theelectionyearhasalwaysbeen
atriggerinitself.Historicaltrendssuggestthatourcapitalmarkethasrallied
indoubledigitsinbothpreandpostelectionsin
7/29/2019 Pakistan Strategy Outlook 2013
22/284
anticipationofnewfacesandpolicyshifts.Howevergiventhecrucialtimefortheeconomy,webelieveitsnotwhocomesin,buthow
strongacoalitiontheyareabletopulltogetherthatwillactas
atriggerforthemarket.Webelievethenextelectionwillyetagain
bringahungparliamentwithnomajoritylyingwithany
7/29/2019 Pakistan Strategy Outlook 2013
23/284
singleparty.However,thegroundrealitiessuggestthatPakistanMuslimLeagueNawaz(PML-N)withsomesupportfromreligious,ethnicpartiesandindependentsmayhave
anedge.
7/29/2019 Pakistan Strategy Outlook 2013
24/284
Amplecashhuntingforyields
WithnoincreaseindiscountratesexpectedinthefirsthalfofCY13,thehuntfor
betterreturnonreinvestmentswouldlureinvestorstowardsequitymarketsinCY13also.
MoreoverwithconcernsregardingCGTrulesaddressed,investors(especiallyindividuals)wouldcontinueto
participateheavilyinequitymarketsasseeninCY12.
7/29/2019 Pakistan Strategy Outlook 2013
25/284
PerformanceinregiontoimprovePakistansrelativevaluation
Theultra-loosemonetarypolicyindevelopedeconomiesexpectedtobemaintainedinthe
nearfutureleavesalotofroomforPEexpansioninAsianequities.
Thoughinrecentpastthequantumofforeigninflowsintothelocalbourse
comparedtoregionalpeershasdeclineddrastically,thePEexpansion
7/29/2019 Pakistan Strategy Outlook 2013
26/284
inthosemarketswillmakePakistansvaluationmoreenticing.Thuswebelievedespitehighermultiplesandevenshiftingfundamentalsofforeignersfavoritescripswhich
includeOGDC.PA,MCB.PA,LUCK.PA,UBL.PA,PPL.PA,NBP.PA,POL.PAandENGRO.PAwouldremainin
thelimelight.
ThethemeformarketinCY13ThemeNarration/CatalystSectorsunderfocusStockstoPlay
1PricingPowerAbilitytopassoninflationaryimpact
7/29/2019 Pakistan Strategy Outlook 2013
27/284
toendconsumerSustainmarginsonthebackofregulatoryframeworkand/orsupply-demandgapPowerHUBCCementsEntireCementSector
OilMarketingCompaniesPSO2DevaluationPositiveCompaniesderivingtheirrevenuesin
USDorguaranteedreturnsPowerHUBC,NCPL,NPLE&PPPL,POL,
OGDCTelecomPTCCementsACPL,LUCK,DGKC
7/29/2019 Pakistan Strategy Outlook 2013
28/284
ExportdrivenTextileNML,NCL3PoliticalSpendingIndustriescateringtobasicneedsandhedgedagainstanyslowdownorturmoilPower
HUBC,NCPL,NPLE&PPPL,POL,OGDCImpactedbypre-electionspending
CementsACPL,LUCK,DGKC,FCCL4ValuewithGrowthCheapon
multiplesSustainableGrowthPredictabledividendpayoutsUpside
7/29/2019 Pakistan Strategy Outlook 2013
29/284
7/29/2019 Pakistan Strategy Outlook 2013
30/284
manageablerisksCommercialBanksAutosBAFL,UBL,MCBINDU,PSMCLowleveragecostforequityinvestmentBetterrisk-returnprofilecompared
tootherinvestmentavenuesEntiremarketBMAUniverse
7/29/2019 Pakistan Strategy Outlook 2013
31/284
KSE100:Targeting19,800forCY13
Grabyourpicks
RegionalCY13PE(x)
Philippines16.0Malaysia14.1Singapore
13.8Indonesia13.7India13.3Thailand12.6SriLanka9.5China9.2Vietnam
8.6Pakistan6.8
Scalingnewheights!
Webelievethe
marketisallsettopostanattractivereturnin
7/29/2019 Pakistan Strategy Outlook 2013
32/284
CY13influencedbyalikelychangeinpoliticalsetup,fallingattractionofalternateinvestmentsandheavyshorttermliquiditythattoowithnoleverage.
Moreover,continuousPEexpansionsintheregionwillfurtherlureinternationalinvestorstowards
thealreadyundervaluedPakistanequities.Accountingforthesefactors,ourvaluationmatrix
whichisacombinationofregionalaswellaslocal
7/29/2019 Pakistan Strategy Outlook 2013
33/284
valuationtechniquessuggeststhatthelocalboursewillprovideanenticingreturnof17%toleadmarkettoreach19,771pointsbyCY13end.
ThoughtheexpectedreturnforCY13ismarginallylowerthanlast10year
CAGRof20%duetocriticaleconomicandstructuralissues,therecentunfolding
events(CGTrelaxation,lowerdiscountratesandelections)wouldbe
7/29/2019 Pakistan Strategy Outlook 2013
34/284
enoughtoleadthemarkettopostareturnhigherthanlast20yearCAGRof14%.
MethodologyWeightIndexTargetEarningsGrowthValuation25%
19,395
PERMeanReversionMethod25%20,536
Source:Bloomberg,BMA
Research
RegionalDiscountConvergenceMethod25%19,507
TargetPrice
Mapping25%19,645
WeightedaverageIndexTarget19,771Source:BMAResearch
7/29/2019 Pakistan Strategy Outlook 2013
35/284
CY/FY13PEof6.8xis26%cheaperthanhistoriclevels
Despitestellarperformancebythelocalmarkettooutperformallbenchmarks
(MSCIFM,MSCIEMandMSCIWorldIndices),theforwardFY13valuationsare
stillata26%discounttothelast10yearaveragePEof
9.2x.Toreachourindexleveltarget,wehavetaken
7/29/2019 Pakistan Strategy Outlook 2013
36/284
a10%discountoverhistoricmultiplestoadjustforthecurrenteconomicandsecuritysituation.Theideaofconvergencetowardsaveragehistoricalmultiplesstems
fromthemarketscompellingearningsgrowthanddividendyieldsof15%and8%
respectivelyinFY13Ecomparedtothelast10yearaverageof14%and
6%respectively.Thiswouldfurtherreducethedifferencebetweenearning
7/29/2019 Pakistan Strategy Outlook 2013
37/284
anddividendyieldsagainstt-billyieldsaftersuccessivecutsinthediscountrates.
Withtheindexatitsalltimehigh,there
arefearsregardingthesustainabilityoftheselevelsinthewakeofchallenges
onthemacroeconomicfront.Theriskhasfurtherintensifiedafterrunon
therupeethathasstartedtodiminishreturnsforforeign
7/29/2019 Pakistan Strategy Outlook 2013
38/284
investorswhomaybecompelledtooffloadpositionsinlocalequities.
However,webelievethemarketwillcontinuetobedrivenby
healthyliquidityintheshortterm.Heavyinflowsfromindividualinvestorsafterclarification
onCGTrulescoupledwithfallingattractionfromalternateinvestmentyieldswilllead
localequitiestocontinuethebullrun.Itshouldalso
7/29/2019 Pakistan Strategy Outlook 2013
39/284
bekeptinmindthattherallyintheoutgoingyeardespiteabsenceofanyattractiveleverageproducthasgiventhemarketmuchdepth
intermsofliquiditywhichwillfurtherminimizethedownsideriskandreduce
volatility.Aftergroundbreakingperformancebythemarket,manynewforeignfundmanagers
havestartedtotakeinterestinPakistanequities.Moreover,materialization
7/29/2019 Pakistan Strategy Outlook 2013
40/284
ofadditionalflowsfromtheUSamid
7/29/2019 Pakistan Strategy Outlook 2013
41/284
improvingUS-Pakrelationship(2ndtrancheofCSFUSD700mninJan13,KerryLugartrancheandassistanceinotherareas),wouldslowdownthepaceof
expectedPKRdepreciation,thuslockingthedownsideforforeigninvestors.Thesefactorsaside,
webelievethenextyearsexpectedreturnof17%wouldbeenoughto
compensateforeigninvestorsforPKRdepreciation(11%inCY13E)and
7/29/2019 Pakistan Strategy Outlook 2013
42/284
tosafeguardtheirunrealizedreturninCY12(37%inUSDterms).
BMAUniverseValuationFY11AFY12A/EFY13EFY14E
P/E8.6x7.9x
6.8x6.0x
Div.Yield6%6%8%9%
Earning
Yield12%13%15%17%
P/B2.0x1.7x1.6x1.5x
Source:BMAResearch
Withultra-loosemoneysupply
7/29/2019 Pakistan Strategy Outlook 2013
43/284
indevelopedmarketsfindingitswaytobetterreturnsavailableinregionalmarkets,theAsianequitieswillcontinuetobeatthereturnsprovidedby
theirAtlanticpeers.Recall,AsianPEmultipleshaveexpandedbyahefty14%
lastyearcomparedtoanaveragecontractionof15%in2010and2011
(pre-QEphenomenon).Despitestayingoneofthebestperformingmarkets
7/29/2019 Pakistan Strategy Outlook 2013
44/284
inAsia,(onlyshortofPhilippinesandThailand)ourlocalequitiesarestilltradingataPEdiscountof43%comparedtolast5
yearsaveragePEdiscountof35%totheregion.Moreoverdespitebeingassociated
withchallengingmacroeconomicsituationinthecountry,thesovereignyieldsofPakistan
Eurobonds(2017)havecomedownby~520bpsto9%
7/29/2019 Pakistan Strategy Outlook 2013
45/284
comparedto14.2%yieldsofferedinthesameperiodlastyear.ThiswillfurtherendorseforeignfundmanagersconfidenceinPakistanequitymarkets.
Withconsiderablerisksattachedtotheeconomicvariables,wedonotsee
anyimprovementfromthelast5yearaveragehistoricaldiscountof35%however,
webelievetheincreasedliquiditywouldcompelourmarketto
7/29/2019 Pakistan Strategy Outlook 2013
46/284
convergetowardsitsaveragehistoricaldiscount.Moreover,onthebackofbetterexpectedreturn,wedownplaytheriskofheavyforeignsellingdespitethe
expecteddepreciationofPKRby11%inCY13.Hence,webelievethecurrent
paceofinflowswillcontinuetoactasatriggerinCY13too.
7/29/2019 Pakistan Strategy Outlook 2013
47/284
7/29/2019 Pakistan Strategy Outlook 2013
48/284
highconvictionideasfortheupcomingyearincludePakistanOilfields(POL.PA),PakistanPetroleum(PPL.PA),UnitedBank(UBL.PA),FaujiFertilizer(FFC.PA),NishatMills(NML.PA),DG
KhanCement(DGKC.PA)andHubPower(HUBC.PA).Webelievethesescripshavethe
potentialtooutperformthebenchmarkKSE100index.
Moreoverwebelieveinvestors
shouldalsolookoutforEngroFoods(EFOODS.PA),EngroCorp.
7/29/2019 Pakistan Strategy Outlook 2013
49/284
(ENGRO.PA),NishatChunian(NCL.PA),FaujiCement(FCCL.PA),FectoCement(FECTC.PA),NishatPower(NPL.PA)andNishatChunianPower(NCPL.PA),andPakistanTelecommunications(PTC.PA).
TargetPriceFY13RecommendedPortfolio21-12-201231-12-2013UpsideDiv.YieldAggressiveDefensiveBMAModelPortfolio2013OilandGasExploration21%17%
PakistanOilfieldsLtd.
4314709%13%10%12%
PakistanPetroleumLtd.178200
13%9%6%5%
Oil&GasDevelopment
7/29/2019 Pakistan Strategy Outlook 2013
50/284
Co.1892027%6%5%0%
Fertilizers12%12%
FaujiFertilizerCo.11513719%13%7%12%
EngroCorporation9215568%0%5%0%
Oil&
GasMarketingCompanies3%0%
PakStateOil23330933%
3%3%0%
Power16%39%
7/29/2019 Pakistan Strategy Outlook 2013
51/284
HubPowerCo.445218%15%6%15%
NishatChunianPowerLtd.212416%17%5%12%
Nishat
PowerLtd.192214%16%5%12%
CommercialBanks10%
8%
UnitedBankLtd.8510018%11%6%5%
BankAlfalahLtd.171913%15%4%3%
7/29/2019 Pakistan Strategy Outlook 2013
52/284
Cements18%9%
DGKhanCement547029%4%6%3%
LuckyCementCo.1491608%
5%4%2%
AttockCement9911415%10%0%4%
FectoCementCo.345047%7%4%0%
FaujiCementCo.61067%0%4%0%
7/29/2019 Pakistan Strategy Outlook 2013
53/284
FoodProducers5%2%
EngroFoods9210211%0%5%3%
Telecom6%5%
PakistanTelecom
172862%9%6%5%
Textiles9%8%
NishatMillsLimted647821%7%5%3%
NishatChunian
Limted364525%11%4%5%
Model
7/29/2019 Pakistan Strategy Outlook 2013
54/284
PortfolioWeightage100%100%
7/29/2019 Pakistan Strategy Outlook 2013
55/284
TechnicalPerspectivefor2013
ThereislittledoubtthatPakistanisinasecularbullmarketinwhichultimateupsidetargets
willsurpriseeventhemostoptimistic.Rightnowthemajorityofthemarket
islineduponthelongsideofthemarket.Thefirsthalf
of2013hasthepotentialtoswingthependulumin
7/29/2019 Pakistan Strategy Outlook 2013
56/284
theotherdirectionbeforeCY13putsupstronggains.Giventhatwestarttheyearinthemidstofthestrongadvancefurthergains
canbeforthcominghowevertheDNAofthecurrentcyclicalbullmarketplaces
the100indexmuchclosertoaswinghighthanalow.
TheFMRsforthemajorityoftheequityfunds
7/29/2019 Pakistan Strategy Outlook 2013
57/284
allshowveryhighlevelsofinvestmentgoinginto2013,levelswhichhavehistoricallycorrespondedwithmarkettops.Withthemajorityoffunds
nearmaximumallowableexposurelimitsandinterestratessettorisefromcurrent
levels,abackoftheenvelopecalculationappearstosuggestthatthereis
littlemoneyavailabletocontinuetodrivethemarkethigher.
7/29/2019 Pakistan Strategy Outlook 2013
58/284
AverageEquityfundinvestmentlevelsin%andKSE100pricegraphAvg.%investmentlevelsforequityfundsKSE100IndexLevelSource:Source:BMAResearch/CompanyFMRsandMUFAP
Eventhestrongestadvancesareinterruptedby
periodsofregressandreversiontothemean.Thefollowingchartshowsthe
4-yrrelationshipbetweentheKSE-100andits200DMA.
SpreadbetweenKSE100and200DMASource:BMA
Research
7/29/2019 Pakistan Strategy Outlook 2013
59/284
Themarketwasrecoveringfromabustcycleatthestartoftheperiodandthespreadshowedextremereadings,therelationshipreturned
tonormalatthestartof2010andthisistheperiodthat
weareinterestedin.WorkingwiththeassumptionthattheKSE-100isin
abullmarketyouwouldnotexpectmuchtradebelow
7/29/2019 Pakistan Strategy Outlook 2013
60/284
therising200-DMAwhichwouldmarkaveryattractiveentrypoint.Theupperendoftherangeat+20%iswhenthemarketgets
stretchedontheupsideandrevertsbacktothemean.
The
bottomline
Currentpriceactionisshowingaspreadreadingof
+14%,muchclosertothetopthanthebottomof
7/29/2019 Pakistan Strategy Outlook 2013
61/284
therange,indicatingthatareversiontothemeanmoveshouldbeseenmostlikelyinQ1orQ2.Interpretingthisrelationshipinto
anactionableinvestmentstrategymeansinvestorsandespeciallyspeculatorsshouldnotethatthe
optimumentrypointtogolongequitiesforCY13iswhenthespread
readingisat0ormarginallynegative.Allocatingfreshcapital
7/29/2019 Pakistan Strategy Outlook 2013
62/284
atcurrentlevelswillexposeportfoliostoelevateddrawdownrisk.
7/29/2019 Pakistan Strategy Outlook 2013
63/284
Region/MSCIMarketPerformancein(USD)Pakistanequitiesroundup:ThestarperformersinCY12
Philippines41.9%Staggeringperformanceof49%(37%in
USDterms)bylocalequitieshasmadeKSEthe3rdThailand38.1%best
performingmarketamongstregionalpeersand9thbestintheworld.Moreover,local
equitiesoutperformedtheirbenchmarksi.e.MSCIEMandMSCIFM
7/29/2019 Pakistan Strategy Outlook 2013
64/284
byaheftymarginofSingapore27.1%23%and32%respectivelyinUSDtermstobecomethemostlucrativemarketintheregion.Hong
Kong22.4%Thiswasseendespitetheeconomicturmoil,lowerGDPgrowthcompared
toregionalpeersIndia20.2%andcontinuousdepreciationofPKRagainstallmajor
currencies.Thiscanbecreditedto1)SriLankaSouth
7/29/2019 Pakistan Strategy Outlook 2013
65/284
KoreaVietnamMalaysia18.5%17.2%14.0%12.2%favoredandrelaxedCGTrulesprovidingliquiditytothemarket2)250bpscutindiscountrateswhich
reducedtheattractivenessofalternateinvestmentsand3)improvingrelationshipwiththeUS.
Taiwan11.1%InourlaststrategyreporttitledBMAStrategyOutlook2012:The
RightMovesourmodelIndonesia4.4%aggressiveportfoliooutperformedthe
7/29/2019 Pakistan Strategy Outlook 2013
66/284
KSE100indexbenchmarkby4%toprovideaChina -0.8%cumulativereturnof53%(41%inUSDterms).InterestinglyourdefensiveportfoliomainlyMSCIEM
13.8%constitutingstockswithhigherdividendyieldsandrelativelylowercapitalgainshas
onlyMSCIFM4.9%underperformedthebenchmarkby4%.MSCIEurope15.6%MSCI
NorthAmerica13.2%
Pakistan37.1%BMAModelPortfolio2012outperformsKSE100Indexby4%givingreturnof53%Source:Bloomberg
7/29/2019 Pakistan Strategy Outlook 2013
67/284
PricesReturnWeightsWeightedAv.ReturnScrip31-Dec-1121-Dec-12AggressiveDefensiveAggressiveDefensiveOGDC15218930%20%17%6%5%POL34643140%15%22%
6%9%
ENGRO719231%7%5%
2%
2%
FFC10011531%8%10%
2%3%
FATIMA232722%5%3%
1%1%
PSO18923326%5%5%
1%
7/29/2019 Pakistan Strategy Outlook 2013
68/284
1%
APL41351236%8%10%
3%4%
HUBC344446%10%16%
5%
7%
NBP375054%4%2%
2%1%
MCB12221183%6%4%
5%3%
NRL243212 -7%4%2%
0%0%
7/29/2019 Pakistan Strategy Outlook 2013
69/284
LUCK75149106%2%2%
2%2%
DGKC1954194%1%0%
2%0%
EFOODS2392307%3%2%
9%6%
PICT66255287%2%0%
0%
6%100%100%53%45%
Source:BMAResearch
7/29/2019 Pakistan Strategy Outlook 2013
70/284
KeyeventsofCY12KeyeventsofCY12CommentaryonkeydevelopmentsinCY12
Thefirstandthemostimportanttriggerforthemarketprovedtobethe
financeministersacceptanceofSECPsproposalsregardingCGTrulesinJanuary.Politicaldisturbances,
notably1)continuousstrainonPak-USrelationshipsubsequenttoclosureofNATOsupply
routesand2)SupremeCourtsdisqualificationofPMGilaniin
7/29/2019 Pakistan Strategy Outlook 2013
71/284
June,dentedtheupbeatmomentumtemporarily.However2HCY12wasmarkedbyeaseoffinUS-PaktieswhichledtoanapologyfromtheUS
onSalalaincidentandreleaseofUSD1.1bnunderCSFinAugust.Thiscoupled
withcontinuousmonetaryeasingcycle,whichculminatedinDecemberwithacumulative250bps
cut,sustainedthebullishruninthemarket.Otherpertinent
7/29/2019 Pakistan Strategy Outlook 2013
72/284
marketspecificdevelopmentswerepassageofCorporatization,DemutualizationandIntegrationofStockExchangebillinthefirsthalfandre-compositionofKSE100indexto
free-floatbasedmethodology.
7/29/2019 Pakistan Strategy Outlook 2013
73/284
Elections:Atriggerinitself!
Makingacaseforequities
Positivitywithcaution
Theelectionyearhas
alwaysbeenapositivetriggerinitself.Historicaltrendsuggestsourequitymarket
hasralliedindoubledigitsinexpectationofnewfacesandpolicyshifts.
Tomention,themakethasenjoyeda6monthpre-election
7/29/2019 Pakistan Strategy Outlook 2013
74/284
averagerallyof12%inthelast5electionswhereaspostelection,dependingonthenewpartyanditsexpectedpolicies,themarkethas
ralliedbyanaverage26%inthefollowing6months.Thoughdeterioratingsecurity
situationjustaheadofelectionhasignitedfearsofsomedefermentinelection,
webelievetheelectionwillbeconductedontimeas
7/29/2019 Pakistan Strategy Outlook 2013
75/284
thecurrentgovernmentwillcompleteitsfulltermbyMar13andaconsensusinterimgovernmentwillconductthenewelectionbyMay13.Havingsaid
that,webelievetheroadtoelectionwillbebumpy,dampeningthemarket
sentimentforsometime.
KSE100IndexhistoricalreturnsElectionDatePriorsixmonthsWinningPartySixmonthspostelection24-Oct-905%PML-N13%
6-Oct-9322%PPP80%
3-Feb-977%PML-N
7/29/2019 Pakistan Strategy Outlook 2013
76/284
25%
10-Oct-0215%PML-Q36%
18-Feb-0813%PPP -25%
AverageReturn12%26%
Source:BMAResearch
Giventhecrucialtimesfortheeconomy,webelievenotwhobut
howstrongthecoalitionisthatwilldeterminetheextenttotherise
inmarketpostelection.Solutionstomountingcirculardebt,sorting
7/29/2019 Pakistan Strategy Outlook 2013
77/284
outuntargetedsubsidies,increasingtaxcollectionandmanagingPKRpositioninthewakeofdecliningforeignreserves,tomentionafew,remainthekey
challengesfortheupcomingpoliticalpartyandtheeconomy.Thus,itwillbe
necessaryfortheleaderofthecoalition-basedgovernmenttogarnishsupportfromall
coalitionpartnerstoeffectivelyaddresstheeconomicdifficultiesfacedby
7/29/2019 Pakistan Strategy Outlook 2013
78/284
thecountry.Hence,webelievetheupcomingelectionwouldnotonlybeapoliticaltransitionbutalsoaneconomictransitionwhichifsuccessfulwould
havefarreachingpositiveimpactsontheeconomyinyearsforward.
Oddsfavouringachangethistime
Achangeingovernment,especially
ifastrongcoalitionemerges,willbeawidelyrejuvenating
7/29/2019 Pakistan Strategy Outlook 2013
79/284
factorforthemarket.Thoughwebelievethenextelectionwillyetagainbringahungparliamentwithnomajoritylyingwithanysingle
party,inthewakeofcurrentcircumstancesPakistanMuslimLeagueNawaz(PML-N)may
haveanedge.WebelievePML-Nwithmajorsupportfromdissidentsfromcurrent
coalition(PML-Q&PPP)andotherreligious/ethnicpartiesmayform
7/29/2019 Pakistan Strategy Outlook 2013
80/284
thegovernment.
DespiteprobableseatadjustmentsamongstthetworulingpartiesPPPandPML-Q,theymaystandtolosethenextelections
duetodissatisfiedmasses.However,webelievePPPcouldcontinuetogathersupport
fromitsstrongholdSindhwhereasPML-QmaylosemajorseatstoPML-Nand
PakistanTehreek-e-Insaaf(PTI)inPunjab.
7/29/2019 Pakistan Strategy Outlook 2013
81/284
SeatspositioninNationalAssemblyandexpectationfor2013SeatspositioninNationalAssemblyandexpectationfor20132008
2013EPML(N)PPPPML(Q)PTIInd.MQMJIANPJUIFPML(F)
Keyindicatorsduringdifferentregimes(1990todate)
(Avg.Annual)
PMLNPPPArmyPMLQGDP
4.7%3.6%3.0%6.8%
Growth
-Manufact.6.2%2.6%5.1%10.7%
Inflation9.3%12.9%
7/29/2019 Pakistan Strategy Outlook 2013
82/284
3.8%6.5%
KSE10019.4%6.4%14.6%59.5%
Source:BMAResearch
IndicatorsduringPMLNregimes
(Avg.Annual)FirstTermSecondTermYears
1990-19931997-1999
GDPGrowth5.2%3.9%
-Manufacturing
6.5%5.5%
growth
Inflation11.0%6.8%
KSE100
41.0% -12.0%*
Performance
Source:BMA
7/29/2019 Pakistan Strategy Outlook 2013
83/284
Research
*Nuclearblast020406080100120140
Source:NAwebsite,BMAResearch
The
newlyemergedpoliticalpartyledbyImranKhan(PTI)withasloganfor
changemayhavelostitscharmjustaheadofelectiontotheirbiggest
competitorPML-N.Thepartymaynotbeabletobring
7/29/2019 Pakistan Strategy Outlook 2013
84/284
anyquantifiablechangeintheupcomingparliament.However,webelievethepartywillmanagetofetchsomeseatsinPunjabandKhyberPakhtunkhwa.
DespitereservationsonvoterlistverificationsanddelimitationinKarachibyMuttahida
QuamiMovement(MQM),theelectioncommissionislikelytocontinuewiththedecision
bythehighestcourts.Thisstepcouldresultinloss
7/29/2019 Pakistan Strategy Outlook 2013
85/284
ofsomeseatstoANPandPPP,nonetheless,webelieveMQMwouldonceagainemergeasthestrongestpartyinKarachiandHyderabad.
WhyPML-Nledgovernmentwouldbepositiveforthemarket?
Knownforitsliberalandpro-manufacturingpolicieswhichincurrenteconomicscenariohave
becomethemostdesiredattributesinanypoliticalparty,the
7/29/2019 Pakistan Strategy Outlook 2013
86/284
marketwouldrejuvenateifPML-Nformsagovernment.Recall,theaveragemanufacturinggrowthinthelasttwotenuresofPML-Nstoodat6%,compared
to2.6%inthelastthreetenuresofPPPgovernment.Ledbythe
handsomemanufacturinggrowth,theaveragerealGDPinthetenureofPML-Ngrew
byanaverageof4.6%.
Furthermore,giventhe
7/29/2019 Pakistan Strategy Outlook 2013
87/284
strongesteconomicteamamongstallitsexpectedcoalitionpartners(religiousandethnic)itwouldberelativelyeasyforPML-Ntocarryoutstructuralreforms
thistime.Hence,webelievethenextgovernmentwillmeetconditionsnecessaryto
re-entertheIMFprogram.
Moreover,thepartysstrongpoliticalrelationshipwith
SaudiArabiamayonceagainleadthegovernmenttoenjoy
7/29/2019 Pakistan Strategy Outlook 2013
88/284
theimportofoilondeferredpayments.Wehavenotyetincorporatedthesedevelopmentsinoureconomicmodel,butthesestepswouldreducesome
pressureonthecurrentaccount.
Thedeadlineapproachingfast
With2014deadlineloomingaroundthecornerforwithdrawalofcoalitionforces,things
arechangingquiterapidly.Inthewakeofthis,we
7/29/2019 Pakistan Strategy Outlook 2013
89/284
believePak-USrelationswillcontinuetoimproveirrespectiveofwhoeverformsthegovernmentuntilconsensusonmajorissueslikeNATOsuppliesandpeaceprocess
withTalibanremains.TheimprovementinrelationshipcanbeendorsedbyrecentCSF
paymentsofUSD1.88bnindifficulttimeswhenPakistaniswitnessingpersistentpressureon
forexreservesanditscurrency
7/29/2019 Pakistan Strategy Outlook 2013
90/284
Amplecash:Huntingforyields
HeadingforEquities
KSE100vsOtherAssetClasses
KSEUSDDSCTbills200366% -2%9%
2%
200439%4%8%2%
200554%1%
8%7%
20065%2%10%8%
200740%
1%10%7%
2008 -58%28%11%11%
7/29/2019 Pakistan Strategy Outlook 2013
91/284
200960%7%12%13%
201028%2%12%13%
2011 -6%5%13%13%
2012TD48%8%
12%11%
CAGR20%5%11%9%
Source:KSE,
NSC,SBP,BMAResearch
CY12TDNetFIPI(USDmn)
India
23,170
S.Korea14,812Amplecashasother
7/29/2019 Pakistan Strategy Outlook 2013
92/284
investmentavenuesdisappear
Thereinvestmentriskhasconsiderablyincreasedasbaseratesforfixedincomeinvestmentshavecomedownbyapprox250bps
inthelast12months.Withthisthedifferentialofdividendyieldsagainst
t-billshascomedownto150bpscomparedtolast5yearaverageof
500bps.Moreover,thedifferencebetweenearningsyieldsandt-billhas
7/29/2019 Pakistan Strategy Outlook 2013
93/284
alsogoneupby530bpscomparedtolast4yearaverageof160bps.Thuswithlessermagnetismtowardsfixedincomeasinterestratesare
expectedtoremainsubduedin1HCY13,onlyequitiesprovidetheopportunitytobeat
coreinflationlevels(~10.5%inFY13E).Hence,webelievefreshflowsintothe
marketwillleadthemarkettoprovideadecentreturn
7/29/2019 Pakistan Strategy Outlook 2013
94/284
inCY13aswell.
Yields:EarningsvsDividendsvsTreasurybillsDividendYieldT-BillYieldEarningsYield15%
12%
9%
6%
3%
0%2003200420052006200720082009
2010201120122013E
Taiwan4,460Source:BMAResearchPhilippines
2,483ThetroublesomeclauseofCapitalGainsTax(CGT)to
7/29/2019 Pakistan Strategy Outlook 2013
95/284
disclosethesourceofincomeandThailand2,384cumbersomefilingdroveindividualinvestorsawayfromthemarketasapproximatelyhalfIndonesia1,649ofthe
economyissaidtobeunregistered.SincethepromulgationofCapitalGainsTax
SriLanka287ordinancewhereFBRsauthoritytoaskforsourceoffunding
wasdeferredtillJun14hasPakistan132ledthemarket
7/29/2019 Pakistan Strategy Outlook 2013
96/284
torallyby49%inCY12YTD.ThisisfurtherendorsedbythefactthatVietnam116individualsshareindailytrading,whichhadfallen
toaround55%inJun11,hasreboundedto61%in2HCY12TDandthat
toowithhighervolumesandnegligibleleverage.Toquantify,Source:Bloombergtheshare
indailytradingvolumesofindividualshasdoubledto107mn
7/29/2019 Pakistan Strategy Outlook 2013
97/284
from46mnin2011.Thuswebelieve,themomentumwillcontinueintothenextyeartooandthusfreshinflowswillkeeppouringinto
themarketamidapplicabilityofCGTrelaxationtillJun14.
ShareofIndividualsindailytrading(byvalue)Dec-12
Jun-11
7%10%
IndividualsInstitutionsForeign
32%
35%
55%61%
Source:
7/29/2019 Pakistan Strategy Outlook 2013
98/284
NCCPL
7/29/2019 Pakistan Strategy Outlook 2013
99/284
IMFRe-entry:Aprobablecasewithpositivity
WithpersistentpressureontheexternalaccountandresultantimpactonthePKR,the
countryislikelytoheadbacktotheIMFforanotherprogram.Though
thecurrentaccountdeficitisexpectedtolowerbyapprox54%(1.1%of
GDP)inFY13,itsfinancinghasbecomeadifficulttask
7/29/2019 Pakistan Strategy Outlook 2013
100/284
andthattoowithrepaymentslinedupforFY13.ThishasstartedtotakeitstollonlocalcurrencyasPKRhasdepreciatedby
3%inthelastthreemonthswhichisnotidealforaneconomy
whosemajorportionofimportsisoil.
Tobespecific,we
believePakistanwouldhavetoheadbacktoIMFin
7/29/2019 Pakistan Strategy Outlook 2013
101/284
2HCY13slowingdowntheimpactofPKRdepreciationwhichweexpecttobe11%inCY13wheremajorimpactwouldbeseenin1HCY13.
AndgiventherepaymentstoIMF(USD3.4bninCY13)coupledwithminimalinflows
intotheeconomy,theofficialforexreservesareexpectedtodeclinetoUSD7.2-7.5bn
(mere2monthsofimportcover)bytheendof
7/29/2019 Pakistan Strategy Outlook 2013
102/284
FY13E.Thoughwedownplay,theexpectedPKRdepreciationin1HCY13mayslowdownifUSD800mnfromEtisalat,USD900mnfor3Gauctionsandsomecomponent
ofKerry-LugararerealizedinFY13.
Inthisscenario,webelieve
re-entryintotheIMFprogramwouldbeapositiveandprobablecasefor
theeconomyhowevertherewouldbeconditionalitiesattached.Webelieve,
7/29/2019 Pakistan Strategy Outlook 2013
103/284
thepaceofcurrencydepreciationwouldbereducedandwithslowerimpactoffiscalborrowingoninflationlevels,webelievetheincreaseindiscount
ratesadvisedbythefundwouldbelowifany.Tomention,we
expectCPIinflationtoaveragearound8.75%inFY13andevenatcurrent
discountrates(9.5%),realinterestratesof~0.75%-1%wouldprevail.
7/29/2019 Pakistan Strategy Outlook 2013
104/284
Thus,withminimalincreaseindiscountratesexpectedandslowerPKRdepreciation,theattractivenessinlocalequitieswouldremainintact.
ExternalAccountandReserveAssumptions(USDbn)CurrentAccountFY12AFY13E
Exports24.7
Imports39.7
TradeDeficit -15.0
ServiceDeficit
3.0
IncomeDeficit3.2
NetDeficit -21.2
Remittances13
OtherCurrent
4.03.8Transfers
7/29/2019 Pakistan Strategy Outlook 2013
105/284
C/ADeficit4.6
asofGDP2.0%1.1%
FinancialAccountFY12AFY13EIMFPrincipalRepayments
-0.9 -2.7
ParisClub
CSF-
3GAuction-
OGDCExchangeableBonds--
EtisalatPayments-
SBPReserves(opening)
14.810.1
SBPReserves(end)10.17.2-7.5
Source:BMAResearch
7/29/2019 Pakistan Strategy Outlook 2013
106/284
7/29/2019 Pakistan Strategy Outlook 2013
107/284
IMFrepaymentschedulefor2013and2014IMFrepaymentschedulefor2013and2014USDmn
1,903
2,0001,6001,2008004000
1,6081,106739
1HCY132HCY13
1HCY142HCY14
Source:IMF
Therisktoourexternal
accountassumptionsstemfromhighercrudeoilpriceswhichseemmorelikelyafter
extraordinarysocialexpendituresplannedbyoilproducingcountries(SaudiArab,
7/29/2019 Pakistan Strategy Outlook 2013
108/284
Russia,Qatar,IranandotherMENAcountries),resultantlyincreasingthebasepriceforoilexploration.AUSD5perbarrelincreaseinoilpricesincreases
PakistanscurrentaccountdeficitbyUSD600mn.Webelieve,higheroilpriceswouldbe
arisktoourC/Adeficittargetswhichwoulderodethesupportprovided
tothefinancialaccount.
Onthefiscalside,
7/29/2019 Pakistan Strategy Outlook 2013
109/284
thecurrentturbulencewaswidelyanticipatedaswemoveintotheelectionyearandthegovernmentsspendingspreeshowsapre-electionhangoverwhichcannot
betermedasextraordinary.Withmajorsubsidies(powerwhichis26%oftotal
expectedfiscaldeficit)alreadybeenutilizedinfullduringjust5MFY13,webelieve
thetargeted4%fiscaldeficitforFY13wouldbeeasily
7/29/2019 Pakistan Strategy Outlook 2013
110/284
crossedandwouldhit6.5%ofGDPbyyearend(FY13).
PakistankeyeconomicindicatorsFY12FY13E
GDP%3.73.5
Inflation%10.88.75
ReservesUSDbn10.87.5
PKR/USD94.6103
RemittancesUSDbn13.314.3
Interest
rates%12.59.5
C/ADeficit%2.0
7/29/2019 Pakistan Strategy Outlook 2013
111/284
1.1
FiscalDeficit%6.66.5
Source:EconomicSurvey,BMAResearch
7/29/2019 Pakistan Strategy Outlook 2013
112/284
BMAseven7
CompanyNameSymbolPriceTargetPriceUpsideDiv.YieldGrossReturnPakistanOilfieldsPOL4314709%13%22%
PakistanPetroleumPPL17820213%8%21%UnitedBankUBL85100
18%11%29%
FaujiFertilizerFFC11513719%13%32%NishatMillsLtd.NML647821%
7%28%
D.G.KhanCementDGKC547029%4%33%HubPowerCompanyHUBC445218%15%
33%
7/29/2019 Pakistan Strategy Outlook 2013
113/284
Energy:Oil&Gas
Overweight
Oil&GasSectorPerformance
1M3M12M
Absolute%
1%4%15%
RelativetoKSE% -3% -6%-34%
BMA
UniverseVal.SummaryFY13E
EPS
PriceUpsidePERD.Yield
Growth
OGDC1897%7.4x6%14%
7/29/2019 Pakistan Strategy Outlook 2013
114/284
PPL17814%5.9x8%21%
POL4319%7.4x13%17%
RelativeOil&GasvsKSE100
Index
PakistanOilandGasE&P:Robustfundamentals;attractivevaluations
Drivenbysignificantincreaseinhydrocarbonproduction,steadytrendinoiland
gasprices,aggressiveE&Dactivityinbothown/JVoperatedhydrocarbon
7/29/2019 Pakistan Strategy Outlook 2013
115/284
richareasandcompellingregionalvaluation,PakistanOilandGasE&Psectorwillcontinuetodepictstellarperformance.Furthermore,withinvestorfriendlypolicies,being
majorrecipientofforeigninvestmentandrelativeinvulnerabilitytolocalfundamentalsfurtherstrengthens
ourinvestmentthesisonthesector.
Giventheunfoldingofmacro
eventslikesteepdepreciationinPKRandnotablereductionin
7/29/2019 Pakistan Strategy Outlook 2013
116/284
rateofreturnonalternateinvestments,webelieveE&PstogaingreaterattentiononaccountoftheirnaturalhedgeagainstPKRvalueandattractive
dividendyields
ProductiongrowthinCY13willbeagaindrivenby
appraisal/developmentdrillingatTAL,Nashpa,Mela,KPD-TAY,SinjhoroandUchblocks/fields.Ongoingdevelopment
activityinJhalMagsi,Dakhni,ChakNaurangandAdhimay
7/29/2019 Pakistan Strategy Outlook 2013
117/284
furtherunlockupsideinsectorsfundamentals.RevampatSui,KandhkotandQadirpurwillalsoremaincriticaltoproductionoutlook.
Arablightcrude
oilpricesFY13TDhaveaveragedatUSD109/bbl(lowerby2%thanFY12average
oilprice)howeverstillhigherby9%thanourlongtermoilprice
assumptionthusposingnodownsiderisktoourvaluationestimates.
7/29/2019 Pakistan Strategy Outlook 2013
118/284
Despite2%YoYreductioninbenchmarkperiod(Jun12-Nov12)oilprices,weforeseeYoYimprovementinwellheadpricesmainlydueto9%depreciationinPKR
duringthecomparableperiod.
OurTPofOGDC,PPLandPOL
standsatPKR202,PKR202andPKR470translatingintoatotalreturnof13%,
23%and22%respectively.AmongourE&PUniverse,POLoffers
7/29/2019 Pakistan Strategy Outlook 2013
119/284
thehighestdividendyieldof13%.
OilandGasKSE100Index160140120100
RelativeValuationsTickerNameP/E(x)Div.YieldEV/EBITDA(x)POLPAEquityPakistanOilfieldsLtd7.413%3.7OGDCPAEquityOil&GasDevelopmentCoLtd7.46%
4.2PPLPAEquityPakistanPetroleumLtd5.98%3.2PMOLNEquityPremierOilPlc12.20%5.4
80
STOAUEquitySantosLtd19.54%7.7
60
Dec-11Jan-12Feb-12Mar-12Apr-12May-12Jun-12Jul-12
7/29/2019 Pakistan Strategy Outlook 2013
120/284
Aug-12Sep-12Oct-12Nov-12Dec-12
JPEquityJapanPetroleumExploration12.11%3.5
ONGCINEquityOil&NaturalGas
CorpLtd7.91%4.3
CAIRINEquityCairnIndiaLtd
7.52%3.8
WPLAUEquityWoodsidePetroleumLtd18.95%
11.5
OXYUSEquityOccidentalPetroleumCorp10.9
7/29/2019 Pakistan Strategy Outlook 2013
121/284
3%5.1
NBLUSEquityNobleEnergyInc23.41%8.5
Source:Bloomberg,BMAResearch
7/29/2019 Pakistan Strategy Outlook 2013
122/284
BUY
TargetPriceJun-13:PKR470CurrentPrice:PKR431
BloombergPOL.PA
ReutersPKOL.KA
Capital
Gain9%
DividendYield13%
MCAP(USDmn)1,045
12MADT(mnsh.)0.5
POLvs.KSE100Relative
Chart
KSE100IndexPOL
160140
7/29/2019 Pakistan Strategy Outlook 2013
123/284
12010080
Dec-11Jan-12Feb-12Mar-12Apr-12May-12Jun-12
Jul-12Aug-12Sep-12Oct-12Nov-12Dec-12
Shareholding
PatternasofJun-12
PakistanOilfields:Amixofgrowth&
value
Investmenttheme:Upcomingvolumetricadditions,shieldagainstcirculardebt,exposure
tohighprofileTALregionandhighestdividendyieldof
7/29/2019 Pakistan Strategy Outlook 2013
124/284
13%inthesectorcomposesourinvestmentthemeforPakistanOilfieldsLimited(POL)asapreferredplayintheE&Psector.Also,relativelystable
wellheadpricesofkeyproductionfields(78%oftotalgasproduction)andhigher
sensitivitywithdepreciatingPKRvaluefurthersstrengthensourconvictiontowardsthestock.
Morefluidinthepipeline:Volumetricadditionsfromtie
7/29/2019 Pakistan Strategy Outlook 2013
125/284
inofrecentlydrilledwellsinTALblockmainlyMaramzai-2,Mamikhel-2andManzalai-9(cumulativelyadd~3500bpdoiland~70mmcfdgas)plusthecommencementof
MakoriEastEPFfacilityfrommidDec(added5000bpdoiland25mmcfd
gas)willmorethanoffsetthenaturaldeclinefromownedoperatedfields(mainly
Pariwali,PindoriandDomial)thusresultinginrobustproductiongrowth.
7/29/2019 Pakistan Strategy Outlook 2013
126/284
TALblock -yettoreflectitsfullpotential:AlargescaleGasProcessingPlant(MakoriCPF)isalsoplannedtocommissionoperationsfrom
2HFY14increasingtheproductioncapacityofMEfieldto20,000bpdgasand150mmcfd
gaswhichwillleadtoaremarkablegrowthinearningsofthecompany.
Inlongterm,furtherE&Dactivityinthehighprofile
7/29/2019 Pakistan Strategy Outlook 2013
127/284
TALblock,MargallablockandIkhlasblock(Sidrial-1well)mayunlockfurtherupside.
Oil/gaspricestoremainsteady:Giventhe62%share
ofoilrevenueinrevenuemix,anyupwardrevisioninouroilprice
assumptions(9%lowerthancurrentoilprices)byUSD10/bblwillresultinan
upsideof7%toourbasecaseEPSestimates.At
7/29/2019 Pakistan Strategy Outlook 2013
128/284
currentoilpricelevels,thecompanywillcontinuetoenjoystablewellheadpricesonitsTALblock(capped)fields(~3/4thoftotalgasproduction)
thusposingnodownsiderisktogasrevenues.
Robustcashflows,
attractiveyields:Thecompanyenjoysakeyedgeoveritslocal
peersintermofitsinvulnerabilityfromcirculardebtdue
7/29/2019 Pakistan Strategy Outlook 2013
129/284
towhichthecompanyhasNITOthersmanagedtomaintainasteadypayoutratioof85%(onaverage)inlastfouryearsMutual
comparedto43%ofitslocalpeers.Thestrongcashgenerationcapacity
alsoreducesany
Funds
4%riskofexploration/developmentdelays
onaccountofcashshortage.Moreover,robustdividendstreamfrom
7/29/2019 Pakistan Strategy Outlook 2013
130/284
associatesNRLandAPLfurtherstrengthensthebottomline.
Banks&Fis
Valuation:Basedonourreservebasedvaluationmethodology,our
TPforPOLstandsat
Associted12%Cos.PKR470pershare
translatingintoatotalreturnof22%.Atcurrenttradinglevels,thestock
53%istradingatPERof7.4xand7.0xto
7/29/2019 Pakistan Strategy Outlook 2013
131/284
ourFY13EandFY14EEPS.
InsuranceCos.7%10%1%Individuals13%
POL:FinancialSummaryFY11AFY12AFY13EFY14EEPS(PKR)45.750.158.661.2
Price
toEarnings9.4x8.6x7.4x7.0x
POLProfile:POLisprimarily
engagedinexplorationanddevelopmentofoilandgas.TheDividendYield8%
13%13%14%companyoperatesastheonlyupstreamoil
7/29/2019 Pakistan Strategy Outlook 2013
132/284
&
EPSGrowth45%10%17%4%
gascompanyundertheumbrellaofAttock
Group.Thecompanycurrentlyowns
9developmentand4explorationlicenses.TheReturnonEquity32%34%39%
41%shareofcompanyintotaloilandgasproductionReturnonAssets
23%23%22%24%asofJune2012stoodat
7/29/2019 Pakistan Strategy Outlook 2013
133/284
7%and2%respectively.Source:BMAResearch,CompanyReports
7/29/2019 Pakistan Strategy Outlook 2013
134/284
BUY
TargetPriceJun-13:PKR202CurrentPrice:PKR178
BloombergPPL.PA
ReutersPPL.KA
Capital
Gain13%
DividendYield8%
MCAP(USDmn)2,976
12MADT(mnsh.)0.7
PPLvs.KSE100Relative
Chart
KSE100 Index PPL
160150140130120
7/29/2019 Pakistan Strategy Outlook 2013
135/284
1101009080
Dec-11Jan-12Feb-12Mar-12Apr-12May-12Jun-12Jul-12Aug-12Sep-12Oct-12
Nov-12Dec-12
PakistanPetroleum:Valuationcatchingupwiththe
peers
Keyvaluedrivers:Ourstrongconvictionforthestockis
basedon1)thecheapesttradingmultiplesinthesector,
7/29/2019 Pakistan Strategy Outlook 2013
136/284
2)aggressiveE&Dactivityplusexpandingoperationsbeyondnationborders,3)increasingshareofcrudeoilinrevenuemixand4)upcomingvolumetricadditions.
Theuncappedwellhead-pricesofkeygasproducingfields(contributing~70%intotal
gasproduction)providekeyadvantagetothecompanyinaneventofsteady
trendinoilprices.
Attractivemultiples:Thestock
7/29/2019 Pakistan Strategy Outlook 2013
137/284
istradingatFY13EPERandEV/EBITDAof5.9xand3.2xreflectingadiscountof20%and19%respectivelytolocalpeersdespiterobust
fundamentaloutlook.Webelievethatthegradualfadingawayofconcernsonsecondary
offerandpositiveoutcomeondomestic/foreignventureswillleadtore-ratingofthe
stock.
Shiftingrevenuemix:Increaseinshareof
7/29/2019 Pakistan Strategy Outlook 2013
138/284
oilsalesinrevenuemixfromlastfiveyearaverageof16%to30%inFY12willnotonlyprovideexposuretosteadyoil
pricesbutalsoimproveprofitabilityprofile(atcurrentoilpricelevels).Thesignificant
additionofcrudeoilfromNashpaandTalblockshasprovidedstronglycounter
thenaturaldeclinefromheavyweightSuifield(35%oftotal
7/29/2019 Pakistan Strategy Outlook 2013
139/284
revenue)
Impressiveproductiongrowthtounlockfurtherupside:ThetieinofTalblockfields(Maramzai-2,Mamikhel-2,Manzalai-9andMakoriEastEPF)
plusNashpa-3willcumulativelyaddaconsiderable~11,700bpdoiland~110mmcfdgasresulting
inanupsideof40%and3%inoil/gasproductionrespectively(postadjusting
forPPLstake).SuccessfuldrillresultatNashpa-4,MECPF
7/29/2019 Pakistan Strategy Outlook 2013
140/284
(expectedfrom2HFY14)anddevelopment/workoveractivityatAdhiandLatiffieldswith39%and33%stakerespectivelywillfurtherstrengthentheproductionprofile.
ShareholdingPatternasofJun-12
GeneralFinancialIns.Public
5%3%AssociatedCos.7%
Others
14%
Govt.ofPakistan
Exploitingunconventionalreserves:With
7/29/2019 Pakistan Strategy Outlook 2013
141/284
2xhigherwellheadpriceofferedundertightgaspolicy,thecompanywillalsostandtobenefitfromexploitationofitstightgasreservoirsin
HalaandKirtharblocks.AgassalepurchaseagreementforKirtharisalready
signedwithgovernment.
Valuation:BasedonourreservebasedTPof
PKR202,thestockrepresentsanupsidepotentialof13%plus
7/29/2019 Pakistan Strategy Outlook 2013
142/284
adividendyieldof8%translatingintoatotalreturnof22%.ThestockistradingatPERof5.9xand5.7xtoour
FY13EandFY14EEPSrespectively.
PPL:FinancialSummaryFY11AFY12AFY13EFY14E71%
EPS
(PKR)
19.124.930.031.4PricetoEarnings9.3x7.1x5.9x
5.7x
DividendYield7%6%8%8%
7/29/2019 Pakistan Strategy Outlook 2013
143/284
PPLProfile:PPLisprimarilyengagedinEPSGrowth35%30%21%4%explorationanddevelopmentofoilandgas.PPL,beingthe
pioneernaturalgasproducerinReturnonEquity33%32%32%28%the
country,ownssixproducingfieldsand18ReturnonAssets25%24%24%
22%explorationblocks.Theshareofcompanyintotaloil
7/29/2019 Pakistan Strategy Outlook 2013
144/284
andgasproductionasofJune2012Source:BMAResearch,CompanyReportsstoodat13%and24%respectively.CurrentlyGovernmentofPakistanholds71%
shareinthecompany.
7/29/2019 Pakistan Strategy Outlook 2013
145/284
Banks
Underweight
BanksSectorPerformance
1M3M12M
Absolute%2%2%-6%
RelativetoKSE% -1% -7%-55%
BMAUniverseVal.SummaryCY13E
EPS
PriceUpsidePERD.Yield
Growth
MCB
211 -7%9.1x7%14%
NBP5010%5.5x
7/29/2019 Pakistan Strategy Outlook 2013
146/284
14%-10%
HBL118 -4%6.6x10%-12%
UBL8518%6.0x11%-5%
RelativeBanksvsKSE100Index
PakistanBanks:Inaclassiccatch22
Withforeign
inflowsdryingtoall-timelowlevelsandIMFsconditiontoprintlessmoney
(borrowingfromSBP),thegovernmenthadnooptionexceptto
7/29/2019 Pakistan Strategy Outlook 2013
147/284
approachcommercialbankspostCY09.Thisledlocalbankingsectortorouteentiredoubledigitdepositgrowthtogovernmentpapersandthattooon
doubledigitreturns.Thusthecumulative250bpscutinDRto9.50%in
CY12,coupledwithimpositionofminimumsavingsfloorrateat6%,hasput
thebankingsectorinacatch22positionrecord
7/29/2019 Pakistan Strategy Outlook 2013
148/284
lowprivatecreditofftakedespitemonetaryeasingtogetherwithshrinkingyieldsonriskfreepapers.Resultantly,thedilemmahasstartedtoshowon
thebooksalreadyasspreadshavecomedowntotheirlowestsinceJul05
to6.67%inNov12comparedto7.37%justayearearlier.
Weseelittleimprovementincreditoff-takeespeciallyfromindustrial
7/29/2019 Pakistan Strategy Outlook 2013
149/284
circlesamidworseningenergyshortagesinthecountry,thustheNIMswillcontinuedeterioratingasthefullscaleimpactofeasingcyclematerializesin
CY13.Andthesituationwillbemoreworrisomeforsmallbankshavinghigher
costofdepositsleavingverylittleroomforthemtokeeppre-2012strategy
intact.Thesameisallsettodragthesector
7/29/2019 Pakistan Strategy Outlook 2013
150/284
bottom-linedownby4-12%inCY13whereastheimpactofexpectedmonetarytighteningwouldcomeintoplayin1HCY14.Allisnotlostthough.
Ontheupside,lesserprovisioningandreversalsstemmingfromimprovingassetqualitywould
bethethemestoryforbanksduringCY13.
Ourlikingleans
towardbankswithhigherdepositgrowththattoowithan
7/29/2019 Pakistan Strategy Outlook 2013
151/284
7/29/2019 Pakistan Strategy Outlook 2013
152/284
7/29/2019 Pakistan Strategy Outlook 2013
153/284
30.10.6
ICICIBCINEquityICICIBANKLTD2.116.91.5
23HKEquityBANKOFEASTASIA1.213.2
3.2
MAYMKEquityMALAYANBANKINGBHD1.912.77.5
Source:Bloomberg.BMAResearch
7/29/2019 Pakistan Strategy Outlook 2013
154/284
BUY
TargetPriceDec-13:PKR100CurrentPrice:PKR85
BloombergUBL.PA
ReutersUBL.KA
Capital
Gain18%
DividendYield11%
MCAP(USDmn)1,071
12MADT(mnsh.)1.0
UBLvs.KSE100Relative
Chart
KSE100 Index UBL200180160140120100
7/29/2019 Pakistan Strategy Outlook 2013
155/284
80
UnitedBank:Thepreferredplayinhardtimes
7ppshigherdepositgrowthcomparedtoindustry:Thethirdlargestbank
intermsofdepositsize,UnitedBankLimitedhasbeenthemostprominent
intermsofdepositgrowthcomparedtothesamesizedpeersinthe
industry.Thankstoaggressivebranchnetworkexpansion,thebanksdeposit
7/29/2019 Pakistan Strategy Outlook 2013
156/284
growthhassurpassedtheindustrysby7ppsto25%in9MCY12andweexpectthedoubledigitgrowthtrendtocontinueinCY13as
well.Mostimportantlythebankenjoyslowcostdeposits;as80%oftotal
localdepositsareCASA.
Minimalgrowthinadvancesbodespositive:Low
growthinadvancesdespiteslidingdiscountratescouldbetaken
7/29/2019 Pakistan Strategy Outlook 2013
157/284
asnegativeforthebankhoweverthingsaredifferentinlocaleconomy.Theriskofnon-performingloansamidenergycrisisandexpectationofincrease
inbaseratesin2HCY13haskeptbanksawayfromaggressivelendingstrategy.
DespiteshrinkingNIMs(6.5%in9MCY12),UBLsloangrowthhasremainedat9%
during9MCY12.Themajorcontributiontothegrowthofloan
7/29/2019 Pakistan Strategy Outlook 2013
158/284
bookwasseenfromlesserriskypubliclending.WebelievethetrendtocontinueinCY13aswell,however,withexpectedincreaseindiscount
ratesin2HCY13thespreadswillimproveinCY14.
Lesserexpected
declineintop-linecomparedtopeers:Withgreaterexposuretowardshighyieldingrisk
freePIBs(22.5%oftotalinvestments)comparedtoanaverage
7/29/2019 Pakistan Strategy Outlook 2013
159/284
18.6%oftoptierbanks,thedeclineintop-linewillbelimitedforthebank.Moreover,thebankalsoenjoysanedgeoverpeers
throughitslessriskyinternationalloanbookwhichaccountsfor25%ofnet
lendingasof3QCY12.ApartfrominsulationfromNPLs,thebank
Dec-11Jan-12Feb-12Mar-12Apr-12May-12Jun-12Jul-12
7/29/2019 Pakistan Strategy Outlook 2013
160/284
Aug-12Sep-12Oct-12Nov-12Dec-12
UBL:FinancialSummaryCY11ACY12ECY13ECY14EwillalsoenjoygainsfromPKRdepreciation.
Non-interestincometo
continuetoprosper:Thefeeincomeduring9MCY12hasincreasedby47%to
PKR13.2bncomparedtoPKR8.9bninthesameperiodlastyear
Shareholding
PatternasofDec-11
thankstoserviceincome
7/29/2019 Pakistan Strategy Outlook 2013
161/284
onremittancesandOMNI.Wecontinuetobelievethatnon
FI's
Others
3%
7%JointStock
Cos.
ForeignCo.
8%
37%
GeneralPublic(Foreign)13%
Govt.
Director,
owned
CEOetc.
Co/Banks
13%
7/29/2019 Pakistan Strategy Outlook 2013
162/284
interestincomewillcontinuetoboostthebanksbottom-line;absorbingtheimpactoffallingNIMs.
Outlook:Withlowestdeclinein
earningsduetosupportfromdoubledigitgrowthindepositsthattoolow-cost,
highernoninterestincomeandstabledividendstream,weleanourlikingtowards
UBL.PA.ThescripisavailableatPBvof1.2xcompared
7/29/2019 Pakistan Strategy Outlook 2013
163/284
tolast5yearaverageof1.7xwithdividendyieldof11%forCY13.Weexpectstocktoprovideacapitalgainof18%
byCY13end.
EPS(PKR)12.715.014.217.7
19%
PricetoEarnings6.7x5.7x6.0x4.8x
UBL
Profile:UBLisengagedincommercialDividendYield7%10%
7/29/2019 Pakistan Strategy Outlook 2013
164/284
11%12%bankingandrelatedservices.Thebankoperates
EPSGrowth39%18% -5%24%
over1,200branchesinsidePakistanincluding14
IslamicBankingbranches,makingitthethirdlargestbankinPakistan.
Thebankalsooperates17branchesoutsidePakistan.UBLsGDRsaretradedat
LondonStockExchange.Thebankwasestablishedin1959as
7/29/2019 Pakistan Strategy Outlook 2013
165/284
alocalprivatesectorbankbutwasnationalizedin1974bytheGoP.ItwassoldofftoaconsortiumofAbuDhabiGroup
ofUAEandBestwayGroupin2001underaprivatizationprogram.
ReturnonEquity20%23%19%21%
ReturnonAssets2%
2%2%2%
Source:BMAResearch,CompanyReports
7/29/2019 Pakistan Strategy Outlook 2013
166/284
7/29/2019 Pakistan Strategy Outlook 2013
167/284
Fertilizer
Overweight
ChemicalsSectorPerformance
1M3M12M
Absolute%2%2%-6%
RelativetoKSE% -1% -7%-55%
BMAUniverseVal.SummaryCY13E
EPS
PriceUpsidePERD.Yield
Growth
FFC
11519%7.3x13%2%
ENGRO9269%
7/29/2019 Pakistan Strategy Outlook 2013
168/284
12.2x0%179%
FFBL3825%7.2x12%14%
FATIMA2758%6.5x9%21%
PakistanFertilizers:Have
seentheworst
AscottonpricesbottomedtoUSD0.8/lbcomparedto
CY11highofUSD2.4/lb,highfertilizerandenergycoststooktheirtollon
farmereconomicsandthusCY12Elocalureademandisset
7/29/2019 Pakistan Strategy Outlook 2013
169/284
tofallby10%YoYto5.3mntons.ThiscoupledwithuntimelyandhighureaimportsbytheGoPledtoinventorypileup
forlocalureaplayersandcontinuouspressureonlocalureaprices.Incompletepass-on
ofgascess,negligiblegassupplytofourSNGPLbasedplantsandsqueezing
marginscompleteastoryoftheworstyearinthe
7/29/2019 Pakistan Strategy Outlook 2013
170/284
historyforPakistanFertilizers.
Thesectorhasincreasinglyfallenpreytoregulatoryscrutinyduringthelasttwoyearsasureapricespeaked
atPKR1,789/baginJan12(upby126%comparedtoJan10levelofPKR790/bag).
ThepricehikesweremandatedbyGSTimpositioninMar11,continuousremovalgas
subsidiesintheformofcessandgassupplydeficit
7/29/2019 Pakistan Strategy Outlook 2013
171/284
toSNGPLbasedplants.Thatsaid,influxofimportedureahaseffectivelycurtailedthepricingpowerofthesector,previouslytheonlyhedgeagainst
gassupplydeficit.Ureapriceshavethusbeenconstantlyunderpressure,keepingall
SNGPLbasedplantsunderheavylossesinCY12.
Goingforward,inventory
situationisexpectedtobemuchrelaxedamidrationalimport
7/29/2019 Pakistan Strategy Outlook 2013
172/284
targets.VariousgassupplyplansunderconsiderationmayalsoimprovefortunesforSNGPLbasedplayers.Amidlowinterestrates,wepreferattractivedividendplays
inthesector!
RelativeValuationsRelativeChemicalsvsKSE100Index
ChemicalsKSE100Index
TickerNameP/E(x)Div.YieldEV/EBITDA(x)FFCPAEquityFaujiFertilizerCompanyLtd7.313%3.8ENGROPAEquityEngroCorporationLtd12.20%6.1FATIMAPAEquityFatimaFertilizerCoLtd6.59%5.8FFBLPAEquityFaujiFertilizerBinQasim7.212%4.7160140120100
8060
RMPHINEquityRamaPhosphates
7/29/2019 Pakistan Strategy Outlook 2013
173/284
Ltd3.70%2.7
CHMBINEquityChambalFertilisers&Chem17.63%7.2
RCFINEquityRashtriyaChemicals&
Fert12.52%9.0
DPMVNEquityPetrovietnamFert&Chemical
4.07%2.0
HDRINEquityLibertyPhosphateLtd4.11%
2.5
TNHUSEquityTerraNitrogenCompanyLp
7/29/2019 Pakistan Strategy Outlook 2013
174/284
13.38%6.8
Dec-11Jan-12Feb-12Mar-12Apr-12May-12Jun-12
Jul-12Aug-
12Sep-12Oct-12Nov-12Dec-12
Source:Bloomberg,BMA
Research
7/29/2019 Pakistan Strategy Outlook 2013
175/284
BUY
TargetPriceDec-13:PKR137CurrentPrice:PKR115
BloombergFFC.PA
ReutersFAUF.KA
Capital
Gain19%
DividendYield13%
MCAP(USDmn)1,499
12MADT(mnsh.)2.3
FFCvs.KSE100Relative
Chart
KSE100IndexFFC
160140
7/29/2019 Pakistan Strategy Outlook 2013
176/284
12010080
FaujiFertilizer:Defensiveplaywithastoundingyield!
Thebestperformerintheworstyear:Welike
thelargestfertilizerplayer,FFC,asthesafestfertilizerbetbecausethecompany
facestheleastsalesrisk(strongdistributionnetwork)andgassupplyrisk(Mari
fieldbasedplant)amongcompetitors.Beingtheonlyplayerto
7/29/2019 Pakistan Strategy Outlook 2013
177/284
haveanationwidedistributionnetworkisakeycompetitiveadvantageforFFC.Also,itsSonabrandcommandsthehighestloyaltyinfarmersbeingone
oftheoldestandwellestablished.
Yieldingover13%forCY12-14E:
Withdiscountrateatafiveyearlowof9.5%,defensiveinvestorslooking
forhigh-yieldopportunitiestoredeploycashmayfindFFCone
7/29/2019 Pakistan Strategy Outlook 2013
178/284
ofthemostlucrativeequityplays.Thestockyields13%asoflastclose,withafurtherupsiderisktoearningsiflowerimports
allowsalesforthecompanytogobackupto2.4mntons(from2.3mn
tonsexpected)forCY13.
FFCEnergy(FFCEL)toprovidefurtherupside:
FFCs100%owned50MWwindpowerprojectcommencedoperationsin
7/29/2019 Pakistan Strategy Outlook 2013
179/284
Dec12.Wehavenotbuiltintheimpactoftheprojectintoourmodelsyetasweawaitfullyearfinancials,butinitialestimates
suggestanannualimpactofPKR1.1bn(PKR0.9/sh).Thispresentsyetanotherupsidepotential
toourCY13andonwardsestimatesforthecompany.
Slashin
ureapricemayposeadownside:Onedownsideriskto
7/29/2019 Pakistan Strategy Outlook 2013
180/284
ourestimatescomesfromthepossibilityofregulatorypressureonureapricescoupledwithfurtherimpositionofgascess,especiallyifthegovt.provides
gastoSNGPLbasedplayers.
Dec-11Jan-12Feb-12
Mar-12Apr-12May-12Jun-12
Jul-12Aug-
12Sep-12Oct-12Nov-12Dec-12
7/29/2019 Pakistan Strategy Outlook 2013
181/284
ShareholdingPatternasofDec-11
OthersForeign6%Investors
7%
Charitable
FI's
Trust
&
13%
Others49%
InsuranceCos.10%
Individuals15%
FFCProfile:FFCisheadquarteredinRawalpindi
andisengagedinmanufacturing,purchasingandmarketingoffertilizers.
7/29/2019 Pakistan Strategy Outlook 2013
182/284
Thecompanyhasratedureacapacityof2.0mntons.FFCalsoholds51%stakeinureaandDAPmanufacturerFaujiFertilizerBinQasim(FFBL),
whichhasratedcapacitiesof550ktonsand650ktonsofureaand
DAPrespectively.
Valuationspose20%gainspotential:OurDec13TPfor
FFCstandsatPKR137/sh,providing20%upsidepotentialalongwith
7/29/2019 Pakistan Strategy Outlook 2013
183/284
13%dividendyieldforCY13.UpsidepotentialfromFFCELandhighervolumetricsalesmayunlockgreaterreturnswhileureapriceriskposesadownside
BUY!
FFC:FinancialSummaryCY11ACY12ECY13ECY14EEPS(PKR)17.715.515.816.5
PricetoEarnings6.5x7.4x7.3x7.0x
DividendYield12%
13%13%13%
EPSGrowth104% -12%2%5%
7/29/2019 Pakistan Strategy Outlook 2013
184/284
ReturnonEquity97%79%82%86%
ReturnonAssets41%42%42%43%
Source:BMAResearch,Company
Reports
7/29/2019 Pakistan Strategy Outlook 2013
185/284
Textile
Marketweight
PersonalGoodsSectorPerformance
1M3M12M
Absolute%10%29%89%
RelativetoKSE%6%20%40%
BMAUniverseVal.
SummaryFY13E
EPS
PriceUpsidePERD.Yield
Growth
NML6421%4.8x7%35%
7/29/2019 Pakistan Strategy Outlook 2013
186/284
NCL3625%3.1x11%197%
RelativePersonalGoodsvsKSE100Index
PakistanTextile:Reboundingcoreoperationswarrantattention
1)Robustgrossmarginsonaccountoflowcostcottonandstable
pricesoffinishedgoods(rangingfromcottonyarntohometextiles),2)lower
financingratesand3)betterexportprospectswillremainthe
7/29/2019 Pakistan Strategy Outlook 2013
187/284
keyvaluedriversforthesector.
CottonpricesinFY12witnessedasteepdeclinewhichcausedsignificantinventorylossesforthedownstream
companiesthusinflictingaseveredentonthegrossmargins.However,cottonprices
nowseemtohavebottomedoutandstabilizedatcurrentlevels.Lowvolatility
inrawmaterial(cotton)pricescoupledwithsteadytrendin
7/29/2019 Pakistan Strategy Outlook 2013
188/284
pricesofcottonyarnandvalueaddeditemswillenablethesectortoenjoyrobustgrowthingrossmargins.
Thesectoris
alsoreapingthebenefitsofrecentboomincottonyarnimportsfromChina/Hong
owingtosignificantlyhigherminimumsupportpriceofcottoninChinacomparedto
internationalpricesthusmakingin-houseproductionofyarnunfeasiblefor
7/29/2019 Pakistan Strategy Outlook 2013
189/284
Chinesemanufacturers.ThishassignificantlyimprovetheutilizationandmarginsofthePakistanspinningsector.
TherecentlygrantedofEUdutyfree
access(effectivefromJan13)willfurtherbolstertheexportprospectsforthesector.
GivennominalcottonyarnimportsfromEU,webelievetheweavingandhome
textile/garmentsegmentstoremainthemajorbeneficiary.
Moreover,
7/29/2019 Pakistan Strategy Outlook 2013
190/284
PakistanisalsopursuingtoacquiretheGSPplusstatus(effectivefromJan14).Giventhecurrenthighimporttariffsimposedontextileandclothing,
webelievethevalueaddedsegment(mainlygarmentsandhometextile)willremain
themajorbeneficiaryofthescheme.
Thetextilemanufacturershavebeen
aggressivelypursuingtoinstallcoalfiredandbio-massfuelbased
7/29/2019 Pakistan Strategy Outlook 2013
191/284
boilersandpowerplantstocombattheenergycrisis.Thiswillenablethemanufacturerstonotonlycurtailmountingpowercostbutalsoto
avoidproductionlossesonkeyexportorders.
PersonalGoodsKSE100Index
200180160140120
RelativeValuationsTickerNameP/E(x)Div.YieldEV/EBITDA(x)NMLPAEquityNishatMillsLtd3.97%4.8NCLPAEquityNishatChunianLtd3.811%3.1
200726CHEquityLuthaiTextileCoLtd -B6.45%5.1
7/29/2019 Pakistan Strategy Outlook 2013
192/284
100
TTTMTBEquityThaiTorayTextileMillsPcl6.12%3.5
80
60
1476TTEquityEclatTextileCompanyLtd15.13%11.4
Dec-
11Jan-12Feb-12Mar-12Apr-12May-12Jun-12
Jul-12Aug-12Sep-12Oct-12
7/29/2019 Pakistan Strategy Outlook 2013
193/284
Nov-12Dec-12
VTEXINEquityVardhmanTextilesLtd10.92%6.8
HDMVNEquityHueTextileGarmentJsc
6.45%3.5
002394CHEquityJiangsuLianfaTextileCo-A9.7
3%7.8
TPCORP-RTBEquityTextilePrestigePcl-Nvdr15.54%4.8
Source:Bloomberg.BMAResearch
7/29/2019 Pakistan Strategy Outlook 2013
194/284
BUY
TargetPriceJun-13:PKR78CurrentPrice:PKR64
BloombergNML.PA
ReutersNISM.KA
Capital
Gain21%
DividendYield7%
MCAP(USDmn)232
12MADT(mnsh.)2.6
NMLvs.KSE100Relative
Chart
KSE100IndexNML
180160
7/29/2019 Pakistan Strategy Outlook 2013
195/284
14012010080
NishatMillsLimited:Themostdiversifiedandthebesthedge
Concretefundamentals:Drivenbyrobust
coreoperationonaccountofstellarperformancesunderalldivisionscoupledwitha
healthyportfolio,NishatMillsLimited(NML)isallatsettopostanother
yearofrobustgrowthasweforeseethecompanyto
7/29/2019 Pakistan Strategy Outlook 2013
196/284
postearningsgrowthof35%and15%respectivelyinFY13andFY14.Atcurrentlevels,thestockistradingatPEof4.8and
4.1xtoourFY13andFY14EPSestimates.
Keyvaluedrivers:
Oncoreoperationsfront,1)robustcoremarginsamidlowercottonpricesand
steadydownstreamdemand,2)betterexportsprospectspluspersistentweakening
7/29/2019 Pakistan Strategy Outlook 2013
197/284
ofPKR,3)improved/initiationofdividendpayoutbyassociates4)lowinterestratesand4)costreductionfromalternatefuelprojectswillremainthe
keyvariablesofcoreearningsgrowth.
Energyefficientmeasures:Moreover,the
recentlyimplementedandupcomingenergyefficientalternativestocurtailtheburgeoningfuel/powercost
(notincludedinourmodel)willnotonlyresultin
7/29/2019 Pakistan Strategy Outlook 2013
198/284
valuablecostsavingsbutwouldalsoenablethecompanytotimelyprocessanddelivertheexportorders.
Healthyportfolio:Thecompanyalso
holdsawelldiversifiedportfolioinvestedingroupcompanies.Thehealthypayoutand
strongcapitalappreciationpotentialintheseholdingcompaniesfurtherstrengthensthefundamentalposition
ofthecompanythusprovidingastrongguardagainstvolatility
7/29/2019 Pakistan Strategy Outlook 2013
199/284
incoreoperations.
Capacityexpansioninhighmarginvalueaddedsegment:Thecompanyispursuing
Dec-11Jan-12Feb-12Mar-12Apr-12
May-12Jun-12Jul-12Aug-12Sep-12Oct-12Nov-12Dec-12
ShareholdingPatternas
ofJune-12
tofurtherexpanditsproductioncapacitiesinprocessingand
hometextilesegment(alreadyoperatingatfullcapacity)amidheavy
7/29/2019 Pakistan Strategy Outlook 2013
200/284
influxoforders.Giventherobustdownstreamdemandandstrongpresenceinexportmarkets,webelievetheupcomingcapacityadditionwillfurtherboostthe
revenuesinthelongterm.
AssociatedCos.Others9%21%
Fis28%
GeneralPublic42%
Limiteddownside
risk:TheupcomingChinesecottonpolicymayendtheongoing
7/29/2019 Pakistan Strategy Outlook 2013
201/284
boomofcottonyarnexports.Unlikelocalpeers,NMLholdsadiversifiedproductportfoliowhichwillkeepitrelativelyimmuneintheoutcomeof
suchaneventcomparedtoitspeers(highlyexposedtononvalueitems)
Valuations:OurTPisbasedonSOTPvaluationtechniquewitha
portfoliovalueofPKR51pluscoreoperationsvalueofPKR27
7/29/2019 Pakistan Strategy Outlook 2013
202/284
translatingintoaTPofPKR78shareforthecompany.Atcurrentlevel,ourestimatedTPrepresentsatotalreturnof28%
NML:FinancialSummary
FY11AFY12AFY13EFY14EEPS(PKR)13.810.013.515.5
PricetoEarnings4.7x
6.4x4.8x4.1x
NMLProfile:NishatMillsLimited,thelargestvertically
integratedtextilecompany,is
DividendYield5%5%
7/29/2019 Pakistan Strategy Outlook 2013
203/284
7%8%
EPSGrowth66% -27%35%15%
primarilyengagedinspinning,weaving,printing/dyeingandstitchingoperations.The
Returnon
Equity14%9%11%12%
companyoperatesundertheumbrellaof
NishatgroupwhichhasstrongpresenceinallmajorReturnonAssets9%
6%8%9%sectorsincludingTextiles,Cement,Banking,Insuranceand
7/29/2019 Pakistan Strategy Outlook 2013
204/284
PowerGeneration.TherevenueSource:BMAResearch,CompanyReportsmixofthecompanyiscomposedof49%localsalesand51%exportsales.
7/29/2019 Pakistan Strategy Outlook 2013
205/284
Cements
Overweight
Construction&MaterialSectorPerformance
1M3M12M
Absolute%1%15%143%
RelativetoKSE% -2%6%94%
BMAUniverseVal.
SummaryFY13E
EPS
PriceUpsidePERD.Yield
Growth
LUCK1498%5.4x5%31%
7/29/2019 Pakistan Strategy Outlook 2013
206/284
DGKC5429%4.5x4%28%
ACPL9915%5.3x10%29%
PakistanCements:Gearingupforanotherfruitfulyear
Robustretentionlevels,considerabledeclineincoalpricesandbetterdispatches
fromhigherPSDPutilizationwillremainthekeyvaluedriversforthesector.
Thesefactorscoupledwithnotablereductionfinancecost,healthyother
7/29/2019 Pakistan Strategy Outlook 2013
207/284
income(owingtoimprovedcashposition)andvaluablecostsavingsfromalternatefuelprojectswillfurtherstrengthenthemargins.
Followingadifficult
threeyearhiatusofpricewars,shrinkingmarginsandalltimelowcapacity
utilization,FY12sawfortunesreverseforthesectorandtheresnostoppingthe
momentumfromthere.FY13alsostartedonahighnote
7/29/2019 Pakistan Strategy Outlook 2013
208/284
asthesectorwitnessedaremarkable3.6xYoYhigherearningsintheoutgoing1QFY13.
Goingforward,high-marginlocaldispatcheswilldepictnotable
improvement(alreadyupby7%YoYin5MFY12)onaccountofbetterPSDP
utilizationandupliftinprivatesectorconstructionactivity.Thoughexportsvolumewillremain
weak;betterexportpricescoupledwithnotabledeclineinPKR
7/29/2019 Pakistan Strategy Outlook 2013
209/284
valuewillcontinuetoprovidestrongsupporttothetopline.Thatsaid,robustdownstreamdemandwillcontinuetokeepthepricesdownwardsticky.
Maincostdrivercoalhasstayeddepressed(averaging18%lowerinFY13TD
comparedtoFY12average).Bearishtrendincoalpricesandresultantimprovementin
marginswillremainthekeydriverofearninggrowthin
7/29/2019 Pakistan Strategy Outlook 2013
210/284
FY13.
PakistanCements:OfftakesreboundingamidincreasingmarginspostFY11RelativeConstruction&MaterialvsKSE100Index
LocalDespatchesExports
CapacityCoal(LHS)LocalCement
Price(RHS)
50
200
500
Construction
andMaterials
KSE100Index
mntons
USD/
tonFY08FY09FY10FY11FY12
160
400
7/29/2019 Pakistan Strategy Outlook 2013
211/284
PKR/bag
40
120
300
30
250200
80
200
20
150
40
100
10
100
0
-
0
-
Jan-08May-08Sep-08Jan-09May-09Sep-09Jan-10May-10Sep-10
7/29/2019 Pakistan Strategy Outlook 2013
212/284
Jan-11
May-11Sep-11Jan-12May-12Sep-12
Dec-11Jan-12Feb-12Mar-12Apr-12May-12Jun-12
Jul-12Aug-12Sep-12Oct-12Nov-12Dec-12
Source:BMAResearch
RelativeValuationsTickerNameP/E(x)Div.YieldEV/EBITDA(x)DGKCPAEquityD.G.KhanCement4.54%3.2LUCKPAEquityLuckyCement5.45%4.1ACPLPAEquityAttockCementPakistanLtd5.310%3.4ACEMINEquity
AmbujaCementsLtd24.92%14.1
TKYOXSL
7/29/2019 Pakistan Strategy Outlook 2013
213/284
EquityTokyoCementLanka-NonVotin13.57%4.3
1110TTEquitySoutheastCementCoLtd61.41%42.7
002030KS
EquityAsiaCementCoLtd14.41%6.4
JKCEINEquity
JkCementLtd13.52%6.2
UTCEMINEquityUltratechCement
Ltd22.70%13.9
LMCMKEquityLafarge
7/29/2019 Pakistan Strategy Outlook 2013
214/284
MalayanCementBhd21.94%12.2
Source:Bloomberg,BMAResearch
7/29/2019 Pakistan Strategy Outlook 2013
215/284
BUY
TargetPriceJun-13:PKR70CurrentPrice:PKR54
BloombergDGKC.PA
ReutersDGKC.KA
Capital
Gain29%
DividendYield4%
MCAP(USDmn)245
12MADT(mnsh.)9.1
DGKCvs.KSE100Relative
Chart
KSE100 Index DGKC
320280240200160
7/29/2019 Pakistan Strategy Outlook 2013
216/284
12080
Dec-11Jan-12Feb-12Mar-12Apr-12May-12Jun-12Jul-12Aug-12Sep-12Oct-12Nov-12Dec-12
DG
KhanCement:Risingcoremargins+slidingleverage=Outperform!
DGKC
ispoisedtorealizehighcoremargins:Withcementpricessustainingupwardtrend
despitecapacityaddition(pricesfurtherupbyPKR5-10/baginFY13TD
7/29/2019 Pakistan Strategy Outlook 2013
217/284
toPKR445/bagintheNorth),thesecondlargestcementproducerinthecountry,DGKC,iswellpoisedtorealizehighercoremarginsinFY13-14E.
1QFY13grossmarginsroseby8ppsto38%,alsohelpedby25%softer
coalprices.Thecompanycontinuestooperateat100%utilizationlevel,comparedto
70%industryutilization.
Costsavingprojectstobear
7/29/2019 Pakistan Strategy Outlook 2013
218/284
fruits:ThecompanyhasundertakenmultipleenergyefficientmeasureswhichincludesWasteHeatRecovery(WHR-2)plant(from2QFY13),fullyearimpactofRDF-2plant
(commencedin4QFY12)andpossiblestart-upofTDFplant(furtherreplacementofcoal
requirementby10%).Thesecostsavingmeasurescoupledwithlowerpricesofcoal
willfurtherunlockupsideingrossmargins.
Softening
7/29/2019 Pakistan Strategy Outlook 2013
219/284
interestcosttofurthercushionthebottomline:DGKCisallsettoretireoverPKR2.0-PKR1.5bninlongtermdebtinFY13-14Eamidsteadycash
flowgeneration(owingtorobustprofitability).Lowerleveragecoupledwith250bpsreductionin
interestrateswillsignificantlyreducethefinancecostprovidingstrongcushiontothe
bottom-line.
HealthyportfoliosetsDGKCapart:DGKCholds
7/29/2019 Pakistan Strategy Outlook 2013
220/284
adiversifiedportfolioofNishatGroupcompanieswithstrongpresenceintextileandfinancialsectors.Goingforward,improveddividendpayoutfromsubsidiaries(particularlytextile
companies)willfurtherstrengthen
theearnings.
Valuations -Lookingat30%
upsidefromhere:OursumofpartsvaluationforDGKCleadsto29%
upsidefromheretoourJun13TPofPKR70,with
7/29/2019 Pakistan Strategy Outlook 2013
221/284
coreoperationscontributingPKR41/shandportfolioaddingPKR29/sh(valuedat30%discounttomarketprice)tothetargetprice.WeexpectFY13earningsto
growby28% -BUY!
ShareholdingPatternasofJune-12
Others
4%Associated
DGKC:FinancialSummaryFY11AFY12AFY13EFY14EEPS(PKR)0.49.412.012.4
PricetoEarnings139.6x5.8x4.5x4.4x
7/29/2019 Pakistan Strategy Outlook 2013
222/284
Cos.
General
32%
Public40%
Fis24%
DGKCProfile:DGKCisengagedin
productionandsaleofOrdinaryPortland,SulphateResistantCementandClinker.Thecompany
hasratedclinkercapacityof4.0mntons,makingitthesecondlargestcement
producerinPakistan.DGKChaslongterminvestmentportfolioof
7/29/2019 Pakistan Strategy Outlook 2013
223/284
overPKR5.0bninrelatedpartiesprimarilyinPakistansfinancialandtextilesectors.ThecompanyisheadquarteredinLahore.
DividendYield0%3%
4%4%
EPSGrowth-27%2305%28%3%
Return
onEquity1%12%13%12%
ReturnonAssets0%8%
10%9%
Source:BMAResearch,CompanyReports
7/29/2019 Pakistan Strategy Outlook 2013
224/284
7/29/2019 Pakistan Strategy Outlook 2013
225/284
Power
Overweight
ElectricitySectorPerformance
1M3M12M
Absolute%5%3%38%
RelativetoKSE%1% -6%-11%
BMAUniverseVal.SummaryFY13E
EPS
PriceUpsidePERD.Yield
Growth
HUBC4418%6.0x15%3%
KAPCO49
7/29/2019 Pakistan Strategy Outlook 2013
226/284
5%6.4x14%24%
NCPL2116%3.4x17%11%
NPL1914%3.1x16%8%
PakistanPower:
Governmentsdarlingintheelectionyear!
Circulardebt -thesectorsbiggestapprehension:
PowersectorinPakistanisknownforitsassociationwiththecirculardebt
issue.Thephenomenonhassnowballedextensivelyasrisingoilprices
7/29/2019 Pakistan Strategy Outlook 2013
227/284
alongwithgovernmentsinabilitytopassonthetariffentirelytoconsumershavestrainedthecashpositionofcompaniesandhasputaquestion
markonthedividendpayoutcapacities.Additionally,linelosses,inefficientdistributionnetworkshave
continuedtoballoontheoutstandingamount.Hencedespitegovernmentscommitmenttoresolvethe
issue,theoutstandingnetamountisstillestimatedtobe
7/29/2019 Pakistan Strategy Outlook 2013
228/284
aroundgrossPKR370bn.Asaconsequence,IPPscontinuetofaceliquiditycrunchresultinginfurnaceoilsupplyshortageleadingtolowerloadfactorand
electricaloutput.WhilereturnsareguaranteedforIPPinvestors,financialchargesonshort
termborrowingarenormallynotapass-throughitem.Inaddition,liquidityshortagehas
alsoraisedflagsontheabilityofIPPstocontinue
7/29/2019 Pakistan Strategy Outlook 2013
229/284
topayoutgenerousdividends.
Webelievetheproblemwillcontinuetonagtheentireindustryuntilanyconcretestructuralresolutionhowever,considering
thecurrentpoliticalsituationinPakistan(upcomingelections),westronglybelievethatsome
reliefwouldbegiventothepowersectortosettlethepoweroutcry
countrywide.
Theultimatedefenseagainstmacro-evils:Despitehuge
7/29/2019 Pakistan Strategy Outlook 2013
230/284
concernsoncirculardebt,wehaveanoverweightstanceonthesectorwhichisallsettobenefitfromthecurrenteconomicscenario(depreciating
PakRupeeandincreasinginflation).Furthermore,theinterestratescenariolocallyisexpected
tokeeptheinvestorshookedtothesectorprovidinganaverageyieldof
15%apartfromthecapitalgains.
RelativeValuationsRelative
7/29/2019 Pakistan Strategy Outlook 2013
231/284
KSE100vsElectricitySector
TickerNameP/E(x)Div.YieldHUBCPAEquityHubPowerCompany6.015%ElectricityKSE100Index
160140120100
KAPCOPAEquityKotAdduPowerCompanyLtd6.414%NPLPAEquityNishatPowerLtd3.116%NCPLPAEquityNishatChunianPowerLtd3.417%
RPWRINEquityReliancePowerLtd29.70%
80
NTPCINEquityNtpcLtd12.33%
60
600509CHEquityXinjiangTianfuThermoele-A13.43%
7/29/2019 Pakistan Strategy Outlook 2013
232/284
KHPVNEquityKhanhHoaPowerJsc5.015%
Dec-11Jan-12Feb-12Mar-12Apr-12May-12Jun-12Jul-12Aug-12Sep-12Oct-12
Nov-12Dec-12
EPWAUEquityErmPowerLtd9.87%
APISPEquityAsiaPowerCorpLtd17.40%
Source:Bloomberg.BMAResearch
7/29/2019 Pakistan Strategy Outlook 2013
233/284
BUY
TargetPriceJun-13:PKR52CurrentPrice:PKR44
BloombergHUBC.PA
ReutersHPWR.KA
Capital
Gain18%
DividendYield15%
MCAP(USDmn)522
12MADT(mnsh.)2.2
HUBCvs.KSE100Relative
Chart
KSE100IndexHUBC
160140
7/29/2019 Pakistan Strategy Outlook 2013
234/284
12010080
HubPower:Beinsafehands
ProfitabilityinnodangerHUBCstandsasourfavoritepickin
theelectricitysectorastheincreasingrevenuestreamfromNarowaland~1.5%increase
incompanysProjectCompanyEquity(PCE)componentisexpectedtoreflectwellon
theearnings.Furthermore,thecontinueddevaluationofPakRupeeagainst
7/29/2019 Pakistan Strategy Outlook 2013
235/284
dollarwherethelocalcurrencyhasdepreciatedby9%YoYin1HFY13toaveragearoundPKR95.4perUSDagainstlast3yeardepreciationaverageof
4%inthesameperiod,willfurtherstrengthentheprofitabilityindexedtoUSD/PKR
andUSCPIinflation.
butcashflowsare!TheCODofNarowal
broughtaboutariseincompanysprofitabilityhowever;alldid
7/29/2019 Pakistan Strategy Outlook 2013
236/284
notgoasplanned.TheprojectfacessevereliquidityproblemsasNationalTransmissionandDispatchCompany(NTDC)continuestofallshortofitsobligations.
Furthermore,itismandatoryfortheplant(establishedunderthe2002policy)to
payinadvanceforthefuelsupply,failingtodosoresultsin
plantclosure,furtheraddingtotheliquiditywoesofHubco.
7/29/2019 Pakistan Strategy Outlook 2013
237/284
Worsecumworse:Therecentnewsstoryhighlightingmanagementsconcernsovernon-paymentofdueshasraisedmanyquestionsoverthecompanyscapacity
fordividendpayoutthisyear.However,wekeepourassumptionsintactandexpect
thecompanytopayPKR6.5/shinFY13withthehelpofshort-termborrowings
andfundsreleasedfromNTDC.Evenifthecompanyskips
7/29/2019 Pakistan Strategy Outlook 2013
238/284
itshalf-yearpayout,itwillcompensateitsinvestorsinthefullyearandtheresultantdepressioninstockpricewouldpresentawonderfulbuying
opportunitytotheinvestors.
Dec-11Jan-12Feb-12Mar-12Apr-12May-12Jun-12
Jul-12Aug-12Sep-12Oct-12Nov-12Dec-12
ShareholdingPatternasofJun-12
Others
Prov.Fund,
4%
7/29/2019 Pakistan Strategy Outlook 2013
239/284
Gratuityetc.5%JointStockCos
Invest.
32%
Insur.Mod.&Mut.Funds13%
Individuals
FI's
17%
29%
Laraib:theother
Narowal?LaraibPowerproject(84MW),thesecondexpansionproject(Hubcosstake:75%)is
expectedtocomeonlinesoonerthanscheduled(midCY13),according
7/29/2019 Pakistan Strategy Outlook 2013
240/284
tosources.Astheprojectishydel-based,webelievetheexpansiontobodewellforthecompanyduetoitsrelativeimmunityfromcircular
debtunlikefurnaceoilbasedNarowal.Nottoforget,thegovernmenthaslaid
outanevenhigherindicativeUSDIRRforhydelgenerationat17%;where
currentlyHUBCOistheonlycompanythatissettingup
7/29/2019 Pakistan Strategy Outlook 2013
241/284
ahydelplant.However,wehavenotincorporatedtheearningsfromLaraibinourfinancialmodelasweawaitCODandfinalizationoftariff.
Valuations:Hubcoemergesasourfavoritepickinthepowersector
asitcombinesanirresistibledividendyieldwithatremendousgrowthstory.Our
TPforthescripworksouttoPKR52/shproviding
7/29/2019 Pakistan Strategy Outlook 2013
242/284
anupsideof18%fromthecurrentlevels.Andthisisnotall!Thestockfurtherpromisesacompellingdividendof15%takingthe
totalreturnstoahefty33%.
HUBC:FinancialSummaryFY11AFY12AFY13EFY14EEPS(PKR)4.7
7.17.37.8
HUBCProfile:TheHubPowerCompanyLtd.
PricetoEarnings9.4x6.2x6.0x5.6x
7/29/2019 Pakistan Strategy Outlook 2013
243/284
wasincorporatedinPakistanonAugust1,1991.TheprincipalactivitiesofthecompanyaretoDividendYield13%14%15%16%develop,own,operate
andmaintainpower
EPSGrowth-2%51%3%7%
stations.
TheCompanyownsanoil-firedpowerstationof1200MW(net)inBalochistan(Hub
ReturnonEquity18%27%29%31%Plant)anda
7/29/2019 Pakistan Strategy Outlook 2013
244/284
214MW(net)oil-firedpowerstationinPunjab(NarowalPlant).Thecompany
ReturnonAssets4%4%5%5%
alsohasa
75%controllinginterestinLaraib
Source:BMAResearch,CompanyReports
EnergyLimited,asubsidiarycompanywhichownsanunderconstructionhydelpower