Weekly Review. Outlook. Pakistan Weekly Update StockSmart AKD SECURITIES. AKD Equity Research / Pakistan. 7 March 2014

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1 AKD Equity Research / Pakistan AKD Research research@akdsecurities.net Indices KSE-100 KSE-30 This week 26, , Last week 25, , Change 4.30% 4.22% Indices KMI-30 Allshare This week 44, , Last week 42, , Change 4.70% 3.61% Mkt Cap. PkRbn US$bn This week 6, Last week 6, Change 3.42% 4.76% Avg. Daily Turnover ('mn shares) This week Last week Change 26.71% Top-5 Volume Leaders Symbol Volume (mn) MLCF : LPCL : BOP : TRG : FCCL : (mn) Mar-13 Apr-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 (Index) 28,000 26,700 25,400 24,100 22,800 21,500 20,200 18,900 17,600 16,300 15,000 Weekly Review Carrying on with the mood that was settled on previous Friday, the KSE-100 Index gained 4.3%WoW to close at 26,892 levels. Ceasefire from militants and low headline inflation figure rejuvenated the investors interest at the bourse, resulting in improved participation. This was further highlighted by daily average value which jumped from US$65mn to US$107mn, showcasing growth of 65% while average daily traded volume during the week increased by 27% to clock in at 254mn shares. Other news that impacted the market during the week include 1) PKR gaining ground against US$, 2) Successful commissioning of Makori Gas Processing Facility (GPF) and 3) impressive growth in local cement sales during February. Owing to the latter, 3 out of top 5 volume leading companies belonged to the cement sector, which further highlights active investor participation. Gainers during the week were led by SHEL (+16.7%WoW), HBL (+13.5%WoW), AKBL (+12.5%WoW) and EFOODS (+10.7%WoW). Major scrips that lost out during the week included NBP (-8.0%WoW) and EFERT (-4.2%WoW). Volumes during the week were led by MLCF, LPCL, BOP, TRG and FCCL. (Shrs'000) 350, , , , , ,000 50,000 Index & Volume Chart Source: KSE & AKD Research Outlook 26,209 26,522 25,854 26,843 26,892 3 Mar 4 Mar 5 Mar 6 Mar 7 Mar Ready Volume (LHS) (Index) 27,000 26,800 26,600 26,400 26,200 26,000 25,800 25,600 25,400 25,200 KSE100 Index (RHS) 13.0% Universe Gainers & Losers Post gaining 1,413 points (+5.5%) in last 6 trading sessions, the market has recovered Feb 14 s losses which could potentially induce profit taking in the Cement and Textile sectors. Going forward, It would be imperative to see whether PKR will continue to gain strength against the green back or whether pressure would resume in the coming week. Finally, investors are also expected to keep a close watch on GoP-TTP peace talks. 17.0% 12.0% 7.0% 2.0% 3.0% 8.0% SHEL HBL AKBL AGTL EFOODS FFC MEBL ENGRO EFERT NBP Volume (LHS) KSE-100 Index Important disclosures Important disclosures including investment banking relationships and analyst certification at end of this report. AKD Securities does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of the report. Investors should consider this report as only a single factor in making their investment decision. AKD SECURITIES Member: Karachi Stock Exchange Find AKD research on Bloomberg (AKDS<GO>), firstcall.com and Reuters Knowledge Copyright 2014 AKD Securities Limited. All rights reserved. The information provided on this document is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation or which would subject AKD Securities or its affiliates to any registration requirement within such jurisdiction or country. Neither the information, nor any opinion contained in this document constitutes a solicitation or offer by AKD Securities or its affiliates to buy or sell any securities or provide any investment advice or service. AKD Securities does not warrant the accuracy of the information provided herein.

2 Mar 07, ,969 26,942 26,915 26,888 26,861 26,834 26,807 26,780 9:15 9:59 10:43 11:26 12:10 12:53 13:36 14:18 15:02 15:46 16:32 Mar 06, ,880 26,845 26,810 26,775 26,740 26,705 26,670 26,635 26,600 9:30 10:22 11:13 12:04 12:56 13:47 14:38 15:30 Mar 05, ,535 26,480 26,425 26,370 26,315 26,260 26,205 26,150 9:30 10:07 10:44 11:21 11:57 12:33 13:10 13:46 14:22 14:59 15:36 Mar 04, ,230 26,170 26,110 26,050 25,990 25,930 25,870 25,810 25,750 Mar 03, ,075 26,030 25,985 25,940 25,895 25,850 25,805 25,760 9:30 10:21 11:11 12:01 12:52 13:42 14:32 15:23 9:30 10:21 11:11 12:02 12:52 13:42 14:32 15:22 Source: KSE & AKD Research This Week s Daily Reports HBL_Picking momentum but rallied already, (AKD Daily, March 07, 2014) We raise our target price for HBL by 6.5% to PkR165/share following an average 5% increase in our EPS estimates across the next 5yrs after better than expected CY13 results (+ve surprises in fee & fx income). Going forward, we see double-digit growth in both CY14F as well our forecast horizon, driven by higher NII on the back of 70%+ CASA, lower credit costs with coverage already in excess of 80%, strong fee income growth potential and likelihood of a contained increase in admin expenses after swift 18% YoY increase in CY13. This is underpinned by HBL s consistent pickup in momentum across CY13, with sequential growth in each of the last 4qtrs expected to spillover into CY14F and beyond. That said, while we like the bank s medium-term growth trajectory, we believe the sharp run up in share price over the last year (gains of 73%) adequately captures the positives. Our revised target price implies a Reduce stance. Cement Dispatches Feb 14/8MFY14, (AKD Daily, March 06, 2014) Total cement dispatches for Feb 14 registered an increase of 4%YoY to 2.7mn tons where local cement dispatches registered an increase of 9%YoY to 2.2mn tons, led by a sharp uptick in dispatches from the north. Exports, however, continued to suffer due to declining offtake to Afghanistan resulting in exports of 583k tons in Feb 14, lower by 11% YoY. As a result, total cumulative 8MFY14 dispatches came in at 21.6mn tons, up by 2% YoY, with local dispatches registering an increase of 3%YoY to clock in at 16.3mn tons while exports are down by 2%YoY to 5.3mn tons. Going forward, increasing dispatches on the local front and likely improvement in gross margins should drive the bottom line higher for cement manufacturers during 2HFY14. In terms of risks, the coming expiry of the moratorium on capacity expansions remains a question mark. That said, we are unlikely to witness an immediate capacity expansion bonanza as witnessed in the past, with M&A activity also likely to be in the mix. In this regard, unconfirmed news reports suggest that PIOC and LPCL may be available for sale. Within our coverage, we maintain our liking for DGKC which offers an upside of 15.3% to our TP of PkR106.9/share. DGKC_TP Revision, (AKD Daily, March 05, 2014) While DGKC posted a decline in earnings during 1HFY14, we expect a much better result in 2HFY14 due to the sharp decline in coal prices as well as an improvement in cement dispatches. Moreover, recent PkR appreciation vs. the greenback and commencement of operations of the WHR unit at the Khairpur plant will also provide support to the gross margins of the company. In this regard, we have revised our earnings estimate for FY14F by 7% to PkR12.94/share and our revised Jun 14 TP comes to PkR106.9/share. The stock currently trades at an FY14 P/E of 7.2x and offers an upside of 15.13% to our revised TP. Accumulate. PSO_Analyst Briefing Update and Estimates Revision, (AKD Daily, March 04, 2014) PSO surprised yet again with its 2QFY14 result, posting NPAT of PkR8.0bn (EPS: PkR32.4), a growth of 3.9xYoY/4.5%QoQ. This brings 1HFY14 NPAT to PkR15.8bn (EPS: 63.97), a growth of 2.5xYoY. The company held an analyst briefing yesterday to shed light on the result. Amid improved volumetric sales led by higher CNG curtailment and improved power sector liquidity, the earnings growth in 1HFY14 was led primarily by higher other income, lower than anticipated FX losses and a robust gross margin (buoyed by inventory gains). We upward revise our FY14F earnings estimate for PSO by 19% post the surprise 2QFY14 result, where we expect the company to post NPAT of PkR22.6bn (EPS: PkR91.47) for the year, a growth of 80%YoY. We aslo upward revise our TP for PSO by 3% to PkR346/share. At the same time, we highlight materialization of the proposal to upward revise OMC margins for MS and HSD to unlock further upside in PSO. At current levels, PSO trades at an attractive FY14F P/E of 4.0x. Feb 14_Market Review & Outlook, (AKD Daily, March 03, 2014) Despite a late surge, the KSE-100 Index ended Feb 14 lower by 3.7%MoM, its first monthly decline since Sep 13. While corporate results were largely on track (save for ve surprises for IPPs), investor sentiment was hurt by an escalation in militant activity that led to airstrikes and speculation that a full scale military operation would be launched soon. As a result, the Pakistan Market ignored positive macro developments (soft CPI; uptick in fx reserves) and also failed to take advantage of the regional equity rally. This was punctuated by net FPI inflow in Feb 14 dwindling to US$9.5mn, much lower than the 2

3 This Week s Daily Reports FY14TD run rate of US$21mn. From an investment perspective, the market s forward P/E contracting by 4.5% since its recent peak to 8.5x at present appears to provide an entry point for investors. That said, we continue to recommend a blend of growth (DGKC, NML, UBL) and high D/Y names (POL, FATIMA, KAPCO) where uncertainty with respect to the GoP-TTP standoff may lead to continued valuation suppression in the near-term. 3

4 Chart Bank Earnings Yield vs. T-Bill (12M) Differential (%) Advance to Decline Ratio (2.0) (4.0) 0.80 Jun 07 Nov 07 Apr 08 Sep 08 Feb 09 Jul 09 Dec 09 May 10 Oct 10 Mar 11 Aug 11 Jan 12 Jun 12 Nov 12 Apr 13 Sep 13 Feb 14 Mar 13 May 13 Jul 13 Oct 13 Dec 13 Mar 14 FIPI Flows for the week LIPI Flows for the week (US$'000) 5,000 4,262 4,000 3,000 2,046 2,000 1,000 (1,000) (344) (2,000) (2,121) (3,000) (4,000) (3,518) 3 Mar 4 Mar 5 Mar 6 Mar 7 Mar (US$mn) (10.00) (20.00) (30.00) Ind., 0.10 Co., (12.26) Bank/DFI, 7.62 NBFC, 4.70 M.Funds, (11.11) Others, (10.36) AKD Universe vs. KSE-100 Index KSE-100 vs. MSCI-EM & MSCI-FM 49% 43% 37% 31% 25% 19% 13% 7% 1% 5% Mar 13 Jul 13 Nov 13 Mar 14 KSE All Share Index AKD Universe 75% 65% 55% 45% 35% 25% 15% 5% 5% 15% Jan 13 Feb 13 KSE100 MSCI EM MSCI FM Apr 13 May 13 Jul 13 Sep 13 Oct 13 Dec 13 Feb 14 4

5 AKD Universe Valuations 7 Mar A 2012A 2013A/E 2014F 2015F EPS (PkR) EPS chg (%) EPS chg (%) Ex Financials Book Value per Share (PkR) Payout (%) Valuations Price to Earnings (x) Price to Book (x) PER (x) Ex Financials P/BVS (x) Ex Financials Price to CF (x) Earnings Yield (%) Dividend Yield (%) EV / EBITDA (x) Profitability Return on Equity (%) Return on Assets (%) Chg in Sales (%) Gross Margin (%) Operating Margin (%) Net Margin (%) Market PER Chart 2014F Source: AKD Research (x) Jul 05 Sep 06 Dec 07 Mar 09 Jun 10 Sep 11 Dec 12 Mar 14 Source: AKD Research Market P/BVS Chart 2014F (x) Jul 05 Sep 06 Dec 07 Mar 09 Jun 10 Sep 11 Dec 12 Mar 14 Source: AKD Research 5

6 AKD Universe Active Coverage Cluster s Valuations EPS Stocks Symbol Price TP Stance PE(x) PB (x) DY (%) (PkR) (PkR) (PkR) 12A 13A/E 14F 12A 13A/E 14F 12A 13A/E 14F 12A 13A/E 14F Automobile and Parts Indus Motors INDU Neutral Pak Suzuki Motors PSMC Accumulate Construction and Materials DG Khan Cement DGKC Accumulate Chemicals Engro Polymer Chemicals EPCL Accumulate ICI Pakistan Limited ICI Sell Lotte Chemical Pakistan Ltd. LOTCHEM Buy 0.0 (0.3) 0.6 n.m n.m Engro Corporation ENGRO Neutral Engro Fertilizers Limited EFERT Accumulate (2.3) (21.7) Dawood Hercules Limited DAWH Reduce n.a n.a 1.2 Fauji Fert. Bin Qasim Ltd. FFBL Accumulate Fauji Fertilizer Company FFC Buy Fatima Fertilizer FATIMA Accumulate Food Producers Engro Foods Limited EFOODS Sell Oil & Gas Oil & Gas Development Co. OGDC Neutral Pak Oilfields POL Accumulate Pakistan State Oil PSO Reduce Electricity Hub Power Co. HUBC Buy Kot Addu Power Company KAPCO Neutral Fixed Line Telecommunication Pakistan Telecommunication PTC Neutral Personal Goods Nishat Mills NML Neutral Banks Allied Bank Limited ABL Neutral Bank AlFalah BAFL * Accumulate Habib Bank Limited HBL Reduce MCB Bank Limited MCB Neutral National Bank of Pakistan NBP Accumulate United Bank Ltd UBL Neutral * TP for BAFL rises to PkR30/share upon successful Warid stake sale Source: AKD Research 6

7 AKD Universe Coverage Cluster s Performance Stocks Sym bol Price Absolute Performance (%) 1 Year 1 Year 7-Mar-14 1M 3M 6M 12M CYTD High Low KSE-100 Index Industrial Engineering Al-Ghazi Tractor AGTL Millat Tractors MTL Automobile and Parts Indus Motors INDU Pak Suzuki Motors PSMC Construction and Materials DG Khan Cement DGKC Lucky Cement LUCK Chemicals Engro Polymer Chemicals EPCL ICI Pakistan Limited ICI Lotte Pakistan PTA Limited LOTCHEM Daw ood Hercules DAWH Engro Fertilizers Ltd. EFERT n.a n.a n.a n.a Engro Chemical ENGRO Fatima Fertilizer FATIMA Fauji Fert. Bin Qasim Ltd. FFBL Fauji Fertilizer Company FFC Food Producers Engro Foods Limited EFOODS Non Life Insurance Adamjee Insurance AICL Oil & Gas Oil & Gas Development Co. OGDC Pak Oilfields POL Pakistan State Oil PSO Ele ctricity Hub Pow er Co. HUBC Kot Addu Pow er Company KAPCO Fixed Line Telecommunication Pakistan Telecommunication PTC Personal Goods Nisaht (Chunian) Ltd. NCL Nishat Mills NML Banks Allied Bank Limited ABL Askari Bank Limited AKBL Bank AlFalah BAFL Habib Bank Limited HBL Habib Metropolitan Bank HMB MCB Bank Limited MCB Meezan Bank Limited MEBL National Bank of Pakistan NBP United Bank Ltd UBL Source: KSE & AKD Research 7

8 Economic Snapshot End Month Data Units Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 T-bill 3M % M % M % PIB 10Y % KIBOR 6M % Discount rate % Inflation Headline inflation % Core inflation % Food inflation % External Indicators Export (PBS) US$ (mn) 2,134 2,130 2,175 2,197 2,095 1,996 2,622 1,864 1,804 2,275 2,061 Import (PBS) US$ (mn) 3,687 3,909 4,346 3,940 3,814 3,572 3,791 3,281 3,651 3,561 4,137 Trade Deficit (PBS) US$ (mn) (1,553) (1,779) (2,171) (1,743) (1,719) (1,576) (1,169) (1,417) (1,847) (1,286) (2,076) Home Remittances US$ (mn) 1,119 1,216 1,186 1,165 1,404 1,233 1,283 1,348 1,131 1,385 n.a Current Account US$ (mn) (513) (354) (346) (163) 46 (575) (574) (166) (572) 285 (464) Banking Sector 1,553 1,779 2,171 1,743 1,719 1,576 1,169 1,417 1,847 1,286 Deposits PkR (bn) 6,777 6,709 6,950 7,316 7,069 7,174 7,125 7,133 7,309 7,529 7,566 Advances PkR (bn) 3,873 3,857 3,906 3,869 3,788 3,817 3,831 3,921 4,008 4,071 4,127 Investments PkR (bn) 4,024 3,893 3,942 4,129 3,837 3,708 3,873 3,776 4,035 4,070 4,217 Weighted Avg. lending rate % n.a Weighted Avg. deposit rate % n.a Spread rate % n.a Public Finance Tax collection PkR (mn) 190, , , ,608 n.a n.a n.a n.a n.a n.a n.a Direct taxes PkR (mn) 78,649 48,462 60, ,889 n.a n.a n.a n.a n.a n.a n.a Indirect Taxes PkR (mn) 111, , , ,719 n.a n.a n.a n.a n.a n.a n.a Currency Reserves (RHS) US$ (mn) 12,250 11,812 11,474 11,020 10,287 9,998 9,995 9,525 8,238 8,168 8,017 USDPkR - Interbank PkR/USD Source: SBP, PBS & AKD Research 8

9 Analyst Certification We, the AKD Research Team, hereby individually & jointly certify that the views expressed in this research report accurately reflect our personal views about the subject securities and issuers. We also certify that no part of our compensation was, is,or will be, directly or indirectly, related to the specific recommendations or views expressed in this research report. We further certify that we do not have any beneficial holding of the specific securities that we have recommendations on in this report. AKD Research Team Analyst Tel no. Coverage Naveed Vakil (692) Director - Research & Business Development Raza Jafri, CFA (693) raza.jafri@akdsecurities.net Pakistan Economy & Commercial Banks Usman Zahid (693) usman.zahid@akdsecurities.net E&P, FMCGs & Fertilizer Anum Dhedhi (637) anum.dhedhi@akdsecurities.net Pakistan Economy Raza Hamdani (693) raza.hamdani@akdsecurities.net Fertilizer, Oil Marketing & Power Bilal Alvi (647) bilal.alvi@akdsecurities.net Textiles, Cements & Chemical Qasim Anwar (680) qasim.anwar@akdsecurities.net Technical Analysis Hassan Quadri (639) hassan.quadri@akdsecurities.net Research Production / Autos Azher Ali Quli (646) azher.quli@akdsecurities.net Research Production Nasir Khan (646) nasir.khan@akdsecurities.net Research Production Tariq Mehmood (643) tariq.mehmood@akdsecurities.net Library Operations DISCLOSURES & DISCLAIMERS This publication/communication or any portion hereof may not be reprinted, sold or redistributed without the written consent of AKD Securities Limited. 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