Weekly Review. Outlook. Pakistan Weekly Update StockSmart. AKD Equity Research / Pakistan. 25 January AKD Research. Index & Volume Chart

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1 AKD Equity Research / Pakistan AKD Research research@akdsecurities.net Indices KSE-100 KSE-30 This week 40,265 19,347 Last week 39,307 18,757 Change 2.44% 3.15% Indices KMI-30 Allshare This week 67,344 29,368 Last week 66,139 28,918 Mkt Cap. PkRbn bn This week 8, Last week 7, Avg. Daily Turnover ('mn shares) This week Last week Change 43.6% Weekly Review Stock market opened the week positive in anticipation of a successful visit of PM Khan to Qatar while the unveiling of much-awaited 'mini budget' during the week kept the momentum positive. The same reflected in the stock market's performance as the bourse closed the week at 40,265pts, up 2.44%WoW. Average daily volume mimicked the same optimism and increased by 44%WoW to 168mn shares while net foreign buying of 17mn during the week also supported the index. Additional news flows moving the market included: 1) The State Bank of Pakistan (SBP) receiving 1bn from the UAE following an agreement with the Abu Dhabi Fund for Development (ADFD) in Abu Dhabi on Jan 22, 2) The cabinet approving Gas Infrastructure Development Cess settlement mechanism, 3) The IMF revising GDP growth projections downwards to three percent for the current fiscal and in the subsequent years under PTI rule, and 4) the foreign currency reserves held by the SBP falling by USD$265mn to 6.6bn. Gainers at the bourse under our universe included: 1) PSMC (+23.8%WoW), 2) HBL (+11.4%WoW), 3) UBL (+9.9%WoW), 4) MCB (+4.7%WoW) and 5) PPL (+3.7%WoW), whereas laggards were: 1) APL (-3.4%WoW), 2) GWLC (-2.2%WoW), 3) EFERT (-1.6%WoW), 4) PIOC (-1.3%WoW) and 5) FATIMA (-1.3%WoW). Volume leaders during the week were: 1) BOP (77mn shares), 2) KEL (57mn shares), 3) PIBTL (56mn shares) and 4) TRG (44mn shares). Index & Volume Chart Universe Gainers & Losers Top-5 Volume Leaders (Shrs'000) 300,000 40,289 (Index) 40, % 25.0% Symbol Volume (mn) 250,000 40,058 40,265 40, % BOP : ,000 39,902 40, % KEL : PIBTL : TRG : PAEL : (share mn) (Index) , , , ,000 50, Jan 22-Jan 23-Jan 24-Jan 25-Jan Ready Volume (LHS) KSE100 Index (RHS) Source: PSX & AKD Research 39,800 39,600 39,400 39,200 39, % 5.0% 0.0% -5.0% PSMC HBL UBL MCB PPL FATIMA PIOC EFERT GWLC APL ,000 42,000 Outlook Volume (LHS) KSE-100 Index 40,000 38,000 36,000 Source: PSX & AKD Research With the rollover week ending, we expect market to continue its journey north driven by the euphoria over mini budget. Also, clarity on GIDC issue is expected to emerge next week which can significantly affect sectors like fertilizer and textile. However, we still pin the longer term direction over clarity regarding IMF. Moreover, the result season is upon us where bigwigs like LUCK are expected to announce their result along with other companies like EPCL and BAHL. 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 TREC Holder & Registered Broker Pakistan Stock Exchange REP-019 Find AKD research on Bloomberg (AKDS<GO>), firstcall.com and Reuters Knowledge Copyright 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 This Week s Daily Reports Jan 25, ,400 40,350 40,300 40,250 40,200 40,150 40,100 40,050 Jan 24, ,700 40,600 40,500 40,400 40,300 40,200 40,100 Jan 23, 2019 Jan 22, :30 9:54 10:19 10:44 11:08 11:33 11:58 12:22 12:47 13:12 13:36 14:01 14:26 14:50 15:15 40,250 40,200 40,150 40,100 40,050 40,000 39,950 39,900 39,850 39,800 39,750 40,000 39,900 39,800 39,700 39,600 39,500 39,400 39,300 39,200 9:15 9:38 10:02 10:25 10:49 11:12 11:36 11:59 12:23 12:46 13:09 13:33 13:56 14:20 14:43 15:07 15:30 15:54 16:17 9:30 9:55 10:19 10:44 11:09 11:33 11:58 12:23 12:47 13:12 13:37 14:01 14:26 14:51 15:15 9:30 9:54 10:17 10:41 11:04 11:28 11:51 12:15 12:38 13:02 13:26 13:49 14:13 14:36 15:00 15:23 9:30 9:54 10:18 10:41 11:05 11:28 11:52 12:15 12:39 13:02 13:26 13:49 14:13 14:36 15:00 15:23 Jan 21, ,900 39,800 39,700 39,600 39,500 39,400 39,300 39,200 39,100 39,000 Source: PSX & AKD Research Pakistan Fertilizer: Slow Rabi taints CY18 offtake, (AKD Daily, Jan 25, 2019) Cumulative CY18 fertilizer offtake across all nutrients stood at 9.38mn tonnes (-5%YoY) constituted by 5.81mn tonnes of urea (-1%YoY), 1.76mn tonnes of DAP (-6%YoY), 0.60mn tonnes of CAN (-17%YoY) and 0.45mn tonnes of NP (-34%YoY) Domestic urea production for Dec 18 stood at 511.9k tonnes (-3%MoM/+6%YoY), where market share for sales clocked in at 37%/30%/15%/9% for FFC/EFERT/FATIMA/ FFBL moving -490/+175/+8/+78bpsMoM % increase CYTD in nutrient prices accompanied by slower harvesting and availability issues have pulled nutrient offtake during Rabi (Oct-Dec) by 7%YoY, while production slowed to keep inventory levels manageable (Dec'18 inventory for Urea/ DAP/CAN/NP, make up 0.5/8.8/2.5/1.2x monthly average offtake) Growth in sales is likely going to be a factor of extended late seasons buying, catalyzed by pricing concessions delivered through GIDC rationalization, where any GIDC rationalization for fertilizer manufacturers will be passed on to end-consumers, with FFBL stands to benefit the most (where DAP pricing depends on international factors). Pak Strategy: Populism trumps pragmatism, but only on face, (AKD Daily, Jan 24, 2019) Amidst a divisive macro outlook and heady budgetary imbalances, the PTI-led GoP introduced its second finance bill to a rancorous opposition, while alluding to approaching the IMF for the final time, something FM Umer and PM Khan have vowed to uphold Market dynamics are expected to get a lift from i) abolishment of 0.02% WHT on share transactions, ii) capital loss carryover to be available for 3 years, iii) abolishment of tax on undistributed profits and iv) abolishment of super tax in FY20 on non-banking companies From a sectoral perspective, proposals in the budget can be seen to favor SMEs (concessionary tax on loans), Automobile OEMs (FED on 1800CC+ CBU, removal of nonfiler sales ban on 1,300CC below models), parts vendors, small scale manufacturers, construction concerns (incentives for low-income housing), agri-reliant (fertilizers, tractors, lenders), renewable energy equipment manufacturers (5YR tax holiday), group holding companies (group-relief partially reinstated) and fertilizers (GIDC reduction) Market euphoria may, however, be tempered by Banking sector developments where despite specific tax concessions on finance income from advances to SMEs, agriculture and low income housing (20% tax rate vs. 35% currently), incidence of super tax at 4% on FY18 profits (previous: 0%) and increase to 4% in FY20 (previous: 3%) and FY21 (previous: 2%) may disrupt overall sentiment. The incidence of super tax will adversely impact our Banking coverage earnings by 6%-11% in CY19F. Pakistan Cements: Downtrend to persist in 2QFY19,(AKD Daily, Jan 23, 2019) AKD Cement universe is expected to post a 37%YoY decline in profitability for 1HFY19 as higher energy/fuel cost weigh on margins despite an increase in retail cement prices of 10%YoY. On QoQ basis, profitability is going to increase by 7% on the back of better margins (24.3% in 2QFY19 vs. 23% in 1QFY19) Finance cost is going to be a drag on the earnings of our universe for 1HFY19 as increasing debt to finance capacity additions will take the interest cover down to 6.3x for 1HFY19 vs. 25.1x in 1HFY18. DGKC, after posting a dismal 1QFY19 is expected to rebound as higher utilization at South is expected to result in better absorption of fixed costs. While on YoY basis, company s profitability is expected to decline by 36%. 2

3 This Week s Daily Reports FCCL is expected to outperform peers on YoY basis for 1HFY19, courtesy a low base in 1HFY18 while CHCC will disappoint on QoQ basis on the back of a high base in 1QFY19. Pakistan Strategy: Mini-budget to set the tone for policy action, (AKD Daily, Jan 21, 2019) The GoP is set to announce mini budget on Jan 23'18 (second since coming to power), reportedly to plug the PkR bn revenue shortfall ailing the economy, while possible indications of future direction will be provided by severity of actions The said measures potentially reduce the deficit to ~5.9% (as per AKD estimate). That said, a fiscal deficit of 5.5% of GDP seems comfortable for IMF, which opens tail risks to already revised PSDP (33.4% released of the revised target of PkR675bn in 1HFY19). Revenue measures like increase in FED on cement and increase in GST and PDL on petroleum products will not be of much significance given the declining trend in offtake, according to our calculations. Stock market incentives could provide adrenaline rush for the market in the short run. However, medium to long-term trend is dependent on the policy direction set by the supplementary budget. We view the mini-budget could bring upon inflationary pressure (hike in fuel prices, cements etc.) setting the course for interest rate hikes (Positive for Banks), while would be conducive for import substitution industries (Autos, selected chemicals, tile manufacturers, paper & board), while negative for OMCs and Cements. 3

4 Feb-18 May-18 Nov-18 May-18 Nov-18 Regional Valuations (2019) EPS Growth PE(x) Pakistan 19.59% 8.63 Indonesia 8.10% Malaysia 11.92% Philippines 6.56% Vitenam 12.61% India 24.27% China 12.84% 8.58 % ROE Divd Yld Pakistan 15.9% 7.47 Indonesia Malaysia Philippines Vitenam India China Source: AKD Research & Bloomberg PkR/ Trend TRJ-CRB Index Source: Bloomberg Source: Bloomberg Major World Indices Performance Country Bloomberg Code WoW CYTD Pakistan KSE100 Index 40,265 39, % 8.6% Srilanka CSEALL Index 5,978 5, % -1.2% Thailand SET Index 1,624 1, % 3.8% Indonesia JCI Index 6,483 6, % 4.7% Malaysia FBMKLCI Index 1,701 1, % 0.6% Philippines PCOMP Index 8,053 8, % 7.9% Vietnam VNINDEX Index % 1.8% Hong Kong HSI Index 27,569 27, % 6.7% Singapore FSSTI Index 3,202 3, % 4.3% Brazil IBX Index 40,482 39, % 10.9% India SENSEX Index 36,026 36, % -0.1% S&P SPX Index 2,642 2, % 5.4% DJIA INDU Index 24,553 24, % 5.3% UK UKX Index 6,837 6, % 1.6% Germany DAX Index 11,291 11, % 6.9% Qatar DSM Index 10,712 10, % 4.0% Abu Dhabi ADSMI Index 5,019 4, % 2.1% Dubai DFMGI Index 2,514 2, % -0.6% Kuwait KWSEIDX Index 6,633 6, % 0.0% Oman MSM30 Index 4,180 4, % -3.3% Saudi Arabia SASEIDX Index 8,435 8, % 7.8% MSCI EM MXEF Index 1,019 1, % 5.6% MSCI FM MXFM Index % 4.0% International Major Currencies Commodities Source: Bloomberg SPOT Chg +/- WoW CYTD Dollar Index % 0.16% USD/PkR % -0.01% USD/JPY % 0.11% EUR/USD % -1.05% GBP/USD % 2.71% AUD/USD % 0.96% NZD/USD % 0.97% CHF/USD % 1.47% CAD/USD % -2.32% USD/KRW 1,121 1, % 0.48% CNY/USD % -1.74% Source: Bloomberg SPOT Units WoW CYTD TRJ-CRB Points % 5.56% Nymex (WTI) /bbl % 16.82% ICE Brent /bbl % 13.90% N. Gas Henry Hub /Mmbtu % -0.86% Cotton USd/Pound % 2.72% Gold /Tr.Oz % 0.19% Sliver /Tr.Oz % -0.78% Copper /MT % -0.92% Platinum /Oz % 1.40% Coal /MT % -5.40% Source: Bloomberg 4

5 Feb-18 May-18 Nov-18 Feb-18 May-18 Nov-18 Chart Bank Earnings Yield vs. T-Bill (12M) Differential (%) Advance to Decline Ratio Feb-18 May-18 Nov-18 Feb-18 FIPI Flows for the week LIPI Flows for the week ('000) 8,000 7,000 6,000 5,000 5,271 7, Others, 0.53 Prop. Trading, ,000 3,000 2,000 2,063 3,290 (2.00) Co., (1.09) NBFC, (1.36) 1,000 - (4.00) Bank/DFI, (3.42) M.Funds, (3.34) Ins, (3.38) (1,000) (644) (6.00) (2,000) (8.00) Ind., (7.41) AKD Universe vs. KSE-100 Index KSE-100 vs. MSCI-EM & MSCI-FM 17% 12% 7% 2% -3% -8% -13% -18% -23% 10% 5% 0% -5% -10% -15% -20% -25% -30% KSE100 MSCI FM MSCI EM KSE-All Share Index AKD Universe 5

6 Jul-07 Jun-08 Jun-09 May-10 May-11 Apr-12 Apr-13 Mar-14 Mar-15 Feb-16 Feb-17 Jul-07 Jun-08 Jun-09 May-10 May-11 Apr-12 Apr-13 Mar-14 Mar-15 Feb-16 Feb-17 AKD Universe Valuations F 2019F 2020F EPS (PkR) EPS chg (%) 1.10 (12.04) EPS chg (%) ex-e&p (21.82) (3.74) Book Value per Share (PkR) Payout (%) Valuations Price to Earnings (x) PER (Ex-Banks & E&Ps) (x) Price to Book (x) Price to CF (x) Earnings Yield (%) Dividend Yield (%) EV / EBITDA (x) Profitability Return on Equity (%) Return on Assets (%) Chg in Sales (%) (16.05) Gross Margin (%) Source: AKD Research Market PER Chart 2019 (x) Market P/BVS Chart 2019 (x) Source: AKD Research 6

7 AKD Universe Active Coverage Cluster s Valuations Stock Symbol Price TP Stance EPS(PkR) PE(x) PB(x) DY(%) UR Under Review (PkR) (PkR) 17 18F 19F 17 18F 19F 17 18F 19F 17 18F 19F Automobile and Parts Indus Motors INDU 1, , Buy Pak Suzuki Motors PSMC Sell Cements DG Khan Cement DGKC Buy Lucky Cement LUCK Buy Maple Leaf Cement Factory MLCF Buy Fauji Cement Company Ltd. FCCL Sell Pioneer Cement Limited PIOC Sell Cherat Cement Co Limited CHCC Sell Gharibwal Cement Ltd GWLC Buy Engineering Amreli Steels Ltd. ASTL Buy Fertilizers Engro Corporation ENGRO Sell Engro Fertilizers Limited EFERT Sell Fauji Fert. Bin Qasim Ltd. FFBL Sell Fauji Fertilizer Company FFC Sell Fatima Fertilizer FATIMA Sell Food Producers Engro Foods Limited EFOODS Sell Oil & Gas Oil & Gas Development Co. OGDC Buy Pak Oilfields POL Sell Pakistan Petroleum PPL Buy Hascol Petroleum HASCOL Buy Attock Petroleum APL Buy Pakistan State Oil PSO Buy Power Hub Power Co. HUBC Buy K-Electric Co. KEL 6.42 UR UR UR UR UR UR UR UR UR UR UR UR UR UR Kot Addu Power Company KAPCO Sell Cable & Electrical Goods Pak Elektron Ltd PAEL Sell Personal Goods Nishat Mills NML Neutral Nishat Chunian Ltd. NCL Sell Banks Allied Bank Limited ABL Neutral Bank AlFalah BAFL Sell Habib Bank Limited HBL Sell MCB Bank Limited MCB Neutral National Bank of Pakistan NBP Buy United Bank Ltd UBL Sell Source: AKD Research 7

8 AKD Universe Coverage Cluster s Performance S toc ks S ymbol P ric e Absolute P e rforma nc e (%) 1 Y e a r 1 Y e a r Ja n- 19 1M 3M 6M 12 M CY TD High Low KS E Inde x 4 0, , , Automobile a nd P a rts Indus Motors INDU Pak Suzuki Motors PSMC Ce me nts DG Khan Cement DGKC Lucky Cement LUCK Maple Leaf Cement Factory MLCF Fauji Cement Company Ltd. FCCL Pioneer Cement Limited PIOC Cherat Cement Limited CHCC Gharibwal Cement Limited GWLC Engine e ring Amreli Steel Ltd ASTL Fe rtilize rs Dawood Hercules DAWH Engro Fertilizers Ltd. EFERT Engro Chemical ENGRO Fatima Fertilizer FATIMA Fauji Fert. Bin Qasim Ltd. FFBL Fauji Fertilizer Company FFC Food P roduc e rs Engro Foods Limited EFOODS Ca ble & Ele c tric a l Goods Pak Elektron Limited PAEL Oil & Ga s Oil & Gas Development Co. OGDC Pak Oilfields POL Pakistan Petroleum Ltd. PPL Pakistan State Oil PSO Attock Petroleum Ltd. APL Hascol Petroleum HASCOL P owe r Hub Power Co. HUBC K- Electric Limited KEL Kot Addu Power Company KAPCO P e rsona l Goods Nisaht (Chunian) Ltd. NCL Nishat Mills NML Ba nks Allied Bank Limited ABL Bank AlFalah BAFL Habib Bank Limited HBL MCB Bank Limited MCB National Bank of Pakistan NBP United Bank Ltd UBL Source: PSX & AKD Research 8

9 Economic Snapshot End Month Data Units Dec-17 Feb-18 May-18 Nov-18 Monetary Rates T-Bills - 3M % T-Bills - 6M % T-Bills - 12M % PIB 10Y % KIBOR 6M % Discount rate % Policy rate % Inflation Headline inflation % Core inflation % Food inflation % (0.20) External Indicators Export (PBS) Import (PBS) Trade Deficit (PBS) Export (SBP) 2,464 Import (SBP) 5,140 (mn) 1,977 1,971 1,902 2,231 2,133 2, ,646 2,017 1,728 1,903 1,843 (mn) 4,910 5,607 4,797 5,280 5,066 5, ,838 4,992 4,430 4,841 4,626 (mn) (2,933) (3,636) (2,895) (3,049) (2,933) (3,670) (3,807) (3,192) (2,975) (2,702) (2,938) (2,783) 2,111 2, ,334 2,305 2,246 2,266 2,012 4,943 4,949 5,166 2, n.a 5,133 5,493 4,460 3,792 4,717 n.a Trade Deficit (SBP) (2,676) (2,763) (2,275) (2,638) (2,703) (2,900) (3,121) (3,484) (2,373) (1,991) (2,654) n.a 1,639 1,672 1,773 1,651 1,771 1,594 1,929 2,037 1, , ,609 Home Remittances (mn) 1,724 n.a Current Account (mn) (1,256) (1,617) (1,241) (1,237) (1,947) (2,011) (1,976) (2,200) (600) (909) (1,218) Banking Sector Deposits Advances Investments PkR (bn) PkR (bn) PkR (bn) W. A. lending rate % W. A. deposit rate % 12,362 12,002 11,933 12,571 12,277 12,258 13,063 12,551 12,692 13,032 n.a n.a 6,530 6,556 6,629 6,812 6,839 7,046 7,362 7,336 7,426 7,492 n.a n.a 8,542 7,637 8,127 6,853 7,784 6,733 8,179 7,785 6,893 6,677 n.a n.a Spread rate % n.a n.a n.a Public Finance Tax collection Direct taxes Indirect Taxes PkR (mn) 416, , , , , , , , , , PkR (mn) 188,476 95,706 89, ,524 95, , ,441 94,017 71, ,023 n.a n.a PkR (mn) 227, , , , , , , , , ,781 n.a n.a Currency Fx Reserves (mn) 20,154 18,957 18,317 17,796 17,540 15,977 16,407 16,891 16,370 14,921 14,016 13,996 USDPkR - Interbank PkR/USD Source: SBP, PBS & AKD Research 9

10 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 Usman Zahid (693) Executive Director Research Hamza Kamal (603) Banking Ali Asghar Poonawala (646) Cable & Electrical, OMCs & Automobiles Umer Farooq (602) Textiles & Steel Shahrukh Saleem (685) Cement Sector Qasim Anwar (680) Technical Analysis Nasir Khan (639) Research Production Tariq Mehmood (643) 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. has produced this report for private circulation to professional and institutional clients only. The information, opinions and estimates herein are not directed at, or intended for distribution to or use by, any person or entity in any jurisdiction where doing so would be contrary to law or regulation or which would subject to any additional registration or licensing requirement within such jurisdiction. The information and statistical data herein have been obtained from sources we believe to be reliable and complied by our research department in good faith. Such information has not been independently verified and we make no representation or warranty as to its accuracy, completeness or correctness. Any opinions or estimates herein reflect the judgment of at the date of this publication/ communication and are subject to change at any time without notice. This report is not a solicitation or any offer to buy or sell any of the securities mentioned herein. It is for information purposes only and is not intended to provide professional, investment or any other type of advice or recommendation and does not take into account the particular investment objectives, financial situation or needs of individual recipients. Before acting on any information in this publication/communication, you should consider whether it is suitable for your particular circumstances and, if appropriate, seek professional advice. Neither AKD Securities Limited nor any of its affiliates or any other person connected with the company accepts any liability whatsoever for any direct or consequential loss arising from any use of this report or the information contained therein. Subject to any applicable laws and regulations,, its affiliates or group companies or individuals connected with AKD Securities Limited may have used the information contained herein before publication and may have positions in, may from time to time purchase or sell or have a material interest in any of the securities mentioned or related securities or may currently or in future have or have had a relationship with, or may provide or have provided investment banking, capital markets and/or other services to, the entities referred to herein, their advisors and/or any other connected parties. (the company) or persons connected with it may from time to time have an investment banking or other relationship, including but not limited to, the participation or investment in commercial banking transaction (including loans) with some or all of the issuers mentioned therein, either for their own account or the account of their customers. Persons connected with the company may provide corporate finance and other services to the issuer of the securities mentioned herein, including the issuance of options on securities mentioned herein or any related investment and may make a purchase and/or sale of the securities or any related investment from time to time in the open market or otherwise, in each case either as principal or agent. This document is being distributed in the United State solely to "major institutional investors" as defined in Rule 15a-6 under the U.S. Securities Exchange Act of 1934, and may not be furnished to any other person in the United States. Each U.S. person that receives this document by its acceptance hereof represents and agrees that it: is a "major institutional investor", as so defined; and understands the whole document. Any such person wishing to follow-up any of the information should do so by contacting a registered representative of. The securities discussed in this report may not be eligible for sale in some states in the U.S. or in some countries. Any recipient, other than a U.S. recipient that wishes further information should contact the company. This report may not be reproduced, distributed or published, in whole or in part, by any recipient hereof for any purpose. 10