39,800 38,693 39,539 39,600 39,400 39,055 38,822 39,200 39,000 38,800 38,600 38,400 38, Feb 26-Feb 27-Feb 28-Feb 1-Mar

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1 AKD Equity Research / Pakistan AKD Research research@akdsecurities.net Indic e s KS E KS E- 3 0 This week 39,539 19,022 Last week 40,016 19,290 Change % % Indic e s KMI- 3 0 Allsha re This week 66,233 28,852 Last week 67,560 29, % % Mkt Ca p. PkRbn US$ bn This week 8, Last week 7, Avg. Da ily Turnove r ('mn sha re s) This week Last week Change 44.6% Weekly Review The market movements during the week were largely reflective of the geo-political tensions following the border skirmishes between Pakistan and India. The KSE-100 index bottomed out during third intra-day session at 37,323.6 points, losing 6.7% mid-week as cross border tensions escalated and panic kicked in leading to an across the board sell-off. However, market recovered 1,369pts on the same day as investors took positions on dips while the increasing possibility of de-escalation amid calls from international community brought back the confidence in the following days resultantly the KSE-100 pared earlier losses, closing the week at 39,539pts, down 1.2%WoW (-477pts). In the wake of volatility, avg volume at the bourse also increased and stood at 152mn, up 45%WoW. Key news flows during the week were: 1) violation of LoC by Indian aircraft, 2) escalation of cross-border tension, as Pakistan reportedly brought down two IAF jets in a brief engagement, 3) PM offering peace talks to India while announcing release of captured Indian pilot, 4) decline in repatriation of profits by 33%YoY in 7MFY19, 5) oil prices increasing after OPEC's statement to continue oil output cuts and, 6) Fitch expecting a US$12bn IMF bailout for Pakistan. Major laggards during the week included: 1) ASTL (-15.77%WoW), 2) EFOODS (-8.21%WoW), 3) HASCOL (-7.4% WoW) and 4) PIOC (-7.0% WoW). Stocks leading the volume board were: 1) BOP (92.9mn shares), 2) KEL (45.9mn shares), 3) PIBTL (28.9mn shares) and, 4) EPCL (26.9mn shares). Index & Volume Chart Universe Gainers & Losers Top-5 Volume Leaders Symbol Volume (mn) BOP : KEL : PIBTL : EPCL : PAEL : (Shrs'000) 300, , , , ,000 50,000 39,607 38,693 39,055 38,822 39,539 (Index) 39,800 39,600 39,400 39,200 39,000 38,800 38,600 38, % 2.0% 0.0% -2.0% -4.0% -6.0% -8.0% -10.0% -12.0% -14.0% -16.0% -18.0% (share mn) (Index) 46, Feb 26-Feb 27-Feb 28-Feb 1-Mar Ready Volume (LHS) KSE100 Index (RHS) 38,200 HBL GWLC PSMC FFC ENGRO FFBL PIOC HASCOL EFOODS ASTL ,000 Source: PSX & AKD Research ,000 Outlook Volume (LHS) KSE-100 Index 40,000 38,000 36,000 Source: PSX & AKD Research The first round of cross-border engagement has ended with the return of captured Indian pilot. The upcoming week is likely to be affected by how the two nations deescalate the recent geo-political tensions, especially in face of the upcoming elections in India. With the result season behind us, in addition to geo-political news, market action will be shaped by passage of mini-budget through parliament, clarity on IMF and any news-flow regarding energy sukuk. 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 Mar 01, ,800 39,700 39,600 39,500 39,400 39,300 39,200 39,100 39,000 38,900 38,800 Feb 28, ,200 39,100 39,000 38,900 38,800 38,700 38,600 38,500 Feb 27, 2019 Feb 26, :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 39,000 38,800 38,600 38,400 38,200 38,000 37,800 37,600 37,400 37,200 37,000 39,600 39,500 39,400 39,300 39,200 39,100 39,000 38,900 38,800 38,700 38,600 9:15 9:38 10:02 10:25 10:50 11:13 11:37 12:01 12:25 12:48 13:12 13:36 14:00 14:24 14:47 15:11 15:36 16:00 16:24 9:30 9:54 10:19 10:44 11:08 11:33 11:57 12:22 12:47 13:11 13:36 14:00 14:25 14:50 15:14 9:30 9:53 10:17 10:40 11:04 11:27 11:51 12:14 12:38 13:01 13:25 13:48 14:12 14:35 14:59 15:22 9:30 9:53 10:17 10:40 11:04 11:27 11:51 12:14 12:38 13:01 13:25 13:48 14:12 14:35 14:59 15:23 Feb 25, ,100 40,000 39,900 39,800 39,700 39,600 39,500 Source: PSX & AKD Research Pak STRATEGY :Feb'19 was when fundamentals took a backseat (AKD Daily, Mar,1 2019) After an orthodox Jan (where new equity allocations drive the market), profit taking was witnessed in Feb'19 with market retreating 4.3%MoM to close at 39,054.61pts in Feb'19. Avg. volumes stood at 148mn shares during the month, marginally higher than in Jan'19 (133mn shares). Geopolitical tensions following the border skirmishes are likely to continue to play on the minds of the investors at least in the near term, where knee-jerk movements reign supreme. Nevertheless, in the medium term, wider systemic constraints (fiscal and external) could weigh on sentiments, where clarity on a potential IMF program (salient points of contention, calls for specific reforms) are milestones to cross. Profit taking was witnessed in Feb'19 on the back of, i) economic considerations, ii) financial results of heavy-weight companies failing to surprise investors, with the energy chain forgoing key mid-year payouts, and iii) geo-politics (at the tail-end of the month), giving rise to risk-off sentiments. Foreign participation in Feb'19 witnessed a progression from what we saw in Jan'19, with inflows being +US$32.3mn in Feb'19 vs. +US$16.2mn in Jan'19 (Cumulative Inflows CY19TD: US$48.5mn vs. totaled 4QCY18 outflows of US$214.7mn) with participation centered on Cements (US$11.0mn) and Commercial banks (US$9.8mn). Pakistan CABLE:PAEL: Pressed for profits by poor macros (AKD Daily, Feb 28, 2019) We expect PAEL to announce CY18 NPAT of PkR1.23bn (EPS:PkR2.46/sh) cratering 63% YoY as a weakened appetite for consumer durables spending and lack of major power T&D CAPEX after a lengthy political transition sap topline growth Profitability was further burdened by the launch of LED TV range, where associated strains on below the line expenses and working capital in a down-cycle for demand, exacerbates an already tenuous financial situation for the firm Our Dec'19 TP of PkR28.2/sh implies a Neutral call on the scrip, where clarity on macroprospects, project specific funding for power distribution CAPEX (followed by the latest round of circular debt clearances) would make us revisit our stance. LUCK: Wrapped up in cotton wool, (AKD Daily, Feb 27, 2019) Post release of detailed accounts for 2QFY19, we update our estimates for LUCK, i) tweaking our FY19 estimate of export sales, ii) incorporating finance cost due to emergence of short term borrowing, and iii) decreasing our tax rate for FY19 to 18.3% from previously assumed 21%. LUCK posted an EPS of PkR9.3 for 2QFY19, taking the EPS for 1HFY19 to PkR16.1, down 16% YoY. Gross margins of the company remained flat at 30% for 2QFY19 vs. 1QFY19 as clinker s share in sales mix increased. LUCK s expansion of 2.6mn tons, costing ~PkR19bn, will take its market share in North to 12% vs. current 10% however the pressure on local prices will keep average ROE for FY19-22 at 11%. Highest EBITDA margins (30% vs. 25% of our universe Ex. LUCK), exposure to both the regions (North and South) and diversified portfolio investments form the basis of our liking where our TP of PkR603/sh provides an upside of 29.2%. Pakistan Fertilizer: Weak start for CY19; triggers awaited (AKD Daily, Feb 25, 2019) Urea offtake for Jan 19 posted a decline of 18%MoM, but increased 5%YoY to 563K tons. The sequential decline was led by seasonality factor, and is expected to continue during Feb- Apr 19. Despite an overall increase on YoY basis, Urea offtake for FFC, EFERT and FFBL declined by 12/39/80% YoY, respectively. DAP offtakes declined by 19/54% YoY/MoM, partly due to pre-buying in the latter half of CY18. FFBL and FFC remained laggards, with DAP offtake declining by 64/80% YoY to 11/5K tons. Meanwhile, EFERT emerged as the clear winner, with 2.1x YoY higher DAP offtakes. DAP inventory closed in at 487K tons, up 2.7x YoY. 2

3 This Week s Daily Reports The GIDC resolution has yet again hit a standstill, as Fertilizer players contest GoP s proposal of Urea price reduction in lieu with 50% lower GIDC rates on feed/fuel gas. We have an Underweight stance on the Fertilizer sector, post 9% price performance CYTD (led by FFC and FFBL). However, if the Fertilizer companies and GoP reach a middle ground, that is to agree on a partial pass-on of GIDC reduction impact, FFC and FFBL will emerge as the major beneficiaries. 3

4 Mar-19 Mar-19 Regional Valuations (2019) EPS Growth PE(x) Pakistan 19.71% 8.45 Indonesia 9.38% Malaysia 12.39% Philippines 6.38% Vitenam 12.56% India 28.28% China 12.32% 9.99 % ROE Divd Yld Pakistan 16.4% 7.50 Indonesia Malaysia Philippines Vitenam India China Source: AKD Research & Bloomberg PkR/US$ Trend TRJ-CRB Index Source: Bloomberg Source: Bloomberg Major World Indices Performance Country Bloomberg Code 1-Mar WoW CYTD Pakistan KSE100 Index 39,539 40, % 6.7% Srilanka CSEALL Index 5,754 5, % -4.9% Thailand SET Index 1,641 1, % 5.0% Indonesia JCI Index 6,500 6, % 4.9% Malaysia FBMKLCI Index 1,701 1, % 0.6% Philippines PCOMP Index 7,642 7, % 2.4% Vietnam VNINDEX Index % 9.8% Hong Kong HSI Index 28,812 28, % 11.5% Singapore FSSTI Index 3,220 3, % 4.9% Brazil IBX Index 39,689 40, % 8.8% India SENSEX Index 36,064 35, % 0.0% S&P SPX Index 2,784 2, % 11.1% DJIA INDU Index 25,916 26, % 11.1% UK UKX Index 7,105 7, % 5.6% Germany DAX Index 11,632 11, % 10.2% Qatar DSM Index 10,112 10, % -1.8% Abu Dhabi ADSMI Index 5,138 5, % 4.5% Dubai DFMGI Index 2,636 2, % 4.2% Kuwait KWSEIDX Index 6,633 6, % 0.0% Oman MSM30 Index 4,144 4, % -4.1% Saudi Arabia SASEIDX Index 8,493 8, % 8.5% MSCI EM MXEF Index 1,051 1, % 8.8% MSCI FM MXFM Index % 5.6% International Major Currencies Commodities Source: Bloomberg SPOT 1-Mar Chg +/- WoW CYTD Dollar Index % 0.05% USD/PkR % -0.29% USD/JPY % 1.95% EUR/USD % -0.71% GBP/USD % 3.72% AUD/USD % 0.96% NZD/USD % 1.71% CHF/USD % 1.62% CAD/USD % -3.71% USD/KRW 1,124 1, % 0.77% CNY/USD % -2.52% Source: Bloomberg SPOT Units 1-Mar WoW CYTD TRJ-CRB Points % 7.62% Nymex (WTI) US$/bbl % 26.47% ICE Brent US$/bbl % 23.60% N. Gas Henry Hub US$/Mmbtu % -6.82% Cotton USd/Pound % -0.56% Gold US$/Tr.Oz % 2.10% Sliver US$/Tr.Oz % 0.42% Copper US$/MT % 10.19% Platinum US$/Oz % 8.91% Coal US$/MT % % Source: Bloomberg 4

5 Feb-18 Chart Bank Earnings Yield vs. T-Bill (12M) Differential (%) Advance to Decline Ratio Feb-18 Mar-19 Feb-18 Mar-19 FIPI Flows for the week LIPI Flows for the week (US$'000) 2,000 1,500 1, Ins, , (500) (1,000) (10) (614) Co., 4.74 Bank/DFI, 3.53 NBFC, 0.31 Others, 1.13 (1,500) (2,000) (5.00) Prop. Trading, (2.65) (2,500) (3,000) (2,463) Mar-19 (10.00) (15.00) Ind., (10.00) M.Funds, (11.31) AKD Universe vs. KSE-100 Index KSE-100 vs. MSCI-EM & MSCI-FM 9% 4% -1% -6% -11% -16% -21% -26% 10% 5% 0% -5% -10% -15% -20% -25% KSE100 MSCI FM MSCI EM KSE-All Share Index AKD Universe 5

6 AKD Universe Valuations 1-Mar 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 Jul-07 Jun-08 Jun-09 May-10 May-11 May-12 Apr-13 Apr-14 Mar-15 Mar-16 Mar-17 Feb-18 Jul-07 Jun-08 Jun-09 May-10 May-11 May-12 Apr-13 Apr-14 Mar-15 Mar-16 Mar-17 Feb-18 (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 Neutral Lucky Cement LUCK Buy Maple Leaf Cement Factory MLCF Buy Fauji Cement Company Ltd. FCCL Sell Pioneer Cement Limited PIOC Neutral Cherat Cement Co Limited CHCC Sell Gharibwal Cement Ltd GWLC Buy Engineering Amreli Steels Ltd. ASTL Buy Fertilizers Engro Corporation ENGRO Neutral 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 6.09 n.a Buy n.a n.a n.a n.a n.a n.a Kot Addu Power Company KAPCO Sell Cable & Electrical Goods Pak Elektron Ltd PAEL Neutral 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 Neutral 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 1- Ma r- 19 1M 3M 6M 12 M CYTD High Low KS E Inde x 3 9, , , 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 Jan-18 Feb-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) Import (SBP) US$ (mn) US$ (mn) US$ (mn) 1,977 1,971 1,902 2,231 2,133 2, ,646 2,017 1,728 1,903 1,843 2,080 4,910 5,607 4,797 5,280 5,066 5, ,838 4,992 4,430 4,841 4,626 4,444 (2,933) (3,636) (2,895) (3,049) (2,933) (3,670) (3,807) (3,192) (2,975) (2,702) (2,938) (2,783) (2,364) 2,464 2,111 2,059 2,305 2,246 2,266 2,012 2, , ,334 4,943 4,949 5,166 5,133 5,493 4,460 3,792 4,717 4,184 4,627 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) (2,291) (2,624) Home Remittances US$ (mn) 1,724 1,639 1,672 1,773 1,651 1,771 1,594 1,929 2,037 1,452 2,000 1,609 1,690 Current Account US$ (mn) (1,256) (1,617) (1,241) (1,237) (1,947) (2,011) (1,976) (2,200) (600) (909) (1,218) (1,209) (1,660) Banking Sector Deposits PkR (bn) Advances PkR (bn) Investments 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 12,666 13,079 13,354 6,530 6,556 6,629 6,812 6,839 7,046 7,362 7,336 7,426 7,492 7,534 7,750 7,888 8,542 7,637 8,127 6,853 7,784 6,733 8,179 7,785 6,893 6,677 5,525 5,459 7, Spread rate % Public Finance Tax collection PkR (mn) 416, , , , , , , , , , Direct taxes PkR (mn) 188,476 95,706 89, ,524 95, , ,441 94,017 71, ,023 n.a n.a n.a Indirect Taxes PkR (mn) 227, , , , , , , , , ,781 n.a n.a n.a Currency Fx Reserves USDPkR - Interbank US$ (mn) PkR/USD 20,154 18,957 18,317 17,796 17,540 15,977 16,407 16,891 16,370 14,921 14,016 14,011 13, 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