Weekly Review. Outlook. Pakistan Weekly Update StockSmart. AKD Equity Research / Pakistan. 22 December AKD Research. Index & Volume Chart

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1 UBL HBL NBP FATIMA BAFL DGKC APL HUBC GWLC POL AKD Equity Research / Pakistan AKD Research research@akdsecurities.net Indices KSE-100 KSE-30 This w eek 39,471 19,779 Last w eek 38,646 19,280 Change 2.13% 2.58% Indices KMI-30 Allshare This w eek 66,658 29,042 Last w eek 66,325 28,636 Change 0.50% 1.42% Mkt Cap. PkRbn US$bn This w eek 8, Last w eek 8, Change 1.42% 1.45% Avg. Daily Turnover ('mn shares) This w eek Last w eek Change 2.31% Top-5 Volume Leaders Symbol Volume (mn) TRG : WTL : KEL : DSFL : LOTCHEM : (share mn) Dec-16 Volume (LHS) KSE-100 Index (Index) 53,000 51,000 49,000 47,000 45,000 43,000 41,000 39,000 37,000 35,000 33,000 Source: PSX & AKD Research Weekly Review Breaking its last five week negative momentum (where benchmark index lost 6.7% or 2,790pts), market came back strongly into green zone mid-week to close the KSE-100 index at 39,471 (up 2.13%WoW or 825pts). Broad base recovery in the market was led by strong performance of Steel & Cement sector alongwith the positive development regarding introduction of Category B in PSX to eligible more companies (28-30) for margin trading system (MTS). Average daily traded volumes improved slightly by 2.31%WoW to mn shares with 1) TRG (63.99mn shares), 2) WTL (43.26mn shares), 3) KEL (35.87mn shares), 4) DSFL (31.50mn shares) and 5) LOTCHEM (27.10mn shares) leading the board. Key news flows impacting the market during the week included: 1) the Senate passing delimitation of constituencies bill paving the way for timely election, 2) Nawaz Sharif nominating his brother (Punjab CM Shahbaz Sharif) as the candidate for the prime minister in the next general elections, 3) World Bank approving a loan amounting US$825mn to modernize the national power transmission system and improve health and education service delivery in Pakistan, 4) country's CAD widening by 90.7%YoY to reach US$6.43bn in 5MFY18, where both export/ imports witnessed upward trend, rising 12%/23.4%YoY to US$9.79bn/US$21.88bn and 5) United Motors revealing its plan to launch 800cc car and pickup in co-operation with Chinese bike maker- United Auto Industries. Performance leaders during the week were: 1) UBL (+10.8%WoW), 2) HBL (+7.2%WoW), 3) NBP (+7.2%WoW), 4) FATIMA (+6.9%WoW) and 5) BAFL (+5.8%WoW); while laggards included: 1) POL (-4.4%WoW), 2) GWLC (-4.3%WoW), 3) HUBC (-2.5%WoW), 3) APL (-1.9%WoW) and 5) DGKC (-1.6%WoW). Foreign participation remained in the negative zone with US$5.44mn outflows compared to US$8.87mn outflows in the preceding week. (Shrs'000) 240, , , , , , , ,000 80,000 60,000 40,000 20,000 - Index & Volume Chart Source: PSX & AKD Research Outlook 38,384 37,919 38,208 38,716 39, Dec 19-Dec 20-Dec 21-Dec 22-Dec Ready Volume (LHS) KSE100 Index (RHS) (Index) 39,620 39,320 39,020 38,720 38,420 38,120 37,820 37,520 Universe Gainers & Losers 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% -2.0% -4.0% -6.0% Renewed optimism in the local bourse on the back of, 1) SECP initiative to increase companies eligible for MTS with the introduction of category B, 2) positive development on the political front and 3) stable int l oil prices expected to drive bullish momentum in the week ahead as well. Moreover, market may also continue to take cue from fund managers' yearend window dressing ahead of the New Year. 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-108 Find AKD research on Bloomberg (AKDS<GO>), firstcall.com and Reuters Knowledge Copyright 2017 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 This Week s Daily Reports Dec 22, ,600 39,500 39,400 39,300 39,200 39,100 39,000 38,900 38,800 38,700 38,600 Dec 21, ,900 38,800 38,700 38,600 38,500 38,400 38,300 38,200 38,100 38,000 Dec 20, ,416 38,339 38,262 38,185 38,108 38,031 37,954 37,877 37,800 9:14 9:43 10:12 10:40 11:09 11:37 12:06 12:34 13:02 13:30 13:58 14:26 14:55 15:23 15:52 17:40 Dec 19, ,500 38,400 38,300 38,200 38,100 38,000 37,900 37,800 37,700 37,600 9:30 9:53 10:17 10:41 11:04 11:28 11:52 12:15 12:39 13:02 13:26 13:50 14:13 14:37 15:01 15:25 9:30 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 9:30 9:54 10:19 10:44 11:09 11:33 11:58 12:23 12:48 13:12 13:37 14:02 14:27 14:51 15:16 9:30 9:54 10:19 10:44 11:09 11:33 11:58 12:23 12:48 13:12 13:37 14:02 14:27 14:51 15:16 Dec 18, ,696 38,652 38,608 38,564 38,520 38,476 38,432 38,388 38,344 38,300 Source: PSX & AKD Research Pakistan Textiles: Sector update Nov'17, (AKD Daily, Dec 22, 2017) Sustaining its upward momentum, Pakistan's total exports during Nov'17 registered an encouraging growth of 12.35%YoY/4.56%MoM to stand at US$1.97bn where both textile (up 7.45%YoY) and food exports (up 22.19%YoY) witnessed an upward trend. A likely impact of increase in final product prices, textile exports maintained its recovering trend in Nov'17, rising 7.45%YoY to reach US$1.12bn. Segment wise, value added-segment once again led the exports growth, up 11.6%YoY to reach US$826mn, while low value-added segment remained under pressure, declining 2.6%YoY to US$264mn. On a cumulative basis, textile exports during 5MFY18 increased 7.6%YoY to reach US$5.51bn largely supported by recovery in final product prices. Going forward, we expect textile exports to grow by 7.5% in FY18, where recent rupee depreciation coupled with approval of 50% unconditional export subsidy are expected to drive exports growth. Regulatory environment remained conducive in CY17, (AKD Daily, Dec 21, 2017) Playing a prominent role in market's performance during the year, regulatory developments in CY17 have been of key importance. Reviewing the same, key sectors benefitting from various policy actions taken in CY17 included: 1) Textiles - GoP announcing PM's export package offering various incentives to the export sector, 2) Fertilizers - extension of the fertilizer subsidy alongwith allowance of urea exports, 3) Steel - duty imposition (AD of 19.04/24.04/19.15% on imported CRC/billets/re-bars) providing competitive edge to local players, 4) Oil&Gas Exploration - revision in wellhead gas prices under PP12 and 5) OMCsincrease in margins of MS and HSD deregulation was a positive. While significant additions to generation capacity were made, operational sustainability of the power sector (particularly FO based plants) came under pressure with the GoP announcing abrupt closure of FO power plants towards end CY17. Spillover impact of the same was also seen in Refineries, OMCs and Exploration sectors in terms of lower offtake.going forward, populism is likely to dictate GoP's policy directives as elections draw nearer. In this regard, we can see extension of current subsidies to sectors like Fertilizers and Textiles while additional incentives to gain electoral ground cannot be ruled out. Pakistan Cements: Update on ongoing expansionary cycle, (AKD Daily, Dec 20, 2017) Being the second of the ongoing pandemic expansion cycle (first in the south region), LUCK has successfully commissioned its brownfield expansion of 1.30mtpa at Karachi plant. This should be followed by a 1.2mtpa brownfield expansion of ACPL (expected COD: Dec'17) and 2.80mtpa Greenfield expansion of DGKC (expected COD: 1QFY19) at Hub, Baluchistan. Post completion of the first expansionary phase (5.30mtpa) in South, capacity utilization in the region/total industry is expected to drop at 57%/82% by 1QFY19 from 93%/86% in FY17, assuming demand growth of 8%. Consequently, this is likely to create significant supply side pressures, therefore, exerting pricing pressure over the short term, where the prices have so far remained stable (contrary to North region where cement prices declined by 6.5% since Jun'17). On the other hand, out of the ten announced expansions in North (totaling 19.6mtpa), only 5 have been able to achieve financial close so far (totaling 9.30mtpa). Accordingly, we see the pace of expansion to be gradual in North with additions coming online in a phased manner - the first expansion is expected to achieve its COD in 4QFY19. This should allow prices in the North region to stabilize at current levels as capacity utilization is anticipated to hover around 90% in the next 4yrs. In the context of the ongoing expansionary cycle, we prefer cement players with exposure in the Northern region including LUCK, MLCF, PIOC and CHCC. Power: Debt vs Devaluation, who's the winner, (AKD Daily, Dec 19, 2017) Recent policy changes by the federal govt. have clear spillovers for IPPs - lowering their load factors in the short term while casting uncertainty over the long term performance and outlook of the power chain. While recent devaluation bodes well for the sector in general (5% additional deval leads to 5.3/8.3% uptick in HUBC/KAPCO earnings), we highlight that their payout streams solely depend on cash flow disbursements from the power purchaser (GoP through NTDC & WAPDA) to the entire energy chain. With outstanding receivables of 2

3 This Week s Daily Reports HUBC/KAPCO standing at PkR72.21/80.13bn for 1QFY18 (adding PkR5.8bn/3.2bn FYTD), honoring the capacity payments remains key to sustained payouts for investors. Also, since both IPPs are classified as relatively inefficient (on FO basis for KAPCO), GoP might as well plan to run them at significantly lower load factors (less than annual 50%). This will in-turn create a burden on the total cost of generation (CPP+EPP) as mandatory capacity payments will be paid for HUBC/KAPCO as well as other plants which have been commissioned. OMCs: Devaluation to erode profits, (AKD Daily, Dec 18, 2017) For the OMC sector at large, abrupt closure of RFO fired power plants being for the greater part of November (due to environmental concerns) meant reduced sales. Additionally, since ~63% of FO is imported, OMCs with large market shares (PSO/APL/HASCOL have 11MCY17 FO market shares of 74/7/7%) were exposed to charges resulting from delaying import of RFO (demurrage). These developments have cast uncertainty over the OMC chain and future of the RFO POL segment (~35% of overall industry volumes are made up by FO, still the largest segment by volumes), leading the sector down 5.5% during November. For the PSO and HASCOL winter has come early, where earnings are expected to face strong headwinds from reduced FO sales as well as sizeable devaluation of the PkR against US$. For the wider industry, questions marks over propensity to consume following expected hiking of POL product prices from Jan'18, headwinds to margins from loss booked on import shipments and reliance on foreign borrowing could keep investor interest subdued. 3

4 Dec-16 AKD Securities Limited Regional Valuations (2017) EPS Growth PE(x) Pakistan 18% 7.69 Indonesia 11% Malaysia 12% Philippines 7% Vitenam 12% India 28% China 13% % ROE Divd Yld Pakistan 15.7% 7.06 Indonesia Malaysia Philippines Vitenam India China Source: Bloomberg & AKD Universe PkR/US$ Trend TRJ-CRB Index Dec-16 Source: Bloomberg Source: Bloomberg Major World Indices Performance Country Bloomberg Code WoW CYTD Pakistan KSE100 Index 39,471 38, % -17.4% Srilanka CSEALL Index 6,324 6, % 1.5% Thailand SET Index 1,742 1, % 12.9% Indonesia JCI Index 6,221 6, % 17.5% Malaysia FBMKLCI Index 1,760 1, % 7.2% Philippines PCOMP Index 8,432 8, % 23.3% Vietnam VNINDEX Index % 43.2% Hong Kong HSI Index 29,578 28, % 34.4% Singapore FSSTI Index 3,386 3, % 17.5% Brazil IBX Index 31,038 30, % 25.2% Russia RTSSTD Index 13,661 13, % -7.3% India SENSEX Index 33,940 33, % 27.5% S&P SPX Index 2,685 2, % 19.9% DJIA INDU Index 24,782 24, % 25.4% UK UKX Index 7,611 7, % 6.6% Germany DAX Index 13,081 13, % 13.9% Qatar DSM Index 8,621 8, % -17.4% Abu Dhabi ADSMI Index 4,349 4, % -4.3% Dubai DFMGI Index 3,365 3, % -4.7% Kuwait KWSEIDX Index 6,414 6, % 11.6% Oman MSM30 Index 5,063 5, % -12.4% Saudi Arabia SASEIDX Index 7,210 7, % 0.0% MSCI EM MXEF Index 1,134 1, % 31.6% MSCI FM MXFM Index % 27.2% International Major Currencies Commodities Source: Bloomberg SPOT Chg +/- WoW CYTD Dollar Index % -9.06% USD/PkR % 5.22% USD/JPY % -2.70% EUR/USD % 12.98% GBP/USD % 9.04% AUD/USD % 6.93% NZD/USD % 0.69% CHF/USD % -3.31% CAD/USD % -5.84% USD/KRW 1,080 1, % % CNY/USD % -5.47% Source: Bloomberg SPOT Units WoW CYTD TRJ-CRB Points % -2.48% Nymex (WTI) US$/bbl % 8.13% ICE Brent US$/bbl % 16.26% N. Gas Henry Hub US$/Mmbtu % % Cotton USd/Pound % 8.94% Gold US$/Tr.Oz % 10.12% Sliver US$/Tr.Oz % 1.84% Copper US$/MT % 27.52% Platinum US$/Oz % 1.57% Coal US$/MT % 12.72% Source: Bloomberg 4

5 Dec-16 Dec-16 AKD Securities Limited Chart Bank Earnings Yield vs. T-Bill (12M) Differential Advance to Decline Ratio (%) Dec-16 Dec-16 FIPI Flows for the week LIPI Flows for the week (US$'000) 2,030 1, Others, (970) (1,970) (2,970) (3,970) (4,970) (5,970) (979) (2,464) (3,229) (2.00) Ind., 2.04 Co., 0.80 NBFC, (0.06) Ins, 1.60 M.Funds, 1.15 Prop. Trading, (0.76) (6,970) (4.00) (7,970) (7,387) (6.00) Bank/DFI, (4.49) AKD Universe vs. KSE-100 Index KSE-100 vs. MSCI-EM & MSCI-FM 23% 18% 13% 8% 50% 40% 30% KSE100 MSCI FM MSCI EM 3% -2% -7% -12% -17% 20% 10% 0% -10% -22% -20% -30% KSE-All Share Index AKD Universe 5

6 Market PER Chart 2017 (x) Jul-07 Feb-08 Oct-08 Jun-09 Feb-10 Oct-10 May-11 Jan-12 Sep-12 May-13 Jan-14 Sep-14 Apr-15 Dec-15 Aug-16 Source: AKD Research Market P/BVS Chart 2017 (x) Jul-07 Feb-08 Oct-08 Jun-09 Feb-10 Oct-10 May-11 Jan-12 Sep-12 May-13 Jan-14 Sep-14 Apr-15 Dec-15 Aug-16 Source: AKD Research 6

7 AKD Universe Active Coverage Cluster s Valuations Stock Symbol Price TP Stance EPS(PkR) PE(x) PB(x) DY(%) (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 Buy Cements DG Khan Cement DGKC Buy Lucky Cement LUCK Buy Maple Leaf Cement Factory MLCF Buy Fauji Cement Company Ltd. FCCL Buy Pioneer Cement Limited PIOC Buy Cherat Cement Co Limited CHCC Buy Gharibwal Cement Ltd GWLC Buy Engineering Amreli Steels Ltd. ASTL Buy Fertilizers Engro Corporation ENGRO Buy Engro Fertilizers Limited EFERT Accumulate Fauji Fert. Bin Qasim Ltd. FFBL Accumulate Fauji Fertilizer Company FFC Buy Fatima Fertilizer FATIMA Buy Food Producers Engro Foods Limited EFOODS Accumulate Oil & Gas Oil & Gas Development Co. OGDC Accumulate Pak Oilfields POL Neutral 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 6.35 UR UR UR UR UR UR UR UR UR UR UR UR UR UR Kot Addu Power Company KAPCO Accumulate Fixed Line Telecommunication Pakistan Telecommunication PTC UR UR UR UR UR UR UR UR UR UR UR UR UR UR Personal Goods Nishat Mills NML Accumulate Nishat Chunian Ltd. NCL Buy Banks Allied Bank Limited ABL Buy Bank AlFalah BAFL Accumulate Habib Bank Limited HBL Buy MCB Bank Limited MCB Accumulate National Bank of Pakistan NBP Buy United Bank Ltd UBL Buy UR Under Review 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 De c M 3M 6M 12 M CY TD High Low KS E Inde x 3 9, , ,919.4 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 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 Fixe d Line Te le c ommunic a tion Pakistan Telecommunication PTC 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 T-bill 3M % n.a 6M % n.a 12M % n.a PIB 10Y % n.a KIBOR 6M % Discount rate % Policy rate % Inflation Headline inflation % Core inflation % Food inflation % (0.10) External Indicators Export (PBS) US$ (mn) 1,780 1,638 1,801 1,805 1,627 1,912 1,631 1,866 1,675 1,888 Import (PBS) US$ (mn) 4,724 4,419 5,009 4,998 5,092 4,534 4,835 4,952 4,473 4,929 Trade Deficit (PBS) US$ (mn) (2,944) (2,781) (3,208) (3,193) (3,465) (2,622) (3,204) (3,086) (2,798) -3,041 Export (SBP) 1,783 1,769 2,061 1,766 1,954 1,865 1,828 2,104 2,194 2,380 Import (SBP) 4,196 4,017 4,305 4,108 4,633 5,054 4,720 4,262 4,712 5,258 Trade Deficit (SBP) (2,413) (2,248) (2,244) (2,342) (2,679) (3,189) (2,892) (2,158) (2,518) (2,878) Home Remittances US$ (mn) 1,488 1,417 1,694 1,539 1,867 1,840 1,542 1,955 1,294 1,654 Current Account US$ (mn) (1,202) (822) (562) (1,337) (1,651) (1,431) (2,051) (550) (1,097) (1,315) Banking Sector Deposits PkR (bn) 10,704 10,730 11,170 11,214 10,993 11,981 11,702 11,651 11,980 11,777 Advances PkR (bn) 5,468 5,477 5,697 5,777 5,936 6,176 6,028 6,035 6,137 6,151 Investments PkR (bn) 7,374 7,467 7,670 7,794 7,849 8,166 7,989 8,145 8,338 8,342 W. A. lending rate % W. A. deposit rate % Spread rate % Public Finance Tax collection PkR (mn) 223, , , , , ,449 n.a n.a n.a n.a Direct taxes PkR (mn) 81,741 80, ,242 78, , ,210 n.a n.a n.a n.a Indirect Taxes PkR (mn) 142, , , , , ,239 n.a n.a n.a n.a Currency Fx Reserves US$ (mn) 22,242 22,072 21,572 21,019 21,190 21,402 20,223 20,401 19,775 19, 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 Umer Pervez (693) Executive Director Research & Business Development Zoya Ahmed (603) Banks, Telecoms & Consumers Ali Asghar Poonawala (646) OMCs & Automobiles Waqas Imdad Ali (634) Cements & Fertilizer M.Daniyal Kanani (602) Oil & Gas & Power Umer Farooq (637) Textiles & Steel Bilal Ahsan Elahi (685) Automobiles Qasim Anwar (680) Technical Analysis Nasir Khan (639) Research Production DISCLOSURES & DISCLAIMERS This publication/communication or any portion hereof may not be reprinted, sold or redistributed without the written consent of AKD Securities Limited. 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 AKD Securities Limited 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 AKD Securities Limited 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. 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