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1 Banks UBL - NEUTRAL Fair Value: PKR 6 Current Price: PKR 7 Abdul Shakur abdul.shakur@bmacapital.com UBL vs KSE Relative Index Chart UBL UBL Mkt Cap USD mn M ADT mn shares 1.2 Shares Outstanding mn 1,22 Absolute % Relative to KSE % UBL: Result Preview 9MCY1 We expect UBL to post PAT of PKR7.6bn (EPS of PKR6.2), depicting 2% YoY growth against PAT of PKR 6.bn (EPS of PKR.2) booked for 9MCY9 Although the declining advances pose downside risk to top line, significant 2% YoY decline in interest expenses is likely to post % YoY growth in net interest income for Sep1 Provision losses for the period ended Sep1 are expected to decline by 31% YoY. Sequential recovery for asset quality is expected to continue At current price level, UBL trades at PBV multiple of.96x compared to an average of.9x for the banking sector. Based on limited upside potential to our Dec1 TP of PKR6/share, we currently recommend Neutral stance on the scrip UBL is scheduled to announce 9MCY1 financial results on Thursday 28 Oct, 21. We expect the bank to post PAT of PKR7.6bn (EPS of PKR6.2), depicting 2% YoY growth against PAT of PKR 6.bn (EPS of PKR.2) booked for 9MCY9. Our projection for the quarter PAT stands at PKR2.bn (EPS of PKR2.) against PKR2.8bn (EPS of PKR1.7) for corresponding period, posting 17% YoY growth. We do not expect any interim stock or cash dividend. UBL 9MCY1 Result Preview PKR mn 9MCY1 9MCY9 YoY 3QCY1 3QCY9 YoY Net int. inc. 2,192 2,18 % 8,73 8,31 % Prov. & writeoffs 6,31 9,11-31% 2,221 2,691-17% Non int. income 7,13 7,727-7% 2,39 1,96 21% Non int. expense 13,11 12,8 2%,3,387 3% PAT 7,6 6,367 2% 2,3 2, 17% EPS (PKR) Source: BMA Research Cost consolidation keeps top-line growing For enhancing CASA deposits, UBL has recently launched new current and savings account schemes which have helped scale down costlier deposit base. Although the declining advances pose downside risk to top line, significant 2% YoY decline in interest expenses is likely to post % YoY growth in net interest income for Sep1. Provision recovery: a key premise for 9MCY1 result Provision losses for the period ended Sep1 are expected to decline by 31% YoY amid better provision coverage attained in the recent past with gradual stability in asset quality. Down turn in loan portfolio is however expected to take infection ratio up by bps CYTD to 11.6% as on Sep1. Since the bank is expected to 1

2 Banks have relatively low flood impact, asset quality of the bank is likely to remain stable going forward. With limited up side potential: recommend Neutral At current price level, UBL trades at PBV multiple of.96x compared to an average of.9x for the banking sector. Based on limited upside potential to our Dec1 TP of PKR6/share, we currently recommend Neutral stance on the scrip. 2

3 Banks BAFL - ADD Fair Value: PKR 11 Current Price: PKR 1 Abdul Shakur abdul.shakur@bmacapital.com BAFL Mkt Cap USD mn 1 12M ADT mn shares 2.8 Shares Outstanding mn 1,39 Absolute % Relative to KSE % BAFL vs KSE Relative Index Chart 7 6 BAFL BAFL: 9MCY1 Preview; Positives Priced In BAFL is expected to post PAT of PKR1.7bn (EPS of PKR1.32) compared to 9MCY9 PAT of PKR1.6bn (EPS of PKR1.16), up 1.2% YoY. No interim payout is expected along with the result With declining cost of deposits, bank s interest income is expected to increase by 18% YoY. However, no major turn around is expected for loan growth Long awaited impairment charges for Warid (PKR1.7bn) are not projected to be incorporated in Sep1. Total provision losses are thus expected to decline by 29% YoY The recent price recovery for BAFL has mostly incorporated the positives of upcoming financials for Sep1 - stock price rallied 29% MoM in Oct1. However, weak asset growth and uncertainties regarding investment provisions raise concerns on sustainability of profitability and asset value. Although the scrip currently offers 1% upside to our Dec1 TP of PKR11/share, we do not recommend investors to buy in at current prices Bank Alfalah (BAFL) is scheduled to announce its financial result for 9MCY1 on Thursday, Oct 28, 21. We expect the bank to post PAT of PKR1.7bn (EPS of PKR1.32) compared to 9MCY9 PAT of PKR1.6bn (EPS of PKR1.16), up 1.2% YoY. No interim payout is expected along with the result. BAFL 9MCY1 Result Preview PKR mn 9MCY1E 9MCY9A YoY 3QCY1E 3QCY9A YoY Net interest income 9,8 8,112 18% 3,262 2,811 16% Prov. & write offs 1,72 2,228-29% % Non Interest income 3,21,98-1% 1,283 1,2 3% Non Interest Expenses Low cost of funds cheers interest income Net interest income for the bank is projected to grow by healthy 1% YoY. Improving liquidity situation helped elevate cost of funds while no major turn around is expected for loan growth. BAFL s loan growth is expected to remain dormant considering higher concentration in consumer segment which has already been hit hard by persistent double digit inflation. Provision down by 29% YoY 8,863 8,2 1% 2,86 2,73 % Net Profit 1,78 1,62 1% 7 2 6% EPS (PKR) Source: BMA Research Since the bank remained conservative towards writing additional loan, infection ratio has increased steadily. This however should help limit incremental provisioning requirements. We expect provision for the period to decline by 29% YoY for 9MCY1. In addition, the lingering issue of Waird s impairment is not 3

4 Banks expected to be accounted for in the upcoming result - SBP has allowed deferment till Dec1. BAFL rallied 29% MoM: Neutral stance recommended The scrip has rallied by 29% MoM during Oct1TD, preemptively incorporating the upcoming positive result for Sep1. However, weak asset growth and uncertainties regarding investment provisions raise concerns for profitability and asset value going forward. Although the scrip currently offers 1% upside to our Dec1 TP of PKR11/share, we would not recommend investors to buy in at current prices.

5 OMC Overweight APL - BUY Fair Value: PKR 26 Current Price: PKR 298 Muhammad Ali Taufi ali.taufiq@bmacapital.com APL Mkt Cap USD mn M ADT mn shares.1 Shares Outstanding mn 69 Absolute % Relative to KSE % APL vs KSE Relative Index Chart APL APL: 1QFY11E EPS of PKR11.7 APL is scheduled to announce its 1QFY11 result on Thursday, October 28, 21; we expect the company to post PAT of PKR81mn (EPS: PKR11.7) compared to PAT of PKR73mn (EPS: PKR1.6) for 1QFY1 Our fair value for the stock stands at PKR26/share reflecting an upside of 3% from yesterday s closing price; we maintain the stock amongst our high conviction investment ideas Attock Petroleum Limited (APL) is scheduled to announce its 1QFY11 result on Thursday, October 28, 21. We maintain our forecast for the company and expect it to post PAT of PKR81mn (EPS: PKR11.7) compared to PAT of PKR73mn (EPS: PKR1.6) for 1QFY1. We do not expect the company to announce any payout for the quarter. APL 1QFY11 Result Preview PKR mn 1QFY11E 1QFY1A YoY Chg Net Sales 18,288 16,38 11% COGS 17,36 1,779 1% Gross Profit % Op. Exp % Op. Inc % Op. Profit 1, % Inc. on deposits % PBT 1,26 1,2 22% Tax % PAT % EPS (PKR) % Source: Company Reports, BMA Research Profits: YoY rise of 1% During 1QFY11, we expect a 1% YoY increase in net sales as a result of (1) 7% YoY increase in total volumes sold and (2) 7.1% YoY increase in average Arab light crude oil prices during the period. We expect increase in net sales to translate into 1% YoY rise in profit after tax. Outlook: Buy with 3% upside potential On a broader level, we expect sales of energy products to rebound in post-flood scenario and additional growth in Asphalt sales on the back of increased infrastructure rebuilding activity. APL being the major stake holder in sale of nonenergy products will significantly benefit for the rest of the year. According to our estimates, APL is attractively valued at FY11E PER and dividend yield of.7x and 8.% respectively. Our fair value for the stock stands at PKR26/share reflecting an upside of 3% from yesterday s closing price; we maintain the stock amongst our high conviction investment ideas.

6 Fertilizer FFC - NEUTRAL Fair Value: PKR 17 Current Price: PKR 18 Omar Rafiq omar.rafiq@bmacapital.com FFC Mkt Cap USD mn 8 12M ADT mn shares.9 Shares Outstanding mn 679 Absolute % Relative to KSE % FFC vs KSE Relative Index Chart FFC FFC and ENGRO: 9MCY1E Earnings Preview FFC and ENGRO are scheduled to announce their 9MCY1 earnings on Thursday, October 28, 21 For FFC, we expect the company to report PAT of PKR7,1mn (EPS: PKR11.8); up 13% YoY, while on a QoQ basis we expect the company to report PAT of PKR2,1mn (EPS: PKR3.6) up 1% YoY. We expect the company to payout a dividend of PKR3./share We expect 9MCY1 earnings for ENGRO Corporation (ENGRO) to clock in at PKR,22mn (EPS: PKR13.9); up 67% YoY. For, 3QCY1, we expect the company to report PAT of PKR1,28mn (EPS: PKR3.1), down 37% YoY. We expect fertilizer demand to normalize during QCY1E, as a result of interest to revive agrarian economy by the government. Although as per announcements it can be seen that Rabi crop sowing season is being targeted by the beginning of November, we expect fertilizer offtake to normalize earlier (Oct1) as dealers will try to keep inventory at hand We currently have a Neutral stance on FFC with a fair value of PKR17/share for the company s stock, while we advice an ADD stance on ENGRO (Fair value: PKR21/share) to clients with a medium to long term horizon Fauji Fertilizer Company (FFC) and ENGRO Corporation (ENGRO) are scheduled to announce their 9MCY1E earnings on Thursday, October 28, 21. FFC: Trouncing on higher retentions For FFC, we expect the company to report PAT of PKR7,1mn (EPS: PKR11.8); up 13% YoY, while on a QoQ basis we expect the company to report PAT of PKR2,1mn (EPS: PKR3.6) up 1% YoY. We expect the company to payout a dividend of PKR3./share for the quarter taking the 9MCY1 payout to PKR11/share. FFC 9MCY1E Result Preview PKR mn 3QCY1E 3QCY9A YoY 9MCY1E 9MCY1A YoY Revenue Net 1,12 8,837 1% 3,89 2,73 17% Cost of sales 6,198,926 26% 17,311 1,27 22% Gross profit 3,9 3,911 1% 12,778 11,26 11% Operating profit 3,119 3,12 1% 1,83 9,29 9% Finance costs % % Other income % 2,32 2,76 11% PAT 2,1 2,91 1% 7,1 6,639 13% EPS (PKR) Source: BMA Research 6

7 Fertilizer ENGRO - ADD Fair Value: PKR 21 Current Price: PKR 177 Engro Mkt Cap USD mn 67 12M ADT mn shares 1.8 Shares Outstanding mn 328 Absolute % Relative to KSE % Engro vs KSE Relative Index Chart Engro FFC is likely to benefit from higher retentions on sale of their brand FFC Sona Urea. Retail prices of urea increased from PKR7-76/bag during 3QFY9 to PKR86-87/bag during the outgoing quarter. Thus although the company experienced an unusually slow quarter (on the back of Aug1 offtakes) we expect the increase in price to have had a mitigating effect on revenues. Further we expect October offtakes to return to normality as effects of the floods faded. FFC is also likely to benefit from increase in other income primarily on account of higher dividend payout by its subsidiary Fauji Fertilizer Bin Qasim (FFBL). FFBL paid out a dividend of PKR1.3/share with its 2QCY1 earnings. We estimate the increase in dividends to have an EPS impact of.82 for FFC during 3QCY1E. ENGRO: Slow offtakes of flagship product and loss from Polymer to drag down quarter earnings We expect 9MCY1 earnings for ENGRO Corporation (ENGRO) to clock in at PKR,22mn (EPS: PKR13.9); up 67% YoY. For, 3QCY1, we expect the company to report PAT of PKR1,28mn (EPS: PKR3.1), down 37% YoY. Slow quarter during Aug1, is likely to reduce fertilizer profitability from urea sales, however ENGRO s strong DAP inventory is likely to result in higher earnings from EXIMP. We expect Fertilizer segment (Engro Fertilizer Limited and EXIMP) to record PAT of PKR88mn for 3QCY1E, down 36% on QoQ basis. Engro Polymer is however likely to be a dragging factor for ENGRO Corp, as it reported LAT of PKR313mn during 3QCY1. Although the COD of the VCM plant is likely to come as positive news, we expect demand for PVC to remain under pressure particularly as reconstruction efforts are likely to start during the latter part of QCY1. Outlook: Fertilizer offtake likely to normalize during QCY1 We expect fertilizer demand to normalize during QCY1E, as a result of interest to revive agrarian economy by the government. Although as per announcements it can be seen that Rabi crop sowing season is being targeted by the beginning of November, we expect fertilizer offtake to normalize earlier (Oct1) as dealers will try to keep inventory at hand. We currently have a Neutral stance on FFC with a fair value of PKR17/share for the company s stock, while we advice an ADD stance on ENGRO (Fair value: PKR21/share) to clients with a medium to long term horizon

8 Textile NCL - Current Price: PKR 23 Sana I. Bawani sana.iqbal@bmacapital.com NCL Mkt Cap USD mn 2 12M ADT mn shares 1.7 Shares Outstanding mn 19 Absolute % Relative to KSE % NCL vs KSE Relative Index Chart NCL NCL: 1QFY11 Earnings Preview NCL is scheduled to announce its 1QFY11 financial results on Thursday, October 28, 21. It is expected to post a PAT of PKR1mn (fully-diluted EPS: PKR3.33) compared to a meager PAT of PKRmn (EPS: PKR.) in the same period last year Going forward, higher cotton prices are expected to keep the production costs on the higher side as well. The stock is presently trading at FY11 PER and PBV of.2x and.8x respectively 1QFY11 EPS expected to be PKR3.33 Nishat Chunian Limited (NCL) is scheduled to announce its 1QFY11 financial results on Thursday, October 28, 21. It is expected to post a PAT of PKR1mn (fully-diluted EPS: PKR3.33) compared to a meager PAT of PKRmn (EPS: PKR.) in the same period last year. The improvement in profitability is supported by 1) an increase in revenues of 1% YoY to PKR.3bn, 2) an improvement in gross margin to 26% from 17% earned last year and 3) significant improvement in other operating income. NCL 1QFY11 Result Preview Company 1QFY11E 1QFY1A YoY Chg Net Sales,32 2,8 1% Cost of Sales 3,29 2,381 3% Gross profit 1, % Other Op Income % Finance cost % PBT % PAT 1 1% EPS diluted (PKR) Source: BMA Research Spinning business to boost profits With the company deriving over half of its revenues from the spinning segment and yarn being its major export product, the jump in its prices during the year is expected to prove highly profitable for NCL. This is because the company claimed to have cotton stocks till the quarter under review procured at rates around PKR,/maund last year while the commodity had crossed the PKR7,/maund mark in Jul1. Outlook: Cost pressures in the next year Devastation caused by floods in the country and a tight world supply of cotton has led to international cotton prices crossing USD1/lb lately. This resulted in an upward pressure on the local cotton prices at the same time which are now hovering around PKR8, levels. Going forward, higher cotton prices are expected to keep the production costs on the higher side as well. The stock is presently trading at FY11 PER and PBV of.2x and.8x respectively. 8