Weekly Review. Outlook. Pakistan Weekly Update StockSmart. AKD Equity Research / Pakistan. 18 May 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 w eek 41,624 20,314 Last w eek 43,595 21,379 Change -4.52% -4.98% Indices KMI-30 Allshare This w eek 70,753 30,398 Last w eek 74,668 31,586 Change -5.24% -3.76% Mkt Cap. PkRbn US$bn This w eek 8, Last w eek 8, Change -3.70% -3.70% Avg. Daily Turnover ('mn shares) This w eek Last w eek Change % Weekly Review The ongoing political instability further fueled by former Prime Minister Nawaz Sharif's controversial comments coupled with looming macro headwinds dampened investor sentiments with the benchmark KSE-100 closing at 41,624 points (-4.52%WoW). Average daily traded volumes shrunk by 31.34%WoW to mn shares with 1) FCCL (29.41mn shares), 2) BOP (27.26mn shares), 3) KEL (26.72mn shares), 4) PAEL (24.05mn shares) and 5) TRG (20.62mn shares) leading the board. Key news flows impacting the market during the week were: 1) Brent oil prices touched a high of US$80.18/bbl, for the first time since November 2014 primarily on back of strong demand and looming U.S. sanctions against Iran, 2) As per the recent SBP data, Pakistan external debt has reached to a record of US$91.8bn (30.8% of GDP) reflecting an increase of US$8.3bn in 9MFY18, 3) Total foreign exchange reserves fell to US$17.07bn (-1.3%WoW), primarily dragged by reserves held by SBP (down US$364mn) despite US$144.4 uptick in commercial bank reserves, 4) The ECC committee approved to issue policy guidelines to OGRA to enhance the Unaccounted for Gas (UFG) benchmark from 5% to 7.6% for financial years to , 5) The GoP announced new measures during the budget wind up speech including the extension of export incentive package beyond June'18. While only one scrip remained positive WoW, performance leaders during the week were: 1) MCB (+0.7%WoW), 2) APL (-1.44%WoW), 3) OGDC (-1.65%WoW), 4) ABL (- 2.22%WoW) and 5) HASCOL (-2.34%WoW); while laggards included: 1) LUCK (-10.23% WoW), 2), PSO (-8.69%WoW), 3) PIOC (-8.48%WoW), 4) DGKC (-8.15%WoW) and 5) ENGRO (-6.47%WoW). Foreigners continued to off-load their holding during the week, with US$19.97mn outflow compared to US$4.13mn last week. Top- 5 V olume Le a de rs Index & Volume Chart Universe Gainers & Losers S ymbol V olume (mn) FCCL : BOP : KEL : PAEL : TRG : (share mn) May-17 Volume (LHS) KSE-100 Index (Index) 55,000 53,000 51,000 49,000 47,000 45,000 43,000 41,000 39,000 37,000 35,000 Source: PSX & AKD Research (Shrs'000) 200, , , , , ,000 80,000 60,000 40,000 20,000 - Source: PSX & AKD Research Outlook 42,499 42,460 42,301 41,870 41, May 15-May 16-May 17-May 18-May Ready Volume (LHS) KSE100 Index (RHS) (Index) 42,600 42,400 42,200 42,000 41,800 41,600 41,400 41,200 41,000 Market is likely to take direction from updates on the political front while clarity regarding the caretaker govt. or general election can help uplift sentiments. That said, the banking sector can gain traction in anticipation of a rate hike in the upcoming MPC meeting while oil prices climbing back to its 3.5yrs high can keep the E&P sector in the limelight. 2.0% 0.0% -2.0% -4.0% -6.0% -8.0% -10.0% -12.0% MCB APL OGDC ABL HASCOL ENGRO DGKC PIOC PSO LUCK 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 2018 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 May 18, ,985 41,920 41,855 41,790 41,725 41,660 41,595 41,530 41,465 41,400 9:14 9:38 9:15 9:40 10:05 10:29 10:54 11:19 11:44 12:09 12:33 12:58 13:23 13:47 14:12 14:37 15:02 15:26 9:14 9:38 10:01 10:25 10:48 11:12 11:35 11:59 12:22 12:45 13:09 13:32 May 17, ,350 42,300 42,250 42,200 42,150 42,100 42,050 42,000 41,950 41,900 May 16, ,600 42,550 42,500 42,450 42,400 42,350 42,300 42,250 42,200 42,150 May 15, ,750 42,650 42,550 42,450 42,350 42,250 42,150 42,050 41,950 41,850 41,750 10:01 10:25 10:48 11:12 11:35 9:15 9:39 10:04 10:29 10:53 11:18 11:43 12:07 12:32 12:56 13:21 13:46 14:10 14:35 15:00 15:24 11:59 Source: PSX & AKD Research This Week s Daily Reports PPL: Where oil prices go; returns follow, (AKD Daily, May 18, 2018) Banking on organic growth (developmental wells) amidst higher international oil prices, Pakistan Petroleum Limited (PPL) continues to reflect strong investor confidence, having gained 41% FY18TD. Encouraging flows from TAL block fields, consistent gas pressure & customer offtake from Kandhkot and incremental LPG output post KPD-TAY Phase II developmental project have provided impetus to the company's earnings (PkR33bn in 9MFY18 vs. PkR19bn in 9MFY17). Despite minor delays in the commissioning of GPF-III & IV in Gambat South block and revised (lower) oil reserves of some of the fields in TAL block, PPL is estimated to post EPS of PkR22.36/25.84/sh in FY18F/19F. Moreover, we expect the recent discovery at Adhi South to be tied-in by 1QFY19 while tight gas discoveries at Hadi and Naushehro Firoz are expected to be tied-in by late FY19. Incorporating revised oil price assumptions of US$70/65/bbl in FY19/20 and US$55/bbl thereafter (vs. previous assumption of US$55/bbl throughout our horizon), our rolled forward FY19 TP of PkR258/sh provides an upside of 23.8% along with a D/Y of 5.5%. EFERT: Best bet in the sector, (AKD Daily, May 17, 2018) In the backdrop of continuous improvement in sector dynamics and impressive 1QCY18 results, we reiterate our liking for EFERT with our revised Dec'19 TP standing at PkR87.8/sh (upside: 19%). Notable improvement in company fundamentals include: 1) significant +85% YoY growth in urea offtake during 1QCY18 (characterized by 8.79ppts improvement in its overall market share to 39.7% coupled with 44% uptick in Urea industry offtake) and 2) continuous upward trend in local product prices on the back of lower inventory levels (healthy demand, lower production and allowance for exports) and elevated landed cost of imported fertilizers (higher int l prices alongwith sharp PkR depreciation). Following this, we revisit our investment case for EFERT incorporating, 1) upward revision in EFERT's urea market share to 35%/35.5% (owing to closure of LNG based plants) from 31.4%/31.9% for CY18F/ CY19F and 2) recent uptick in local Urea prices (up ~PkR100/bag). Moreover, we have also assimilated, 1) recent budgetary measures (*gradual 1% annual reduction in corporate tax to 25% by FY23, *5%/1% super tax impact in CY18/CY19 and *GST fixation at 2%), and 2) sharp currency depreciation (weakened ~9%/5%TD since Dec'17/Mar'18 to stand at PKR115.5/US$ in May'18) in our valuations. In this regard, our earnings estimate for CY18F/ CY19F now stand at PkR9.4/PkR10.3 (revised up by 10%/13%) while our Dec'19 TP goes up by 10% to PkR87.8/sh. Having gained 9%CYTD, EFERT still trades at a cheap CY18F/19F PE of 7.8x/7.2x, offering an appealing CY18F/19F dividend yield of 11/11.8% at current levels. EFOODS: GM recovery seems unsustainable, (AKD Daily, May 16, 2018) EFOODS 1QCY18 results were surprising especially on the GM level with the company recording GM at 21.2% - the highest since 3QCY16. This improvement is noteworthy coming at a time when international dairy prices are continuously rising however; lower local farm gate prices in the flush season seem to have come to help alongwith price increase in 2HCY17, in our view. That said, fundamental outlook otherwise remains bleak with revenues continuing to decline, going down by 19%YoY/3%QoQ to PkR7.14bn in 1QCY18. To this end, stiffening up of competition (both in the whole milk and tea whitener space) amid significant price differential between packaged and loose milk continued to exert pressure, limiting our optimism. The market has reflected the same with the stock price losing 9.4% since the result announcement. Until possible product initiations come through, we expect pressure on the revenue front to remain despite clear efforts w.r.t reimaging of Tarang being made. Earnings are expected to recover after bottoming out in CY17 however is still likely to remain subpar (CY18F EPS: PkR1.72). Until noticeable fundamental improvements particularly w.r.t product innovations and visible efforts on market recapturing come through, we continue to remain skeptical on the company's growth potential 2

3 This Week s Daily Reports Pak Economy: Rising oil prices add on to the economic woes, (AKD Daily, May 15, 018) Benefiting from a prolonged period of low oil prices and fast-paced growth momentum (largely on CPEC related developments), the recent resurgence in oil prices to its 3.5yr high calls for an update in macro assumptions. We believe oil prices are likely to hover around these levels (Arab light to average at US$70/bbl in FY19F vs US$60/bbl earlier) backed by geopolitics setting the roadmap (likely fallout of Iran oil in light of US withdrawal from the JCPOA) and planned ARAMCO IPO (expected in 2019). Consequentially, CPI inflation is estimated to rise to 6.13%YoY/6.55%YoY in FY19F/CY19F (vs. 5.76%YoY/5.9%YoY earlier with oil prices assumed at US$60/bbl). In this backdrop, we believe MPC can take a more hawkish stance in setting the policy rate. Additionally, pressures on the external account are likely to remain elevated in the upcoming year where current account deficit is likely to be recorded around the same level at 4.9% of GDP (US$16.2bn) in FY19F (vs. FY18E). Looming macroeconomic headwinds can potentially dampen the positives arising out of growth momentum and can give rise to a defensive investor mindset. In this regard, sectors like banks (anticipation of rate hike), E&P (uptick in profitability), Energy (US$ hedged) and export revenue based sectors should thematically be considered to counter market volatility. Autos: Boom goes the small & mid-size segment, (AKD Daily, May 14, 2018) Total industry sales for outgoing April'18 reached 26,550 units rising +13.4%MoM/+38.6% YoY bolstered by impressive passenger car sales (+13.4%MoM/+35.8%YoY) and continued uptick in LCV & pickups offtake (+18.7%MoM/+63.3%YoY). Cumulative 10MFY18 total industry/car sales (226,588/182,911 Units) are comfortably exceeding FY17 sales (total industry/ car sales of 221,748/185,781 Units), growing by +24.2%/+18.8%YoY. During the period, 35,359 LCV & Pickups were sold, climbing 64.6%YoY to reach the highest point ever during the period (10MFY18 sales matching previous high-water mark of FY16 annual sales of 36,350 units). 1000CC segment (+36.6%MoM/83.2%YoY for April'18) remains the bulwark for passenger car sales growth followed by 800cc & below (+26.0%MoM/+37.3%YoY) while 1300cc & above segment was holding steady. Cumulative segment distribution of 45.6%/22.7/31.7% for 1300CC+/1000CC/800CC & below (vs. 52.0/16.8/31.2% for 10MFY17) shows passenger car consumers favoring PSMC s recent offerings (Wagon-R/Cultus sales +88.6%/+23.8%YoY). Matching our forecasts for robust LCV & pickups off-take, PSMC stands in a firm position to leverage 1000cc & below segment dominance as well, where its nascent models are benefiting from higher re-sale values, an indicator of positive buyer sentiments pertaining to quality, mileage and to some extent brand value. 3

4 May-17 May-17 AKD Securities Limited Regional Valuations (2018) EPS Growth PE(x) Pakistan 16.84% 7.91 Indonesia 9.11% Malaysia 12.04% Philippines 7.22% Vitenam 12.38% India 19.55% China 13.63% % ROE Divd Yld Pakistan 15.8% 6.58 Indonesia Malaysia Philippines Vitenam India China Source: Bloomberg & AKD Universe PkR/US$ Trend TRJ-CRB Index Source: Bloomberg Source: Bloomberg Major World Indices Performance Country Bloomberg Code WoW CYTD Pakistan KSE100 Index 41,624 43, % 2.8% Srilanka CSEALL Index 6,492 6, % 1.9% Thailand SET Index 1,754 1, % 0.0% Indonesia JCI Index 5,783 5, % -9.0% Malaysia FBMKLCI Index 1,855 1, % 3.2% Philippines PCOMP Index 7,672 7, % -10.4% Vietnam VNINDEX Index 1,041 1, % 5.7% Hong Kong HSI Index 31,048 31, % 3.8% Singapore FSSTI Index 3,529 3, % 3.7% Brazil IBX Index 34,315 35, % 8.5% Russia RTSSTD Index 15,511 15, % 13.4% India SENSEX Index 34,848 35, % 2.3% S&P SPX Index 2,720 2, % 1.7% DJIA INDU Index 24,714 24, % 0.0% UK UKX Index 7,784 7, % 1.2% Germany DAX Index 13,119 13, % 1.6% Qatar DSM Index 8,891 8, % 4.3% Abu Dhabi ADSMI Index 4,432 4, % 0.8% Dubai DFMGI Index 2,913 2, % -13.6% Kuwait KWSEIDX Index 6,633 6, % 3.5% Oman MSM30 Index 4,618 4, % -8.5% Saudi Arabia SASEIDX Index 8,017 7, % 10.9% MSCI EM MXEF Index 1,144 1, % -1.2% MSCI FM MXFM Index % -5.2% International Major Currencies Commodities Source: Bloomberg SPOT Chg +/- WoW CYTD Dollar Index % 1.62% USD/PkR % 4.66% USD/JPY % -1.50% EUR/USD % -1.84% GBP/USD % -0.19% AUD/USD % -3.89% NZD/USD % -2.80% CHF/USD % 2.65% CAD/USD % 2.04% USD/KRW 1,078 1, % 0.65% CNY/USD % -1.96% Source: Bloomberg SPOT Units WoW CYTD TRJ-CRB Points % 5.00% Nymex (WTI) US$/bbl % 18.57% ICE Brent US$/bbl % 18.27% N. Gas Henry Hub US$/Mmbtu % % Cotton USd/Pound % 3.24% Gold US$/Tr.Oz % -1.23% Sliver US$/Tr.Oz % -3.23% Copper US$/MT % -4.86% Platinum US$/Oz % -4.78% Coal US$/MT % 8.35% Source: Bloomberg 4

5 May-17 May-17 AKD Securities Limited Chart Bank Earnings Yield vs. T-Bill (12M) Differential Advance to Decline Ratio (%) May-17 May-17 FIPI Flows for the week LIPI Flows for the week (US$'000) - (2,000) (4,000) (6,000) (8,000) (2,137) (2,209) (2,079) (3,079) (5.00) Ind., 2.76 Co., 0.06 Bank/DFI, NBFC, (0.05) Others, 8.82 Ins, 5.79 Prop. Trading, (0.79) (10,000) (10.00) (12,000) (10,470) (15.00) (20.00) M.Funds, (16.84) AKD Universe vs. KSE-100 Index KSE-100 vs. MSCI-EM & MSCI-FM 8% 3% -2% -7% 40% 30% 20% KSE100 MSCI FM MSCI EM -12% -17% -22% -27% -32% 10% 0% -10% -20% -30% KSE-All Share Index AKD Universe 5

6 Market PER Chart 2018 (x) Jul-07 May-08 Mar-09 Jan-10 Nov-10 Sep-11 Jul-12 May-13 Mar-14 Jan-15 Nov-15 Sep-16 Source: AKD Research Market P/BVS Chart 2018 (x) Jul-07 May-08 Mar-09 Jan-10 Nov-10 Sep-11 Jul-12 May-13 Mar-14 Jan-15 Nov-15 Sep-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(%) 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 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 Buy Fauji Fert. Bin Qasim Ltd. FFBL Accumulate Fauji Fertilizer Company FFC Neutral Fatima Fertilizer FATIMA Buy Food Producers Engro Foods Limited EFOODS Reduce Oil & Gas Oil & Gas Development Co. OGDC Accumulate Pak Oilfields POL Accumulate Pakistan Petroleum PPL Buy Hascol Petroleum HASCOL Accumulate Attock Petroleum APL Accumulate Pakistan State Oil PSO Buy Power Hub Power Co. HUBC Buy K-Electric Co. KEL 6.01 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 Buy Nishat Chunian Ltd. NCL Accumulate Banks Allied Bank Limited ABL Accumulate Bank AlFalah BAFL Neutral Habib Bank Limited HBL Buy MCB Bank Limited MCB Buy National Bank of Pakistan NBP Buy United Bank Ltd UBL Buy 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 18 - Ma y- 18 1M 3M 6M 12 M CY TD High Low KS E Inde x 4 1, , , 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 % M % n.a n.a 12M % n.a n.a PIB 10Y % n.a n.a n.a n.a n.a KIBOR 6M % Discount rate % Policy rate % Inflation Headline inflation % Core inflation % Food inflation % 2.4 (0.10) External Indicators Export (PBS) US$ (mn) 1,912 1,631 1,866 1,675 1,888 1,974 1,977 1,971 1,902 Import (PBS) US$ (mn) 4,534 4,835 4,952 4,473 4,929 4,898 4,910 5,607 4,797 Trade Deficit (PBS) US$ (mn) (2,622) (3,204) (3,086) (2,798) (3,041) (2,924) (2,933) (3,636) -2,895 Export (SBP) 1,865 1,828 2,104 2,194 2,380 2,546 2,464 2,111 n.a Import (SBP) 5,054 4,720 4,262 4,712 5,258 5,346 5, n.a Trade Deficit (SBP) (3,189) (2,892) (2,158) (2,518) (2,878) (2,800) (2,676) (2,763) n.a Home Remittances US$ (mn) 1,840 1,542 1,955 1,294 1,654 1,577 1,724 1,639 1,450 Current Account US$ (mn) (1,431) (2,051) (550) (1,097) (1,315) (1,441) (1,256) -1,617 n.a Banking Sector Deposits PkR (bn) 11,981 11,702 11,651 11,980 11,777 11,969 12,362 12,002 11,933 Advances PkR (bn) 6,176 6,028 6,035 6,137 6,151 6,280 6,530 6,556 6,629 Investments PkR (bn) 8,166 7,989 8,145 8,338 8,342 8,475 8,542 7,637 8,127 W. A. lending rate % n.a W. A. deposit rate % n.a Spread rate % n.a Public Finance Tax collection PkR (mn) 511, , , , , , ,472 n.a n.a Direct taxes PkR (mn) 247, , , , , , ,736 n.a n.a Indirect Taxes PkR (mn) 264, , , , , , ,736 n.a n.a Currency Fx Reserves US$ (mn) 21,402 20,223 20,401 19,775 19,584 18,774 20,154 18,957 18,413 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 Haris Imtiaz (639) Economy 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 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. 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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