Pakistan Federal Budget

Transcription

1 Pakistan Federal Budget Budget points at higher development spending, but remains unfavorable for equities Syed Atif Zafar, CFA JS Global Equity Research Completed on May 27, 2017 All prices are as of May 26, 2017 JS Research is available on Bloomberg, Thomson Reuters and CapitalIQ Research Entity Notification No. REP Please refer to the important Disclosures &Disclaimer on the last page 1

2 Contents Budget at a glance (Rs bn) FY18F Federal Revenue 2,926 Federal Expenditure 4,753 i) Current Expenditure 3,477 ii) Developemnt & Net Lending 1,276 a) Federal PSDP 1,001 b) Other Development Expenditure 152 c) Net Lending 123 Federal Deficit -1,827 Estimated Provincial Surplus 347 Overall Deficit -1,480 % of GDP 4.1% Source: Budget documents Another extension of CPEC, as govt. appears to lack creativity Budget Impact on Capital Markets 10 Budget Impact on Key Sectors 13 Disclosure and Disclaimer

3 Another extension of CPEC, as govt. appears to lack creativity The government announced the last budget of its tenure on Friday evening, where surprisingly not many populist measures were taken given general election is due next year. We believe the budget announcement is very much an extension of China Pakistan Economic Corridor (CPEC) project, as a development budget of Rs2.1trn (+24% YoY) was unveiled with record federal PSDP component of Rs1.0trn (+40% YoY). In our view, most of the allocations are linked to CPEC-related projects. The highest priority has been given to transport and communication sector with an allocation of Rs411bn including Rs320bn for national highways. The energy sector has been given the next priority with an allocation of Rs401bn including investment of Rs317bn to be undertaken by WAPDA next year. Notably, Rs54bn has been allocated for Dasu Hydro Power Project and Rs21bn has been proposed for the construction of Diamer Bhasha Dam. Matiari Lahore transmission line is also being built. This is backed by a heavy investment in grid-stations and distribution lines across the country. PSDP at a glance (Rs bn) FY17B FY17R FY18F Federal Ministries/Divisions Corporations WAPDA (Pow er) National Highw ay Authority PM's Global SDGs program Special Development Program Energy for All Clean Drinking Water for All ERRA Special provision for CPEC projects Relief and Rehabilitation of IDPs/ Security enhancement PM Initiative GIDC Total Federal PSDP ,001 Provinces ,112 Total National PSDP 1,675 1,539 2,113 Source: Budget documents 3

4 Current expenditures more or less the same The remaining part of the budget on the expenditure front, i.e. current expenditures, subsidies etc. are more or less the same as last year. The total current expenditure is estimated to be reduced by 3.6% to Rs3.76trn on the back of 18% YoY lower subsidies as no subsidy has been allocated for the fertilizer sector this year (compared to Rs25.1bn). Foreign loan repayments are also projected to decline by 43% YoY to Rs287bn. Interest payments (Rs1,363bn, +0.1% YoY) will account for 36% of the overall current expenditures and 29% of the overall expenditures, while Defense (Rs920bn, +9% YoY) will take up about 24% of the current expenditures and 19% of the overall expenditures. Current Expenditures at a glance (Rs bn) FY17B FY17R FY18F Mark up paym ent 1,360 1,361 1,363 on domestic debt 1,247 1,228 1,231 on foreign debt Pension Defence Affairs and Services Grants and Transfers Subsidies Running of Civil Governm ent Foreign Loans Repaym ents Total Current Expenditures 3,844 3,905 3,764 Subsidies at a glance (Rs bn) FY17B FY17R FY18F Subsidy to WAPDA/PEPCO Subsidy to K-Electric Subsidy to USC Subsidy to PASSCO freight subsidy on Sugar Export support for Sugar Export Subsidy to NFSRD subsidy to Fertilizers Subsidy to Others Total Subsidies Source: Budget documents 4

5 Indirect taxes remain major source of income On the revenue front, the government is expecting gross revenues of Rs5.3trn (+12% YoY) through total tax revenue of Rs4.3trn (+13% YoY), of which FBR is expected to collected Rs4.0trn (+14% YoY). As a result, total revenue to GDP is expected to grow to 17.2% from 16.2% where FBR tax revenue to GDP is likely to reach 11.2% from 11.1%. Direct Taxes are expected to contribute 40% to the overall FBR collection, with indirect taxes share set at around 60%. The government has set a privatization proceed target of Rs50bn, while is eyeing Rs10bn from auction of 3G/4G licenses in FY18 (vs. Rs32.5bn in FY16). The government is also expecting to collect Rs110bn through Gas Infrastructure Development Cess (GIDC) as compared to Rs80bn in FY17. Revenue Receipts at a glance (Rs bn) FY17B FY17R FY18F 1) Total tax revenue 3,956 3,825 4,330 of w hich FBR taxes 3,621 3,521 4,013 Direct Taxes 1,558 1,379 1,595 Indirect Taxes 2,063 2,142 2,418 of w hich other taxes Gas Infrastructure Development Cess Natural Gas Development Surcharge Petroleum Levy Others ) Non-Tax revenue Gross revenue (1+2) 4,916 4,737 5,310 Provincial share in Gross Revenues 2,136 2,121 2,384 Net Federal Revenues 2,780 2,616 2,926 Source: Budget documents 5

6 Govt. expanding filers and non-filers differential treatment To meet targets, government has also taken taxation measures including (1) extending Super Tax for another year, (2) going back to the old taxation regime for Builders and Land Developers from Final Tax Regime and (3) enhancing/introducing FED and Sales Tax on certain sectors. The focus of the government remains to expand its tax net by looking to further increase cost of noncompliance with tax laws by continuing/enhancing its policy of differential taxation for filers and non-filers. Continuing with this policy the differential of withholding tax rates for filers vis-à-vis nonfilers, is being enhanced in scope and rates for various transactions including, payments made to residents and non-resident persons for sales/services/contracts, payments for prize bond/lottery, sale by auction, commission/discount to petrol pump operators etc. Total Resources at a glance (Rs bn) FY17B FY17R FY18F 1) Internal Resources 3,759 3,230 3,914 Net Revenue Receipts 2,780 2,616 2,926 Total Capital Receipts Estimated Provincial Surplus ) External Resources Total Resources 4,579 4,227 4,752 Source: Budget documents External Resources at a glance (Rs bn) FY17B FY17R FY18F Project Loans Program Loans Other Aid External Grant Total External Resources Source: Budget documents 6

7 Govt. sets a reasonable 6% GDP target for next year Government has set a reasonable GDP growth target of 6.0% for FY18 compared to 5.3% in FY17 and 5- year average GDP growth of 4.0%. We estimate GDP growth to clock in at 5.6% in FY18. In order to achieve the targeted growth, government is eyeing a growth of 3.5% in agriculture, 6.4% in industry and 6.4% in services. The same clocked in at 3.5%, 5.0% and 6.0%, respectively in FY17. Key Macro Indicators (targets) FY17B FY17R/E FY18B FY19F FY20F GDP Grow th 5.7% 5.3% 6.0% 6.5% 7.0% GDP at market prices (Rs bn) 33,509 31,862 35,919 40,876 46,597 CPI Inflation (%) 6.0% 4.5% 6.0% 6.0% 6.0% Total Revenue (% of GDP) 16.0% 16.2% 17.2% 17.3% 17.5% Tax Revenue 12.9% 13.1% 13.7% 14.2% 14.6% FBR Tax Revenue 10.8% 11.1% 11.2% 11.8% 12.2% Non Tax Revenue 3.1% 3.1% 3.5% 3.2% 2.9% Total Expenditure (% of GDP) 19.8% 20.4% 21.3% 21.3% 21.4% Current 14.9% 15.9% 15.0% 14.6% 14.6% Development 4.7% 4.5% 6.3% 6.7% 6.8% Fiscal Balance (% of GDP) -3.8% -4.2% -4.1% -4.0% -3.9% Source: Budget Documents 7

8 We expect addition of power to drive industrial sector growth Government has set a reasonable GDP growth target of 6.0% for FY18 compared to 5.3% in FY17 and 5-year average GDP growth of 4.0%. We estimate GDP growth to clock in at 5.6% in FY18. In order to achieve the targeted growth, government is eyeing a growth of 3.5% in agriculture, 6.4% in industry and 6.4% in services. The same clocked in at 3.5%, 5.0% and 6.0%, respectively in FY17. We expect agriculture sector to grow by 3.5%, where we believe there still remains ample room for cotton production to grow (still down by 28% from peak production achieved two years back) and improving outlook of other crops due to government s favorable agriculture related policies. We expect the industrial sector to help increase GDP growth next year with growth of 6.1% on the back of (1) higher automobile production (fueled by 100k units of Orange Cab scheme) and overall production levels due to addition of power and (2) greater output of the electricity generation sector. We anticipate Services sector to grow by 6.0%, in-line with its recent trend. GDP Composition 19.5% 20.9% 59.6% Services Industrial Agriculture Source: Budget Documents 8

9 We eye 5.6% growth in FY18 Weight 5-year Avg. FY16 (R) FY17 (P)* FY18 (G)* FY18 (JS)* GDP Grow th 4.0% 4.5% 5.3% 6.0% 5.6% Agriculture 19.5% 2.2% 0.3% 3.5% 3.5% 3.5% Crops 7.3% 0.5% -5.0% 3.0% 3.2% Important Crops 4.7% 1.6% -5.5% 4.1% 4.0% Other Crops 2.2% -0.9% 0.6% 0.2% 1.0% Cotton Ginning 0.5% -1.1% -22.1% 5.6% 5.0% Livestock 11.4% 3.5% 3.4% 3.4% 3.5% Forestry 0.5% 2.4% 14.3% 14.5% 8.0% Fisheries 0.4% 2.9% 3.3% 1.2% 2.5% Industrial Sector 20.9% 3.8% 5.8% 5.0% 6.4% 6.1% Manufacturing 13.5% 4.0% 3.7% 5.3% 5.7% Large Scale Manufacturing 10.7% 3.5% 2.9% 4.9% 5.5% Small Scale Manufacturing 1.8% 8.3% 8.2% 8.2% 8.2% Slaughtering 0.9% 3.5% 3.6% 3.6% 3.5% Construction 2.7% 6.4% 14.6% 9.1% 9.0% Mining and Quarrying 2.9% 4.5% 6.9% 1.3% 3.0% Electricity Generation & Gas Distribution 1.8% -0.8% 8.4% 3.4% 10.0% Services Sector 59.6% 4.8% 5.6% 6.0% 6.4% 6.0% Wholesale and Retail Trade Sector 18.5% 3.4% 4.3% 6.8% 5.0% Transport, Storage & Communications 13.3% 4.5% 4.8% 3.9% 7.0% Finance and Insurance 3.4% 5.3% 6.1% 10.8% 6.0% General Government Services 7.6% 8.0% 9.7% 6.9% 8.0% Housing Services 6.6% 4.0% 4.0% 4.0% 4.0% Other Private Services (Social Services) 10.2% 6.2% 6.8% 6.3% 6.5% Source: Economic Survey, Media Reports, JS Research * R+Revised, P=Provisional, G=Government Target, JS=JS Estimate 9

10 Budget to test market s resilience when trading resumes on Monday We believe the budget will test market resilience with more negatives (bourse & sector specific) than positives, when market resumes trading on Monday. However, value buying can be expected later specifically in MSCI stocks ahead of Pakistan s inclusion in MSCI Emerging Markets on June 1, Sector specifically, we do not believe any sector as such stands out. However, we can see interest in (1) stocks like PSO because of potentially higher cash payout and (2) IT-related companies due to tax incentives. Change in Capital Gains Tax regime - Negative: In the name of simplification of rate structure, a uniform CGT rate of 15% for filers and 20% for non-filers has been introduced. However, CGT will not be applicable on shares bought before July 1, We expect investors with holding period of more than twelve months but shares acquired after July 1, 2013 to mark to market their gains before July 1, 2017 to avail the benefit of lower tax rate. Previous CGT structure Filer Non Filer Where holding period of a security is less than tw elve months 15.0% 18.0% Where holding period of a security is tw elve months or more but less than tw enty-four months Where holding period of a security is tw enty-four months or more but the security w as acquired on or after 1st July, % 16.0% 7.5% 11.0% Where the security w as acquired before 1st July, % 0.0% Source: JS Research Tax Year

11 Budget to test market s resilience, Cont d Tax on Dividends increased - Negative: The present rate of 12.5% is proposed to be increased to 15.0%, except for power companies (IPPs). It should lower the attractiveness of non-ipps yield plays. Tax on Dividends from Mutual Funds increased - Negative: The rate of tax on dividend received from mutual funds is being rationalized and enhanced from existing 10.0% to 12.5%. No change in tax on bonus issue Neutral to Negative: Many market participants had pinned their hopes over relaxation on tax on bonus issues. However, no announcement was made in this regard. Extension in Super Tax Neutral to Negative: While this measure is likely to result in an earnings downgrade of 1-11% across our universe coverage, it was a measure that was largely expected. Increase in minimum tax rate - Negative: The rate of minimum tax is being enhanced from 1.00% to 1.25%. We believe it is a negative for loss making companies or companies working under a PBT margin of ~4.0%. Corporate Tax rate decreased - Positive: As expected, the rate of corporate tax has been reduced by 1% to 30%. Extension of tax credit on listing at the bourse - Positive: At present, upon enlistment of a company in the stock exchange, 20.0% tax credit for a period of two tax years is available on the tax payable by such company. Such tax credit is being extended for another two tax years; however, such tax credit shall be allowed at 10.0% of the tax payable for each of these subsequent two tax years. 11

12 Budget to test market s resilience, Cont d Incentivizing distribution of dividend - Positive: At present, there is exemption from tax on the undistributed reserves of a public company, if lesser of at least 40% of after tax profit or 50% of the paid up capital is distributed as dividend. In the budget, the condition regarding distribution of 50% of paid up capital has been omitted. It is worth mentioning that this is not applicable on Banks, IPPs and entities having government shareholding of more than 50%. In the scenario, the company does not payout as required; the excess amount will be taxed at the rate of 10%. We highlight shareholders of Pakistan State Oil (PSO) as major potential beneficiary of this change. We also expect higher payouts of cement and textile companies in the future. 12

13 Sector-wise impact Oil Gas Exploration Neutral to Negative Measures Implications 1. Profits from Sui fields will be taxable as per Part 1 of the Fifth Schedule of Income Tax. 2. Continuation of 3% Super Tax on Other Income. 1. Earlier exemptions were granted to Sui under special provisions related to the production. This is abolished now. We attribute this to repricing of Sui fields to higher priced Petroleum Policy However, we await for further clarity 2. Negative for overall E&Ps. Across the board impact of ~1% on EPS of JS E&P Universe. Overall budget FY18 remained neutral to negative for Pak E&Ps. Pakistan Petroleum Limited (PPL) turned out to be a loser (clarity awaited) due to adverse changes in exemptions structure of Sui fields. However, this should be offset by conversion of Sui to PP On a broader level, overall cash outflows to settle Super Tax payments in 1QFY18 should dent bottom-line of all players going forward. 13

14 Sector-wise impact Banks Neutral Measures 1. 4% Super Tax to continue in tax year Aggressive Rs1trn budget set for agri-credit for FY18, +43% YoY Implications 1. Negative earnings impact of 6%-11%, with highest impact likely on Askari Bank (AKBL) and National Bank of Pakistan (NBP) 2. Positive for Banks, NBP is expected to receive the largest chunk amongst listed banks 3. WHT exempted on cash withdrawals by Branchless Banking (BB) agents that operate under Asaan Mobile Account Scheme 4. Musharika, Ijarah, Murabaha instruments provided equal tax as to conventional banks 3. Positive for fee income. 4. Positive for Islamic Banks Budget FY18 is broadly Neutral for the banking sector where we believe negative impact of Super Tax has been priced into the banking stocks. Small funds set up to promote home financing and SME sector lending are likely to have a negligible impact on the sector given its large asset size compared to the funds. The banking sector would also have no impact of tax applicable on undistributed profit, given exemption from the said clause. 14

15 Sector-wise impact Fertilizers Neutral Measures 1. Subsidy rationalization. 2. Price of international urea reduced to Rs1,000/bag 3. Status-quo for urea 4. Continuation of Super Tax of 3% 5. Local manufacturers of Urea importing DAP put into Final Tax Regime Implications 1. Sales tax on DAP, NP, NPK, SSP and CAN is now reduced and fixed in value to abolish cash subsidy. This should somewhat ease out liquidity woes. 2. Not as dreadful as it sounds as farmers continue to shy away from imported urea due to quality and other acquisition related issues. 3. GST for urea stays unchanged at 5% and subsidy remains in play. This may continue to haunt manufacturers. 4. Should hurt profitability of JS Fertilizer Universe by ~3% during the year. 5. We flag it as a negative for the likes of EFERT and FFC as Final Tax Regime will result in a higher tax rate. 15

16 Sector-wise impact Fertilizers Negative Measures 6. GST on natural gas prices moved to Eight Schedule from the Third Schedule. 7. Imposition of 5% tax on imported phosphoric acid for manufacturing of DAP. 8. Reduced rate of 9.9% (14%-15% previously) on agri-credit 9. Corporate tax rate slides down by 100bps to 30%. Implications 6. This in effect reduces applicable 17% GST on input natural gas prices to 10%. A positive for cash flows (lesser refund to be claimed); 7. Should help ease liquidity problems (lesser refunds). 8. May boost demand for fertilizers but highly unlikely. 9. Our base case already incorporates its expected impact. We believe that overall FY18 budget turned out to be neutral for the fertilizer sector as rationalized sales tax structure but failed to address supply glut situation in the local market directly. Some measures to boost agronomy were also taken but overall, budget failed to address existing cash flows issues of the sector as no relief was provided to urea market and imported urea prices were further reduced. We expect fertilizer industry to remain under pressure going forward as weak local dynamics and international prices continue to serve as a double whammy for the sector. 16

17 Sector-wise impact Power Neutral Measures 1. Power subsidy remains unchanged at Rs118bn. 2. Continuation of super tax at 3%. 3. Corporate tax rate slides down by 100bps to 30%. Implications 1. The government failed to address the issue of circular debt as power subsidy also remained unchanged.. 2. Negative for KAPCO, where 3% super tax may trim FY17 EPS by 7%. 3. Positive for KAPCO, where our base case already incorporates its expected impact. We view FY18 budget to have a neutral impact on IPPs, however failure to address the circular debt is a key disappointment. Since IPPs enjoy tax exemption, any change in corporate tax rate would have no impact on their profitability except for KAPCO. 17

18 Sector-wise impact Cements Neutral Measures 1. Increase in FED to Rs1.25/kg (Rs1,250/ton) from Rs1.00/kg (Rs1,000/ton), net increase of Rs250/ton or Rs12.5/bag. 2. ~24% YoY rise in development outlay to Rs2.1trn (federal component of Rs1.0trn, +40% YoY) 3. Imposition of Super Tax of 3%. 4. Corporate tax rate slides down by 100bps to 30%. Implications 1. Price increase required to offset this FED hike should be Rs14.62/bag (~Rs15/bag) after taking GST of 17% into account. We expect this to be completely passed on by the end of 1QFY Bulk of development outlay is expected to go towards infrastructure financing which should provide impetus to cement sales during the year, in our view. 3. Will likely dent profitability of JS Cement Universe by ~4% during FY Our base case already incorporates its expected impact. 18

19 Sector-wise impact Cements Neutral Measures 5. Allocations for Dasu, Diamer Bhasha, Neelum- Jhelum and fourth extension of Tarbela Dams. 6. Requirement to distribute 40% of profits as dividends or pay 10% additional taxes. Implications 5. Dam constructions are normally associated with high cement demand due to massive requirements. 6. In our JS Cement Universe, most of the manufacturers distributed less than 40% of profits during the last fiscal year end (FY16). We believe budgetary changes may trigger greater cash payouts and increase leverage of the sector as expansion cycle continues. Overall, we believe that budget FY18 was a mixed bag of positives and negatives for the sector with positives mainly emanating from potential demand escalation. In the near term however, knee-jerk reaction to imposition of higher FED and Super Tax may culminate into depressed stock prices. Moreover, approaching month of Ramzan and resultant demand slow-down may limit ability to pass-on cost hikes immediately. However, given strong expected uptick in demand, we expect cost hikes to be passed on by the end of 1QFY18. 19

20 Oil & Gas Marketing Neutral Sector-wise impact Measures 1. Massive outlay of Rs320bn (+70% YoY) for construction of roads, motorways etc. 2. Super Tax of 3%. 3. Potential increase in dividend payouts 4. Withdrawal of 2% sales tax on lubricating oil Implications 1. Road infrastructure lengthening should result in overall increase in demand for Asphalt, particularly positive for APL 2. Should dent earnings of JS OMC Universe by 4% on average. 3. Budgetary changes in dividend appropriations and punitive taxes may trigger increase in payouts of OMCs, especially PSO. 4. A positive for lubricant importers and manufacturers. Overall, budget FY18 remained neutral as long term benefits offset shorter term effects of Super Tax imposition and leverage increases (PSO in focus here) to fund higher dividend payouts. Volatility can be expected to persist in the near term as earnings take a hit. Going forward however, overall improvement in economic activity should boost POL sales. To gear up for jump in demand, OMCs are currently in the process of expanding their storage capacity to enable retail outlet expansion. 20

21 Sector-wise impact Textiles Neutral to Positive Measures 1. Continuation of Long Term Finance Facility for textile sector at 5% and Export refinance rate at 3% 2. Zero rating to continue, where retail sales on the same to be taxed at 6% (previous 5%) 3. Continued duty free import of textile machinery 4. 6% sales tax on commercial import of fabrics 5. Minimum wage increased to Rs15,000 from Rs14, All sales tax refunds to be paid latest by Aug 14, Cotton hedge trading will be introduced to stabilize cotton prices Implications 1. Neutral 2. Neutral to Negative 3. Neutral 4. Positive for value added textiles 5. Negative 6. Positive 7. Neutral to Positive 21

22 Sector-wise impact Textiles Neutral to Positive Measures 9. Online B2B and B2C consumer portal will be created for trading in textiles 10. Imposition of 3% Super tax 11. Brand development fund to be set up 12. Imposition of 5% RD on polyester filament yarn Implications 9. Neutral 10. Negative EPS impact of ~5% on JS Textile Universe 11. Positive 12. Positive for spinners, ICI We view the FY18 Budget as largely Neutral for the textile sector, as nothing unexpected was announced by the government. Overall, the sole significantly positive impetus for textile sector from the budget will be timely disbursements by the government for the Rs180bn textile package. 22

23 Sector-wise impact Autos Neutral Measures 1. Concession in duties on Hybrid Electric Vehicles (HEV) above 2,500cc withdrawn 2. Maintaining sales tax reduction at 50%/25% for HEV for up to 1,800cc/over 1,800cc. 3. Reduction of WHT on registration of vehicles by Rs2,500-Rs5, Impact of 1% reduction in Corporate Tax rate 5. Imposition of 3% Super tax 6. Additional tax on cylinder head for motor bikes 7. Reduction in RD on aluminum waste scrap from 10% to 5% Implications 1. Neutral 2. Neutral 3. Positive 4. Neutral, as already incorporated in our earnings estimates 5. Negative affects JS Auto Universe FY18F earnings estimates by ~4% 6. Positive for Atlas Honda Limited (ATLH) 7. Positive for Auto Parts Manufacturers 23

24 Autos Neutral Measures Sector-wise impact Implications 9. Tax on undistributed profits 9. Positive for PSMC shareholders the company has low payout ratios (16% in 2016). In order to avoid 10% tax, the company will have to distribute 40% of post tax profits as cash or bonus shares. The Budget FY18, as expected, was largely a non-event in terms of its potential direct impact on the Automobile sector. We believe that continuing support for the agriculture sector would help maintain demand for automobiles going forward from the rural sector. 24

25 Sector-wise impact Insurance Neutral Measures 1. Minimum premium to collect 1% WHT from non-filers raised to Rs300,000, from Rs200,000 previously 2. Continuation of 3% Super Tax % tax on undistributed profit Implications 1. Positive 2. Negative EPS impact of ~5%. 3. Neutral to our Insurance coverage (AICL), peer insurance companies likely to jack up dividend payout Budget FY18 remained a non event for the Insurance sector as a whole. However, increasing development spending and additional infrastructure projects keep the sector s bullish outlook intact. 25

26 Sector-wise impact Miscellaneous Measures 1. Sales Tax on sale of electronic goods to retailers increased from 0.5% to 1%. 2. Imposition of 5% WHT on purchase of tobacco. 3. Start-up software houses to be exempted from Income Tax for first 3 years. While, exports of IT services shall be exempted from Sales Tax. 4. Limit of admissible sales promotion and advertising expenditure raised from 5% to 10% of turnover. 5. Customs Duty on telecom equipment reduced to a standardized 9% from 11% and 16%. While, Federal Excise Duty (FED) on telecom services reduced from 18.5% to 17%. Implications 1. Negative for electronic manufacturers, like PAEL and SING 2. Negative for cigarette manufacturers 3. Positive for IT companies. 4. Positive for Pharmaceutical companies. 5. Positive for Telecom sector. 26

27 Sector-wise impact Miscellaneous Measures 6. Advance WHT collected from stock exchange brokers of 0.02% has been made final tax in respect of such persons. 7. Current 8% minimum tax on services rendered by Pakistan Stock Exchange Limited is further being reduced to minimum tax of 2% on its services. Implications 6. Negative for brokers. 7. Positive for Pakistan Stock Exchange Limited, the listed company. 27

28 Ticker Price Target Earnings growth PER (X) Price/BV(X) Dividend Yield ROE Rating Upside 26-May-17 Price FY17E/2017F FY18F/2018F FY17E/2017F FY18F/2018F FY17E/2017F FY18F/2018F FY17E/2017F FY18F/2018F FY17E/2017F FY18F/2018F JS Universe 5.8% 14.3% % 4.8% 16.0% 16.9% Oil & Gas Exploration MW 5% 12.7% 29.6% % 3.5% 14.3% 17.0% 1 Oil & Gas Development OGDC Buy 199 8% 10.0% 28.6% % 3.9% 13.2% 15.5% 2 Pakistan Petroleum PPL UR UR UR UR UR UR UR UR UR UR UR UR 3 Pakistan Oilfields POL Buy 518-1% 35.2% 36.6% % 10.6% 32.3% 43.8% Banks OW 12% -6.8% 9.5% % 5.5% 14.1% 14.5% 4 MCB Bank MCB Hold 247 2% 2.4% 10.1% % 6.6% 15.6% 16.5% 5 Habib Bank HBL Buy % 0.7% 10.5% % 4.7% 17.0% 17.5% 6 United Bank UBL Buy % -3.1% 12.8% % 5.1% 15.9% 16.6% 7 National Bank of Pakistan NBP Buy 76 13% -33.9% 0.3% % 7.8% 8.5% 8.4% 8 Allied Bank ABL Buy % -4.5% 7.9% % 7.5% 13.4% 13.7% 9 Bank Al-Falah BAFL Buy 51 12% 8.4% 1.7% % 3.3% 13.4% 12.2% 10 Meezan Bank MEBL Buy 93 9% 14.8% 21.4% % 4.7% 19.4% 21.1% 11 Askari Bank AKBL Buy 25 12% -41.6% 22.3% % 4.5% 9.1% 10.5% 12 Bank Al-Habib BAHL Buy 69 10% -9.7% 8.5% % 5.6% 16.7% 16.7% 13 Faysal Bank FABL Sell 25-1% -13.0% 1.6% % 2.0% 10.1% 9.3% Fertilizer MW 13% 9.5% 7.4% % 8.2% 15.6% 16.2% 14 Fauji Fertilizer FFC Buy % 13.6% 11.1% % 11.6% 46.9% 50.7% 15 Engro Corporation ENGRO Buy 400 0% 1.5% 7.0% % 5.0% 6.7% 7.0% 16 Fauji Fertilizer Bin Qasim FFBL Buy 67 35% 139.5% -3.0% % 5.5% 23.2% 20.8% 17 Fatima Fertilizer FATIMA Hold 36 9% -10.1% 13.3% % 9.1% 18.1% 19.2% 18 Engro Fertilizers EFERT Buy 72 22% 16.1% 1.1% % 12.3% 25.0% 24.6% Power Generation OW 11% 6.7% 29.0% % 6.3% 25.8% 30.7% 19 Hub Power HUBC Hold 131-1% -3.5% 35.4% % 8.5% 33.3% 41.8% 20 Kot Addu Power KAPCO Buy % 7.2% 26.3% % 16.2% 30.5% 36.5% 21 Nishat Chunian Power NCPL Buy 54 21% 9.1% 25.1% % 11.7% 35.3% 35.3% 22 Nishat Power NPL Buy 76 65% 11.0% 33.7% % 17.4% 24.4% 28.8% 23 K-Electric KEL 7.82 UR UR UR UR UR UR UR UR UR UR UR UR 24 Pakgen Power PKGP Buy % 160.4% 8.6% % 8.4% 8.8% 9.1% 25 Lalpir Power LPL Buy % 25.4% 10.7% % 15.5% 9.5% 10.0% Cement OW 16% 6.2% 14.1% % 3.1% 19.6% 19.5% 26 Lucky Cement LUCK Buy 1,046 10% 12.0% 6.4% % 1.2% 19.3% 17.7% 27 DG Khan Cement DGKC Buy % 7.9% 7.4% % 2.9% 13.7% 13.4% 28 Fauji Cement FCCL Buy 54 16% -39.6% 83.3% % 8.1% 17.2% 28.5% 29 Maple Leaf Cement MLCF Buy % 15.0% 13.3% % 4.4% 24.4% 23.9% 30 Cherat Cement CHCC Buy % 68.3% 20.5% % 3.2% 23.6% 24.0% 31 Power Cement POWER Buy 26 69% 7.9% 19.6% % 0.0% 20.1% 19.7% 32 Kohat Cement KOHC Buy % 7.0% 3.2% % 7.3% 32.0% 27.8% 33 Pioneer Cement PIOC Buy % 26.9% 4.2% % 4.8% 27.6% 24.7% 34 Attock Cement ACPL Buy % 6.3% 26.7% % 5.2% 27.3% 29.3% 35 Dewan Cement DCL NR NR -15.2% -1.0% % 0.0% 14.2% 12.3% Oil & Gas Marketing OW 19% 66.3% -5.6% % 4.6% 21.3% 17.8% 36 Pakistan State Oil PSO Buy % 77.3% -9.1% % 4.2% 18.3% 14.7% 37 Attock Petroleum APL Buy % 45.9% -15.7% % 7.2% 36.8% 29.3% 38 Hascol Petroleum HASCOL Buy % 59.4% 27.3% % 3.1% 35.1% 36.9% 39 Hi-Tech Lubricant HTL Buy % 16.9% 88.3% % 2.5% 17.4% 27.2% Textile OW 7% -5.6% 29.7% % 4.4% 6.2% 7.7% 40 Nishat Mills NML Buy 188 6% -11.3% 31.5% % 3.9% 5.2% 6.6% 41 Nishat Chunian NCL Buy 70 13% 15.4% 24.8% % 6.5% 13.5% 15.6% Auto Assemblers/Allied MW 7% 36.1% 4.3% % 4.5% 33.2% 30.1% 42 Indus Motors INDU 1, Buy 2,334 17% 23.5% 3.6% % 6.5% 47.5% 42.9% 43 Pak Suzuki Motors PSMC Sell % 87.9% 6.3% % 1.3% 18.3% 16.8% 44 General Tyre & Rubber GTYR UR UR UR UR UR UR UR UR UR UR UR UR Consumers OW 43% 24.1% 32.9% % 0.8% 29.2% 31.0% 45 Engro Foods EFOODS Buy % 18.5% 41.6% % 0.6% 26.5% 30.1% 46 National Foods NATF Buy % 41.0% 11.0% % 1.4% 38.9% 34.6% Insurance MW 13% -27.5% 8.0% % 4.1% 14.3% 14.2% 47 Adamjee Insurance AICL Buy 91 13% -27.5% 8.0% % 4.1% 14.3% 14.2% 28

29 Contact Information Syed Atif Zafar, CFA Strategy and Economy (92-21) Amreen Soorani Banks and Consumers (92-21) (ext. 3099) Faizan Ahmed E&Ps, OMCs, Cements and Fertilizers (92-21) (ext. 3103) Ahmed Lakhani Autos and Textiles (92-21) (ext. 3035) Mehwish Zafar Power (92-21) (ext. 3096) Raheel Ashraf Technical Analyst (92-21) (ext. 3098) Adeel Jafri Database Manager (92-21) (ext. 3098) Muhammad Furqan Librarian (92-21) (ext. 3105) Head Office 6th Floor, Faysal House, Main Shahra-e-Faisal Karachi, Pakistan Tel: Fax: ,66 29

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