2. Table of contents
Market - All set to achieve new target
Pakistan equities yielded 27% gain in 2014
KSE vs Key Events
Dec-2015 Index target of 40K
Market catalyst in 2015
KSE: Quarterly return pattern
Shift to top-down approach
KSE - At Glance
Economy - Consolidating the recovery
A glimpse into past
Gathering momentum
Key Indicators
Politics - Stable & Improving
Key Calls
Engro Corporation
Nishat Mills
DG Khan Cement
Pakistan State Oil
United Bank
Bank Alfalah
Habib Bank
Strategy| PakistanJanuary 2015
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3. All set to achieve new target
Pakistan equities yielded 27% gain in 2014
• Despite heightened political noise, Pakistan equities once again emerged as one of the best
performing market of the world by generating 27% (US$ 33%) gain in CY14 mainly on account of
improving macros & increased market visibility to international investors.
• As expected, the pro-business PML(N) Govt dealt effectively with the economic challenges that
improved the macros significantly. In its economic reforms program the govt implemented tax
reforms, kick start of privatization process (transactions of UBL, ABL & PPL), 3G/4G auction made
successful re-entry in global bond market (Euro bond issue of US$2.0bn & Sukuk of US1.0bn) which
subsequently improved forex reserves position, stabilized exchange rate, controlled government local
borrowing & increased investors’ confidence.
• The macro level optimism mainly inspired more than half of the return in CY14 as heightened
political noise in the wake of dharna (sit-ins) initiation by PTI & PAT coupled with tensed Govt-
military relations were largely offset by strengthening macro position.
Strategy| PakistanJanuary 2015
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Source: MSCI & FCEL Research
KSE vs MSCI EM/FM
MARKET
Key data
KSE-100 Index 33,786
52 week High/Low 33,786/25,478
Market cap (US$ bn) 77
Market cap/GDP (%) 30
1-Yr Avg. daily Vol (US$ mn) 95
Free float (%) 29
Valuation analysis 2014A 2015E
PE (x) 9.9 8.5
PBV (x) 2.1 1.8
Div Yield (%) 5.0 6.0
ROAE (%) 21 21
ROA (%) 4 4
‐5%
5%
15%
25%
35%
MSCI FM ‐ 100 MSCI FM MSCI EM KSE 100
‐4
1
6
11
16CY 14 Return YTD return PE (RHS)
4. Source: KSE & FCEL Research
All set to achieve new target
KSE vs Key Events
Strategy| PakistanJanuary 2015
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MARKET
‐
200
400
600
800
1,000
1,200
1,400
1,600
1,800
Jan‐12
Feb‐12
Mar‐12
Apr‐12
May‐12
Jun‐12
Jul‐12
Aug‐12
Sep‐12
Oct‐12
Nov‐12
Dec‐12
Jan‐13
Feb‐13
Mar‐13
Apr‐13
May‐13
Jun‐13
Jul‐13
Aug‐13
Sep‐13
Oct‐13
Nov‐13
Dec‐13
Jan‐14
Feb‐14
Mar‐14
Apr‐14
May‐14
Jun‐14
Jul‐14
Aug‐14
Sep‐14
Oct‐14
Nov‐14
Dec‐14
Jan‐15
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
Volumes KSE100 Index
DR drop by
50bps
Cut in DR
SBP reserves slip to
13-year low
Operatiion Zarb-e-
Azb launced
PTI calls off
dharna
MSCI doubles
Pakistan weight to
8.4pc
FY15 budget
announced
IMF sucessful
review
CGT releif
package
Higher earnings & single
digit DR
Favourabe resolution
of CGT
Positive CPI
readings
Positive outcome on
caretaker Govt
General
ELections
Partial resolution of
circular debt Moody's changes
outlook for five bank
PTI & PAT sit in
started
GIDC ordinance
signed by President
Improved Pak-US
relations
Opening of Nato supp
& CSF flows
Ramzan effect &
reversal in DR
EU-GSP plus
SC's verdict; 18th
ammendment
APS attack in
Peshawar
5. All set to achieve new target
Dec-2015 Index target of 40k
• We opine, the bull run at Pakistan market to extend in CY15 too with strong outlook to generate
another double-digit gain in CY15.
• The Pakistani market is currently trading at PE of ~8.50x or 35% discount to the regional average
whereas it appears more attractive on dividend yield basis which shows a discount of 42% to the
regional average.
• The a) continuation in economic recovery, b) privatization/PSE’s sell-offs, c) nations’ unity over
anti-terrorism policy leading to increased military offenses d) improved & stable political situation d)
double digit earnings growth e) increased weight in MSCI Index & f) room for further cut in interest
rate, exhibit a strong case for Pakistan stock market to generate another handsome return in CY15.
• A 14% EPS growth in 2015E suggests market could touch 38.5k during CY15 without any re-rating (i.e,
forward PE of 8.5x).
• That said, at a target PE of 9.5x and expected dividend yield of 6%, we arrived at end-Dec 2015 KSE-
Index target of 40k.
• The theme of valuation re-rating to remain intact given the notable fall in political uncertainties,
rising macro, net beneficiary of oil price plunge, higher weight in MSCI index.
• In our view, the Pakistan equity market is one amongst very few markets around the world looking
poised to advance on a long-term bull phase over the next several years.
• We opine that investors should keep the strategy based on growth stocks. The overall investment
theme may remain focused on growth stocks, however, segments which are likely to receive benefits
of declining cost should remain on top in the criteria of stock selection.
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MARKET
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6. All set to achieve new target
Market catalyst in 2015
Below we have discussed key triggers for KSE in 2015:
Economy: From recovery to growth phase
• With Pakistan under an IMF Extended Fund Facility (EFF), the financial assistance from IMF has trigged
much needed economic reforms while the ensuing dollar inflows have provided a cushion for the
vulnerable FX reserves in terms of currency.
• The sudden fall in international oil prices further supported the recovering growth and helped in
improving the balance of position of the country while providing the support to the exchange rate.
• The improving macro economic indicators and stability at the political front has significantly reduced
the country’s risk profile, we believe.
• Pakistan’s qualification for the sixth tranche of IMF after meeting the quantitative performance
criteria underscores the improving economic outlook.
• Going forward, progress on energy and fiscal reforms would further support the equity prices in CY15.
• These include efficient use of energy resources by cutting untargeted subsides, overcoming energy
power shortages, power tariff rationalization, liberalize trade regime, privatization of public sector
enterprises, withdraw tax exemptions, improving tax administration and allowing SBP to follow an
independent monetary policy.
Political stability
• We anticipate 2015 to be a year of relatively improved & stable political scenario where the
opposition party (PTI) calling-off its dharna (sit-in) politics & pledged not to revert to it again while
Strategy| PakistanJanuary 2015
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MARKET
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7. All set to achieve new target
the security scenario (increased military offense in the wake of nation’s unity over stiff anti-terrorism
policy following Army School massacre) is also likely to remain much more controlled than previously.
Privatization
• The continuation of privatization process along with the planned capital market transactions is likely
to remain the key trigger for the market during CY15. In line with its economic ideology, the PML-N
government pledged to sell govt stakes in state-owned companies. Key capital market transaction to
watch is HBL sell-off which is estimated to fetch US$1.2bn in 1HCY15.
Corporate earnings growth
• The corporate profitability trend is likely to remain on upward trajectory & would show further
improvement in 2015 due to better expectations from the core growth of Cements, Fertilizer, Textile
& Banking sector companies. The high earnings growth on the corporate side will keep Pakistan
market’s attractiveness despite 27% rise in equity prices.
Liquidity – Equities to attract more flows
• We believe that in the absence of other viable investment options, the market would keep attracting
domestic liquidity. Meanwhile, besides better domestic liquidity, the fundamental recovery would
also attract foreign investment.
Pakistan’s weight in MSCI Frontier Index to rise
• In its upcoming index review, any positive outcome with respect to weight increase of KSE in MSCI FM
or up-gradation to MSCI EM status, would successfully increase the visibility of Pakistan to foreign
fund managers. The continuous out-performance of KSE vs its MSCI FM peers along with bearish stock
performance of oil exporting countries should support in attracting off-shore fund managers’
attention & their resource allocation.
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MARKET
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8. All set to achieve new target
Shift to top-down approach
• Despite muted economic growth in recent years, Pakistan market’s return exceeded the GDP growth
in real terms where it mainly tracked the earnings growth momentum. Therefore, a ‘bottom-up’
investment strategy was best suited.
• However, for CY15, the strengthening overall economic scenario in the wake of strong expectation of
rising GDP growth is likely to fuel corporate earnings growth during the year. Considering this, an
investment strategy of ‘top-down’ approach appears suitable.
• With resurging growth, reduction in political noise, benefits of falling oil prices, lower inflation rates,
strengthening external position, stable exchange rate & easing monetary policy are the factor that is
likely to lend support to the bullish spell across the board.
• In this regard, we highlight sectors (like Cements, Fertilizer, Textile & Banks) estimated to put-
perform (volumes + margin gains) the GDP growth hence appear ideal to outpace overall market
return.
• We expect the economic growth to support higher volumes while the lowering cost (falling fuel &
inflation) is likely to magnify the impact of higher revenue on the bottom-line of the companies. It
indicates a handsome increase in the profitability going forward. With profitability improvement on
track, stocks are likely to perform better.
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MARKET
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9. All set to achieve new target
KSE: Quarterly return pattern
• The analysis of last fifteen years data (2000-2014) reveals an interesting observation related to
Pakistan market’s performance in the opening quarter (Jan-Mar) of the calendar years.
• Barring 2001 & 2011, the market has yielded exceptionally higher returns in 1Q. Even in the periods
of ultra instability, 1Q returns have remained in the positive zone. For instance, MS Bhutto was
assassinated on Dec 27, 2007.
• On average basis, the market’s 1Q return in last 15 years arrives at 15% versus 1%, 3% and 7% in 2Q,
3Q and 4Q, respectively. Whereas, in last 10 years (2005-14), 1Q average return was 13% compared to
respective 2%, 3% and 3% in 2Q, 3Q and 4Q.
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KSE: Last 10‐year Avg Return
0%
2%
4%
6%
8%
10%
12%
14%
1Q 2Q 3Q 4Q
KSE: Last 5‐year Avg Return
0%
2%
4%
6%
8%
10%
12%
1Q 2Q 3Q 4Q
KSE: Last 15‐year Avg Return
0%
5%
10%
15%
20%
1Q 2Q 3Q 4Q
11. Consolidating the recovery
A glimpse into past
• FY14, was marked as the first year of completion of PML-N led government. The government
overcame the stiff challenges successfully posing on both internal and external fronts during the year.
Building-up of forex reserves, appreciation & stability in exchange rates, significant decline in CPI
readings, successful re-entry in Global bond market & reduced number of terrorists attacks to name a
few.
• During FY10-14, average GDP growth was recorded at only 3.6% - well below average of 5.4% for the
preceding 5 years.
• Alone in FY14, GDP growth increased slightly to 4.1% from 3.7% a year earlier. This mainly ensued
from heavy weight services sector that grew by 4.3%. Encouragingly, the industrial sector also
depicted improved performance in the wake of pickup in manufacturing activities which grew by 5.8%
during the year.
• On the demand side, the overall consumption depicted an improvement (up by 0.35% of GDP to
reach 92%) albeit at low pace as a result of fall in private consumption (down by 0.7pps to 80% of
GDP) and increase in public consumption (up by 1.0pps to 12% of GDP) during the year. Contribution
of net exports to GDP was maintained at minus 6% of GDP (down 0.2pps). Fixed investment weakened
further to 12.4% of GDP as private investment dropped to only 8.9% of GDP.
• Average CPI dropped down to single digit from 11% in FY12 to just 8.7% on the back of improved
supply situation & declining global commodities prices.
• Surpassing the initial target of 6.5%, fiscal deficit of FY14 settled at 5.5% of GDP primarily due to
rationalizing revenue & expenditures coupled with the provincial budget surpluses.
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12. Key Macro Indicators
FY13A FY14 Target FY14A
Real GDP 3.7 4.4 4.1
Agriculture 2.9 3.8 2.1
Industry 1.4 4.8 5.8
Services 4.9 4.6 4.3
Consumption 4.6 6.0
Investment 1.3 0.2
CPI inflation 7.4 8.0 8.6
US$ bn
Fiscal balance (8.2) (6.3) (5.5)
Public debt 64.8 61.3 64.3
Current account balance (1.0) (1.1) (1.2)
Source: SBP
Remittances 13.9 15.1 15.8
Exports (fob) 24.8 26.6 25.2
Imports (fob) 40.2 43.3 41.8
as percent of GDP
growth in percent
Consolidating the recovery
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ECONOMY
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13. Consolidating the recovery
• Given the raising concerns of reversing inflationary pressure on account of high growth in monetary
aggregates & rise in power prices during 1HFY14, SBP changed its stance from accommodative to tight
policy which resulted in cumulative 100bps increase in policy rate during the half.
• However, later on, due to reduced risks of inflationary pressure, the central bank adopted neutral
stance & kept the policy rate constant in the second half of FY14.
• Meanwhile, the realization of higher remittances (US$15.8bn) and lower services deficit arrested the
current account slippages and remained successful in maintaining the ratio close to 1% of GDP. That
said, the CA deficit numbers of FY14 were recorded at US$3.0bn (1.2% of GDP) versus that of
US$2.5bn (1.1% of GDP) - a slight increase of 10bps.
• FY14 concluded as another year of double digit growth in Foreign Direct Investment (FDI) where the
account posted an increase of 14% YoY. Improvement on domestic & external fronts remained the
major factors that boosted the investors’ confidence towards Pakistan.
• On a positive note, net foreign inflows under the head of international bond issues, gift money,
privatization proceeds, receipts from multi lateral & bilateral sources along with international
institutions (IMF, World Bank, ADB) rose the foreign reserves sharply to US$14.1bn from the level of
US$7.9bn in Jan-14 and US$11.0bn in June-13.
• Extreme volatility was witnessed on the exchange rate front. That said, the rupee made high of
PRs109.5/US$ and low of PRs96.9/US$ during the year. This sharp depreciation in the currency was
observed during the initial half of the fiscal when receipt of US$1.5bn gift from Saudi Arabia, nearly a
billion dollar collection from 3G/4G licenses auction and receipt of external loans improved the
situation & brought the exchange rate back to the level as it was at the start of year. The rate then
resided in the stable range of PRs98-100/US$.
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ECONOMY
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14. Consolidating the recovery
Gathering momentum
• In continuation of it’s briefly spelled out ‘economic revival’ program the government strived
sincerely to implement its economic agenda in order to put the economy back on track.
• Consequently, the reforms initiated by the government produced positive results and turnaround the
economic health of the country significantly.
• This is reflected from resurging foreign exchange reserves from drastic levels, appreciation &
stabilization of exchange rate in relation to dollar, handsome industrial growth on the back of
improved energy supply, contained inflation to single digit, continuous increases in foreign worker
remittances, stock market marking new highs, successful re-entry in global bond market & auction of
3G/4G licenses.
• Moreover, the international financial institutions like ADB & IMF also acknowledged the measures
taken by PML(N) Govt. and appreciated the desired positive improvements in national economy.
• In line with the plan, government successfully launched its privatization initiative and divested its
holdings in UBL, PPL (part) and ABL which raised a sum of US$689mn. The major portion of which was
subscribed by international investors.
• However, the unfavorable oil market dynamics restrained GoP from conducting the SPO of its OGDC
stake and the transaction was postponed. In addition, the offloading of HBL stake has been scheduled
in later half of the fiscal.
• After the successful re-entry of Pakistan in global bond market, CY15 is likely to see inflows from
privatization drive. In this regard, the Govt has scheduled a number of equity sell-off transactions in
the 2HFY15.
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15. Consolidating the recovery
• To maintain the improvement in external accounts, fiscal imbalances and growth, the government
would continue to receive financial support from International Monetary Fund (IMF) & other lending
agencies.
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Selected Economic Indicators
1QFY14 1QFY15 FY15 Target
growth in percent
Real GDP NA 4.0 5.1
LSM 6.6 1.9 4.0
CPI 8.1 7.5 8.0
Private sector credit (0.5) 11.0 NA
Money supply (M2) 0.2 0.2 NA
US$ bn
Total liquid reserves 9.8 13.5 NA
Worker remittances 3.9 4.7 16.7
Direct investment in Pakistan 0.2 0.2 2.0
C/A balance (1.2) (1.3) (1.1)
percent of GDP
Fiscal bal. as % of GDP (1.1) (4.8) (4.9)
Source: SBP & Planning Commission
16. Consolidating the recovery
• We believe the government would remain successful in obtaining financial aid including project &
program loans from the international lending agencies given the successful IMF reviews amid strict
adherence to the targets set by the agency.
• Based on government’s estimates for external loans, grants & repayments along with the expected
current account deficit of US$2.9bn in FY15, the foreign exchange reserves of the country may touch
US$17.0bn - a growth of 27%.
• This would resultantly improve the import cover level to over 3.0 months, thereby, putting the
balance-of-payment position in much comfortable zone & would keep the exchange rate stable.
• The financial assistance from IMF has trigged much needed economic reforms while the ensuing
dollar inflows have provided a cushion for the vulnerable foreign exchange reserves in terms of
currency.
• We firmly believe that the economy of Pakistan has recovered strongly and would continue to show
notable improvements going forward. Pakistan’s qualification for the remaining IMF tranches &
successful inflows from planned stake sell-offs and bond issues remain crucial in achieving the target
full year recovery.
• The macro theme for FY15/16 is primarily based on pick-up in manufacturing activity amid reducing
power shortfalls & enduring single digit interest rates environment.
• As per general perception, the pace of economic activity during the first half of the ongoing fiscal
should have remained muted as the public demonstrations, worsening security condition, floods &
legislative hurdles in implementation have halted the government’s operation which resultantly
slowed down the reform process.
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17. Consolidating the recovery
• However, the scenario may have dented the confidence level but the initial estimates indicate a
nominal impact of the same as strong private credit growth (Nov 2014: 9.0%), inflows from sell-offs,
encouraging inflation numbers (Dec CPI: 5.8%) & falling central bank financing for fiscal operations
have largely compensated for the slowed activity.
• The release of fifth & sixth tranches amounting US$1.05bn following successful Fourth & Fifth
reviews of IMF further endorses that the macro benchmarks were largely met with nominal impact
from the aforementioned political & natural mishaps noted.
• The recent dip in political noise in the wake of winding up of ‘dharna politics’, solidarity of all
sections of the society over elimination of terrorism provide government with an opportunity to shift
its focus back to the repair process.
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ECONOMY
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Projections for Major Economic Indicators
GoP Annual Target IMF Forecast SBP Forecast FCEL Estimate
growth in percent
GDP 5.1 4.3 4.0 - 5.0 4.5
CPI inflation 8.0 7.9 6.5 - 7.5 6.0
Money supply (M2) NA 12.4 11.5 - 12.5 11.0
US$ bn
Worker remittances 16.7 17.3 16.5 - 17.5 17.0
Exports 27.0 25.3 25.4 - 25.9 25.0
Imports 44.2 44.2 43.9 - 44.7 45.0
Current account balance (1.1) (4.0) (1.0) - (2.0) (3.5)
percent of GDP
Fiscal balance (4.9) (4.8) (5.0) - (6.0) (5.5)
Source: SBP, IMF & FCEL Research
18. Consolidating the recovery
• Reportedly, the Govt. has reaffirmed its commitment to achieve its program targets and has started
addressing policy shortfalls.
• Amid expected recovery in manufacturing sector’s performance and continued improvement in
services sector, Pakistan economy is likely to perform better in FY15 with our growth expectations of
4.5%.
• The government’s GDP growth target for FY15 has remained quite optimistic as it expects a growth
of 5.1%. Whereas, IMF has remained conservative & estimate the growth to inch up to 4.3%.
• Despite stringent measures taken & planned by the government, following restart of the reforms,
the probability to achieve growth target of 5.1% set for FY15 remains low, in our opinion.
• However, if reforms remain on track (easing fiscal adjustments & structural improvements in energy
sector, privatization of PSEs & improved investment climate) the growth rate may surpass 5% mark in
medium-term but not in CY15.
• The contained budgetary borrowing & single digit interest rate environment would primarily keep
the private credit growth on upward trajectory. Moreover, government‘s efforts to cope the power
shortage in the country, would further facilitate in picking up the industrial activity.
• Therefore, the manufacturing segment is anticipated to depict decent recovery during the ongoing
fiscal. The services sector, the largest contributor to the GDP, is also anticipated to retain its better
performance in FY15.
• On average basis, the trade deficit has been hovering around 6.3% of GDP in past five years. During
1HFY15, trade deficit arrived at US$12.13bn or 4.7% of GDP — up 34% YoY. It is expected to show
improvement in the remainder half of the fiscal and is likely to settle at 7.7% of GDP by end Jun-15.
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ECONOMY
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19. Consolidating the recovery
• We opine this on the back of drastic fall in international oil prices that should restrict the rising
import bill while higher utilization of GSP plus status in the wake of improved power related woes
would lift the exports figures.
• Additionally, the current account posted a deficit of US$2.3bn in 5MFY15, against deficit of
US$2.1bn in 5MFY14 primarily on the back of higher trade deficit & partly compensated by worker
remittances. The full year numbers are expected to show further weakening and would conclude the
year at 1.5% level of GDP.
• Workers’ remittances in 1HFY15 increased to US$8.9bn - an increase of 15% over 1HFY14.
Meanwhile, Pakistan received FDI of US$422mn in the first five months of FY15, around 19% higher
flows versus US$355mn in the corresponding five months of the preceding fiscal year.
• The strong performance of capital and financial account could not be maintained in the initial half
of the fiscal due to the postponement of privatization deals, Sukuk transaction & lesser multilateral
disbursements.
• We expect better prospects of capital & financial accounts in upcoming quarters as substantial
financial inflows are scheduled from a) remaining CSF (~US$720mn) b) International debt issue
(US$1,500mn) and c) privatization (US$1.0bn) in second half of FY15 — a relatively calmed political
space where PTI has called off its ongoing protest.
• While, the bulk of the IMF loan repayment has already been made (IMF exposure to Pakistan has
fallen to roughly US$3.0bn), the country still has to service approx US$1.3bn scheduled for FY15.
• With the expectation of strong foreign inflows, the balance of payment position is likely to remain in
comfortable zone and the future successful reviews of the IMF would pave way for the inflows from
World Bank, ADB and IDB.
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20. Consolidating the recovery
• Overall, we project the current account deficit to reside in the range of 1.25-1.50% of GDP in FY15.
Nonetheless, unforeseen lower realization of foreign financial inflows may harm the reserves position
and increase pressure on the exchange rate.
• During 1HFY15, fiscal deficit was recorded at 2.4% of GDP. This improvement occurred mainly due to
tax collections remained in line whereas the shortfalls were adjusted by limiting capital expenditure.
• For FY15, the government has set fiscal deficit target at 4.9% of GDP, slightly lower than the 5.5%
level recorded in FY14. Meanwhile, IMF has projected the deficit at 4.5% of GDP. We do not see any
risk of slippages in the target deficit set by these entities.
• The receding inflationary trend continued in the first half of FY15. That said, the average CPI
reading settled at 6.1% in 1HFY15 versus the full year target of 8.0% and last year average of 8.6%.
• Besides plummeting oil prices, improved food supplies containing the prices of perishable items,
limited impact of floods & significant base effect contributed favorably in bringing the CPI reading
down.
• Nonetheless, the full impact of floods & political uncertainties have raised concerns regarding full
year inflation figure but its impact is assessed to be nominal as the due support to the remainder CPI
readings from the tumbling oil prices would appear in the second half of the fiscal.
• Despite risks of reversal in inflationary trend on account of scheduled hike in power tariffs, levying
GIDC & sustainability of perishable items, sluggish global oil & commodity market coupled with
improvements on fiscal imbalances reinforced the positive inflation outlook for FY15.
• Resultantly, SBP has changed its monetary stance from neutral to accommodative. This resulted in
50bps reduction in policy rate in Nov-14 (DR @ 9.50%).
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21. Consolidating the recovery
• The strengthening expectation of lower oil prices for at least medium term and continuation of
favorable global commodity market with no threats of immediate reversal in-sight, the CPI readings
are likely to show flat-falling trend in the remainder period of the current fiscal.
• That said, we expects FY15 to conclude the year at 6.0% CPI. Consequently, we may see another
50bps cut in policy rate during 2HFY15.
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23. Strategy| PakistanJanuary 2015
First Capital Equities Ltd 23
Economy: Key Indicators
Source: SBP, Ec. Survey & FCEL Research
GDP Sub-Sec Performance
Source: SBP, Ec. Survey & FCEL Research
Supply-side contributions to growth
Source: SBP, Ec. Survey & FCEL Research
GDP Composition (FY14)
Source: SBP, Ec. Survey & FCEL Research
Inflation (% YoY)
Source: SBP, Ec. Survey & FCEL Research
Fiscal deficit as % of GDP
Source: SBP, Ec. Survey & FCEL Research
Quantum Index on LSM (YoY % Chg)
‐6.0%
‐4.0%
‐2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
FY09 FY10 FY11 FY12 FY13 FY14 FY15E
GDP Agriculture
Manufacturing Services
0%
1%
2%
3%
4%
5%
6%
FY10 FY11 FY12 FY13 FY14 FY15E
Agriculture Industry
Services GDP
Services,
58%
Agri, 21%
Industry,
21%
‐0.1
‐0.05
0
0.05
0.1
0.15
Jul‐10
Jan‐11
Jul‐11
Jan‐12
Jul‐12
Jan‐13
Jul‐13
Jan‐14
Jul‐14
2
5
8
11
14
Jul 12
Oct 12
Jan 13
Mar‐13
Jun‐13
Sep‐13
Dec‐13
Mar‐14
Jun‐14
Sep‐14
Dec‐14
General Food
Non‐Food Core
0%
2%
4%
6%
8%
10%
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15E
24. Strategy| PakistanJanuary 2015
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Economy: Key Indicators
Source: SBP, Ec. Survey & FCEL Research
Exports performance (US$ bn)
Source: SBP, Ec. Survey & FCEL Research
Trade Deficit (US$ bn)
Source: SBP, Ec. Survey & FCEL Research
Current Ac. Bal (US$ bn)
Source: SBP, Ec. Survey & FCEL Research
Monthly Remittances (US$ mn)
Source: SBP, Ec. Survey & FCEL Research
External debt as % of GDP
Source: SBP, Ec. Survey & FCEL Research
Exchange Rate vs Foreign Reserves
‐5%
0%
5%
10%
15%
20%
25%
30%
FY11 FY12 FY13 FY14 FY15E
0
5
10
15
20
25
30
35Export (US$ bn)
Growth %
0%
2%
4%
6%
8%
FY11 FY12 FY13 FY14 FY15E
0
5
10
15
20Trade Deficit as % GDP
‐30
‐20
‐10
0
10
20
30
FY11 FY12 FY13 FY14 FY15E
Inc. (Nt) Ser (Nt)
Cr. Trans. (Nt) Trade Bal
CA. Bal
40
45
50
55
60
65
FY10 FY11 FY12 FY13 FY14 FY15E
0%
10%
20%
30%
40%External debt
As % of GDP
0
5
10
15
20
25
FY11 FY12 FY13 FY14 FY15E
75
80
85
90
95
100
105
FX Res (LHS)
PKR/US$
0
500
1,000
1,500
2,000
Jan‐10
Jun‐10
Nov‐10
Apr‐11
Sep‐11
Feb‐12
Jul‐12
Dec‐12
May‐13
Oct‐13
Mar‐14
Aug‐14
25. Stable & Improving
• After the successful & historic transition of power from one democratic government to another, the
incumbent ruling set-up of PML(N) enjoyed notably stable and smother period than any other
democratically elected political government of the country.
• This provided decent time to the new government to brainstorm much needed prompt measures &
strategies to counter prevailing economic and security challenges being faced by the country.
• While the new government was busy in addressing the crucial economic & security challenges, the
announcement of ‘Dharna politics’ (initiated by the country’s third largest political party, Pakistan
Tehreek-e-Insaaf—PTI) changed the face of domestic political arena.
• Later on, the announcement of Pakistan Awami Tehreek’s (PAT) similar protest & rising civil-
military tension further aggravated the ground situation.
• Consequently, the situation turned chaotic & posed question marks over government’s ability to
complete its five year tenure, thereby, pushing the political temperature to new highs.
• However, recently, the unfortunate incident of Army School attack that killed 132 school children,
favorably brought all the major political parties as well as army, religious entities & other notable
segments of the society together on single platform where they all expressed their condemnation &
solidarity with the government in tackling the menace of terrorism.
• That said, setting all the political differences aside, PTI chief, Imran Khan, called-off his long placed
dharna (sit-in) and pledged its support to the Govt in establishing counter terrorism measures by
appearing in the APC called by the Prime Minister Nawaz Shareef.
• The unfortunate army school incident happened to be a “blessing in disguise” for the ruling set-up as
Strategy| PakistanJanuary 2015
First Capital Equities Ltd
POLITICS
25
26. Stable & Improving
it closed the civil-military ties & prompted PTI to withdraw from its dharna politics. This manifest
that the PML(N) government is now in much more comfortable ruling position.
• The situation provides a legitimate consensus to the government in building a national narrative on
terrorism and implementing strict security measures while helping in pursuing a combined (military
and non-military) approach to counter terrorism.
• Moreover, Govt has also gained some breathing space to restart the abandoned economic reforms
programs i.e. (tax & power reforms, privatization etc), through its strategies and policies where it
restrained itself from taking un-populist/strict measures during the sit-in span.
• Moreover, the unity in standing against the terrorism has also provided much need support to the
ongoing “Zarb-e-Azab” military operation where its scope has now been expanded beyond
Northwaziristan region and surgical operations against terrorist in the metropolitan cities of the
country have also been included in the plan.
Strategy| PakistanJanuary 2015
First Capital Equities Ltd
POLITICS
26
2013 2014 % Chg
Bomb blasts 574 388 -32
Suicide Attacks 43 25 -42
Fatalities
Civilian 3,001 1,781 -41
Security forces 676 533 -21
Terrorists 1,702 3,182 87
Falling wave of terrorism
Source: SATP
27. Stable & Improving
• In our opinion, the new comprehensive & collective counter-terrorism policy is very much likely to
help the government in restricting the menace of terrorist attacks as regional (Afghanistan meeting)
& international (US & other allies) support in stepping-up security & offensive measures against
terrorists has also been received in this regard. There will be a significantly improved internal
security situation by the end of 2015, we believe.
• It is important to mention that the restart of PTI & PAT’s street agitation over the lingering
differences of tribunal commission is not expected to weaken governments position as the ruling set
up has already gained the experience of dealing with this type of situation, secured across the board
support of political parties inside parliament & successfully improved its relation with military.
• On a positive note, PTI chief Imran khan has recently pledged not to revert to its sit-in politics &
reaffirmed its support to the present government in tackling terrorism from the country. This is a
huge positive for the prevailing set-up we believe.
• We envisage total political chaos as a low probability scenario at this point.
• In addition, the ECP is likely to hold Senate elections in the first week of Mar-15. We opine that the
case for PML(N) to emerge as a winner appears strong. We say this on the back of its existing strength
in the Punjab and Balochistan Assemblies along with notable presence in the federal capital and KP
provincial assemblies. This will provide notable strength to the government in the upper house also.
• We foresee the government enjoying imminent strength, essential for crucial parliamentary
approvals going forward.
Strategy| PakistanJanuary 2015
First Capital Equities Ltd
POLITICS
27
29. Engro Corporation
• Engro Corporation Limited offers an ideal investment exposure in the consumer segment of an
economy that hosts the world sixth largest population cluster.
• The key to ECorp’s diversification activities is its focus on such segments that are highly un-
penetrated yet stable i.e. Food, Chemical, Power and Fertilizers.
• During last year, the share price of the stock has rallied exceptionally (up 39%) mainly owing to
improved business performance of fertilizer segment. While the performances of other business
segments remained decent during the year.
• The continuation of feed gas supply (diverted from Guddu thermal plant) to its old plant enabled
EFERT to register 24% (9MCY14 YoY) higher production volume as well as speculation of charging
discounted gas price on its Enven plant remained prime triggers of such notable price run-up.
• We expect the performance of fertilizer segment to remain upbeat in CY15 also, assuming both
plants operational & charging concessionary gas price for 10 months period, the production volume is
likely to depict 10% YoY growth while profitability to grow 38% YoY.
• In the wake of improved cashflows (also complemented by lower finance costs due to restructuring
and falling interest rates) the segment is all set to commence its dividend payout from this year.
• Efoods business is also expected to depict handsome earnings recovery in CY15. The profitability
growth of 236% is primarily estimated on the back of notable margins & volumes gains during the
year. That said, the resolution of distribution network issues would help in achieving higher sales
while higher domestic milk prices coupled with falling prices of international milk powder (down over
40%) would provide boost to the margins of EFERT at gross levels.
• Strong growth in EFERT & EFOOD’s earnings and persistent & compelling financial performance by
other subsidiaries, 2015 is likely to be another year of strong earnings growth for Engro Corporation
with its bottom-ling depicting 167% growth at PRs16.76bn (EPS PRs32.1) as against PRs6.29bn (EPS
PRs12.01) in 2014E.
• With fair value based on SOTP at PRs300/share, we consider Engro amongst the best investment
opportunities available in Pakistan Market.
Strategy| PakistanJanuary 2015
First Capital Equities Ltd 29
Key data
Stock Price (PRs) 258.13
Target price (PRs) 300.10
Upside 16%
Bloomberg Code
52 week High/Low (PRs) 258/157
Market cap (US$ mn) 1,326
1-Yr Avg. daily vol (US$ mn) 7.19
Free float (%) 44
ENGRO PA
Valuation analysis 2014E 2015F
EV/Sales (x) 1.2 1.0
EV/EBITDA (x) 7.3 4.9
P/Bv (x) 2.5 2.0
ROE (%) 12 25
ROA (%) 8 13
PE (x) 21.5 8.1
40%
60%
80%
100%
120%
140%
Jan‐14
Feb‐14
Mar‐14
Apr‐14
May‐14
Jun‐14
Jul‐14
Aug‐14
Sep‐14
Oct‐14
Nov‐14
Dec‐14
Jan‐15
ENGRO
KSE
30. Nishat Mills
• Nishat Mills, flagship textile arm of Nishat group, one of the largest industrial groups in Pakistan,
remains our preferred pick in domestic textile space.
• Given its strong presence in European market, the company is identified as the major beneficiary of
the Generalized System of Preferences Plus (GSP-plus) status awarded by the European Union.
• The fruits of GSP Plus status have now finally begin to appear as witnessed from the recent export
numbers of the country where the value added textile segment have registered 10% YoY growth in the
first five months of current fiscal.
• The implementation of GSP plus scheme & the economic recovery in EU region is anticipated to
boost the NML’s sales performance going forward. The said measure will also enhance the
attractiveness of the company’s products in the EU region (EU share is 33% in total exports revenue
during FY14).
• Significant boost to margins are also anticipated as the bumper cotton crop, in nearly all cotton
producing countries, have resulted in lower cotton prices (down 26% to PRs4,900/maund from last
year avg). Moreover, the record fall in FO prices & cut in domestic power tariffs further adds charm
to the margin story.
• That said, we expect the margins of NML to show 210bps & 390bps improvement in FY15 and FY16,
respectively from prevailing levels of 14% (FY14).
• Envisaging this GSP plus opportunity, the company has invested heavily in capacity enhancements
program by installing additional looms and replacing few old ones (to increase efficiency).
• The expansion program of NML appears to continue as it further plans to add a new spinning unit
(28,800 spindles) in 2015. In addition, the garments facility to produce approx 4.8mn garment pieces
p.a, is also planned to come online in 2HFY15.
• We anticipate underlying profit of the company to depict 4% increase at PRs5.7bn (EPS PRs16.3)
during the prevailing fiscal. The earnings growth momentum is expected to continue with 3-year EPS
CAGR of 13%.
• NML holds a healthy investment portfolio with exposure in banking, power and cement sector of
Pakistan. The market worth of NML investment portfolio has reached to PRs58bn or PRs164/share.
Strategy| PakistanJanuary 2015
First Capital Equities Ltd 30
Key data
Stock Price (PRs) 132.19
Target price (PRs) 148.00
Upside 12%
Bloomberg Code NML PA
52 week High/Low (PRs) 141/97
Market cap (US$ mn) 462
1-Yr Avg. daily vol (US$ mn) 2.50
Free float (%) 50
Valuation analysis 2014A 2015F
EV/EBITDA (x) 4.7 5.5
PE (x) 8.4 8.1
Div Yield (%) 3.2 3.7
ROE (%) 9 8
ROA (%) 6 5
PBv (x) 0.7 0.7
40%
60%
80%
100%
120%
140%
Jan‐14
Mar‐14
May‐14
Jul‐14
Sep‐14
Nov‐14
Jan‐15
NML
KSE
31. DG Khan Cement
• DGKC is the third largest cement producer in Pakistan with production capacity of approx. 4.2mn
tons per annum.
• Apart from its cement business, DGKC has also invested a notable sum in the formation of a
investment portfolio with exposure in banking, textile and insurance sector.
• The reducing cost pressure (falling international coal prices, cut in power tariffs & declining interest
rates) has improved the margins & earnings prospects of the company notably. The impact of the
same is likely to appear from 2HFY15.
• The theme of domestic demand revival, strong margins amid sustainable pricing and easing cost
pressures would help DG Khan to post substantial improvement in the profitability.
• We expect DGKC to register local volumetric growth of 5% during FY15-17F. Despite subdued
performance of export market, we expect the rising local sales to lift the capacity utilization of the
company from 94% in FY14 to 104% in FY17F.
• Strong cash flow generation has facilitated DGKC in strengthening its balance sheet in recent times
That said, LTD reduced to PRs1.2bn from PRs9.4bn in last 2-3 years.
• Following debt retirement, DGKC decided to invest its residual-cash in cost reducing measures. That
said, the company has announced to install a coal-fired power plant at its existing site to reduce its
reliance on expensive power (i.e. from National Grid, FO & Gas) while ensuring uninterrupted power
supply. Our back of the envelop calculations suggest an annual savings of PRs500mn to the company
from this project.
• The market worth of DGKC investment portfolio has reached to PRs37bn. This translates into per
share worth of PRs84/share for the company.
• Our target price of PRs133 is based on a sum-of-the-parts (SOTP) valuation methodology. This
includes PRs72/share for cement operations and PRs61/share for portfolio value.
• The scrip is currently trading at FY15 PE, EV/EBITDA and EV/ton of 7.9x, 4.8x and US$116/ton.
Strategy| PakistanJanuary 2015
First Capital Equities Ltd 31
Key data
Stock Price (PRs) 119.15
Target price (PRs) 133.00
Upside 12%
Bloomberg Code DGKC PA
52 week High/Low (PRs) 119.2/72
Market cap (US$ mn) 519
1-Yr Avg. daily vol (US$ mn) 4.0
Free float (%) 55
Valuation analysis 2014A 2015F
EV/EBITDA (x) 5.8 4.9
PE (x) 8.7 8.1
Div Yield (%) 2.6 3.4
ROE (%) 10 10
ROA (%) 8 8
PBv (x) 0.8 0.8
40%
60%
80%
100%
120%
140%
Jan‐14
Feb‐14
Mar‐14
Apr‐14
May‐14
Jun‐14
Jul‐14
Aug‐14
Sep‐14
Oct‐14
Nov‐14
Dec‐14
Jan‐15
DGKC
KSE
32. Pakistan State Oil
• PSO ranks as the leading oil marketing company (OMC) in Pakistan. With its largest pan-country
distribution network of 3,700 outlets, the company handles nearly 62% of country’s total petroleum
demand & is well positioned to reap the benefits of rising POL demand.
• The investment case of PSO has strengthened recently in the wake of likely improvement in liquidity
overhang, improved demand prospects of POL products, higher margins & investment in LNG import
business.
• Recent fall in international oil prices has resultantly reduced the power generation cost thereby
narrowing the tariff-cost differential of the sector. As the widening gap of power tariff & cost were
the main cause of receivable build-up for PSO the emerging scenario is expected to ease the liquidity
situation of the company notably.
• In addition, the reduction in domestic POL prices has also faded the charm of domestic CNG
consumption thereby brightening the demand prospects of white oil sales. We expect the sales of
white oil to revive amid further shrinkage in CNG-POL price gap. The increase in higher margin (fixed
in rupee term & unaffected from falling oil prices) white oil sales is likely to increase its contribution
in overall earnings going forward.
• The halted power sector reforms are likely to resume shortly with the easing political temperature
following winding up of sit-in by PTI. This has provided an opportunity to the government to once
again focus on its power reforms program (privatization of DISCOS & reducing line loses) as
committed with IMF. The reforms are likely to address the receivable accretion issue of the sector in
general and PSO in particular.
• The new business venture of LNG import business is likely to support the earnings growth of the
company while enabling it to reduce its exposure from circular debt.
• Furthermore, debt burdened PSO is likely to benefit from the probable cut in interest rates.
• At current price, PSO is trading at PE 6.45x on FY15 estimates. This reflects significant discount of
over 30% from market, peers & its historical levels. The wide gap provides a decent space for
multiple re-rating and the gradual resolution of interoperate debt would build the case for price run-
up.
Strategy| PakistanJanuary 2015
First Capital Equities Ltd 32
Key data
Stock Price (PRs) 347.54
Target price (PRs) 401.00
Upside 15%
Bloomberg Code PSO PA
52 week High/Low (PRs) 452/325
Market cap (US$ mn) 938
1-Yr Avg. daily vol (US$ mn) 7.70
Free float (%) 46
Valuation analysis 2014A 2015F
EV/EBITDA (x) 3.7 5.2
PE (x) 4.3 6.4
Div Yield (%) 2.3 2.7
ROE (%) 28 17
ROA (%) 6 4
PBv (x) 1.3 1.1
40%
60%
80%
100%
120%
140%
Jan‐14
Feb‐14
Mar‐14
Apr‐14
May‐14
Jun‐14
Jul‐14
Aug‐14
Sep‐14
Oct‐14
Nov‐14
Dec‐14
Jan‐15
PSO
KSE
33. United Bank Limited
• UBL – with assets valued at PRs1,000bn or US$10bn – is Pakistan’s third largest bank with a market
share of 10% in total banking advances, deposits and assets.
• While overall banking spreads are expected to remain under pressure, UBL’s NIMs profile is likely to
depict a stable-to-rising trend due to its heavy accumulation of PIBs, rising share of zero-cost deposits
and growing credit off-take. That said, UBL's NIMs are projected to inched up to 5.2% in CY15 from
4.8% in CY13 and would reach 5.3% in CY17.
• The bank’s strategy to reduce funding cost has been the cornerstone of its liability management.
Liability mix has been greatly skewed towards cheaper deposit franchise which consoles the impact of
yield risk. Increase in CASA franchise worked well for UBL as its Cost of Deposits dropped to 3.9% in
1HCY14 from that of 4.2% in 2008.
• On a consolidated basis, international deposits and advances make up 28% and 33% of the bank’s
total deposits and advances, respectively. UBL’s international operations are highly concentrated in
the Middle East market – with UAE, Qatar, Bahrain and Yemen making up 53%, 9%, 8% and 6%
respectively of international net advances (cumulative 76%). This means 27% (or US$1.2bn) of total
lending by UBL is in the ME region.
• UBL, being more aggressive bank in building up its position in PIBs in 1HCY14, is likely to witness
NIMs expansion (45bps) despite cut in discount rate. We expect the bank to raise its holding to 55%
level in PIBs by Dec-14 versus that of 24% on end-Dec 2013.
• UBL asset quality significantly improved in 2013, where NPLs fell by PRs4.7bn (or 8% YoY), coverage
improved to 84% from 76% a year earlier. As a result of this, NPL provisioning has declined massively
in 2013, and is likely to show continuous improvement in next couple of years (NPL ratio to drop by
2pps in CY15).
• At current trading levels, UBL provides a decent 31% upside potential to our fair value of PRs230/
share. We recommend a ‘BUY’.
Strategy| PakistanJanuary 2015
First Capital Equities Ltd 33
Key data
Stock Price (PRs) 179.49
Target price (PRs) 230.00
Upside 28%
Bloomberg Code
52 week High/Low (PRs) 198/130
Market cap (US$ mn) 2,184
1-Yr Avg. daily vol (US$ mn) 2.20
Free float (%) 40
UBL PA
Valuation analysis 2014E 2015F
ADR (%) 46 47
Dividend Yield (%) 6.0 6.5
PE (x) 10.9 9.1
P/Bv (x) 2.2 2.0
ROE (%) 21 22
ROA (%) 2.0 2.2
40%
60%
80%
100%
120%
140%
Jan‐14
Feb‐14
Mar‐14
Apr‐14
May‐14
Jun‐14
Jul‐14
Aug‐14
Sep‐14
Oct‐14
Nov‐14
Dec‐14
Jan‐15
UBL
KSE
34. Bank Alfalah Limited
• Bank Alfalah Limited (BAFL) – with assets valued at PRs700bn or US$7bn – is Pakistan’s sixth largest
bank with a market share of 6% each in advances and deposits of the total banking system.
• With earnings CAGR of 25% (2014-16E), probable improvement in CAR ratio in the aftermath of IFC
equity injection and strong return profile (ROE 20% and ROA 1% in 2015E) make BAFL a strong banking
candidate among its domestic peers.
• BAFL’s Islamic deposits, second largest in total Islamic deposits, is likely to play an instrumental role
in revenue generation and bottom-line augmentation in the years to come. As such, no other top
banks of local industry carry this diversification in particular.
• Despite lukewarm spreads environment, BAFL is expected to depict stable-to-rising NIMs profile. We
say this on the back of rising ratio of PIBs in investment mix, increasing share of zero-cost deposits
and decent growth in credit off-take.
• Other distinguishing factors of BAFL are its aggressive strategy towards branch expansion & cheaper
deposit franchise that guards its balance sheet from the impact of yield risk.
• Recently, IFC has shown its interest to inject equity in the bank to the tune of 15% of capital. The
successful equity injection from IFC would resultantly push CAR back to above 12% mark.
Simultaneously, this equity injection would also facilitate BAFL to continue its strategy of branch
expansion while enabling it to maintain its payout policy.
• BAFL, being more aggressive bank in building up its position in PIBs during 1HCY14, is likely to
witness NIMs expansion despite policy rate cuts. We expect the bank’s government paper position in
PIBs to touch 65% by Dec-14 versus that of 16% on end-Dec 2013.
• At current trading levels, BAFL provides a decent 12% upside potential to our fair value of PRs38/
share. We recommend a ‘BUY’.
Strategy| PakistanJanuary 2015
First Capital Equities Ltd 34
Key data
Stock Price (PRs) 33.76
Target price (PRs) 38.00
Upside 13%
Bloomberg Code
52 week High/Low (PRs) 35/25
Market cap (US$ mn) 532
1-Yr Avg. daily vol (US$ mn) 0.99
Free float (%) 43
BAFL PA
Valuation analysis 2014E 2015F
ADR (%) 50 50
Dividend Yield (%) 6.4 6.7
PE (x) 7.5 5.8
P/Bv (x) 1.2 1.1
ROE (%) 17 20
ROA (%) 0.9 1.0
40%
60%
80%
100%
120%
140%
Jan‐14
Feb‐14
Mar‐14
Apr‐14
May‐14
Jun‐14
Jul‐14
Aug‐14
Sep‐14
Oct‐14
Nov‐14
Dec‐14
Jan‐15
BAFL
KSE
35. Habib Bank Limited
• HBL – with assets valued at PRs1,600bn or US$16bn – is Pakistan’s largest bank with a market share
of 13% and 17% in total banking advances and deposits.
• HBL offers an attractive investment opportunity given its robust earnings growth with CAGR (2014-
16E) of 18% and healthy return profile (ROE of 20% and ROA of 2%) while trading at CY15E PBv of 1.9x
and PE of 10.1x.
• Following smart banking strategy, HBL has also hedged itself from prevailing shrinking spreads by
increasing its exposure in high yield PIBs (offering 2.5-3.0pps higher yields than 6M T-bills).
Resultantly, the bank’s NIMs are likely to remain flat at 4.5% in CY14 & are estimated to register
30bps improvement in next three years.
• Moreover, growing focus towards zero-cost deposits (3-year CAGR of 11%) and growing credit off-
take (3-year CAGR of 10%) are anticipated to contribute duly in profits augmentation.
• The emerging recovery in European economy is now likely to address the concerns of HBL’s overseas
operations in Europe (7% of total assets) which lately witnessed some lackluster performance in the
wake of European crisis.
• CASA deposits increased 2.6x from PRs397bn in 2008 to PRs1,055bn as of Sep-14. Consequently, its
share has improved from 70% to 78% in the said period. The strategy also resulted favorably in
reducing Cost of Deposits (COD) of the bank that dropped to 4.9% in Sep-14 from that of 5.0% in 2009.
• The bank’s continued focus to enhance Non-Funded Income (Avg 12% growth during CY09-13) has
raised its contribution from 18% to 22% in recent times. We expect this ratio to reach 25% in CY17.
• Capital adequacy ratio of HBL improved to 15.4% in Dec-13 (tier-1 capital of 13.1%), despite a 15%
YoY increase in Risk Weighted Assets. This means the bank can adopt aggressive lending and branch
expansion strategies.
• At current trading levels, HBL provides a decent 16% upside potential to our fair value of PRs252/
share. We recommend a ‘BUY’.
Strategy| PakistanJanuary 2015
First Capital Equities Ltd 35
Key data
Stock Price (PRs) 218.01
Target price (PRs) 252.00
Upside 16%
Bloomberg Code
52 week High/Low (PRs) 225/157
Market cap (US$ mn) 3,178
1-Yr Avg. daily vol (US$ mn) 0.54
Free float (%) 10
HBL PA
Valuation analysis 2014E 2015F
ADR (%) 39 39
Dividend Yield (%) 3.7 3.9
PE (x) 10.9 10.1
P/Bv (x) 2.1 1.9
ROE (%) 21 20
ROA (%) 1.7 1.7
40%
60%
80%
100%
120%
140%
Jan‐14
Feb‐14
Mar‐14
Apr‐14
May‐14
Jun‐14
Jul‐14
Aug‐14
Sep‐14
Oct‐14
Nov‐14
Dec‐14
Jan‐15
HBL
KSE
36. Analyst Certification
All of the views expressed in this document accurately reflect the personal views of the responsible analyst(s) about any and all of the subject secu-
rities or issuers. No part of the compensation of the responsible analyst(s) named herein is, or will be, directly or indirectly, related to the specific
recommendations or views expressed by the responsible analyst(s) in this report.
Disclaimer
This information and opinion contained in this report have been complied by our research department from sources believed by it to be reliable and
in good faith, but no representation or warranty, express or implied, is made as to their accuracy, completeness or correctness. All opinions and esti-
mates contained in the document constitute the department’s judgment as of the date of this document and are subject to change without notice
and are provided in good faith but without legal responsibility.
This report is not, and should not be construed as, an offer to sell or a solicitation of an offer to buy any securities. First Capital Equities Limited
(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 transactions (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 or have provided 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, or offer to 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 report may contain forward looking statements which are often but not always identified by the use of words such as “anticipate”, “believe”,
“estimate”, “intend”, “plan”, “expect”, “forecast”, “predict” and “project” and statements that an event or result “may”, “will”, “can”, “should”,
“could” or “might” occur or be achieved and other similar expressions. Such forward looking statements are based on assumptions made and infor-
mation currently available to us and are subject to certain risks and uncertainties that could cause the actual results to differ materially from those
expressed in any forward looking statements. Readers are cautioned not to place undue relevance on these forwardlooking statements. FCEL ex-
pressly disclaims any obligation to update or revise any such forward looking statements to reflect new information, events or circumstances after
the date of this publication or to reflect the occurrence of unanticipated events.
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First Capital Equities, their respective affiliate companies, associates, directors and/or employees may have investments in securities or derivatives
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Strategy| PakistanJanuary 2015
First Capital Equities Ltd
37. Strategy| PakistanJanuary 2015
First Capital Equities Ltd
Pakistan Contact Information
Mian Ehsan-ul-Huq (CEO) ceo@firstcapital.com.pk
Pakistan Research Team
Faraz Farooq faraz.farooq@firstcapital.com.pk
Muhammad Rehan Khan rehan.khan@firstcapital.com.pk
Kashif Imran kashif.imran@firstcapital.com.pk
Faizan Sarmad faizan.sarmad@firstcapital.com.pk
Hayat Khan hayatkhan@firstcapital.com.pk
Pakistan Sales Team
Farooq Habib (COO) farooq.habib@firstcapital.com.pk
Muhammad Junaid (ED) muhammad.junaid@firstcapital.com.pk
Hamid Siddiqui (Sales Head) hamid.siddiqui@firstcapital.com.pk
Shahood Javed shahood.javed@firstcapital.com.pk
Farhana Saba farhana.saba@firstcapital.com.pk
North American Sales Contact
Maybank Kim Eng Securities USA Inc.
777 Third Avenue
Floor 21
New York, New York 10017
(212) 688-8886
Published by
First Capital Equities Limited
4th Floor, Lakson Square Building No.1,
Sarwar Shaheed Road, Karachi
Ph: (92-21) 111-226-226
Fax: (92-21) 35656710
http://www.firstcapital.com.pk
