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BMA Pakistan Outlook 2007 15-Jan-07
BMA Pakistan Outlook 2007 15-Jan-07
FMCG -1 +2 +1 2 3% Overweight
Telecom -1 -1 +2 +2 2 10% 7% Overweight
Auto -1 +1 -2 +2 +1 1 2% Overweight
1
January 15, 2007
CONTENTS
1 INTRODUCTION 3
2
January 15, 2007
1 INTRODUCTION
The year 2007, according to the Chinese calendar, is the year of the pig. The
year of the fire pig, to be precise. Worry not – pig in Chinese astrology stands for
the bold and vivacious. And the fire pig, we are told, is bolder, more vivid and
more vivacious than the rest of the pack. We will take their word for it. More
Ahsan Javed Chishty importantly, pigs, we are also told, have a knack for being able to find a diamond
in the rough.
ajaved@bmacapital.com
This, perhaps, is the tone for CY07. The new year finds the Pakistan equity
market fairly undervalued relative to a robust domestic economic environment.
The KSE had a less than memorable CY06. Annual nominal return was
approximately 5% against 57.9% in CY05. Returns adjusted for inflation were
negative. Given a P/E of 8.6x CY07 based on forward earnings, the market
appears relatively cheap to many other costly regional diamonds. Consider the
multiples of other regional equity markets based on forward earnings – the BSE
Sensex trades at 19.1x, Indonesia at 14.1x, Thailand at 12x and Taiwan at 14.1x.
Relative to these, Pakistan equities trade at a discount of 30%-50%.
However CY06 was memorable for other reasons. Foreign portfolio investment
continued to grow and two Pakistani corporates, MCB, and OGDC were
successfully listed on the London Stock Exchange. Additionally, the much-touted
forensic investigation into the March 2005 crisis was released. The findings, as
expected, put to rest any concerns about manipulation by larger market players.
Pakistan equities have traditionally traded at a discount to other emerging
markets due to the higher risk premium attached to the country. Much of this is
political while some of the more recent widening (late Dec 06) is probably
economic (currency worries). But it is no secret that Pakistan suffers from a risk
perception to actual risk mismatch: the market is perceived to be riskier than it
really is. Gradual re-rating of the country risk (from default to three notches below
investment grade) in the last 7 years has not yielded the same degree of foreign
portfolio interest as seen in emerging markets with near-similar risk ratings. For
instance Philippines, an emerging market rated only one notch above Pakistan
by the S&P at BB-/Stable, attracted USD7.6bn worth of portfolio investments
from January 2005 to September 2006. In comparison, Pakistan, over the same
period, registered a relatively paltry USD974mn and only recently has this
number doubled due to the OGDC GDR.
Perhaps impacting the risk premium is a prospective precarious passage of
politics in CY07. Parliamentary and presidential elections are expected within the
next 9 to 12 months. The time frame is as yet uncertain though President
Musharraf has stated that elections will take place according to the constitution –
that is within 3 months of the end of the assembly run. Whenever the elections
do take place, the political risk associated with the election appears exaggerated.
Most analysts and commentators concur that President Musharraf should be able
to secure re-election and ensure continuity of command and policy. According to
Moody’s, ‘given a weak and divided political opposition (two of whose leaders are
in exile) and the dominance of the military, it is highly likely that General
Musharraf will remain in control of government beyond 2007’.
After all, the President is popular with the masses. According to a survey
conducted in September 2006 by the International Republican Institute (IRI), the
research wing of the Republican Party, General Pervez Musharraf is more
3
January 15, 2007
popular in Pakistan than Benazir Bhutto and Nawaz Sharif. Moreover, the US
has recently made it clear that democracy in Pakistan is an internal affair – a
policy move perceived by analysts as legitimizing General Musharraf’s re-
election bid.
While Pakistan might endure shifting political alignments in CY07, high political
risk is the staple of most emerging markets. Consider Philippines: in early March
2006, the Arroyo administration survived a coup d’etat and a subsequent state of
emergency. Risk premium widened only during the period of instability. In fact,
over the same quarter, portfolio investment into Philippines surged by USD
2.2bn. In comparison, Pakistan’s political passage promises to be lighter.
Moreover, if on schedule, elections are a 9 month to 12 month risk and should
not detract from the fundamentally improved (and improving) economic
architecture of the country. Strong economic dynamics and important
undercapitalized macro trends suggest that sector dynamics are sound,
corporate profitability should remain robust and asset markets should outperform.
In turn, this is the right time to pick Pakistan - a diamond in the rough.
4
January 15, 2007
5
January 15, 2007
- inflation in Jul-Dec FY07 stands at 8.4% YoY. The central bank has already
stated that inflation in FY07 is likely to exceed its 6.5% target and clock
somewhere in the 6.5%-7.5% range. Going forward, balance of risks favour real
interest rates remaining in the positive zone for an extended period of time as
real GDP growth continues to outpace potential growth. Moreover, inflation
expectations remain strong as does the hangover of price inertia (read Animal
rd
Spirits December 5: 3 Rock From The Summit).
However, the accommodation of price targets entails that while the monetary
cycle might not ease, it will not tighten significantly either. The pro-growth bias of
the central bank is strong. Leveraged sectors are already feeling the pinch of
higher nominal interest rates – further tightening might push real GDP growth
below potential. Moreover, the central bank can take heart from indications of
significant liquidity accretion: credit growth in the 1HFY07 has declined by 18.6%
YoY while core inflation has declined to 5.6% YoY (Nov). Broad money growth at
7.6% YTD has remained stable in the last six months and nominal money supply
will probably underperform nominal GDP growth in FY07. Consequently, barring
a major external supply shock, nominal interest rates may not rise anymore.
Hence, for the time being, the central banks hawkish posturing appears adequate
and appreciable, as the key economic risks have not yet mitigated. A major
reason behind the continuing inflation indiscipline is expansionary fiscal policy. A
widening of the fiscal deficit to 4.5% in FY07 from 4.2% in FY06, while the tax
base remains low at below 10.0% of GDP, is keeping the central bank wary
about price stability. Fiscal policy, though more oriented towards development
spending, is expansionary and can drawdown national savings. The SBP
establishes that, though relative debt levels are declining, increased fiscal
prudence requires less short-term borrowing, more long-term borrowing, a bigger
tax base and less reliance on privatization proceeds.
Currency: Lost in translation
On the external front, a persistent and significant current account deficit is an
ongoing concern. Jul-Nov data reveals a 17.9% worsening of the trade
imbalance to USD 5.4bn and we expect the current account deficit to reach 5.0%
of GDP in FY07 from 3.7% in FY06. A more recent worry has been a slowdown
in exports – 7.9% YoY growth in Jul-Nov CY06. Despite this, there are reasons to
be optimistic. Lower international oil prices and tighter monetary policy might
provide some respite on the trade balance. The GoP is putting together a major
relief package for exporters to take the sting out of eroding competitiveness. The
capital account is robust and should ensure a balance of payments surplus for
the country in FY07. In fact, net foreign assets growth, a proxy for BoP, for
1HFY07 stands at a small surplus of USD 191.9mn against a deficit of USD
1.1bn same period last year. Additionally, Pakistani experience does not
compare to currency crisis in other emerging markets in the past. On most
metrics, Pakistan’s macro indicators are safe compared to those of Mexico,
Thailand and Malaysia prior to severe currency devaluations in these emerging
markets. Pakistan is not hostage to the same level of external debt accumulation
and short-term money flows as the sample for financing of external deficit. In this
light, the central bank has ruled out devaluation and is sticking to its mantra of
‘flexible exchange rate’. This is a euphemism for allowing steady depreciation
pressure on the USD/PKR. However even steady nominal USD/PKR
depreciation of 2%YoY in FY07 will not set off any major impact on output and
income.
6
January 15, 2007
Load shedding
A major impediment to Pakistan’s long-term growth prospects is a chronic
deficiency in energy. The country’s electrical generation capacity is starting to
trail demand. In 2006, supply stood at 19,439 MW. Demand is growing at a 10%
clip and is expected to outstrip current supply by 2010. Moreover, thermal based
generation is 64.0% of the current electricity generation mix while oil is 29.4% of
primary energy supply.
According to the World Bank’s Doing Business 2007, the comparative investment
climate of Pakistan, with respect to energy infrastructure, lags behind major
regional players such as Thailand and China. For example, in the number of
firms suffering from shortages/outages in electricity, Pakistan is worse off than
China, India, Bangladesh, Philippines and Indonesia. According to another World
Bank study, 40% of firms in Pakistan own generators. Businesses estimate that
5%-8% of annual sales are lost due to power problems. Given the growing power
deficit, energy shortages and higher costs of domestic energy are likely to have
an adverse impact on the costs of doing business.
The GoP has a comprehensive power policy in place that looks to encourage
private sector investment. There are also increasing efforts to explore and
produce energy supplies indigenously. However, obstacles are likely to mar the
transition from deficit to surplus.
7
January 15, 2007
FMCG -1 +2 +1 2 3% Overweight
Auto -1 +1 -2 +2 +1 1 2% Overweight
8
January 15, 2007
Sectors Outlook
Overweight Marketweight
7
Telecom
Cement
Fertilizer
Gas T&D
Power
Banks
Auto
Textile
E&P
FMCG
OMC's
9
January 15, 2007
10
January 15, 2007
S- SAVINGS DEFICIT
The country’s savings deficit is the mirror image of its external deficit. Heightened
external inflows of the past few years have so far saved the country blushes on
the savings front. In FY06, the gap between investment (I) to GDP and savings
(S) to GDP continued to worsen. While nominal gross fixed investment rose from
16.3% of GDP (FY05) to 20.0% of GDP (FY06), nominal savings fell marginally
11
January 15, 2007
to 16.4% of GDP (FY06) from 16.5% of GDP (FY05). The latter is not surprising
given that real returns on saving instruments remain negative and are a
disincentive to save. Increased competition for savings will be a theme, which
can be expected to extend beyond CY07 as the savings deficit gradually
narrows. However this narrowing would entail higher real returns on money
balances, a negative development for banks and funds.
12
January 15, 2007
SECTOR STRATEGY
3 Sector
Auto
Positive Themes Negative Themes
Overweight
Currency depreciation
Growing consumerism
13
January 15, 2007
14
January 15, 2007
KEY STOCKS
………………………………………………………………………………………………
PSMC Largest assembler with an output capacity of 120,000
units p.a.
Commands 54% of total local assembled passenger car
segment
Responsible for 56% of the total 800cc – 1000cc market.
Cash/ share of PKR 23.5
…………………………………………………………………………………………………………
INDU Leadership position in high margin 1300cc – 1800cc
segment with 36% market share.
Solid dividend payout record (FY06 PKR 12 per share,
FY05 PKR 10 per share)
………………………………………………………………………………………………
15
Company Snapshot
Pak Suzuki Motor Company Automobile Assembler
Basic Data Stock Chart
Sector Automobile Assembler PKR Shares
Thousands
Current Price 416.00 450
450
Market Capitalization PKR mn 22,482 400
May-06
Mar-06
Jan-06
Feb-06
Apr-06
Jun-06
Jul-06
Aug-06
Sep-06
Oct-06
Nov-06
Dec-06
PSMC vs Automobile Assembler
PSMC Sector
2005 2004 2005 2004 Performance over 1M 3M 12M
Price to Earnings (x) 10.1 16.0 10.5 12.2 Absolute (%) 4% -2% 65%
EPS Growth (%) 59.4 (10.6) 16.2 6.1 Relative to KSE100 6% 3% 62%
Dividend Yield (%) 1.2 - 3.8 3.4
Price to Book (x) 2.9 4.0 2.9 3.7 Avg. Daily Turnover 1M 3M 12M
Net Margin (x) 6.3 5.7 5.5 6.5 PKR '000' 7,135 9,023 12,472
Return on Equity (%) 28.6 25.2 28.0 30.1 USD '000' 119 150 208
Financials (PKR mn) 2005 2004 2003 2002 Shares '000' 17.1 21.3 38.8
Income Statement
Price Multiples (based on current price)
Revenue 35,375 24,462 18,484 10,994
Profit after tax 2,237 1,404 1,570 850
Price to Earnings Ratio
Dividend (%) 50 - 30 30
30.0x
Bonus Issue (%) - 10 - -
25.0x
Right Issue (%) - - - -
20.0x
15.0x
Balance Sheet
10.0x
Assets 18,748 13,550 9,675 8,159
5.0x
Liabilities 10,922 7,973 5,457 5,511
0.0x
Equity 7,826 5,577 4,218 2,648 2005 2004 2003 2002
Paid-up Capital 540 491 491 491
Price to Book Ratio
Thousands
Current Price 200.00
230 1,200
Market Capitalization PKR mn 15,720
220 1,000
Shares Outstanding mn 79
Year-end Jun 210 800
200 600
Most Recent Announcement - Earnings / Dividends
190 400
EPS PE Dividends
PKR times Cash Bonus % 180 200
1Q07 8.01 6.2x - - 170 0
May-06
Mar-06
Jan-06
Feb-06
Apr-06
Jun-06
Jul-06
Aug-06
Sep-06
Oct-06
Nov-06
Dec-06
INDU vs Automobile Assembler
INDU Sector
2006 2005 2006 2005 Performance over 1M 3M 12M
Price to Earnings (x) 5.9 10.6 7.6 10.5 Absolute (%) 0% -7% 4%
EPS Growth (%) 78.4 0.8 37.9 16.2 Relative to KSE100 2% -2% 1%
Dividend Yield (%) 6.0 5.0 2.5 3.8
Price to Book (x) 2.5 3.5 2.5 2.9 Avg. Daily Turnover 1M 3M 12M
Net Margin (x) 7.5 5.4 6.1 5.5 PKR '000' 4,808 6,913 15,914
Return on Equity (%) 42.3 33.2 32.3 28.0 USD '000' 80 115 265
Income Statement
Price Multiples (based on current price)
Revenue 35,237 27,601 22,521 15,635
Profit after tax 2,648 1,485 1,473 1,258
Price to Earnings Ratio
Dividend (%) 120 100 90 70
14.0x
Bonus Issue (%) - - - - 12.0x
Right Issue (%) - - - - 10.0x
8.0x
Balance Sheet 6.0x
4.0x
Assets 15,822 13,033 12,450 11,069
2.0x
Liabilities 9,565 8,557 8,678 8,131
0.0x
Equity 6,258 4,476 3,772 2,938 2006 2005 2004 2003
Paid-up Capital 786 786 786 786
Price to Book Ratio
year. However, the effect could be more pronounced for smaller banks as,
coupled with high ADR and small branch network, they have no alternative
but to raise new expensive deposits.
Credit growth expected to recover this year. In CY06 the credit growth
was 26.3%, down from its peak of 40.8% in CY04. This relative slackness in
overall credit growth in CY06 can be mainly attributed to monetary tightening
and the lesser credit appetite in the textile sector which is in the final phase
of its expansion. However, we expect some recovery in the credit growth in
CY07, on the back of expected growth in telecoms, energy, SMEs and
consumer lending sectors.
Asset quality healthy. Despite the substantial increase in interest rates over
the past three years, the credit health of bank loans are still in good shape
with net NPL to net loans at 1.8%, a record low. With better legal safeguards,
improved capital and more stringent provisioning requirements, banks are
now well placed to contain minor incidents of defaults, especially on the
consumer lending.
Attractive Valuations. Coming to valuation, the sector is currently trading at
a CY07E Price to Book ratio (PBR) of 2.76x. In order to get an idea if the
sector is overvalued or undervalued at the current PBR, we used Gordon
Growth Model to get an idea of the fundamental PBR for the sector. As
illustrated in the figure below, the core inputs for this model are the
sustainable ROE and sustainable earning growth for the sector. The banking
sector is expected to show ROE of 26.9% in CY06. We believe that over the
longer-term term the sector could sustain ROE of 24%. In an earnings
context, CY06 was an exceptional year for the sector as its earnings are
expected to show a growth 54%. However, in our view, this growth will
stabilize at the 13% level in the long-run. Taking these two inputs and a cost
of equity of 16.9% into the model, we get a fundamental PBR of 3.38x for the
sector, suggesting ‘undervaluation’ for the sector.
19
January 15, 2007
KEY STOCKS
………………………………………………………………………………………………
NBP The largest bank under the leadership of Mr. Ali Raza, a
seasoned and dynamic banker
The current 68.7% ADR, compared to sector’s ADR of
80.3%, leaves a lot of room for further credit expansion
without new deposits
Large branch network to support new deposit raising
Current and saving deposits make up 71% of total
deposits; these cheap deposits reduce sensitivity of
deposit cost to rising interest rates
Interest rate spread to stay stable this year
Expected selling of stake in Bank Al-Jazira is to realize
handsome PKR 24.58 a share capital gain at the current
share price of Bank Al-Jazira
GoP is expected to issue GDR of NBP this year
Currently trading at a PBR of 2.0x, discount to sector
PBR 2.9x
…………………………………………………………………………………………………………
ADR on the higher side (77.5%), leaving little space for
BOP further credit expansion without new deposits
Has been a highly successful bank in raising new
deposits; captive deposits of Government of Punjab
making up 51% of its total deposits
Relatively large branch network to support new deposit
raising
Interest rate spread to stay stable this year
Despite being a state-owned bank, it enjoys a low NPL
to Gross loans of 2.2%, suggesting a very healthy credit
portfolio
Currently trading at a PBR of 2.2x, discount to sector
PBR 2.9x
…………………………………………………………………………………………………………
Has ADR on the higher side (76.2%), leaving little space
MCB for further credit expansion without new deposits
Enjoys the highest interest spread in the sector (7.1%),
on the back of very low cost of deposit. However, the
bank desperately need new deposits to maintain the
growth of its advances; plans to launch new deposit
schemes with competitive returns
Interest rate spread could decline slight before getting
stable
Plans to enter into consumer banking in a big way this
year. Using GDR proceeds to open up 60 new branches
in two years and to set up IT infrastructure for consumer
banking
20
January 15, 2007
FABL
Very high ADR of 86.4% could expose the bank to
severe liquidity risk
Putting on new expensive deposits is taking a toll on
interest rate spread that sharply dip in 3QCY06
Smaller branch network could restrict new deposit
raising
Higher portion of relatively expensive term deposits in
total deposits makes cost of deposits more sensitive to
market interest rates
Interest rate spread could decline this year
Currently trading at a PBR of 1.7x, discount to sector
PBR 2.9x
…………………………………………………………………………………………………………
21
Company Snapshot
National Bank Of Pakistan Ltd Commercial Banks
Basic Data Stock Chart
Sector Commercial Banks PKR Shares
Millions
Current Price 260.50 330 80
Market Capitalization PKR mn 184,713 310 70
Shares Outstanding mn 709 290
60
270
Year-end Dec 50
250
40
230
Most Recent Announcement - Earnings / Dividends 210
30
EPS PE Dividends 20
190
PKR times Cash Bonus % 170 10
3Q06 19.76 9.9x - - 150 0
May-06
Mar-06
Jan-06
Feb-06
Apr-06
Jun-06
Jul-06
Aug-06
Sep-06
Oct-06
Nov-06
Dec-06
NBP vs Commercial Banks
NBP Sector
2005 2004 2005 2004 Performance over 1M 3M 12M
Price to Earnings (x) 14.5 29.8 14.2 29.2 Absolute (%) -1% -3% 13%
EPS Growth (%) 105.1 47.6 105.0 19.6 Relative to KSE100 1% 1% 10%
Dividend Yield (%) 1.0 0.6 1.9 1.3
Price to Book (x) 2.5 4.0 3.2 5.7 Avg. Daily Turnover 1M 3M 12M
Net Margin (x) 29.5 21.2 26.4 26.1 PKR '000' 2,744,418 3,887,876 5,424,201
Return on Equity (%) 16.9 13.4 22.7 19.6 USD '000' 45,740 64,798 90,403
Financials (PKR mn) 2005 2004 2003 2002 Shares '000' 11,509 14,556 21,261
Income Statement
Price Multiples (based on current price)
Revenue 43,058 29,204 26,701 32,336
Profit after tax 12,709 6,195 4,198 2,253
Price to Earnings Ratio
Dividend (%) 25 15 13 13
100.0x
Bonus Issue (%) 20 20 20 10
80.0x
Right Issue (%) - - - -
60.0x
Millions
Current Price 107.05 70
120
Market Capitalization PKR mn 30,688 60
110
Shares Outstanding mn 287
50
Year-end Dec 100
40
90
30
Most Recent Announcement - Earnings / Dividends
80
EPS PE Dividends 20
May-06
Mar-06
Jan-06
Feb-06
Apr-06
Jun-06
Jul-06
Aug-06
Sep-06
Oct-06
Nov-06
Dec-06
BOP vs Commercial Banks
BOP Sector
2005 2004 2005 2004 Performance over 1M 3M 12M
Price to Earnings (x) 13.0 22.4 14.2 29.2 Absolute (%) 2% 14% -5%
EPS Growth (%) 72.0 98.5 105.0 19.6 Relative to KSE100 3% 18% -8%
Dividend Yield (%) - - 1.9 1.3
Price to Book (x) 2.2 3.9 3.2 5.7 Avg. Daily Turnover 1M 3M 12M
Net Margin (x) 31.6 37.5 26.4 26.1 PKR '000' 492,228 901,277 1,016,700
Return on Equity (%) 17.2 17.5 22.7 19.6 USD '000' 8,204 15,021 16,945
Financials (PKR mn) 2005 2004 2003 2002 Shares '000' 4,808 8,834 9,929
Income Statement
Price Multiples (based on current price)
Revenue 7,456 3,652 2,496 2,443
Profit after tax 2,353 1,368 689 284
Price to Earnings Ratio
Dividend (%) - - - 18
120.0x
Bonus Issue (%) 52 40 25 -
100.0x
Right Issue (%) - - - -
80.0x
60.0x
Balance Sheet
40.0x
Assets 111,154 66,320 43,621 29,525
20.0x
Liabilities 97,484 58,481 38,413 26,220
0.0x
Equity 13,670 7,839 5,208 3,305 2005 2004 2003 2002
Paid-up Capital 2,350 1,506 1,004 1,004
Price to Book Ratio
Millions
Current Price 264.80
250 50
Market Capitalization PKR mn 135,535
Shares Outstanding mn 512 200 40
Year-end Dec
150 30
May-06
Mar-06
Jan-06
Feb-06
Apr-06
Jun-06
Jul-06
Aug-06
Sep-06
Oct-06
Nov-06
Dec-06
MCB vs Commercial Banks
MCB Sector
2005 2004 2005 2004 Performance over 1M 3M 12M
Price to Earnings (x) 15.2 55.7 14.2 29.2 Absolute (%) 1% -1% 35%
EPS Growth (%) 266.9 9.1 105.0 19.6 Relative to KSE100 2% 4% 32%
Dividend Yield (%) 1.6 0.9 1.9 1.3
Price to Book (x) 5.7 9.3 3.2 5.7 Avg. Daily Turnover 1M 3M 12M
Net Margin (x) 38.5 18.3 26.4 26.1 PKR '000' 1,560,517 2,036,505 2,951,071
Return on Equity (%) 37.6 16.7 22.7 19.6 USD '000' 26,009 33,942 49,185
Financials (PKR mn) 2005 2004 2003 2002 Shares '000' 6,236 7,744 12,497
Income Statement
Price Multiples (based on current price)
Revenue 23,169 13,317 14,902 17,976
Profit after tax 8,922 2,432 2,230 1,735
Price to Earnings Ratio
Dividend (%) 43 25 28 25
100.0x
Bonus Issue (%) 20 10 10 25
80.0x
Right Issue (%) - - - -
60.0x
Millions
150 18
Current Price 114.65 140 16
Market Capitalization PKR mn 22,980 130 14
Shares Outstanding mn 200 12
120
Year-end Dec 10
110
8
100
Most Recent Announcement - Earnings / Dividends 6
EPS PE Dividends 90 4
PKR times Cash Bonus % 80 2
3Q06 8.65 9.9x - - 70 0
May-06
Mar-06
Jan-06
Feb-06
Apr-06
Jun-06
Jul-06
Aug-06
Sep-06
Oct-06
Nov-06
Dec-06
ACBL vs Commercial Banks
ACBL Sector
2005 2004 2005 2004 Performance over 1M 3M 12M
Price to Earnings (x) 11.4 11.9 14.2 29.2 Absolute (%) 3% 16% -14%
EPS Growth (%) 5.1 74.3 105.0 19.6 Relative to KSE100 5% 20% -17%
Dividend Yield (%) 1.3 1.7 1.9 1.3
Price to Book (x) 2.7 3.8 3.2 5.7 Avg. Daily Turnover 1M 3M 12M
Net Margin (x) 19.6 31.4 26.4 26.1 PKR '000' 131,793 180,834 202,582
Return on Equity (%) 23.5 32.0 22.7 19.6 USD '000' 2,197 3,014 3,376
Financials (PKR mn) 2005 2004 2003 2002 Shares '000' 1,230 1,698 1,828
Income Statement
Price Multiples (based on current price)
Revenue 10,333 6,121 5,027 5,704
Profit after tax 2,022 1,923 1,103 687
Price to Earnings Ratio
Dividend (%) 15 20 20 20
40.0x
Bonus Issue (%) 33 20 10 5 35.0x
Right Issue (%) - - - - 30.0x
25.0x
20.0x
Balance Sheet 15.0x
Assets 145,100 107,168 85,387 70,313 10.0x
5.0x
Liabilities 136,512 101,151 80,340 66,140
0.0x
Equity 8,587 6,016 5,047 4,173 2005 2004 2003 2002
Paid-up Capital 1,507 1,256 1,142 1,087
Price to Book Ratio
Millions
Current Price 63.75 90
25
Market Capitalization PKR mn 27,012 85
Shares Outstanding mn 424 80 20
Year-end Dec 75
15
70
Most Recent Announcement - Earnings / Dividends 65 10
EPS PE Dividends 60
5
PKR times Cash Bonus % 55
3Q06 5.37 8.9x 2.50 - 50 0
May-06
Mar-06
Jan-06
Feb-06
Apr-06
Jun-06
Jul-06
Aug-06
Sep-06
Oct-06
Nov-06
Dec-06
FABL vs Commercial Banks
FABL Sector
2005 2004 2005 2004 Performance over 1M 3M 12M
Price to Earnings (x) 8.8 15.4 14.2 29.2 Absolute (%) -4% -7% -22%
EPS Growth (%) 75.1 (18.5) 105.0 19.6 Relative to KSE100 -2% -2% -25%
Dividend Yield (%) 5.5 7.1 1.9 1.3
Price to Book (x) 1.9 2.6 3.2 5.7 Avg. Daily Turnover 1M 3M 12M
Net Margin (x) 36.5 38.2 26.4 26.1 PKR '000' 174,806 378,869 268,184
Return on Equity (%) 21.5 17.2 22.7 19.6 USD '000' 2,913 6,314 4,470
Financials (PKR mn) 2005 2004 2003 2002 Shares '000' 2,854 5,793 3,718
Income Statement
Price Multiples (based on current price)
Revenue 8,401 4,585 4,788 4,023
Profit after tax 3,069 1,753 2,151 656
Price to Earnings Ratio
Dividend (%) 35 45 45 17
50.0x
Bonus Issue (%) 30 10 10 -
40.0x
Right Issue (%) - - - -
30.0x
Core demand healthy - expected growth 13.2% YoY for FY07. Domestic
cement demand tends to largely consist of core local demand driven by
developmental activities within the country. We expect core local demand to
growth by 13.2%YOY, from 16.9mn tons in FY06 to 19.1mn tons in FY07.
This has a direct correlation with overall GDP at above 2x over the last 4
years. For FY07, we feel that the huge PSDP allocation of PkR 435bn is
indicative of continuing focus on infrastructure by the GoP. Additionally, with
27
January 15, 2007
the reconstruction activities in the earthquake hit areas in the North set to
kick off in earnest during CY07, we expect an additional demand of 0.58mn
tons over and above expected core demand of 19.1mn tons during FY07.
All this is already in the price! In terms of stock prices, we feel that
investors have more than accounted for all the negatives in the sector. .
Market capitalization has declined from peak by 52.0% to USD1.3bn. Over
the same period the KSE market cap has declined by 18%. As a result, at
current levels we feel that cement stocks offer good entry levels for long term
holding.
KEY STOCKS
…………………………………………………………………………………………………………
Strategic location in terms of access to the local market
DGKC
Income from equity investments (27% of assets) will help
counter interest rate expenses.
6,700 tpd capacity expansion coming online around
March-07
Relatively higher gross margins owing to efficient
German plant technology
…………………………………………………………………………………………………………
The largest cement producer with the ability to tap both
LUCK local and export demand due to a nation wide presence
via capacity expansions at Pezu and Karachi plants
Continues to enjoy first mover advantage by bringing all
four new lines online
Portion of debt hedged against rise in interest rates by
interest rate swaps
…………………………………………………………………………………………………………
28
Company Snapshot
D. G. Khan Cement Co. Limited Cement
Basic Data Stock Chart
Sector Cement PKR Shares
Millions
160 140
Current Price 66.75
140 120
Market Capitalization PKR mn 16,924
100
Shares Outstanding mn 254 120
Year-end Jun 80
100
60
Most Recent Announcement - Earnings / Dividends 80
40
EPS PE Dividends
60
PKR times Cash Bonus % 20
1Q07 1.91 8.7x - - 40 0
May-06
Mar-06
Jan-06
Feb-06
Apr-06
Jun-06
Jul-06
Aug-06
Sep-06
Oct-06
Nov-06
Dec-06
DGKC vs Cement
DGKC Sector
2006 2005 2006 2005 Performance over 1M 3M 12M
Price to Earnings (x) 7.0 10.1 10.3 15.4 Absolute (%) -3% -31% -45%
EPS Growth (%) 43.8 111.7 51.5 56.1 Relative to KSE100 -2% -27% -48%
Dividend Yield (%) 2.2 2.2 5.2 1.8
Price to Book (x) 0.9 1.8 2.0 2.9 Avg. Daily Turnover 1M 3M 12M
Net Margin (x) 30.4 31.9 26.1 23.7 PKR '000' 239,295 364,303 2,211,889
Return on Equity (%) 12.5 18.1 19.9 18.6 USD '000' 3,988 6,072 36,865
Financials (PKR mn) 2006 2005 2004 2003 Shares '000' 3,781 4,840 18,421
Income Statement
Price Multiples (based on current price)
Revenue 7,956 5,280 3,883 2,992
Profit after tax 2,418 1,682 794 484
Price to Earnings Ratio
Dividend (%) 15 15 15 10
40.0x
Bonus Issue (%) 10 - 10 - 35.0x
Right Issue (%) 25 - - - 30.0x
25.0x
20.0x
Balance Sheet 15.0x
Assets 34,304 18,017 11,715 9,660 10.0x
5.0x
Liabilities 15,036 8,699 5,398 4,575
0.0x
Equity 19,268 9,318 6,317 5,085 2006 2005 2004 2003
Paid-up Capital 1,844 1,844 1,676 2,030
Price to Book Ratio
Millions
140 60
Current Price 62.80 130
50
Market Capitalization PKR mn 16,540 120
Shares Outstanding mn 263 110 40
Year-end Jun 100
30
90
Most Recent Announcement - Earnings / Dividends 80 20
EPS PE Dividends 70
10
PKR times Cash Bonus % 60
1Q07 1.81 8.7x - - 50 0
May-06
Mar-06
Jan-06
Feb-06
Apr-06
Jun-06
Jul-06
Aug-06
Sep-06
Oct-06
Nov-06
Dec-06
LUCK vs Cement
LUCK Sector
2006 2005 2006 2005 Performance over 1M 3M 12M
Price to Earnings (x) 8.5 20.0 10.3 15.4 Absolute (%) -13% -38% -37%
EPS Growth (%) 134.2 20.5 51.5 56.1 Relative to KSE100 -11% -34% -40%
Dividend Yield (%) 1.6 - 5.2 1.8
Price to Book (x) 2.3 3.2 2.0 2.9 Avg. Daily Turnover 1M 3M 12M
Net Margin (x) 24.2 20.8 26.1 23.7 PKR '000' 148,652 257,611 1,160,728
Return on Equity (%) 27.4 16.1 19.9 18.6 USD '000' 2,478 4,294 19,345
Financials (PKR mn) 2006 2005 2004 2003 Shares '000' 2,413 3,239 10,622
Income Statement
Price Multiples (based on current price)
Revenue 7,985 3,980 2,908 2,190
Profit after tax 1,936 827 686 228
Price to Earnings Ratio
Dividend (%) 10 - - 8
80.0x
Bonus Issue (%) - - 8 - 70.0x
Right Issue (%) - - - - 60.0x
50.0x
40.0x
Balance Sheet 30.0x
Assets 23,622 14,807 7,012 4,818 20.0x
10.0x
Liabilities 16,552 9,673 2,705 1,197
0.0x
Equity 7,070 5,134 4,307 3,621 2006 2005 2004 2003
Paid-up Capital 2,634 2,634 2,450 2,450
Price to Book Ratio
KEY FUNDS
………………………………………………………………………………………………
Discount currently at 29.13% - among the widest in the
PGF
market.
Excellent dividend payout record; FY06 dividend yield
24.7%
Large frozen GoP holdings of PSO will provide a
significant upside once privatization process commences
…………………………………………………………………………………………………………
31
Company Snapshot
PICIC Growth Fund Closed-end Mutual Funds
Basic Data Stock Chart
Sector Close-end Mutual Funds PKR Shares
Millions
55 9
Current Price 29.25 8
50
Market Capitalization PKR mn 8,292 7
Shares Outstanding mn 284 45 6
Year-end Jun 5
40
4
Most Recent Announcement - Earnings / Dividends 35 3
EPS PE Dividends 2
30
PKR times Cash Bonus % 1
1Q07 1.44 5.1x - - 25 0
May-06
Mar-06
Jan-06
Feb-06
Apr-06
Jun-06
Jul-06
Aug-06
Sep-06
Oct-06
Nov-06
Dec-06
PGF vs Close-end Mutual Funds
PGF Sector
2006 2005 2006 2005 Performance over 1M 3M 12M
Price to Earnings (x) 6.0 3.1 3.0 3.4 Absolute (%) -5% -8% -46%
EPS Growth (%) (48.8) 49.2 12.2 35.7 Relative to KSE100 -4% -3% -48%
Dividend Yield (%) 23.9 12.0 23.8 15.1
Price to Book (x) 0.7 0.9 0.7 0.9 Avg. Daily Turnover 1M 3M 12M
Net Margin (x) 78.2 93.7 88.5 92.0 PKR '000' 6,881 9,657 33,149
Return on Equity (%) 11.5 29.6 23.3 26.1 USD '000' 115 161 552
Financials (PKR mn) 2006 2005 2004 2003 Shares '000' 237 321 798
Income Statement
Price Multiples (based on current price)
Revenue 1,753 2,859 1,946 2,202
Profit after tax 1,371 2,678 1,795 2,121
Price to Earnings Ratio
Dividend (%) 70 35 45 35
7.0x
Bonus Issue (%) 20 25 - - 6.0x
Right Issue (%) 50 - - 50 5.0x
4.0x
Balance Sheet 3.0x
2.0x
Assets 12,730 9,268 6,946 4,415
1.0x
Liabilities 831 221 136 30
0.0x
Equity 11,899 9,047 6,810 4,385 2006 2005 2004 2003
Paid-up Capital 2,835 1,575 1,260 840
Price to Book Ratio
0.5x
Key Ratios
Price to Earnings (x) 6.0 3.1 4.6 3.91 0.0x
2006 2005 2004 2003
Price to Book (x) 0.7 0.9 1.2 1.9
Price to Sales (x) 0.5 0.3 0.4 0.4 Dividend Yield
Div Yield (%) 23.93 11.97 15.38 11.97 30.0%
Revenue Growth (%) (38.67) 46.92 (11.63) 798.93 25.0%
EPS Growth (%) (48.79) 49.20 (15.37) 973.43 20.0%
Net Margin (%) 78.21 93.67 92.24 96.32 15.0%
Return on Equity (%) 11.53 29.60 26.36 48.37 10.0%
Return on Assets (%) 10.77 28.90 25.84 48.04 5.0%
Equity Turnover (x) 0.15 0.32 0.29 0.5 0.0%
Asset Turnover (x) 0.14 0.31 0.28 0.5 2006 2005 2004 2003
January 15, 2007
33
January 15, 2007
34
Company Snapshot
Oil & Gas Development Company Oil & Gas Exploration
Basic Data Stock Chart
Sector Oil & Gas Exploration PKR Shares
Millions
170 160
Current Price 116.40 140
160
Market Capitalization PKR mn 500,628 120
150
Shares Outstanding mn 4,301
100
Year-end Jun 140
80
130
60
Most Recent Announcement - Earnings / Dividends
120
EPS PE Dividends 40
May-06
Mar-06
Jan-06
Feb-06
Apr-06
Jun-06
Jul-06
Aug-06
Sep-06
Oct-06
Nov-06
Dec-06
OGDC vs Oil & Gas Exploration
OGDC Sector
2006 2005 2006 2005 Performance over 1M 3M 12M
Price to Earnings (x) 10.9 15.2 12.3 17.1 Absolute (%) -5% -15% -5%
EPS Growth (%) 39.4 47.1 38.6 42.7 Relative to KSE100 -3% -11% -8%
Dividend Yield (%) 7.7 6.4 5.7 4.9
Price to Book (x) 5.3 6.0 5.7 6.6 Avg. Daily Turnover 1M 3M 12M
Net Margin (x) 47.5 44.7 44.8 42.1 PKR '000' 920,698 2,459,930 4,175,455
Return on Equity (%) 48.5 39.6 46.3 38.7 USD '000' 15,345 40,999 69,591
Financials (PKR mn) 2006 2005 2004 2003 Shares '000' 7,937 18,078 29,112
Income Statement
Price Multiples (based on current price)
Revenue 96,755 73,710 51,326 45,008
Profit after tax 45,968 32,968 22,414 20,673
Price to Earnings Ratio
Dividend (%) 90 75 40 -
30.0x
Bonus Issue (%) - - - -
25.0x
Right Issue (%) - - - -
20.0x
15.0x
Balance Sheet
10.0x
Assets 121,315 114,579 95,989 84,922
5.0x
Liabilities 26,544 31,369 19,941 19,461
0.0x
Equity 94,770 83,210 76,048 65,461 2006 2005 2004 2003
Paid-up Capital 43,009 43,009 43,009 10,752
Price to Book Ratio
Millions
Current Price 243.00
290 50
Market Capitalization PKR mn 166,655
270
Shares Outstanding mn 686 40
Year-end Jun 250
30
230
Most Recent Announcement - Earnings / Dividends 20
210
EPS PE Dividends
10
PKR times Cash Bonus % 190
1Q07 5.54 11.0x - - 170 0
May-06
Mar-06
Jan-06
Feb-06
Apr-06
Jun-06
Jul-06
Aug-06
Sep-06
Oct-06
Nov-06
Dec-06
PPL vs Oil & Gas Exploration
PPL Sector
2006 2005 2006 2005 Performance over 1M 3M 12M
Price to Earnings (x) 12.4 19.3 12.3 17.1 Absolute (%) 2% -1% 13%
EPS Growth (%) 55.4 30.3 38.6 42.7 Relative to KSE100 3% 4% 10%
Dividend Yield (%) 3.7 2.3 5.7 4.9
Price to Book (x) 5.5 7.8 5.7 6.6 Avg. Daily Turnover 1M 3M 12M
Net Margin (x) 42.2 37.0 44.8 42.1 PKR '000' 1,423,362 1,570,644 3,194,317
Return on Equity (%) 44.4 40.6 46.3 38.7 USD '000' 23,723 26,177 53,239
Financials (PKR mn) 2006 2005 2004 2003 Shares '000' 6,045 6,426 12,815
Income Statement
Price Multiples (based on current price)
Revenue 31,757 23,294 17,668 12,181
Profit after tax 13,401 8,623 6,617 4,190
Price to Earnings Ratio
Dividend (%) 90 55 45 -
50.0x
Bonus Issue (%) - - - -
40.0x
Right Issue (%) - - - -
30.0x
5.0x
Key Ratios
Price to Earnings (x) 12.4 19.3 25.2 39.77 0.0x
2006 2005 2004 2003
Price to Book (x) 5.5 7.8 10.4 15.4
Price to Sales (x) 1.9 2.5 3.3 4.8 Dividend Yield
Div Yield (%) 3.70 2.26 1.85 - 4.0%
3.5%
Revenue Growth (%) 36.33 31.84 45.05 197.10
3.0%
EPS Growth (%) 55.41 30.31 57.92 812.95 2.5%
Net Margin (%) 42.20 37.02 37.45 34.40 2.0%
1.5%
Return on Equity (%) 44.39 40.59 41.23 38.78
1.0%
Return on Assets (%) 32.63 27.12 26.11 20.49 0.5%
Equity Turnover (x) 1.05 1.10 1.10 1.1 0.0%
Asset Turnover (x) 0.77 0.73 0.70 0.6 2006 2005 2004 2003
Company Snapshot
Pakistan Oilfields Ltd. Oil & Gas Exploration
Basic Data Stock Chart
Sector Oil & Gas Exploration PKR Shares
Millions
Current Price 341.90 700 30
Market Capitalization PKR mn 67,396 600
25
Shares Outstanding mn 197
500
Year-end Jun 20
400
15
300
Most Recent Announcement - Earnings / Dividends
10
EPS PE Dividends 200
May-06
Mar-06
Jan-06
Feb-06
Apr-06
Jun-06
Jul-06
Aug-06
Sep-06
Oct-06
Nov-06
Dec-06
POL vs Oil & Gas Exploration
POL Sector
2006 2005 2006 2005 Performance over 1M 3M 12M
Price to Earnings (x) 11.0 18.4 12.3 17.1 Absolute (%) -7% 4% -24%
EPS Growth (%) 66.8 47.2 38.6 42.7 Relative to KSE100 -5% 8% -27%
Dividend Yield (%) 4.4 3.7 5.7 4.9
Price to Book (x) 4.6 6.1 5.7 6.6 Avg. Daily Turnover 1M 3M 12M
Net Margin (x) 39.8 40.8 44.8 42.1 PKR '000' 1,157,069 1,874,134 3,929,307
Return on Equity (%) 41.9 33.0 46.3 38.7 USD '000' 19,284 31,236 65,488
Financials (PKR mn) 2006 2005 2004 2003 Shares '000' 3,294 5,308 8,389
Income Statement
Price Multiples (based on current price)
Revenue 15,375 8,998 6,842 6,463
Profit after tax 6,126 3,673 2,495 2,428
Price to Earnings Ratio
Dividend (%) 150 125 125 175
30.0x
Bonus Issue (%) 50 - - 60
25.0x
Right Issue (%) - - - -
20.0x
15.0x
Balance Sheet
10.0x
Assets 23,241 15,840 12,703 10,734
5.0x
Liabilities 8,617 4,708 3,695 4,227
0.0x
Equity 14,624 11,132 9,008 6,507 2006 2005 2004 2003
Paid-up Capital 1,971 1,314 1,314 821
Price to Book Ratio
38
January 15, 2007
Good dividend yields. The sector has always had good dividend yields and
this is likely to remain so. However in the medium-term Engro’s payout is
expected to decline because of planned capex.
KEY STOCKS
………………………………………………………………………………………………
ENGRO Allocation of 100 MMCFD gas will enable the
company to increase its production capacity by
1.27mn tons to 2.25mn tons. Engro’s share in total
capacity as a result will increase from 20% to 35%
Engro.
3yr average: Selling price PKR10, 541 per ton, cost
(excluding depreciation) PKR 7,332 per ton.
3-yr average: gross margin 27% and net margin
13%
The company is aggressive in exploring new
business horizons in various sectors.
Healthy dividend income cushions the bottom line.
…………………………………………………………………………………………………………
39
Company Snapshot
Engro Chemical Pakistan Limited Fertilizer
Basic Data Stock Chart
Sector Fertilizer PKR Shares
Millions
Current Price 179.90 240
10
Market Capitalization PKR mn 30,265 230
May-06
Mar-06
Jan-06
Feb-06
Apr-06
Jun-06
Jul-06
Aug-06
Sep-06
Oct-06
Nov-06
Dec-06
ENGRO vs Fertilizer
ENGRO Sector
2005 2004 2005 2004 Performance over 1M 3M 12M
Price to Earnings (x) 13.1 18.8 11.3 16.0 Absolute (%) -1% -2% 3%
EPS Growth (%) 43.9 3.5 41.9 20.9 Relative to KSE100 0% 2% 1%
Dividend Yield (%) 6.1 4.7 9.1 8.6
Price to Book (x) 4.1 4.6 3.8 4.1 Avg. Daily Turnover 1M 3M 12M
Net Margin (x) 12.7 12.6 20.2 18.2 PKR '000' 240,300 172,197 360,396
Return on Equity (%) 31.4 24.5 33.8 25.9 USD '000' 4,005 2,870 6,007
Financials (PKR mn) 2005 2004 2003 2002 Shares '000' 1,358 963 1,823
Income Statement
Price Multiples (based on current price)
Revenue 18,276 12,798 11,884 10,893
Profit after tax 2,319 1,611 1,557 1,133
Price to Earnings Ratio
Dividend (%) 110 85 80 75
30.0x
Bonus Issue (%) - - - 10
25.0x
Right Issue (%) 10 - - -
20.0x
15.0x
Balance Sheet
10.0x
Assets 14,112 13,185 12,865 14,284
5.0x
Liabilities 6,736 6,599 6,666 8,953
0.0x
Equity 7,376 6,586 6,199 5,330 2005 2004 2003 2002
Paid-up Capital 1,529 1,529 1,529 1,390
Price to Book Ratio
Millions
Current Price 107.25 145 8
Market Capitalization PKR mn 52,925 140 7
Shares Outstanding mn 493 135
6
130
Year-end Dec 5
125
4
120
Most Recent Announcement - Earnings / Dividends 115
3
EPS PE Dividends 2
110
PKR times Cash Bonus % 105 1
3Q06 6.14 13.1x 6.10 - 100 0
May-06
Mar-06
Jan-06
Feb-06
Apr-06
Jun-06
Jul-06
Aug-06
Sep-06
Oct-06
Nov-06
Dec-06
FFC vs Fertilizer
FFC Sector
2005 2004 2005 2004 Performance over 1M 3M 12M
Price to Earnings (x) 10.8 13.2 11.3 16.0 Absolute (%) -8% -9% -24%
EPS Growth (%) 22.3 27.3 41.9 20.9 Relative to KSE100 -7% -4% -27%
Dividend Yield (%) 11.2 14.0 9.1 8.6
Price to Book (x) 4.3 4.3 3.8 4.1 Avg. Daily Turnover 1M 3M 12M
Net Margin (x) 19.2 19.0 20.2 18.2 PKR '000' 62,707 56,936 120,627
Return on Equity (%) 39.4 32.6 33.8 25.9 USD '000' 1,045 949 2,010
Financials (PKR mn) 2005 2004 2003 2002 Shares '000' 577 495 939
Income Statement
Price Multiples (based on current price)
Revenue 25,481 21,027 21,035 16,787
Profit after tax 4,897 4,004 3,145 3,073
Price to Earnings Ratio
Dividend (%) 120 150 100 90
20.0x
Bonus Issue (%) 40 30 - -
Right Issue (%) - - - - 15.0x
10.0x
Balance Sheet
Assets 28,449 26,443 27,219 28,166 5.0x
Liabilities 16,008 14,148 15,697 17,403
0.0x
Equity 12,441 12,295 11,523 10,763 2005 2004 2003 2002
Paid-up Capital 4,935 2,950 2,565 2,565
Price to Book Ratio
Millions
Current Price 28.85 43 70
Market Capitalization PKR mn 26,949 41
60
Shares Outstanding mn 934 39
37 50
Year-end Dec
35 40
33 30
Most Recent Announcement - Earnings / Dividends 31
EPS PE Dividends 20
29
PKR times Cash Bonus % 27 10
3Q06 1.42 15.2x 1.25 - 25 0
May-06
Mar-06
Jan-06
Feb-06
Apr-06
Jun-06
Jul-06
Aug-06
Sep-06
Oct-06
Nov-06
Dec-06
FFBL vs Fertilizer
FFBL Sector
2005 2004 2005 2004 Performance over 1M 3M 12M
Price to Earnings (x) 11.0 14.7 11.3 16.0 Absolute (%) -4% 4% -29%
EPS Growth (%) 33.8 52.5 41.9 20.9 Relative to KSE100 -2% 9% -32%
Dividend Yield (%) 8.7 3.5 9.1 8.6
Price to Book (x) 3.5 3.8 3.8 4.1 Avg. Daily Turnover 1M 3M 12M
Net Margin (x) 17.2 16.0 20.2 18.2 PKR '000' 71,229 173,907 375,453
Return on Equity (%) 31.7 25.6 33.8 25.9 USD '000' 1,187 2,898 6,258
Financials (PKR mn) 2005 2004 2003 2002 Shares '000' 2,473 5,910 10,069
Income Statement
Price Multiples (based on current price)
Revenue 14,255 11,462 5,167 3,953
Profit after tax 2,449 1,831 1,201 2,131
Price to Earnings Ratio
Dividend (%) 25 10 - -
25.0x
Bonus Issue (%) - - - -
20.0x
Right Issue (%) - - 3 -
15.0x
KEY STOCKS
………………………………………………………………………………………………
PKGS Pakistan’s largest paper and board manufacturer
Good exposure to virtually all areas of consumer
demand.
The company is in the process of expanding
production and expects to produce at 300,000
tonnes p.a in CY08 in order to meet rising demand
as well as to target production efficiencies
Healthy other income (from associated and
subsidiary companies) cushions the bottom line.
…………………………………………………………………………………………………………
43
Company Snapshot
Packages Limited Paper & Board
Basic Data Stock Chart
Sector Paper & Board PKR Shares
Millions
225 3.5
Current Price 203.55 220 3.0
Market Capitalization PKR mn 14,224 215
2.5
Shares Outstanding mn 70
210
Year-end Dec 2.0
205
1.5
200
Most Recent Announcement - Earnings / Dividends
1.0
EPS PE Dividends 195
May-06
Mar-06
Jan-06
Feb-06
Apr-06
Jun-06
Jul-06
Aug-06
Sep-06
Oct-06
Nov-06
Dec-06
PKGS vs Paper & Board
PKGS Sector
2005 2004 2005 2004 Performance over 1M 3M 12M
Price to Earnings (x) 14.0 14.9 13.8 14.5 Absolute (%) 1% 1% -3%
EPS Growth (%) 6.0 17.7 5.4 18.4 Relative to KSE100 2% 6% -6%
Dividend Yield (%) 2.9 4.2 3.0 4.3
Price to Book (x) 1.8 3.4 1.8 3.1 Avg. Daily Turnover 1M 3M 12M
Net Margin (x) 14.3 16.0 14.3 16.1 PKR '000' 2,303 98,295 25,369
Return on Equity (%) 13.1 22.8 13.1 21.6 USD '000' 38 1,638 423
Financials (PKR mn) 2005 2004 2003 2002 Shares '000' 11 475 122
Income Statement
Price Multiples (based on current price)
Revenue 7,099 5,987 5,436 4,622
Profit after tax 1,015 958 814 655
Price to Earnings Ratio
Dividend (%) 60 85 85 70
25.0x
Bonus Issue (%) - - - -
20.0x
Right Issue (%) 47 - - -
15.0x
45
January 15, 2007
KEY STOCKS
…………………………………………………………………………………………………………
46
Company Snapshot
Sui Northern Gas Pipelines Ltd. Oil & Gas Marketing
Basic Data Stock Chart
Sector Oil & Gas Marketing PKR Shares
Millions
130 16
Current Price 69.75 14
120
Market Capitalization PKR mn 38,300 12
110
Shares Outstanding mn 549
10
Year-end Jun 100
8
90
6
Most Recent Announcement - Earnings / Dividends
80
EPS PE Dividends 4
May-06
Mar-06
Jan-06
Feb-06
Apr-06
Jun-06
Jul-06
Aug-06
Sep-06
Oct-06
Nov-06
Dec-06
SNGP vs Oil & Gas Marketing
SNGP Sector
2006 2005 2006 2005 Performance over 1M 3M 12M
Price to Earnings (x) 10.3 14.0 9.0 12.2 Absolute (%) -11% -26% 1%
EPS Growth (%) 36.0 19.1 36.3 32.1 Relative to KSE100 -9% -21% -1%
Dividend Yield (%) 4.3 4.3 8.3 5.8
Price to Book (x) 2.5 3.0 2.6 3.1 Avg. Daily Turnover 1M 3M 12M
Net Margin (x) 3.5 3.3 2.7 2.5 PKR '000' 18,171 24,521 135,784
Return on Equity (%) 24.6 21.2 29.6 25.1 USD '000' 303 409 2,263
Financials (PKR mn) 2006 2005 2004 2003 Shares '000' 263 303 1,409
Income Statement
Price Multiples (based on current price)
Revenue 105,851 83,377 64,206 42,460
Profit after tax 3,722 2,736 2,297 2,014
Price to Earnings Ratio
Dividend (%) 30 30 25 22
20.0x
Bonus Issue (%) 10 - - -
Right Issue (%) - - - - 15.0x
10.0x
Balance Sheet
Assets 51,421 65,014 56,925 47,301 5.0x
Liabilities 36,312 52,130 46,071 38,744
0.0x
Equity 15,109 12,884 10,854 8,556 2006 2005 2004 2003
Paid-up Capital 4,992 4,992 4,992 4,992
Price to Book Ratio
48
January 15, 2007
CNG sales, a new earning source. Offsetting the decline in the growth of
gasoline consumption, Compressed Natural Gas (CNG) sales are rapidly
growing every year because of its significant price advantage over gasoline.
Though the margin in CNG varies in a large range, generally it is much better
than that on other POL products.
Further margin cut, a remote possibility. In March last year the GoP cut
the margin of OMCs by 20%. These companies made handsome profits last
year and this built up public pressure on the GoP to pull down their margin.
However, going forward, we believe that the GoP will not resort to margin cut
again, especially post- PSO privatization, as it wants OMCs to build up their
storage capacity to 45 days inventory from the current 25 days. Accordingly,
any further cut in margin could discourage these companies to finance any
such expansion.
KEY STOCK
………………………………………………………………………………………………
PSO Expected to be privatized by June this year.
Expected higher growth in Furnace oil sales this year will
positively impact the bottom-line
HSD consumption is expected to revive after winter. This
will bode well for PSO as 43% of its sales volume comes
from this segment
The GoP is expected to retire all dues to PSO by March
this year. This will remove an important hitch in the
privatization of this company
Currently trading at discount to our fair value of PKR 349
a share
………………………………………………………………………………………………
49
Company Snapshot
Pakistan State Oil Company Oil & Gas Marketing
Basic Data Stock Chart
Sector Oil & Gas Marketing PKR Shares
Millions
460 25
Current Price 307.00
430
Market Capitalization PKR mn 52,657 20
400
Shares Outstanding mn 172
15
Year-end Jun 370
340 10
Most Recent Announcement - Earnings / Dividends
310
EPS PE Dividends
5
PKR times Cash Bonus % 280
1Q07 3.30 23.2x - - 250 0
May-06
Mar-06
Jan-06
Feb-06
Apr-06
Jun-06
Jul-06
Aug-06
Sep-06
Oct-06
Nov-06
Dec-06
PSO vs Oil & Gas Marketing
PSO Sector
2006 2005 2006 2005 Performance over 1M 3M 12M
Price to Earnings (x) 7.0 9.3 9.0 12.2 Absolute (%) -1% -3% -28%
EPS Growth (%) 33.0 34.3 36.3 32.1 Relative to KSE100 0% 2% -31%
Dividend Yield (%) 11.1 8.5 8.3 5.8
Price to Book (x) 2.5 3.0 2.6 3.1 Avg. Daily Turnover 1M 3M 12M
Net Margin (x) 2.5 2.7 2.7 2.5 PKR '000' 377,312 478,074 1,005,878
Return on Equity (%) 36.2 32.2 29.6 25.1 USD '000' 6,289 7,968 16,765
Financials (PKR mn) 2006 2005 2004 2003 Shares '000' 1,262 1,581 2,710
Income Statement
Price Multiples (based on current price)
Revenue 298,250 212,504 161,538 172,446
Profit after tax 7,525 5,656 4,212 4,030
Price to Earnings Ratio
Dividend (%) 340 260 175 160
14.0x
Bonus Issue (%) - - - - 12.0x
Right Issue (%) - - - - 10.0x
8.0x
Balance Sheet 6.0x
4.0x
Assets 70,169 52,308 42,409 32,338
2.0x
Liabilities 49,355 34,763 26,963 19,275
0.0x
Equity 20,813 17,545 15,446 13,063 2006 2005 2004 2003
Paid-up Capital 1,715 1,715 1,715 1,715
Price to Book Ratio
KEY STOCKS
………………………………………………………………………………………………
Its turbines can be run with any of the three fuels that is,
KAPCO gas, furnace oil and HSD.
The proposed 450MW expansion is favorable because
of high demand growth and company related factors.
Distinctive advantages going in its favor include:
WAPDA ownership of about 44%, proximity of plant to
load center and existing supply of gas, and smaller
gestation period and lower cost for KAPCO undertaking
expansion than a new company undertaking Greenfield
project.
…………………………………………………………………………………………………………
Higher utilization levels leading to improved thermal
HUBCO efficiency
The stock is expected to factor-in potential growth going
forward, with Hub Power in 1) bidding process for SSGC
and its 2) plans to expand by 350MW to 500MW through
solicited as well as unsolicited proposals
………………………………………………………………………………………………
51
Company Snapshot
Kot Addu Power Power Generation
Basic Data Stock Chart
Sector Power Generation PKR Shares
Millions
53 9.0
Current Price 40.80 51 8.0
Market Capitalization PKR mn 35,914 49 7.0
Shares Outstanding mn 880 47 6.0
Year-end Jun 45 5.0
43 4.0
Most Recent Announcement - Earnings / Dividends 41 3.0
EPS PE Dividends 39 2.0
PKR times Cash Bonus % 37 1.0
1Q07 1.27 8.0x - - 35 0.0
May-06
Mar-06
Jan-06
Feb-06
Apr-06
Jun-06
Jul-06
Aug-06
Sep-06
Oct-06
Nov-06
Dec-06
KAPCO vs Power Generation
KAPCO Sector
2006 2005 2006 2005 Performance over 1M 3M 12M
Price to Earnings (x) 6.8 4.5 8.1 6.1 Absolute (%) -2% -6% -17%
EPS Growth (%) (33.9) 16.0 (36.1) 2.8 Relative to KSE100 -1% -1% -19%
Dividend Yield (%) 19.9 19.6 9.9 16.4
Price to Book (x) 1.8 1.6 1.0 0.9 Avg. Daily Turnover 1M 3M 12M
Net Margin (x) 16.2 29.2 13.8 16.8 PKR '000' 10,832 17,780 34,276
Return on Equity (%) 26.4 36.1 16.4 15.5 USD '000' 181 296 571
Financials (PKR mn) 2006 2005 2004 2003 Shares '000' 264 424 741
Income Statement
Price Multiples (based on current price)
Revenue 32,833 27,564 21,842 -
Profit after tax 5,317 8,048 6,936 -
Price to Earnings Ratio
Dividend (%) 81 80 - -
8.0x
Bonus Issue (%) - - - - 7.0x
Right Issue (%) - - - - 6.0x
5.0x
4.0x
Balance Sheet 3.0x
Assets 34,278 36,730 32,910 - 2.0x
1.0x
Liabilities 14,156 14,443 14,891 -
0.0x
Equity 20,122 22,287 18,020 - 2006 2005 2004 2003
Paid-up Capital 8,803 8,803 8,803 -
Price to Book Ratio
Millions
Current Price 27.25 29
10
Market Capitalization PKR mn 31,532 28
May-06
Mar-06
Jan-06
Feb-06
Apr-06
Jun-06
Jul-06
Aug-06
Sep-06
Oct-06
Nov-06
Dec-06
HUBC vs Power Generation
HUBC Sector
2006 2005 2006 2005 Performance over 1M 3M 12M
Price to Earnings (x) 11.4 5.9 8.1 6.1 Absolute (%) -7% 6% 9%
EPS Growth (%) (48.6) (1.4) (36.1) 2.8 Relative to KSE100 -6% 11% 6%
Dividend Yield (%) 11.4 14.3 9.9 16.4
Price to Book (x) 1.1 1.0 1.0 0.9 Avg. Daily Turnover 1M 3M 12M
Net Margin (x) 9.9 31.7 13.8 16.8 PKR '000' 37,688 40,801 44,003
Return on Equity (%) 9.2 17.0 16.4 15.5 USD '000' 628 680 733
Financials (PKR mn) 2006 2005 2004 2003 Shares '000' 1,364 1,497 1,754
Income Statement
Price Multiples (based on current price)
Revenue 27,911 16,978 16,003 19,514
Profit after tax 2,768 5,385 5,463 6,102
Price to Earnings Ratio
Dividend (%) 31 39 32 54
12.0x
Bonus Issue (%) - - - -
10.0x
Right Issue (%) - - - -
8.0x
6.0x
Balance Sheet
4.0x
Assets 43,515 46,636 51,781 55,546
2.0x
Liabilities 13,530 14,964 22,138 29,515
0.0x
Equity 29,985 31,672 29,642 26,031 2006 2005 2004 2003
Paid-up Capital 11,572 11,572 11,572 11,572
Price to Book Ratio
A new earning source. The deregulation produced a new earning source for
the company in the form of interconnection charges and leased line rents.
Being the monopoly of decades before 2003, PTCL managed to establish an
extensive telephony transmission network all over the country and
consequently the majority of the new telecom operators are using PTCL
network for their LL and LDI services, earning handsome rents for the
company. Since, PTCL still holds 98% market share in fixed telephony, the
majority of the other operators’ calls terminate on the PTCL network, thus
earning termination charges for the company. However, we believe that
PTCL cannot bank on this earning for too long to make up its loss on other
fronts as the new operators are bound to own 10%, 20% and 50% of their
transmission network in the first, second and third year of their operation.
WLL operations took off well. PTCL started off well its wireless local loop
(WLL) business, which it launched in May 2005 with CDMA technology. It
has got leadership position in this sector with 60% market share. Currently,
WLL tele-density in the country stands at 0.66%, implying a huge growth
potential for PTCL, especially in small towns where people have no
alternative to relatively expensive cellular services as PTCL has not yet laid
copper or fibre optic network there for giving fixed telephone services. Hence
people will switch to cheaper WLL, if it is made available in those areas. An
aggressive roll out plan for WLL network is underway in PTCL and its
existing 1,134 base stations cover 720 cities and small towns in the country.
Cellular market, another growth avenue. Another growth area for PTCL is
the cellular market, where its wholly owned subsidiary Ufone holds 22%
market share with 7.49 million subscribers as on June 2006. The cellular
tele-density in the country rose significantly during FY05-06 from 8% to 26%,
yet the total cellular subscribers are expected to touch 92.2 million by 2010
from 36.8 million in June 2006.
Recent tariff cuts could win over lost market share. The new telecom
operators are gradually making inroads into the captive territory of PTCL.
These operators are eating away its margins, especially in its long-distance
revenues as they have established their international gateways to attract
incoming traffic in the country. This is quite evident from the fact that
international incoming revenues, which in 2003 accounted for 25.3% of the
total revenues of PTCL, now make up only 13.1%. According to Pakistan
Telecommunication Authority (PTA), the telecom sector regulator of the
country, the overall international incoming traffic in the country showed a
growth of 118% in FY05-06. However, the share of PTCL in this traffic
dropped to 55.3% from 73.3% a year earlier. Mobile operators also abolished
their national long distance tariffs (which used to be PKR 9 per minute) and
54
January 15, 2007
are now only charging airtime for national long distance calls. Similarly, new
LDI operators substantially reduced their tariffs, thereby taking away
significant long distance traffic from PTCL. The minimum international tariffs,
which were PKR 58 in 1996, are now as low as PKR 0.99 per minute and
NWD call is available at PKR 0.52 per minute. PTCL recently reduced their
long distance tariffs by 67% and nationwide by 50%. We do expect that this
step will help PTCL recoup its lost market share.
KEY STOCK
………………………………………………………………………………………………
PTCL recently reduced their long distance tariffs by
PTCL
67% and nationwide by 50%. We do expect that this
step will help PTCL recoup its lost market share.
Another growth area for PTCL is the cellular market,
where it’s wholly owned subsidiary Ufone holds 22%
market share.
PTCL successful wireless local loop (WLL) business
has acquired leadership position in this sector with
60% market share.
…………………………………………………………………………………………………………
55
Company Snapshot
Pakistan Telecommunication Company Tech. & Comm.
Basic Data Stock Chart
Sector Tech. & Comm. PKR Shares
Millions
70 140
Current Price 48.10
65 120
Market Capitalization PKR mn 245,310
60 100
Shares Outstanding mn 5,100
Year-end Jun 55 80
50 60
Most Recent Announcement - Earnings / Dividends
45 40
EPS PE Dividends
PKR times Cash Bonus % 40 20
1Q07 1.01 11.9x - - 35 0
May-06
Mar-06
Jan-06
Feb-06
Apr-06
Jun-06
Jul-06
Aug-06
Sep-06
Oct-06
Nov-06
Dec-06
PTC vs Tech. & Comm.
PTC Sector
2006 2005 2006 2005 Performance over 1M 3M 12M
Price to Earnings (x) 11.8 9.2 10.2 7.8 Absolute (%) 0% 13% -29%
EPS Growth (%) (21.9) (8.8) (23.4) (8.3) Relative to KSE100 2% 18% -32%
Dividend Yield (%) 10.4 4.2 7.4 4.9
Price to Book (x) 2.3 2.5 1.8 2.0 Avg. Daily Turnover 1M 3M 12M
Net Margin (x) 30.1 35.0 29.9 34.3 PKR '000' 327,924 515,003 852,259
Return on Equity (%) 19.7 26.6 17.7 25.9 USD '000' 5,465 8,583 14,204
Financials (PKR mn) 2006 2005 2004 2003 Shares '000' 7,230 11,169 15,112
Income Statement
Price Multiples (based on current price)
Revenue 69,085 75,972 74,124 67,203
Profit after tax 20,777 26,606 29,170 23,081
Price to Earnings Ratio
Dividend (%) 50 20 50 35
14.0x
Bonus Issue (%) - - - - 12.0x
Right Issue (%) - - - - 10.0x
8.0x
Balance Sheet 6.0x
4.0x
Assets 152,240 136,078 141,595 130,779
2.0x
Liabilities 46,765 36,064 32,495 50,856
0.0x
Equity 105,475 100,014 109,100 79,923 2006 2005 2004 2003
Paid-up Capital 51,000 51,000 51,000 51,000
Price to Book Ratio
57