with imf likely impact€¦ · pakistan equity| economy update life with imf & its likely...

April 03, 2018 REP‐057

Pakistan Equity| Economy Update

Life with IMF & its Likely Impacty pTopline Research

h@t li kBest Local Brokerage HouseBrokers Poll 2011 14 2016 [email protected]

Tel: +9221‐3530‐3338‐40Topline Securities, Pakistan www.jamapunji.pk

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Table of Contents

Executive Summary -------------------------------------- 3

IMF Program on the Horizon -------------------------------------- 5

2008 and 2013 IMF Programs -------------------------------------- 7

Key Indicators Under 2008 & 2013 IMF Programs -------------------------------------- 8

IMF Likely Conditions and Impact -------------------------------------- 9

PKR-USD Estimated to Reach Rs136 by June 2020 -------------------------------------- 10

Interest Rate Likely to Reach 8.75% by June 2020 -------------------------------------- 11

Reserves & Import Cover to Improve Post IMF Program -------------------------------------- 12Reserves & Import Cover to Improve Post IMF Program 12

CPEC Activity and IMF Program -------------------------------------- 13

GDP Growth to Slow Down Post IMF Program -------------------------------------- 14

Key Macro Forecasts in light of IMF/Reform Measures -------------------------------------- 15

Foreign Assets Amnesty Scheme -------------------------------------- 16

Index can reach 50,000pts -------------------------------------- 18

2

Banks and E&Ps likely beneficiaries -------------------------------------- 19

Pakistan Economy

Executive Summary

P ki ’ E l A i i l k F i E h (FX) dPakistan’s External Account woes continue to worry investors as outlook on Foreign Exchange (FX) reserves andCurrent Account Deficit (CAD) seems alarming at a time when Pak‐US relations are not good.Pakistan’s FX reserves are down 40% to US$11.8bn as of March 22, 2018 (2.6 months of import cover) since itspeak of US$19.5bn in Oct 2016.peak of US$19.5bn in Oct 2016.With this situation, there are three possible scenarios that can unfold: 1) strict measures including further PKRdevaluation and interest rate hike, 2) entry into IMF’s program and 3) bailout from friendly countries.We are of the view that the first two scenarios will likely unfold where the Govt. will take strict measures andenter an IMF program in 2H2018 post general elections.However, the intensity and after effects on economic activity of IMF bailout will not to be as profound aswitnessed post 2008 and may not be as mild as seen after the 2013 program.P ki t id k ki IMF’ d th h b bilit f it h i i l if th G t tPakistan can avoid knocking IMF’s door, though probability of it happening is low, if the Govt. manages toarrange decent external financing from friendly countries (China & Saudi Arabia) by 3Q2018 along with takingcorrective measures.Considering our base case where Pakistan will seek IMF funding, we anticipate further devaluation of 10% inConsidering our base case where Pakistan will seek IMF funding, we anticipate further devaluation of 10% inFY19 and 7% in FY20 which is likely to take PKR/USD parity from current Rs115 to Rs136 by FY20.We also anticipate SBP policy rate to be increased from current 6.00% to 8.75% by FY20 under IMF program.With reform measures, CAD will likely clock in below 3% of GDP by FY20 vs. 5.1% expected in FY18 & foreign

Honda Atlas Cars (HCAR)Pakistan Economy 3

exchange reserves will improve to US$15bn by FY20 vs. US$11.8bn as of Mar 22, 2018.While we expect CPEC to continue, measures under IMF program could affect projects’ progress to some extent.

Executive Summary

Due to aforesaid reasons, Pakistan’s GDP growth is likely to slowdown to 4.6% in FY19, 4.7% in FY20 and 5.1% byFY21 as against 5.7% of growth expectations in FY18.Timing and quantum of currency devaluation, policy rate hike and smooth transition of democratic government(G l El ti lik l i J l 2018) ill b k t i f th k t(General Elections likely in Jul 2018) will be key triggers for the market.We maintain our index target of 50,000 pts by Dec 2018 with PE range of 8.5‐9.0x, which we had mentioned inour Dec 2017 Pakistan Strategy report. The market is currently trading at 2019F PE of 8.3x.We have ‘Overweight’ stance on Banks E&Ps & Textile sectors that are likely to be beneficiaries of policy rateWe have ‘Overweight’ stance on Banks, E&Ps & Textile sectors that are likely to be beneficiaries of policy ratehike and currency devaluation.

Key Economic IndicatorsFY17A FY18E FY19F FY20F FY21F FY22F FY23FFY17A FY18E FY19F FY20F FY21F FY22F FY23F

GDP Growth (%) 5.3% 5.7% 4.6% 4.7% 5.1% 5.1% 5.1%PKR/USD – June‐end 105 115 127 136 140 144 148Inflation (%) 4.2% 4.0% 7.0% 7.5% 7.5% 7.0% 7.0%Imports (US$bn) – as per SBP 48 5 53 1 52 49 8 50 7 52 53 3Imports (US$bn) – as per SBP 48.5 53.1 52 49.8 50.7 52 53.3Exports (US$bn) – as per SBP 21.9 23.7 24.9 26.6 28 29.4 30.8Current Account Deficit (% GDP) 4.1% 5.1% 3.8% 2.4% 2.1% 1.9% 1.8%Foreign Direct Investment (US$bn) 2.3 3.3 3.9 4.0 4.0 4.0 4.0Foreign Exchange Reserves (US$bn) – June‐end 16 1 9 1 13 1 15 1 16 1 16 1 16 1


Foreign Exchange Reserves (US$bn) June end 16.1 9.1 13.1 15.1 16.1 16.1 16.1Fiscal Deficit as % GDP 5.8% 5.8% 5.0% 4.7% 4.7% 4.4% 4.4%Source: State Bank of Pakistan; International Monetary Fund; Topline Research

IMF Program on the Horizon

k ’ l l k dPakistan’s External Account woes continue to worry investors as outlook on FX reserves and CADseems alarming.FX reserves held by Pakistan’s Central Bank have come down from US$16.1bn in beginning Jul 2017

$to 3‐year low of US$11.8bn as of Mar 22, 2018. This equates to around 2.6 months of import coveras compared to last 5‐year average import cover of 3.5 months.CAD during 8MFY18 has climbed to US$10.8bn and is anticipated to clock in at US$15.6bn (5.1% ofGDP) in FY18.The external account situation is worst than our expectation. Moreover, investors are alsoconcerned with worsening Pak‐US relations and recent Foreign Action Task Force (FATF) grey listingof Pakistan.Given the severity of situation, investors are concerned over how the issue will be resolved andhow it can affect the currency and market.There are three likely scenarios that can unfold: 1) strict measures including further PKRdevaluation and interest rate hike, 2) entry into IMF’s program and 3) bailout from friendlycountries.


We are of the view that the first two scenarios will likely unfold where the Govt. will take strictmeasures and enter an IMF program in 2H2018 post general elections.

IMF Program on the Horizon

An IMF program will bring financial discipline and help reduce pressures on FX reserves as we thinkPakistan can secure US$6‐7bn of IMF loan, out of which US$2‐3bn can be disbursed in FY19.We expect IMF bailout package to be an Extended Fund Facility (EFF) for a period of 3 years.With IMF’s support, other lending agencies will also feel comfortable to provide funding toPakistan.IMF support is not new. Pakistan has attained 21 IMF programs in 60 years, with the recent mostprograms in 2008 and 2013.We believe that the intensity and the after effects of the IMF program will not to be as profound aswitnessed post 2008 and may not be as mild as seen after the 2013 program.p y p gIn our view, Pakistan can avoid knocking IMF’s door (though probability of it happening is low), ifthe Govt. manages to arrange external financing from friendly countries (China & Saudi Arabia) by3Q2018.3Q2018.Along with funding from friendly nations, the Govt. will have to take corrective measures (lessintense than they would be under an IMF program) like currency devaluation, increase in interestrates increase in tax rates/duties privatization of state owned entities and reduction in power


rates, increase in tax rates/duties, privatization of state owned entities and reduction in powersector subsidies to avoid going into IMF program.

2008 and 2013 IMF Programs

In Nov 2008, IMF approved US$7.6bn Standby loan for Pakistan. This was due to abysmally low FX reserves of

US$3.5bn (1.6x imports) with high CAD in FY08 of 8.2% as % of GDP compared to 4.5% a year ealier. Post IMF

program, five years later in 2013, Pakistan went into another IMF program (EFF) during Sep 2013 given

extremely low foreign exchange reserves of US$3.0bn (0.8x imports) during that year acquiring US$6.6bn of

loan.Foreign Exchange Reserves Trend and IMF Programs

MonthsUS$mn SBP FX R I t C

6.0

7.0

8.0

16,000

20,000MonthsUS$mn SBP FX Reserve Imports Cover

IMF Program

2 0

3.0

4.0

5.0

8,000

12,000

og aIMF Program

0.0

1.0

2.0

0

4,000

n-06

c-06

ct-0

7

p-08

ul-0

9

y-10

pr-1

1

b-12

n-13

v-13

p-14

g-15

n-16

pr-1

7

ar-1

8


Source: State Bank of Pakistan, Topline Research

Jan

Dec Oc

Sep

Ju May Ap Feb

Jan

Nov

Sep

Aug

Jun

Ap Ma

Key Indicators Under 2008 & 2013 IMF Programs

Fiscal Deficit on lower side post IMF program

8.0

10.0 % GDP

External Current Account Deficit improved post IMF programs

6.0%

7.5%

9.0%% GDP

-

2.0

4.0

6.0

0.0%

1.5%

3.0%

4.5%

A A A A A A A A A A A A

Source: Economic Survey, Topline Research

FY06

A

FY07

A

FY08

A

FY09

A

FY10

A

FY11

A

FY12

A

FY13

A

FY14

A

FY15

A

FY16

A

FY17

A

Source: State Bank of Pakistan , Topline Research

FY06

A

FY07

A

FY08

A

FY09

A

FY10

A

FY11

A

FY12

A

FY13

A

FY14

A

FY15

A

FY16

A

FY17

A

GDP Growth showed mixed trend during IMF programs Inflation more a function of local demand/supply factors

2.8%

4.2%

5.6%

7.0%

6%

9%

12%

15%

18%IMF Program

0.0%

1.4%

%

FY06

A

FY07

A

FY08

A

FY09

A

FY10

A

FY11

A

FY12

A

FY13

A

FY14

A

FY15

A

FY16

A

FY17

A

0%

3%

6%

FY06

A

FY07

A

FY08

A

FY09

A

FY10

A

FY11

A

FY12

A

FY13

A

FY14

A

FY15

A

FY16

A

FY17

A


Source: Economic Survey , Topline Research

F F F F F F F F F F F F


h l f ld b ld h h ld

IMF Likely Conditions and Impact

The macro implications of new IMF program could be milder than what was seen post 2008. However, it couldhave more profound implications as compared to what happened back after 2013.IMF guidelines usually entail tighter monetary/fiscal policies. Currency devaluation, discount rate hike, reductionin subsidies higher energy tariff and increased tax measures are some of the key policy measures generally usedin subsidies, higher energy tariff and increased tax measures are some of the key policy measures generally usedunder the IMF program. IMF also encourages countries for reforms and privatization of public sector entities soit could reduce fiscal burden.IMF recently in May 2017 approved Extended Fund Facility (EFF) for Mongolia with total package of US$5.5bn.IMF recently in May 2017 approved Extended Fund Facility (EFF) for Mongolia with total package of US$5.5bn.As part of the reform process in Mongolia, IMF has stressed on fiscal consolidation through cut in non‐essentialexpenditures and move for progressive taxation. It has also stressed the importance for market determinedexchange rate that could help Mongolia address external account concerns.In July 2017, IMF approved €1.6bn stand by agreement for Greece and is focused on broadening the income‐taxbase and reforming pension spending to rebalance the budget toward more growth‐friendly policies.Furthermore, program also promoted steps that reduces high NPLs in the banking sector.Pak Rupee against the USD has already weakened by 10% in FY18 to date. We anticipate further devaluationgoing forward. Interest rate is up 25bps in last 3 months and we expect these to increase further.Increase in tax rates, privatization of state owned entities and reduction in power sector subsidies are also likelyt b th t f IMF f Thi ill i t t t d fi l d fi it hi h i ti i t d tto be the part of IMF reform process. This will assist government to reduce fiscal deficit which is anticipated toclock in at 4.7% of GDP by FY20 vs. 5.8% in FY18.

Pakistan Economy 9

PKR‐USD Estimated to Reach Rs136 by June 2020

We expect PKR‐USD to reach Rs136 by June 2020 under IMF program as we anticipate further devaluation of

10% in FY19 and 7% in FY20. This will be pivotal to arrest demand led import growth in the country and will also

be a part of IMF reform process which focuses on more flexible and realistic exchange rate to address external

account concerns.

This would also be in line with the Real Effective Exchange Rate (REER) Index, which we currently estimate at

around 110 index level. This has averaged at 106 during the last 10 years. The below graph clearly indicates that

when REER index rises there is a need for currency devaluation due to movement in other currencies (of trading

partner countries).REER Index vs. PKR-USD parity

0 0%

4.0%

8.0%

110

120

130 Index Number REER PKR USD % Change

-8.0%

-4.0%

0.0%

90

100

110

05 06 07 07 08 09 10 10 11 12 13 14 14 15 16 17 18Honda Atlas Cars (HCAR)Pakistan Economy 10


Jul-0

Apr

-0

Jan-

0

Nov

-0

Aug

-0

May

-0

Mar

-1

Dec

-1

Oct

-1

Jul-1

Apr

-1

Feb-

1

Nov

-1

Sep

-1

Jun-

1

Mar

-1

Jan-

1

Interest Rate Likely to Reach 8.75% by Jun 2020 Under IMF

SBP is likely to gradually increase interest rates by 275bps to 8.75% by FY20 under IMF Program from the current

6% in order to curb spiraling aggregate demand and imports of the country. This will also keep positive spread

(real interest rates) over inflation rates as average inflation is anticipated to reach 7.5% in FY20 from 4% in FY17.

During the recent two IMF programs of 2008 and 2013, interest rates have usually been higher than inflation to

maintain positive spread. This helps contain demand pressures and restrict the country’s twin deficits of

external account and fiscal account. Real interest rates during the 2008 IMF program averaged 1.4% whileg p g g

during the 2013 IMF program averaged 3%.

Discount Rate vs. Inflation over the Years

15.0%

20.0%

25.0%

30.0% Discount Rate Inflation

IMF Program

0.0%

5.0%

10.0%

06 07 08 09 10 11 12 13 14 15 16 17 18

IMF Program


Source: State Bank of Pakistan , Topline Research

Jan-

0

Feb-

0

Feb-

0

Feb-

0

Feb-

1

Feb-

1

Feb-

1

Feb-

1

Feb-

1

Feb-

1

Feb-

1

Feb-

1

Feb-

1

Reserves & Import Cover to Improve Post IMF Program

F i h f h i i i d i US$16b b FY21 hi h i lForeign exchange reserves of the country is anticipated to improve to US$16bn by FY21, which is equal to3.6 times of import cover versus current foreign exchange reserves of US$11.9bn, close to 2‐months ofimport cover. These are expected to fall further to around US$9bn by June 2018 incase of non‐materialization of flowsmaterialization of flows.This will primarily be driven by gradual inflows of US$7bn under the IMF program during the next 3‐year.Furthermore, reform measures that include interest rate hike and devaluation would also lead toimprovement in CAD.improvement in CAD.We anticipate CAD to improve from an expected US$15.6bn (5.1% GDP) in FY18 to US$7.6bn by FY21(2.1% of GDP).

Current Account Deficit to improve Import Cover to Cross 3.5x of Imports

3.5%

4.5%

5.5%

9.6

12.8

16.0 US$bn Current Account Deficit CAD as % of GDP

4 0

5.0

6.0

9 0

12.0

15.0

18.0 MonthsUS$bn Reserves Import Cover

0.5%

1.5%

2.5%

-

3.2

6.4

FY15A FY16A FY17A FY18E FY19F FY20F FY21F2.0

3.0

4.0

-

3.0

6.0

9.0

FY15A FY16A FY17A FY18E FY19F FY20F FY21F


Source: State Bank of Pakistan, Topline Research Source: State Bank of Pakistan, Topline Research

FY15A FY16A FY17A FY18E FY19F FY20F FY21F FY15A FY16A FY17A FY18E FY19F FY20F FY21F

CPEC Activity and IMF Program

It is possible that the CPEC projects (both infrastructure and power projects) may be affected to accommodate

for strict measures under IMF program.

However, as per our channel checks, geo‐political implications of CPEC may restrict the extent of IMF’s concerns

on this front.

In our report titled “Pakistan’s External Account Concerns and CPEC Repayment” published on March

10, 2017, we had estimated average annual repayment of CPEC will be US$3bn over the life of CPEC from FY20‐

50. Further, between FY20‐25, we had estimated range of US$2.0‐5.3bn with average payment of US$3.7bn.

Due to some delay in projects, implementation and subsequent repayments may be lower than earlier

estimates.

The ability to repay for Pakistan will depend upon rise in exports on the back of better infrastructure and better

availability of power because of the CPEC projects.

CPEC RepaymentA A l N f T lAvg. Annual

Repayment (US$bn) No. of

yrsTotal

(US$bn)

Repayment over life of CPEC (FY20‐49) 3.0 30 90.0

Medium term (FY20 25) 3 7 6 21 6


Medium term (FY20‐25) 3.7 6 21.6

Source: Topline Research

GDP Growth to Slow Down Post IMF Program

As a result of currency devaluation, interest rate hike and other measures, Pakistan’s GDP growth is likely to

slowdown to 4.6% in FY19, 4.7% in FY20 and 5.1% by FY21 as against 5.7% of growth expectations in FY18. This

will be led by slowdown in Manufacturing Sector growth which constitutes around 20% of the total GDP. We

anticipate growth in Manufacturing sector growth to average 4.5% vs. last 3‐year average growth of 6%. On the

other hand, services sector will post growth of 5% in line with its last 3‐year average led by growth in financial

services. Agriculture growth is anticipated to average 3% in line with last 3‐ year average of 3%.

IMF in recently released staff report has also opined that GDP growth may fall to 3% in FY19 in case sufficient

foreign flows do not materialize.

GDP Growth over the years and IMF program

3 0%

4.0%

5.0%

6.0%

IMF Program

0.0%

1.0%

2.0%

3.0%

IMF Program



FY07

FY08

FY09

FY10

FY11

FY12

FY13

FY14

FY15

FY16

FY17

FY18

FY19

FY20

FY21

FY22

FY23

Key Macro Forecasts in light of IMF/Reform Measures

FY17A FY18E FY19F FY20F FY21F FY22F FY23F

GDP Growth (%) 5.3% 5.7% 4.6% 4.7% 5.1% 5.1% 5.1%

GDP (US$bn) 304 308 322 337 355 373 392

GDP/Capita (US$) 1,629 1,630 1,670 1,723 1,784 1,847 1,913

PKR/USD – June‐end 105 115 127 136 140 144 148

SBP Policy Rate (%) – June‐end 5.75% 6.50% 8.25% 8.75% 8.75% 8.00% 7.50%

I fl i (%) 4 2% 4 0% 7 0% 7 5% 7 5% 7 0% 7 0%Inflation (%) 4.2% 4.0% 7.0% 7.5% 7.5% 7.0% 7.0%

Imports (US$bn) – as per SBP 48.5 53.1 52.0 49.8 50.7 52.0 53.3

Exports (US$bn) – as per SBP 21.9 23.7 24.9 26.6 28.0 29.4 30.8

Trade deficit (US$bn) – as per SBP 26 6 29 4 27 1 23 2 22 7 22 6 22 5Trade deficit (US$bn) – as per SBP 26.6 29.4 27.1 23.2 22.7 22.6 22.5

Current Account Deficit (US$bn) 12.4 15.6 12.2 8.1 7.6 7.2 7.2

Current Account Deficit (% GDP) 4.1% 5.1% 3.8% 2.4% 2.1% 1.9% 1.8%

Foreign Direct Investment (US$bn) 2.3 3.3 3.9 4.0 4.0 4.0 4.0Foreign Direct Investment (US$bn) 2.3 3.3 3.9 4.0 4.0 4.0 4.0

Net Ext. Fin. (excludes debt repayments) (US$bn) 8.4 5.4 5.4 4.1 5.3 6.5 7.2

Foreign Exchange Reserves (US$bn) – June‐end 16.1 9.1 13.1 15.1 16.1 16.1 16.1

Total Public Debt as % GDP 68% 71% 72% 73% 72% 72% 72%


Fiscal Deficit as % GDP 5.8% 5.8% 5.0% 4.7% 4.7% 4.4% 4.4%Source: State Bank of Pakistan; International Monetary Fund; Topline Research

Foreign Assets Amnesty Scheme

Pakistan is expected to launch Foreign Assets tax Amnesty Scheme to lure its nationals to bring back

their foreign assets to Pakistan.

Govt. is targeting to introduce Indonesia like tax amnesty scheme. As per news reports, PakistanisGovt. is targeting to introduce Indonesia like tax amnesty scheme. As per news reports, Pakistanis

can legalize their foreign assets by paying reportedly 2%‐7% tax on their foreign assets.

Indonesia during 2016 had announced such a tax amnesty scheme. The tax amnesty scheme

$resulted inflows of around US$10bn in the Indonesian economy while the total amount declared

was US$340bn by early 2017.

This, in our view, could result in one‐time foreign inflows and ease pressure on the foreign exchange

reserves. The Prime Minister’s aide on Revenue, Senator Haroon Akhtar has recently said that

Pakistanis could repatriate up to US$5bn under such scheme.

I 2017 Bl b t d S d M h d Sh bb Z idi’ ( t t A F F & CIn 2017, Bloomberg quoted Syed Muhammad Shabbar Zaidi’s (partner at A.F. Ferguson & Co., an

affiliate of PricewaterhouseCoopers LLP) assessment that Pakistanis hold US$150bn in undeclared

offshore assets. Out of this, US$$80bn are parked in property and bank deposits, US$20bn in local


stocks held in foreign accounts and US$50bn in assets such as manufacturing concerns.

Foreign Assets Amnesty Scheme

Taking cue from Indonesia and above estimates of Pakistanis assets abroad, a similar tax amnesty in

Pakistan could fetch up to US$3bn, which we have assumed in our forecasts for FY19 and FY20. This

assumes that around 10% of the liquid assets will be brought back in Pakistan.

Other than foreign flows, an amnesty scheme is expected to lead to increased documentation and

higher taxes.

To mention Supreme Court (SC) is also diligently pursuing the matter of assets held by foreignersTo mention, Supreme Court (SC) is also diligently pursuing the matter of assets held by foreigners

abroad and has constituted a 12‐member committee (headed by the SBP governor) to suggest

measures to retrieve such assets and to stop unregulated outflow of foreign exchange from the

country.


W h d f d h KSE 100 i d h 50 000 b D 2018 Pl f

Maintaining Index Target of 50,000pts

We had forecasted that KSE‐100 index can reach 50,000 pts by Dec 2018. Please refer to ourstrategy report titled, ‘Pakistan Market Outlook’ dated Dec 20, 2018.Since our report, KSE‐100 index has rallied 13% (8% in US$). We are maintaining our target of50 000 i t50,000 points.We believe that the market will likely trade in the PE range of 8.5‐9.0x, as mentioned in our abovestated strategy report. Market is currently trading at 2019F PE of 8.3x, based on our samplecompaniescompanies.

Forward Market PE During Past IMF Programs

1416(X)

68101214

IMF Program IMF Program

246

n‐06

p‐06

n‐07

b‐08

v‐08

g‐09

r‐10

n‐11

p‐11

n‐12

r‐13

v‐13

g‐14

y‐15

n‐16

t‐16

n‐17

r‐18

Honda Atlas Cars (HCAR)Pakistan Economy 18Source: Bloomberg, Topline Research

Jan

Sep

Jun

Feb

Nov Aug

Apr

Jan

Sep

Jun

Mar

Nov Aug

May Jan

Oct Jun

Mar

i i d f d l i i i li i il & ili l i hi d

Banks and E&Ps likely beneficiaries

Timing and quantum of PKR devaluation, increase in policy rate, civil & military relationship andsmooth transition of democratic Govt. (General Elections likely in Jul‐Sep) will remain keytriggers, we believe.PKR d l ti d hi h i t t t ill h l ‘B k ’ d ‘Oil & G E l ’ hilPKR devaluation and higher interest rates will help ‘Banks’ and ‘Oil & Gas Explorers’ whileanticipated increase in exports should draw investors’ interest to ‘Textile’, in our view.

Pakistan Stock Market: Key Numbers2015A 2016A 2017A/E 2018E 2019F 2020F

PE 10.4 11.8 10.7 9.8 8.3 7.9Earnings Growth 2% ‐8% 10% 10% 14% 9%PBV 1 9 1 8 1 6 1 5 1 4 1 3PBV 1.9 1.8 1.6 1.5 1.4 1.3Dividend Yield 5% 5% 4% 5% 5% 6%ROE 18% 15% 13% 14% 16% 17%Source: Topline Research

19Pakistan Economy

The research analyst(s), denoted by an “AC” on the cover of this report, primarily involved in the preparation of this report, certifies that (1) the views expressed in this report accurately reflect his/her

Analyst Certification and DisclosuresThe research analyst(s), denoted by an AC on the cover of this report, primarily involved in the preparation of this report, certifies that (1) the views expressed in this report accurately reflect his/herpersonal views about all of the subject companies/securities/sectors and (2) no part of his/her compensation was, is or will be directly or indirectly related to the specific recommendations or views expressedin this report.Furthermore, it is stated that the research analyst or its close relative have neither served as a director/officer in the past 3 years nor received any compensation from the subject company in the past 12months.Additionally, as per regulation 8(2)(i) of the Research Analyst Regulations, 2015, we currently do not have a financial interest in the securities of the subject company aggregating more than 1% of the value ofthe company.

Rating SystemTopline Securities employs three tier ratings system to rate a stock, as mentioned below, which is based upon the level of expected return for a specific stock. The rating is based on the following with timehorizon of 12‐months.Rating Expected Total ReturnBuy Stock will outperform the average total return of stocks in universe Neutral Stock will perform in line with the average total return of stocks in universeSell Stock will underperform the average total return of stocks in universeFor sector rating, Topline Securities employs three tier ratings system, depending upon the sector’s proposed weight in the portfolio as compared to sector’s weight in KSE‐100 Index:Rating Sector’s Proposed Weight in PortfolioOver Weight > Weight in KSE‐100 IndexMarket Weight = Weight in KSE‐100 IndexUnder Weight < Weight in KSE‐100 IndexRatings are updated daily to account for the latest developments in the economy/sector/company, changes in stock prices and changes in analyst’s assumptions or a combination of any of these factors.

Valuation MethodologyTo arrive at our 12‐months Target Price, Topline Securities uses different valuation methods which include: 1). Present value methodology, 2). Multiplier methodology, and 3). Asset‐based methodology.

Research Dissemination PolicyTopline Securities endeavors to make all reasonable efforts to disseminate research to all eligible clients in a timely manner through either physical or electronic distribution such as email, fax mail etc.Nevertheless, all clients may not receive the material at the same time.

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20Pakistan Economy

CONTACT US

Mr. Mohammed Sohail CEO Dir: +92 (21) 35303333-4 [email protected]

Research Team:

Mr. Saad Hashemy Chief Economist & Director Research Dir: +92 (21) 35303346 [email protected]

Mr. Umair Naseer Deputy Head of Research +92 (21) 35303330-2 [email protected]

Mr. Nabeel Khursheed Senior Research Analyst +92 (21) 35303330-2 [email protected]

Mr. Rai Omar Basharat Research Analyst +92 (21) 35303330-2 [email protected]

Mr Shankar Talreja Research Analyst +92 (21) 35303330 2 shankar@topline com pkMr. Shankar Talreja Research Analyst +92 (21) 35303330-2 [email protected]

Mr. Fahad Qasim Manager Research +92 (21) 35303330-2 [email protected]

Mr. Asif Habib Database Officer +92 (21) 35303330-2 [email protected]

Equity Sales Team:q y

Mr. Muhammad Rizwan Head of Sales Dir: +92 (21) 35303337 [email protected]

Ms. Samar Iqbal Head of International Equity Sales Dir: +92 (21) 35370799 [email protected]

Mr. Muhammad Hammad Aman Senior Manager Equity Sales Dir: +92 (21) 353030297 [email protected]

Mr. Kumail Raza Senior Manager Equity Sales Dir: +92 (21) 353030297 [email protected]

Mr. Haris Kunda Senior Manager Equity Sales Dir: +92 (21) 35303323 [email protected]

Corporate Office:508, Continental Trade Center,

21

Block-8, Clifton, Karachi, PakistanTel: +9221-35303330-2Fax: +9221-35303349

Pakistan Economy

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