AL Habib Capital Markets Pvt Ltd

8/8/2019 AL Habib Capital Markets Pvt Ltd

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Presentation for equity investors

March 31, 2009

ALHabib Capital Markets (Pvt) Ltd


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Introduction

Registered as a Corporate Member of the K.S.E, AL Habib Capital

Markets (Pvt) Limited (AHCML) is a full-spectrum financial

services provider, with a current emphasis on securities brokerage

and research. Adding value to its client represents the foundation of

all that it does.

The year 2005 witnessed the birth of AHCML, followed by its

progress and growth which exceeded all expectations as the

Company commenced its operation within four short months of its

incorporation. AHCML has since established itself on solid footings

in Pakistans financial service industry through the vision and

leadership of its seasoned management team.

ALHabib Capital Markets (Pvt) Ltd.



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Introduction

AHCML is a subsidiary of Bank AL Habib Ltd. (sponsored by the

Dawood Habib Group), a premier commercial bank providing

banking services in Pakistan for the past 14 years through a fast

growing network of over 200 branch locations. Bank AL Habib is

the major sponsor of AHCML, accounting for two-thirds of theownership. The remaining one-third is owned by friends and family

members of the Dawood Habib Group.

The Group has been historically involved in the banking sector for

over 85 years. Foremost to its credit is being the founder member of

Habib Bank Limited which predates Pakistan itself. In addition to

Bank AL Habib, the Group also comprises other companies which

include Habib Insurance Limited, Habib Sugar Mills Limited and

Habib Asset Management Limited.



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Important Disclaimer

AL Habib Capital Markets (Pvt) Ltd. (AHCML) believes that theaudience over here is well aware of the risks attached with investmentsin Pakistan.

This presentation and the analysis enclosed in this presentation should

not be used as the sole base for any investment decision by any of theinvestors.

AHCML adheres to the code of conduct and ethical standards set by theCFA Institute, USA and it encourages its clients to abide by these rulesand guidelines.

We hereby certify that the views expressed in this research presentationabout securities and issues accurately reflect the respective researchanalysis. We also certify that no part of our respective compensationwas, is, or will be, directly or indirectly, related to the specificrecommendations of views expressed in this presentation.



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Pakistan economy

Real GDP growth forecasted to slow to 2.5% in 2008/09 andincrease to 3.7% in 2009/10

External current account deficit to narrow to 6.5% of GDP (US$10.6billion) in 2008-09 and 5.7% of GDP in 2009/10

External financing gap for 2009/10 projected at US$3.6 billion Fiscal deficit targeted to decline to 4.2% of GDP in 2008/09 and

3.3% of GDP for 2009/10

Electricity subsidies to be eliminated by June 2009

Base electricity tariff to be further increased during 2008/09

Domestically-financed development spending to be reduced byabout 1pps of GDP (PSDP already slashed!)

Moving within the ambits of the IMF



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Pakistan economy

Tax reforms to be introduced; tax revenue to be increased

Non-interest current expenditure to be reduced

Fuel prices to allow pass through of international crude prices

Plan for eliminating the inter-corporate circular debt to be preparedby beginning of Apr, 2009 (PKR80bn TFCs in the offing!)

Cost of utilities rising? Uninterrupted supply also questionable

Hydel resources and scarcity - A big question mark

SBP financing of budget to be limited to zero on a cumulative basisduring Oct 1, 2008 Jun 30, 2009

Gross Official Reserves to increase to US$8.6bn by June 2009

12-month inflation rate projected to decline to 20% at end-June2009 and 13% in 2009/10




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Pakistan economy

SBPs provision of FX for oil imports to be phased out: Diesel: Aug

01, 2009 & Crude: Feb 01, 2010 (Pressure on PKR!)

SBP to maintain tight monetary policy. Quarterly MPS: Apr, Jun,

Sep & Dec, 2009 (400bps decline in policy rate by Dec 31, 2009)

Federal Budget 2009-10, due June 2009 (Capital Markets not to be

taxed up until FY10; Real Estate to be taxed)

Quarterly Reviews under IMF Program - Mar 2009 and Jun 2009

Major inflow, IMF: US$840mn; WB: US$500mn & ADB:

US$200mn Friends of Democratic Pakistan conference due April 17, 2009

Remittances, exports and foreign investment in Pakistan to suffer as

a result of global financial meltdown




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Top Picks

Hub Power Company (HUBCO)

Kot Addu Power Company (KAPCO)

Oil and Gas Development Company Ltd. (OGDCL)

Pakistan Oil Fields Ltd. (POL) Pakistan Petroleum Ltd. (PPL)

Engro Chemicals Ltd. (ENGRO)

Fauji Fertilizer Company Ltd. (FFC)

Fauji Fertilizer Bin Qasim Ltd. (FFBL)

Equities still offer values



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HUBCO

HUBCO is pursuing two new

projects:

Narrowal Project: A

225MW, R.F.O. based project

with a C.O.D. of March 2010;HUBCO stakes: 100%;

Expansion Value/Share:

PKR3.80

Laraib Energy Ltd.: An

84MW, Hydel based projectwith a C.O.D. of Feb 2012;

HUBCO stakes: 75%;

Expansion Value/Share:

PKR0.25

HUBCO

PKR mn FY08(A) FY09(F) FY10(F)

PAT 2,604 3,271 4,668

EPS 2.25 2.83 4.03

DPS 2.15 2.70 4.00

P/E (x) 8.64 6.87 4.82

D/Y 11% 14% 23%

Earning growth -2% 26% 42%

Buy (Fair Value: PKR35.38)

FV 35.38

Closing price (Mar 26, 2009) 19.44

Upside potential 82%

Market cap. PKRbn/US$ bn 22.50/0.28

O/S shares (mn) 1,157.15

Free Float (mn) 752.15

Recommendation BUY



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HUBCO

A 25% increase in the R.O.E. tariff

component effective July 2009 coupled

with revenues which are indexed to the

PKR/USD parity and the US CPI makes

HUBCO quite attractive at currentlevels.

Settlement of the Inter-Corporate

Circular Debt would allow the

Company to reduce its short-term

borrowings and hence bode favorably for

its bottom-line (and resultant D.P.S.) and

cash flows.



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KAPCO

KAPCO is pursuing an expansion

project at Muzaffargarh, a

450MW, dual fuel powered

project with a C.O.D. of Dec

2012; KAPCO stakes: 100%;Expansion Value/Share:

PKR5.80.

Like HUBCO, KAPCOs

revenues are indexed to the

PKR/USD parity and the US CPI

insulating it from the effects of

depreciation of the PKR.


KAPCO

FY08(A) FY09(F) FY10(F)

PAT 7,966 5,616 5,678

EPS 9.05 6.38 6.45

DPS 5.45 5.50 5.00

P/E (x) 3.67 5.21 5.15

D/Y 16% 17% 15%

Earning growth 60% -30% 1%

FV 40.21




O/S shares (mn) 880.25

Free Float (Shares mn) 176.05

Recommendation BUY



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KAPCO

WAPDA is the biggest shareholder; the

only fuel buyer and the biggest lender of

KAPCO thus easing KAPCOs cash

flow needs.

Settlement of the Inter-CorporateCircular Debt would allow the

Company to reduce its short-term

borrowings and hence bode favorably for

its bottom-line (and resultant D.P.S.) and

cash flows.



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OGDC

Highly correlated (like thebanking sector) with foreigninvestor interest.

Drop in international oil

prices will not affectOGDCs revenue sincedomestic gas prices are

based on 6-month oil priceswhile oil revenues comes

from old field which neverincorporated the full impactof rising crude prices.


FV 119.78




O/S shares (mn) 4,300.93


Recommendation BUY

OGDC

2008 2009 2010

PAT 49,614 53,676 62,837

EPS 11.54 12.48 14.61

DPS 9.50 9.90 11.75

P/E (x) 5.71 5.28 4.51

D/Y 14% 15% 18%

Earning growth 9% 8% 17%



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OGDC

Low cost/bbl of Pakistan oil companiesas compared to regional peers.

Revenues and costs denomination are inUS dollar implying that the Companyoffers a great hedge against Pak rupeedepreciation.

Low production growth coupled withdeclining intl oil prices should bodenegative for its top-line.

OGDCL is an aggressive explorer

Nashpa production high (7,200 bpd) butTal block is low (2,400 bpd). And production from Sanjhoro & TAYblocks to come online w.e.f FY10.



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POL

The Companys fundamentals

have become weak now as oil

prices have declined and

production growth is delayed.

POLs production growth islargely dependent on Tal Block

whose output has been delayed

over the last couple of years due

to poor law & order situation and

slow progress on its development

program. Significant volume

growth is expected by FY11 from

the field.

Dividend yield is attractive.


Buy (FV: PKR263.67)

FV 263.67


Upside potential 60.09%




Recommendation BUY

POL

2008 2009 2010

PAT 8,616 6,266 8,163

EPS 36.43 26.49 34.51

DPS 16.00 15.25 19.80

P/E (x) 4.31 5.92 4.55

D/Y 10% 10% 13%



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PPL

Revenue growth is being fuelled

by price formula revision coupled

with higher oil prices which result

in higher gas prices.

PPLs reserves remain the realcause of concern as a declining

trend has been observed in PPLs

gas reserves.

Earnings are expected to remain

strong during FY09E forecastedto grow at 18%.



FV 231.16






Recommendation BUY

PPL

2008 2009 2010

PAT 19,707 29,053 17,651

EPS 23.75 35.01 21.27

DPS 15.50 19.75 19.25

P/E (x) 7.19 4.88 8.03

D/Y 9% 12% 11%

Earning growth 18% 47% -39%


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PPL

Deteriorating law and order situation

coupled with no significant addition in

the Companys reserve during the next

couple of years would bode negatively

for PPLs cash flows. Declining reserves and vulnerability to

lower oil prices are the issues currently

being faced by PPL.



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ENGRO

ENGRO is the second-largest

fertilizer company in Pakistan,

with market shares of 19% in

urea.

We believe that the recent declinein the price of the scrip was

mainly due to over-emphasized

impact of interest rate and

currency depreciation on Engros

profitability.

It is a conglomerate with an

investments in the

petrochemicals, food and power

sectors.



FV 184.00






Recommendation BUY

ENGRO

2008 2009 2010

PAT 4,240 3,082 3,550

EPS 19.93 14.48 16.68

DPS 6.00 5.60 6.50

P/E (x) 6.62 9.11 7.91

D/Y 5% 4% 5%



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ENGRO

ENGRO is expanding its urea capacity

to 2.3mn tons from current 0.95mn

tons. Other investment includes an

investment opportunity in Algeria for

a green-field DAP project ENGRO remains a play amid an agri-

boom and growing demand for dairy

products in Pakistan. Currently, Engro

Food Ltd. is backward-integrating its

supply chain to pace up the rapid volume

growth in the sector.



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FFC

One of the safest stock based on

dividend yield. The twin Faujis

are bound for payout given their

relationship with the Fauji

Foundation. FFC is the largest urea producer

in the country (production

capacity of 2.3 mn tons) and

holds a market share of 42%.

FFC is also a major shareholderof FFBL, a contributor to its

Other Income.



FV 124.00






Recommendation BUY

FFC

2008 2009 2010

PAT 6,525 8,297 8,364

EPS 10.58 13.45 13.56

DPS 13.75 12.75 12.80

P/E (x) 7.80 6.13 6.08

D/Y 17% 15% 16%

Earning growth 22% 27% 1%


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FFC

FFC has acquired a 12.5% equity stake

in a phosphoric acid plant in Morocco,

which will provide an assured

phosphoric acid supply to FFBL.

FFC is also planning to invest in the power sector, which carries a

sovereign guarantee on equity returns.

Urea demand is higher then domestic

production coupled with the fact that the

countrys economy is regarded as anagriculture dominated economy



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FFBL

FFBL is Pakistans sole DAPproducer and holds a market shareof 41% besides a 12% marketshare of domestic urea market.

A recent contract for phosacid has

been set at US$765/ton for 1Q09.This will bode positive forFFBLs DAP operations sincethere were fears that owing tonegative margins there will be adelay in resuming DAPproduction.

FFBL has a 25% equity stakein a phosphoric acid plant inMorocco. The investment will provide assured supply of thephosphoric acid.



FV 22.86






Recommendation BUY

FFBL

2008 2009 2010

PAT 2,900 2,158 2,354

EPS 3.10 2.31 2.52

DPS 2.85 2.15 3.75

P/E (x) 5.31 7.13 6.54

D/Y 17% 13% 23%



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Q&A


Thank you


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Head Office

GF-01, Techno City, Hasrat Mohani Road, Karachi

Ph: +(92-21)-2270808-13

Fax: +(92-21)-2270519

Stock Office

Room No. 16 Ground Floor, New Stock Exchange Building,

Stock Exchange Road, Karachi

Ph: +(92-21)-2460867-2460869

Company Representatives Phone

Aftab Q. Munshi C.E.O.

+(92-21) 2270800

+(92-21) 2270525Syed Imran Ali C.O.O. +(92-21) 2270814

Sales Team +(92-21) 2270801-7

AL Habib Capital Markets Pvt Ltd

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