Final Business Communication

8/8/2019 Final Business Communication

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To,

Mr Rashid Karwa

SUBJECT: Proposal from Laow Investment Managment Services

Dear Sir,

We at Laow Investment Management services are delighted at being

given the opportunity to manage your investments. With our undying

commitment to our clients and vast expertise in the field of portfolio

management we guarantee that you will not be disappointed with the

quality of service and rate of returns we provide. Attached herewith is a

comprehensive proposal as per your requirements. We hope you will

be satisfied with our services and consider us as the premium choice for

your portfolio management.

Thank you for your consideration

Regards,

Mr. Laow,

CEO Laow investments

0323-2353450

[email protected]


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About Laow Investment Management Services

Laow Investments is the leading securities firm in Pakistan, providing a comprehensive range of

investor focused services, including equity brokerage, economic and securities research,

investment banking and financial advisory services. Laow Investments accounts for more than3% of the average daily value of the Karachi Stock Exchange. Laow Investments was the first

brokerage house to launch an online trading platform in Pakistan in November 2002 and now

has the largest market share with over 3000 customers.

Laow Investments caters to a diversified group of domestic and international institutional

investors, high net worth individuals and upscale retail clients, including expatriate Pakistanis.

With high quality research, unparalleled execution and distribution capability for both regular

and large block trades, Laow Investments has earned an outstanding reputation in the Pakistani

securities industry.

Good corporate governance and professionalism are emphasized throughout the firm and Laow

Investments is amongst the very few companies to have introduced a firm-wide comprehensive

Code of Ethics, overseen by an independent compliance manager.

Ultimately, our success is based on the quality of service we provide to our customers and the

trust and confidence reposed in us by them. Our focus, therefore, remains on customer

satisfaction at all levels in the company.

Scope of the Proposal

As per the request of Mr. Rashid Karwa, we have prepared a feasibility report for his proposed

investment of PKR 10 Million. We have formulated a detailed investment plan that has a good

combination of high performing stocks with steady incomes and various growth rates. Due to

the current bearish trend of the market, now is a good time to invest and pick these stocks at a

low price and enjoy the benefits attached.

Please note that this report has been made free of charge and in good faith. However, this is

not public information and must not be reprinted or the information enclosed be proliferated in

any form whatsoever.

We hope that this report comes to your expectations and you choose Laow Investments for the

actual conduction of your venture. In this regard our fee would be 0.4 Rs per share transferred

and 0.5% of all transactions above 100,000 PKR. However these rates are negotiable.


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Prospective Companies

Habib Bank Private Limited

Introduction

HBL established operations in Pakistan in 1947 and moved its head office to Karachi. Our first

international branch was established in Colombo, Sri Lanka in 1951 and Habib Bank Plaza was

built in 1972 to commemorate the banks 25th Anniversary.

With a domestic market share of over 40%, HBL was nationalized in 1974 and it continued to

dominate the commercial banking sector with a major market share in inward foreign

remittances (55%) and loans to small industries, traders and farmers. International operations

were expanded to include the USA, Singapore, Oman, Belgium, Seychelles and Maldives and the

Netherlands.

On December 29, 2003 Pakistan's Privatization Commission announced that the Government ofPakistan had formally granted the Aga Khan Fund for Economic Development (AKFED) rights to

51% of the shareholding in HBL, against an investment of PKR 22.409 billion (USD 389 million).

On February 26, 2004, management control was handed over to AKFED. The Board of Directors

was reconstituted to have four AKFED nominees, including the Chairman and the

President/CEO and three Government of Pakistan nominees.

HBL has the largest domestic branch network with over 1,400 branches and is present in 25

countries.

Financial Analysis and Investment Feasibility

HBL is one of the key players in the recovering banking sector of Pakistan. After the setbacks

and market collapses experienced during the Global Economic crisis, HBL is on the way to

becoming once again a lucrative investment opportunity for both short term and long term

investors. As per the selected financial information we can determine that HBLs Earnings per

Share EPS and Dividend Yield show an upward trend for the companys upcoming fiscal year.


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EPS

The graphs show that the earnings per share were on a rise from 2006 till the mid of 2007. They

fell sharply and hit the lowest by the end of 2007. From then on to 2010, the earnings havebeen fluctuating. Habib Bank Ltd. reported annual 2009 earnings of 13.36 per share on

02/19/2010. It is estimated that the earnings per share in 2010 and 2011 will be 15.49 and

17.36 respectively. The trends thus suggest that the amount of earnings attributable to each

individual share is expected to go up in the future. This not only increases the chances of the

company handing out higher dividends to shareholders but also increases HBLs growth

prospects since the unappropriated profits can be re invested to expand business operations

which will benefit the share holders in the long run.

Dividend Yield

One of the most effective methods of evaluating return on investment is the Dividend Yield that

evaluates Dividend received as a percentage of the market price of the share. Trend analysis

shows that the dividends per share have been on the rise from the end of 2007 till the end of

2009. Dividend yield for FY09 has been 5.40% which is not very high, however with the trend of

increasing EPS this percentage is likely to go up.

Share Price and Marketability

One of the essentials when considering short term gains are the capital gains associated with an

upward movement in share market prices. From the selected financial data it can be seen that

HBLs market price per share has shown a fluctuating albeit upward trend. Also the volume of

shares traded monthly is very high which increases marketability of the companys shares.

In the month of April 2010, the highest value of rates was Rs. 115.5 on April 6th

. The lowest it

dropped was to Rs. 108.3 on 21st

April. The month began with an opening rate of Rs. 110.57 and

ended with a closing of Rs. 109.24. As for the turnover, it reached its peak on 6th

April when it

hit Rs. 1,419,000. It was the lowest on 15th

April when it fell to Rs. 71,000. The turnover

remained low during the second and third week of the month. On 30th

April, the turnover was

recorded as Rs. 122,000. In the month of March, the highest turnover recorded was Rs.824,000. The highest in January was Rs. 3,268,000.

Considering the current bearish trend of stock markets worldwide, HBLs share prices have

experienced a moderate dip in their prices. However with the market price nearing almost Rs

100/share now would be the perfect time to purchase and enjoy healthy short term gains once

the market recovers and experiences a bullish trend.


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Selected Financial Information

Recent Stock Performance

1 Week 0.7% 13 Weeks -4.8%

4 Weeks -3.2% 52 Weeks 18.4%

Stock Data

Current Price (5/14/2010): 107.21

Muslim Commercial Bank

Introduction

MCB Bank Limited provides commercial banking and related products and services in Pakistan,

the Asia Pacific, and the Middle East. Its deposit products include current, savings, and foreign

currency accounts, as well as term deposit. The companys loan portfolio comprises term and

working capital loans; project, export, and trade finance; and guarantees and bills of exchange.

The company also offers smartcard/debit cards and MCB VISA cards, travelers cheques, cash

management, overseas remittance, and Internet and Islamic banking services. In addition, it

provides underwriting, securitization, investment banking, syndications, IPO related and

secondary private placements, and asset management services. The company serves retail,

small and medium enterprises, and corporate customers.


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As of March 31, 2009, it operated 1,043 branches, including 11 Islamic branches in Pakistan and

7 internationally. MCB Bank Limited was incorporated in 1947 and is based in Lahore, Pakistan.

MCB is among the oldest banks of Pakistan. It was among those private banks to be nationalized in

1974 after it was incorporated in 1947. Nationalization had a drastic impact on its performance as itaffected the quality of loan portfolio and services. Eventually, it was privatized in 1991 and is currently

owned by the Mansha group. Post-privatization, MCB s focus has been on aggressive cost reduction.

MCB has won the Best Bank of Pakistan award for the 5th

time from 2001 to 2006.


MCB is also well set on its way to recovery after the recessionary situation in the banking

sector. Being one of the oldest banking institutions the bank provides a stable and moderate

yielding investment opportunity for investors.

Comparing MCBs financial results for FY08 and FY09 we can see the companys profit after

taxation has registered an increase of 3%. The earnings of the MCB Bank Limited increased to

Rs6.251 billion during the first quarter (Jan-March) of current calendar year, 2010 as against of

Rs6.238b in the same quarter last year.

The profit after tax of the bank amounted to Rs4.141 billion in January-March 2010 translating

into an annualized EPS of Rs. 21.79 as compared to restated EPS of Rs 20.38 reported during

corresponding period past year. The P/E ratio of the company increased 73% to 9.8 as

compared to 5.66 of FY08. This was due to the high share price of the scrip during the year of Rs

219.68 compared to Rs 125.81 of last year. The higher P/E ratio is a clear indicator of theincrease in the investors level of confidence in the company as investors are now willing to pay

Rs 9.8 for every Rs 1 of earning generated.

EPS

MCB Bank Ltd. reported annual 2009 earnings of 20.38 per share on 02/25/2010.It is estimated

that the earnings in 2010 and 2011 will be 23.35 and 25.66 respectively. MCB results revealed

that during the first quarter under review, deposits significantly increased by 7% to Rs. 391.6billion from Rs. 367.6 billion in Dec 2009; with savings deposits with the highest growth of 8%

followed by current and fixed deposits both with an increase of 5%. Considering this increase in

deposits it is estimated that MCB will yield a higher EPS.


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Dividend Yield

The cash dividend per share was Rs 11 compared to Rs 11.5 of last year. The Dividend Yield

(DPS as a ratio of price) decreased to a higher increase in market price of the scrip. The dividend

coverage ratio was almost the same as last year showing that the company has ample funds for

payment of dividends.


As per the statistics it can be seen that MCBs market price per share is on the rise at a very

rapid rate. The price is yet to hit a ceiling and with the expected market recovery from the

current bearish trend it is likely that the market price will go up yielding healthy capital gains for

investors. The liquidity of the shares is very high considering the huge volume that is traded.


MCB - Financial Highlights- (PKR Mn)

CY08 CY09 Change (%)

Net Interest Income 8,520 7,723 10

Non Interest Income 1,184 1,644 -28

Provision Expense 1,120 755 48

Operating Expense 2,618 2,945 -11

Profit before Tax 5,966 5,667 5

Profit after Tax 4,049 3,947 3

EPS 5.86 5.71


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Fauji Fertilizer Company

Introduction

Fauji Fertilizer Company was incorporated in 1978 as a private limited company. This was a joint

venture between Fauji Foundation (a leading charitable trust in Pakistan) and Haldor Topsoe

A/S of Denmark.

The initial authorized capital of the company was 813.9 Million Rupees. The present share

capital of the company stands at Rs. 3.0 Billion. Additionally, FFC has Rs. 1.0 Billion stakes in the

subsidiary Fauji Fertilizer Bin Qasim Limited (formerly FFC-Jordan Fertilizer Company Limited).

FFC commenced commercial production of urea in 1982 with annual capacity of 570,000 metric

tons. Its major achievements in the past have been as follows:

Through De-Bottle Necking (DBN) program in 1992, the production capacity of theexisting plant increased to 695,000 metric tons per year.

Production capacity was enhanced by establishing a second plant in 1993 with annualcapacity of 635,000 metric tons of urea.

FFC participated as major shareholders in a new DAP/Urea manufacturing complex withparticipation of major international/national institutions. The new company FaujiFertilizer Bin Qasim Limited (formerly FFC-Jordan Fertilizer Company Limited)

commenced commercial production with effect from January 01, 2000. The facility is

designed to produce 551,000 metric tons of urea and 445,500 metric tons of DAP.

In the year 2002, FFC acquired ex Pak Saudi Fertilizers Limited (PSFL) Urea Plant situatedat Mirpur Mathelo, District Ghotki from National Fertilizer Corporation (NFC) through

privatization process of the Government of Pakistan.

This acquisition at Rs. 8,151 million represents one of the largest industrial sectortransactions in Pakistan.

De-bottle necking of this plant was done in 2008 to increase its production capacity. Other than this, FFC also invested in PMP Morocco in 2004, FFCL in 2008 and FF CEL in

2009.


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Investment in FFC would be considered highly prudent at this particular point in time as all the

major indicators of financial performance show the companys strong position in the fertilizerindustry. FFCs competitive position in the industry can be understood from the fact that FFC is

one of the leaders in this oligopolistic market of fertilizers. It has the highest share in Urea

market which is the most demanded fertilizer in Pakistan. Secondly, FFC combined with FFBL (a

subsidiary of FFC) have around 32 percent share in the DAP market, which is the second most

demanded fertilizer in the country.

EPS and Profitability

Fauji Fertilizer increased its sales in FY09 by 18.2% as compared to sales of FY08. It was mainly

because of the reason that to meet the increasing demand of fertilizers, FFC was operating at

full capacity. The gross profit of FFC increased by 26.65% and the gross profit margin and net

profit margin showed a Year-on-Year growth of 7.1% and 14.4% respectively. EPS of FFC

increased by 30% reaching Rs. 19.24 as compared to Rs. 14.28 of 2008. This was due to the rise

in investment and dividend income of the company. Right now, after the first quarter of FY10,

FFC is doing well. Its first quarter sales of 2010 are much higher than the same of 2009. FFC has

been able to maintain an increasing trend in its EPS because of increment in sales and gross

profit due to investment of the company in high yielding projects such as De-bottle necking and

acquisitions of plants.

Dividend Yield and Dividend Policy

Dividend per share of FFC is expected to increase if the company keeps on maintaining its

increasing trend of performance in the coming years. Its sales have been increasing due to

increasing demand of fertilizers which is expected to continue in near future. The above

mentioned statistics clearly show the sizeable gains in dividend yield. In the FY09 shareholders

enjoyed a dividend yield of 14.93% up from last years 13.57%.

More over an analysis of the companys assets( balance sheet available at company website)

shows that the company has managed its liquid assets very effectively thus managing toincrease its current ratio from an abysmal 0.25:1 in FY 08 to a respectable 0.97:1 in FY09. The

higher current ratio leaves room for timely credit payments, accrued expense payments and

interest payments.


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Trend analysis of FFCs market price per share indicates that the companys market price has

consistently gone up due to increasing profitability and subsequent demand by investors. Itscurrent share price is Rs. 114.15 (closing price on 18

thMay, 2010) which has increased from Rs

90 form May 2009. Volume of shares traded is very high which increases the marketability of

the shares.


2006 2007 2008 2009Dividend Per Share (Rs.) 10 11 13.75 13.15

2006 2007 2008 2009

10.29 11.52

14.8

19.24

EPS (Rs.)

2006 2007 2008 2009

8.07 9.43

13.57

14.93

Dividend Yield (%)


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Fatima Fertilizer Company

Introduction

Fatima Fertilizer Company is a subsidiary of Fatima Group. Its major shareholders are Pak Arab

Fertilizers with 50 percent shares and Arif Habib Securities with 10 percent shares. Other

significant shareholders are Fazal Cloth Mills and Reliance Weaving having 1.9 percent and 0.1

percent shares of the company respectively. This company was established in December, 2003

under Companies Ordinance, 1984. Its IPO took place recently in January 2010. The companyreceived massive response - highest ever subscription was received by a private sector

company in Pakistan. Fatima Fertilizer Companys plant size and expansion plans are as follows:

The total production capacity of the Fatima fertilizer complex was 1.58 million tons,including 0.5 million tons urea capacity.

Following the commissioning of urea plant, the company would have the fourth largesturea manufacturing plant in the country.

Analysts noted that the total estimated cost of the project was Rs59.2 billion, financed through

Rs24.2 billion by sponsors equity, Rs2 billion by general public and Rs33 billion through debt.


At a glance the Financial Statement of Fatima Fertilizer Company does not present a good

picture. Since the companys IPO in January 2010, the share price has been on the decline. This

may be due to the fact that the company is a new entrant in the market. However in spite of its

recent entry, it has been able to capture 28 percent market share of DAP market and is

expected to have the fourth largest plant of urea in the future. Moreover, FFCL is getting feed

gas at a subsidized rate from the government and will continue to get so for 10 years according

to the fertilizer policy of the government. This gives it a competitive advantage to it over its

competitors.


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EPS, Dividend Yield and Expected Profitability

According to experts, Fatima Fertilizer is expected to experience an increasing trend in its EPS

because of the reason that the company is now on the go. It has invested its money in high

yielding projects such as constructing new urea plant and is now all set to accumulate the

benefits of such investments. The companys projected EPS for the year 2010 is 0.1 per share

and is expected to climb to Rs 1.1 per share in 2011. Such increase in EPS is likely to result in

DPS of between Rs 0.4- Rs 0.8 per share which would provide a dividend yield of approx. 7-8%

based on the current market price of the share.


The performance of the companys shares on the KSE reveals a declining trend. As of now the

share price stands at Rs. 11.25 (closing price on 18th

May, 2010). However with a growing EPS

this trend is expected to reverse and generate sizeable capital gains. Considering the volatility

of the current situation of the stock market the risks associated with a capital gains on shares of

Fatima Fertilizer Company are high, however so are the associated returns if the price goes up.

Unlike other recommended investments in our portfolio, the shares of Fatima Fertilizer

Company rest a low price point (Rs 10-20 range). This implies that there is a strong potential for

growth and large gains can be realized. The investment would classify as a high yield, high risk

investment.


Fatima

28%

Others7

2%

DAP

2010E 2011F 2012F 2013F

0.1

1.11.3 1.2

EPS (Rs.)


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Pakistan Petroleum Limited

Introduction

The pioneer of the natural gas industry in the country, Pakistan Petroleum Limited (PPL) has

been a key player in the energy sector since the 1950s.The company has managed to sustain its

positioning due to its robust business programme and persistent efforts to optimize production

from existing fields and new discoveries, currently contributing about 25 percent of the

countrys total natural gas supplies in addition to crude oil, Natural Gas Liquid and Liquefied

Petroleum Gas.

PPLs history can be traced back to the establishment of a public limited company in June 1950,

the majority shares of which were held by Burmah Oil Company (BOC) of the United Kingdom.

In September 1997, BOC disinvested from the E&P sector worldwide and sold its equity in PPL

to the Government of Pakistan. In July 2004, the government, in turn, sold 15 percent of its

holding in PPL to the general public through an Initial Public Offer, reducing its share to 78.4

percent. The remaining equity is divided between International Finance Corporation and

private investors, holding 1.3 percent and 20.3 percent respectively.


One of the merits of being the leading oil producer company in Pakistan is stability in earnings

and less susceptibility to market risks. The selected financial data shows that PPLs earnings and

profitability have not been largely affected by the economic crisis. The companys share price

did experience a downward trend in the wake of falling prices; however they are now

increasing as well. Such favorable earnings and market price trends make PPL a very profitable

venture.

Market price, EPS and Dividend Yields

As shown by the statistics, PPL reported annual 2009 earnings of 27.82 per share on

08/24/2009. This is a sizeable increase from the 2008 EPS of 19.79 per share. It is predicted that

is the wake of rising oil prices this figure is expected to go up to 32.32 in 2011. The companys

dividend payments have remained steady at almost Rs 6 per share. Moreover share market

prices have shown a persistent rise.


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A comparative analysis of the companys financial statements for the year ending June 2008

and June 2009 shows a positive change in the companys financial position. Total revenues have

registered an increase of 34.7% whereas Net income has increased by 40.6%. This shows that

the company has successfully achieved cost savings that have resulted in profits increasing in a

proportion greater than the revenues.

An analysis of year on year Balance sheet changes reveals certain interesting changes. The

companys current ratio has increased from 2.78:1 in 2008 to 3.10:1 in the year 2009.This may

be considered an excess amount of cash and other non-interest earning assets. However a high

current ratio also ensures timely cash payments by the company. We can also notice an

increase of almost Rs 13 Billion in Property, Plant and Equipment. This is an indicator of

successful plant expansion and oil exploration activities undertaken by the company.


Currency in

Millions of Pakistan Rupees

Jun 30

2008

Restated

Jun 30

2009

Total Revenues 45,716.8 61,580.1

Cost Of Goods Sold 16,218.8 20,619.8

Gross Profit 29,498.0 40,960.3

Other Operating Expenses 2,026.9 3,108.9

Operating Income 27,471.2 37,851.4

Net Interest Expense 2,403.1 3,071.1

Income (Loss) On Equity

Investments119.0 380.0

EBT, Excluding Unusual Items 30,239.3 41,850.2

Gain (Loss) On Sale Of

Investments171.0 22.2

Gain (Loss) On Sale Of Assets 36.2 36.0

EBT, Including Unusual Items 30,446.6 41,908.4

Income Tax Expense 10,739.2 14,205.6

Net Income 19,707.4 27,702.8


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Conclusion and Recommendations

In light of the abovementioned information, we suggest an optimal plan for the investing

according to the following plan:

Notes

According to our financial analysts, the majority of the funds (35%) should be invested inFauji Fertilizer Company. This is simply because the company has been consistently

performed well in terms of share price, growth rate, turnover, EPS and dividend yield

despite the strong bearish trend that the market is experiencing. Plus the expected

future growth of the fertilizer sector is expected to be exponential.

Fatima Fertilizer was identified as a high risk, high return venture. Our financial analystsbelieve that due to the expected future growth of the company, the high share ofinvestment (25%) in Fatima Fertilizer is justified especially because it will be easily offset

by the steady and sure earning power of two blue chip companies in our portfolio i.e.

MCB and PPL with a combined prospective investment percentage of 35%.

HBL- 5%

MCB- 19%

PPL- 16%

Fauji- 35%

Fatima- 25%

Division of 10,000,000 PKR

Final Business Communication

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