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EconomyJune 26, 2020

Jun’20 MPC: Another Emergent Meeting, Another 100bps Rate Cut

2

Pakistan EconomyA timely move by SBP

SBP Jun’20 MPC key takeaways and outlook ahead

Cumulative cut now at 625bps: Another emergent meeting of SBP MPC was held yesterday in which the central bank decided to cut PR by another100bps to 7.0%, in-line with our expectations. Cumulative cut in PR now stands at 625bps since mid Mar’20 as the SBP continued to respond to

changing economic landscape in the country amidst COVID-19 pandemic. Underpinned by decelerating domestic demand and deteriorating growthoutlook, SBP responded yet again prioritizing growth and employment in these testing times. Key reasons cited by SBP for meeting earlier, asopposed to regular bi-monthly meet scheduled in Jul’20 were: 1) improvement in inflation outlook; 2) expected re-pricing of PKR 3.3Trn worth of

loans in early Jul’20; 3) rapidly rising COVID-19 cases globally and risk of a second wave of spread; and 4) supplementing growth to protect againstdownside risks.

Benign inflation, risks to growth outlook: SBP has acknowledged that inflation during FY21 could average lower than its targeted range of 7.0-9.0% but still holds that real rate of return on a forward-looking basis is zero i.e. 7.0% PR vis-à-vis expected NCPI of 7.0% YoY. We on the other hand

forecast NCPI to average at 6.2% YoY and opine that SBP has erred on the side of caution despite supporting benign inflationary outlook. That said,changes in SBP’s inflation target going forward cannot be completely ruled out. The period of high inflation readings seems to be coming to an end

with Jun’20 expected NCPI of 8.1% YoY (FY20E Avg: 10.7% YoY). The YoY readings, especially in 1HFY21 seem all set to show consistent sequentialimprovements with reversals likely to follow in 2HFY21.

External account is manageable: C/A balance for the month of May’20 turned a small surplus despite unimpressive remittances (down 18.6% YoYto USD 1,873Mn) and exports (down 45.2% YoY to USD 1,272Mn) numbers. Soft energy prices and weaker domestic demand for imported

products culminated into a 36.0% YoY decline in imports (USD 2,806Mn vis-à-vis USD 4,384Mn), helping the country post 25.6% YoY decline intrade balance and offsetting weakness in other inflows during the month of May’20. Overall C/A deficit is likely to sum up to ~USD 3.6Bn in FY20, a

much lower number as compared to pre-COVID projections. Assuming some reversal in international energy prices, next year’s C/A deficit willlikely sum at USD 6Bn.

PKR to regain some lost ground – major depreciation seems unlikely: Recent slide in PKR had rung alarm bells across the country and seemed tobe triggered by decline in SBP FX reserves. This reduction in reserves was mainly due to liabilities falling due during the period. That said, SBP has

pointed out that inflows to the tune of USD 1.225Bn from WB and ADB have been received and further inflows from USD 500Bn from AIIB areexpected shortly which will shore up reserves and arrest the slide in PKR against the greenback. With adequate external funding in place, weexpect PKR/USD pair to gain some lost ground and settle near PKR 165/USD level.

Market likely to greet rate cut with enthusiasm – leveraged players to roll: Cyclical or otherwise leveraged sectors such as cements, engineering,

automobiles and fertilizers etc. are likely to come out as beneficiaries of this rate cut. We believe this rate cut will provide a much needed kick formarket and help drive a rally in the next few months. Our Dec’20 index target stays intact at 38,500pts.

3

Pakistan EconomySBP acknowledges benign inflationary outlook but still errs on the side of caution

Source PBS, BMA Research

Revision in SBP estimates likely: SBP has already revised its target for FY21 in the past few

months from 9.0% YoY initially to 7.0% YoY. Now the central bank has hinted at the possibility

of inflation being on the lower side of its targeted range and we wouldn’t be surprised if such

revisions are made going forward. SBP has seemed to err on the side of caution despite

supporting arguments for soft inflationary trends going forward in its MPC communication. To

put things into perspective, SBP seems to be closer to IMF’s conservative target of 8.0% YoY

inflation whereas the govt. eyes inflation to average at 6.5% YoY for FY21. We agree with

govt’s estimates as we expect NCPI to average at 6.2% YoY during the year mainly due to

weaker energy prices and domestic demand as compared spikes seen in the SPLY.

Jun’20 inflation to clock-in at 8.1% YoY: For the month of Ju’20 we expect NCPI reading to

clock-in at 8.1% YoY (+0.4% MoM), closing FY20E average at 10.7% YoY. A spike in food prices,

especially wheat, is evident in SPI numbers for the last three weeks and the same has been

discussed by SBP in its MPC as well. SBP has also commented that these spikes, driven mainly

by supply shocks are likely to be transitory and succumb to weak domestic demand

eventually. Nonetheless, the month of Jun’20 will witness a larger MoM outturn for food

which will likely be offset by relatively muted increases in NFNE and energy components.

Inflation sensitivity depicts low downside risk: A sensitivity analysis of FY21 inflation

forecasts clearly illustrates why there are lower downside risks to estimates. High base effect

from last year combined with current circumstances will likely keep YoY readings in the range

of 5.5-6.1%.

Monetary easing cycle seems to be coming to an end, but…: Interestingly, SBP has hinted at

an end to the easing cycle by not reiterating its stance of ‘observing the situation and acting

accordingly’ which was the key feature in the past few MPC communications. In fact, SBP has

clearly highlighted that real rate on a forward-looking basis is now zero. Differences in

inflation estimates aside, further room for rate cuts looks thin and mainly predicated on

growth outlook in the country. We agree with SBP and opine that further rate cuts should not

be considered ‘base-case’ from this point on. Rate increases will become a possibility from

Mar’20 onwards looking at current inflation outlook

Inflation History & Trajectory (% YoY)

Source: PBS, BMA Research

Policy Rate vs. 12M Fwd Policy Rate (%)

0.0%

5.0%

10.0%

15.0%

20.0%

Jul-

19

Sep

-19

No

v-19

Jan

-20

Mar

-20

May

-20

Jul-

20

Sep

-20

No

v-20

Jan

-21

Mar

-21

May

-21

N-CPI (% YoY) R-CPI (% YoY) U-CPI (% YoY)

-0.4%-0.2%0.0%0.2%0.4%0.6%0.8%1.0%

5.0%5.5%6.0%6.5%7.0%7.5%8.0%8.5%

Jul-

20

Aug

-20

Sep

-20

Oct

-20

No

v-20

Dec

-20

Jan

-21

Feb

-21

Mar

-21

Apr

-21

May

-21

Jun

-21

Real Rate (%)

Policy Rate Expectations (%)

N-CPI Projections (% YoY)

Pakistan EconomySBP still assumes high MoM outturns in its inflation forecasts

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%Ju

l-19

Au

g-19

Sep

-19

Oct

-19

No

v-19

Dec

-19

Jan

-20

Feb

-20

Mar

-20

Ap

r-20

May

-20

Jun

-20

Jul-

20

Au

g-20

Sep

-20

Oct

-20

No

v-20

Dec

-20

Jan

-21

Feb

-21

Mar

-21

Ap

r-21

May

-21

Jun

-21

FY21E @ 0.5% MoM FY21E @ 0.6% MoM FY21E @ 0.7% MoM

FY21E @ 0.8% MoM FY21E @ 1.0% MoM FY21E Base Case

FY21E Base Case Average: 6.2% YoYFY21E Avg. at 0.5% MoM: 4.8% YoYFY21E Avg. at 0.6% MoM: 5.5% YoYFY21E Avg. at 0.7% MoM: 6.1% YoYFY21E Avg. at 0.8% MoM: 6.8% YoYFY21E Avg. at 0.9% MoM: 7.5% YoYFY21E Avg. at 1.0% MoM: 8.2% YoYFY21E Avg. at 1.5% MoM: 11.8% YoY

5

Pakistan EconomyExternal account turned into a surplus in May’20

Monthly C/A deficit (USD Mn)

Source: SBP, BMA Research

FY20 C/A deficit to settle at ~USD 3.6Bn: C/A deficit during the month of May’20 recorded a

small surplus of USD 8Mn vis-à-vis USD 530Mn in Apr’20. The surplus mainly came on the

back of 36.0%/10.6% YoY/MoM decline in import bill of the country. The effects of lower oil

prices were visible here overall trade deficit settled at USD 1,534 Mn, down 25.6%/11.5%

YoY/MoM. The improvement in imports was more than sufficient to counteract unimpressive

exports (down 45.2%/9.6% YoY/MoM) and remittances (-18.6%/+4.6% YoY/MoM). Going

forward, we expect C/A deficit to settle at USD 3.6Bn during FY20, much lower than pre-

COVID projections.

Reduction in import bill to keep things balanced in FY21: Despite recent increases in energy

prices, especially international crude oil, we expect overall imports to be lower by ~2% YoY

during FY21, helping curtail C/A balance at USD 6.0Bn mark. The cracks in exports and

remittances will likely widen during FY21 as we expect them to post YoY decline of 2.0% and

14.2% respectively. Nonetheless, lower import bill and services balance will likely keep things

balanced in FY21.

Inflows from IFIs to keep reserves afloat: Recent slide in PKR was triggered by debt

repayments which led to decline in SBP FX reserves to USD 9.96Bn. However, inflows to the

tune of USD 725Mn from WB and USD 500Mn from ADB have been received. More inflows of

USD 500Mn are expected from AIIB as well in the near future. This should help arrest the

recent slide in PKR against the greenback.

PKR likely to settle; in fact should gain some ground against USD: PKR has depreciated by

2.6% since end-May’20 as reserves data continued to show deterioration. However, with

fresh inflows from WB, ADB, AIIB and potentially from IMF (assuming EFF resumes), we

expect PKR to regain some lost ground and settle near PKR 165/USD level.

External account seems manageable: SBP has time and again reiterated that adequate

external funding is available to keep reserves afloat. In yesterday’s communication as well,

SBP has provided comfort that outlook for external sector remains stable due to lower oil

prices and projected official and private inflows.Source: SBP, BMA Research

Trade, Services & Income Deficit (USD Mn)

(579) (610)

(284)

70

(364) (367)

(534)

(210)

(9)

(530)

13

(700)

(600)

(500)

(400)

(300)

(200)

(100)

-

100

200

Jul-

19

Aug

-19

Sep

-19

Oct

-19

No

v-19

Dec

-19

Jan

-20

Feb

-20

Mar

-20

Apr

-20

May

-20

(2,100)

(1,800)

(1,500)

(1,200)

(900)

(600)

(300)

-

Jul-

19

Aug

-19

Sep

-19

Oct

-19

No

v-19

Dec

-19

Jan

-20

Feb

-20

Mar

-20

Apr

-20

May

-20

Trade Balance Services Balance Income Balance

Pakistan EconomyBalance of Payments for the month of May’20

Description May'20 May'19 % YoY Apr'20 % MoM 11MFY20 11MFY19 % YoY

Trade balance -1,534 -2,061 -25.6% -1,733 -11.5% -17,941 -25,373 -29.3%

Exports 1,272 2,323 -45.2% 1,407 -9.6% 20,937 22,458 -6.8%

Imports -2,806 -4,384 -36.0% -3,140 -10.6% -38,878 -47,831 -18.7%

Services balance -78 -696 -88.8% -175 -55.4% -2,700 -4,626 -41.6%

Receipts 390 468 -16.7% 407 -4.2% 5,050 5,520 -8.5%

Payments -468 -1,164 -59.8% -582 -19.6% -7,750 -10,146 -23.6%

Total Trade & Services Deficit -1,612 -2,757 -41.5% -1,908 -15.5% -20,641 -29,999 -31.2%

Income balance -491 -778 -36.9% -533 -7.9% -5,300 -5,096 4.0%

Receipts 37 7 428.6% 32 15.6% 523 502 4.2%

Payments -528 -785 -32.7% -565 -6.5% -5,823 -5,598 4.0%

Net Current Transfers 2,116 2,531 -16.4% 1,911 10.7% 22,653 22,642 0.0%

Inward transfers 2,138 2,543 -15.9% 1,936 10.4% 22,984 22,855 0.6%

Worker's remittances 1,873 2,302 -18.6% 1,790 4.6% 20,654 20,104 2.7%

Outward transfers -22 -12 83.3% -25 -12.0% -331 -213 55.4%

C/A balance 13 -1,004 N.M -530 N.M -3,288 -12,453 -73.6%

Capital A/C bal. 11 9 22.2% 11 0.0% 258 177 45.8%

Financial A/C bal. -2,062 362 N.M 1,440 N.M 5,322 11,233 -52.6%

FDI 120 274 -56.2% 150 -20.0% 2,363 1,313 80.0%

FPI -106 26 N.M -643 -83.5% -406 -1,254 -67.6%

Other inflows / (outlflows) -2,076 62 N.M 1,933 -207.4% 3,365 11,174 -69.9%

Errors & ommissions 93 -174 N.M 223 -58.3% 1,153 -122 N.M

Balance of Payments -1,945 -807 141.0% 1,144 N.M 3,445 -1,165 N.M

Source: SBP, BMA Research

7

Pakistan StrategyRate cut will make PSX happy

Standalone impact of 100bps cut on our banking estimates

Source:, BMA Research

Cyclical sectors preferred: Cyclical or otherwise leveraged sectors such as cements,

engineering, automobiles and fertilizers etc. are likely to come out as beneficiaries of this rate

cut. We continue to advocate for Overweight stance in the cement sector for capital upside

and fertilizer sector for yield.

Our banking sector estimates stay intact: We had already incorporated a cut of 100bps in our

BMA Universe estimates from Jul’20 onwards. The announced cut in policy rate is unlikely to

alter our CY20E estimates for the sector materially.

Index target stays intact: Our index target of 38,500 stays intact. This translates into a

potential upside of 14% from present levels.

Top picks: Our top picks are: 1) HBL (TP: PKR 140); 2) UBL (TP: PKR 140); 3) MEBL (TP: PKR

95); 4) LUCK (TP: PKR 560); 5) DGKC (TP: PKR 108); 6) KOHC (TP: PKR 189); 7) FFC (TP: PKR

126; 8) INDU (TP: PKR 1,209); 9) EPCL (TP: PKR 38); 10) OGDC (TP: PKR 178).

(2.00)

(1.35)

(3.10)

(1.00)

(2.10)

(3.50)

(3.00)

(2.50)

(2.00)

(1.50)

(1.00)

(0.50)

-

UBL MEBL HBL BAFL MCB

EPS Impact (PKR/share)

Pakistan StrategyImpact of 100bps cut on Selected Companies

Company TickerPrice

(PKR/sh.)No. of shares

O/S (Mn)Debt

(PKR Mn)Assets

(PKR Mn)Equity

(PKR Mn)Cash

(PKR Mn)Net Debt (PKR Mn)

EPS Impact (PKR/sh.)

D/A (%) D/E (x)Impact per

share (%)

AUTOMOBILE ASSEMBLERS

Al-Ghazi Tractors AGTL 345.00 58 1,174 4,747 1,070 156 1,018 0.12 25% 1.10 0%

Ghandara Industries GHNI 120.3 43 6,564 14,979 4,543 65 6,499 1.08 44% 1.44 2%

Ghandara Nissan GHNL 62.89 57 163 7,132 6,015 184 -21 0.00 2% 0.03 0%

Honda Atlas Cars (Pakistan)

HCAR 193.00 143 2,332 31,842 16,557 5,575 -3,243 -0.16 7% 0.14 0%

Hinopak Motors HINO 350.00 12 5,513 10,967 1,728 60 5,453 3.12 50% 3.19 1%

Indus Motor Company INDU 944.22 79 192 58,292 39,638 17,476 -17,284 -1.56 0% 0.00 0%

Millat Tractors MTL 690.60 50 1,622 11,104 3,418 186 1,436 0.20 15% 0.47 0%

Pak Suzuki Motor Company

PSMC 152.83 82 21,327 72,237 26,251 2,264 19,063 1.64 30% 0.81 1%

Sazgar Engineering SAZEW 121.37 36 432 2,949 1,558 573 -141 -0.03 15% 0.28 0%

AUTOMOBILE PARTS & ACCESSORIES

Agriauto Industries AGIL 185.00 29 9 4,761 4,086 538 -529 -0.13 0% 0.00 0%

Atlas Batteries ATBA 169.97 24 2,939 9,745 5,126 303 2,636 0.77 30% 0.57 0%

General Tyre & Rubber GTYR 59.92 122 6,877 13,203 3,293 119 6,758 0.39 52% 2.09 1%

Loads Limited LOADS 13.71 151 2,250 5,596 2,896 7 2,243 0.11 40% 0.78 1%

Thal Limited THAL 329.99 81 155 22,823 19,716 3,077 -2,922 -0.26 1% 0.01 0%

CABLE & ELECTRICAL GOODS

Pak Electron Limited PAEL 22.33 498 16,119 52,922 31,089 567 15,553 0.22 30% 0.52 1%

Waves Singer Pakistan WAVES 21.11 188 5,154 16,092 8,347 42 5,112 0.19 32% 0.62 1%

Pakistan StrategyImpact of 100bps cut on Selected Companies

Company TickerPrice

(PKR/sh.)

No. of shares O/S

(Mn)

Debt (PKR Mn)

Assets (PKR Mn)

Equity (PKR Mn)

Cash (PKR Mn)

Net Debt (PKR Mn)

EPS Impact (PKR/sh.)

D/A (%) D/E (x)Impact per share(%)

CEMENT

Attock Cement Pakistan Limited

ACPL 125.00 137 4,710 27,513 16,312 625 4,084 0.21 17% 0.29 0%

Cherat Cement Company CHCC 84.94 194 19,171 33,303 11,178 23 19,147 0.70 58% 1.72 1%

D.G. Khan Cement DGKC 78.89 438 39,264 126,754 73,419 443 38,821 0.63 31% 0.53 1%

Fauji Cement Company FCCL 16.30 1,380 3,567 30,834 20,346 485 3,082 0.02 12% 0.18 0%

Kohat Cement Company KOHC 135.66 201 6,899 32,009 19,268 296 6,603 0.23 22% 0.36 0%

Lucky Cement Limited LUCK 441.76 323 5,219 128,675 94,152 13,262 -8,044 -0.18 4% 0.06 0%

Maple Leaf Cement MLCF 24.88 1,098 20,283 67,975 33,723 1,252 19,031 0.12 30% 0.60 0%

Pioneer Cement PIOC 62.33 227 24,872 45,374 13,210 1,493 23,380 0.73 55% 1.88 1%

Power Cement POWER 6.02 1,063 25,922 45,200 11,571 541 25,381 0.17 57% 2.24 3%

FERTILIZER

Engro Fertilizers EFERT 59.67 1,335 32,938 127,047 43,279 8,925 24,013 0.13 26% 0.76 0%

Engro Corporation ENGRO 286.07 576 173,967 550,245 195,249 94,896 79,071 0.97 32% 0.89 0%

Fatima Fertilizer FATIMA 26.02 2,100 16,319 123,051 69,914 1,320 14,999 0.05 13% 0.23 0%

Fauji Fertilizer Bin Qasim FFBL 15.08 934 32,794 91,167 6,834 6,303 26,490 0.20 36% 4.80 1%

Fauji Fertilizer Company FFC 105.78 1,272 32,987 153,390 35,567 53,735 -20,749 -0.12 22% 0.93 0%

Pakistan StrategyImpact of 100bps cut on Selected Companies

Company TickerPrice

(PKR/sh.)

No. of shares O/S

(Mn)

Debt (PKR Mn)

Assets (PKR Mn)

Equity (PKR Mn)

Cash (PKR Mn)

Net Debt (PKR Mn)

EPS Impact (PKR/sh.)

D/A (%) D/E (x)Impact per share (%)

CHEMICAL

Descon Oxychem Limited DOL 29.01 151 208 2,478 1,787 96 111 0.01 8% 0.12 0%

Engro Polymers & Chemicals

EPCL 25.12 909 9,354 47,386 17,490 1,327 8,027 0.06 20% 0.53 0%

ICI Pakistan Limited ICI 673.00 92 11,826 43,928 20,861 238 11,588 0.89 27% 0.57 0%

Ittehad Chemicals ICL 26.70 85 3,068 9,320 4,005 83 2,985 0.25 33% 0.77 0%

Lotte Chemical Pakistan LOTCHEM 10.05 1,514 0 27,526 15,792 11,510 -11,510 -0.05 0% 0.00 -1%

Sitara Chemical Industries

SITC 268.20 21 7,290 27,747 14,736 349 6,941 2.30 26% 0.49 0%

ENGINEERING

Aisha Steel Mills ASL 8.62 766 19,675 32,085 8,462 170 19,505 0.18 61% 2.33 2%

Amreli Steels ASTL 32.00 297 15,836 32,406 11,930 437 15,399 0.37 49% 1.33 1%

Crescent Steel & Allied Products

CSAP 45.85 78 2,237 9,172 5,387 115 2,121 0.19 24% 0.42 0%

International Industries Limited

INIL 93.53 132 30,488 60,793 20,243 768 29,719 1.60 50% 1.51 2%

International Steel Limited

ISL 50.70 435 20,376 40,313 12,692 375 20,001 0.33 51% 1.61 1%

Mughal Iron & Steel Industries

MUGHAL 39.68 252 15,215 25,470 8,173 1,928 13,287 0.37 60% 1.86 1%

Pakistan StrategyImpact of 100bps cut on Selected Companies

Company TickerPrice

(PKR/sh.)

No. of shares O/S

(Mn)

Debt (PKR Mn)

Assets (PKR Mn)

Equity (PKR Mn)

Cash (PKR Mn)

Net Debt (PKR Mn)

EPS Impact (PKR/sh.)

D/A (%) D/E (x)Impact

per share (%)

POWER GENERATION & DISTRIBUTION

Hub Power Company Limited

HUBC 70.82 1,297 35,472 155,572 35,187 534 34,938 0.19 23% 1.01 0%

Kot Addu Power Company

KAPCO 19.80 880 50,153 143,251 56,294 788 49,365 0.40 35% 0.89 0%

FOOD & PERSONAL CARE PRODUCTS

Al Shaheer Corporation ASC 11.93 142 1,631 7,955 4,625 296 1,335 0.07 21% 0.35 1%

Frieslandcampina Engro Foods

FCEPL 71.00 767 5,816 23,566 8,385 66 5,750 0.05 25% 0.69 0%

Fauji Foods Limited FFL 9.77 528 11,228 12,106 -4,630 83 11,145 0.15 93% -2.43 0%

Matco Foods Limited MFL 19.67 122 6,247 11,430 4,490 558 5,689 0.33 55% 1.39 2%

Murree Brewery Limited MUREB 555.00 28 0 11,683 10,200 1,241 -1,241 -0.32 0% 0.00 0%

National Foods NATF 249.90 124 2,034 10,010 4,124 582 1,452 0.08 20% 0.49 0%

At-Tahur Limited PREMA 17.52 161 363 3,045 2,366 74 289 0.01 12% 0.15 0%

GLASS & CERAMICS

Ghani Glass Limited GHGL 38.07 542 131 24,833 16,408 201 -70 0.00 1% 0.01 0%

Shabbir Tiles & Ceramics Limited

STCL 8.09 239 318 5,674 1,910 163 155 0.00 6% 0.17 0%

Tariq Glass Limited TGL 63.79 73 7,748 16,063 6,269 342 7,406 0.72 48% 1.24 1%

Pakistan StrategyImpact of 100bps cut on Selected Companies

Company TickerPrice

(PKR/sh.)

No. of shares O/S

(Mn)

Debt (PKR Mn)

Assets (PKR Mn)

Equity (PKR Mn)

Cash (PKR Mn)

Net Debt (PKR Mn)

EPS Impact (PKR/sh.)

D/A (%) D/E (x)Impact per share (%)

LEATHER & TANNERIES

Bata Pakistan BATA 1,325.00 8 4,506 17,263 7,801 215 4,291 4.03 26% 0.58 0%

Service Industries SRVI 758.66 19 9,705 20,878 6,042 197 9,508 3.59 46% 1.61 0%

MISC.

Shifa International Limited

SHFA 222.33 62 2,717 15,184 8,273 2,162 554 0.06 18% 0.33 0%

Synthetic Products Enterprises

SPEL 43.70 85 419 3,471 2,722 34 385 0.03 12% 0.15 0%

PAPER & BOARD

Century Paper & Board Mills

CEPB 68.18 147 6,690 18,103 7,004 128 6,562 0.32 37% 0.96 0%

Cherat Packaging Limited

CPPL 114.84 43 6,108 11,748 4,541 12 6,096 1.02 52% 1.35 1%

Packages Limited PKGS 341.62 89 8,555 58,950 44,018 516 8,038 0.64 15% 0.19 0%

OIL & GAS EXPLORATION

Mari Petroleum Company

MARI 1,230.12 133 0 242,770 71,070 33,432 -33,432 -1.78 0% 0.00 0%

Oil & Gas Development Company

OGDC 110.31 4,301 0 799,755 657,045 63,869 -63,869 -0.11 0% 0.00 0%

Pakistan Oilfields Limited

POL 349.46 284 0 81,977 33,563 36,701 -36,701 -0.92 0% 0.00 0%

Pakistan Petroleum Limited

PPL 87.10 2,721 0 490,919 318,628 7,218 -7,218 -0.02 0% 0.00 0%

Pakistan StrategyImpact of 100bps cut on Selected Companies

Company TickerPrice

(PKR/sh.)

No. of shares

O/S (Mn)

Debt (PKR Mn)

Assets (PKR Mn)

Equity (PKR Mn)

Cash (PKR Mn)

Net Debt (PKR Mn)

EPS Impact (PKR/sh.)

D/A (%) D/E (x)Impact per share (%)

OIL & GAS MARKETING

Attock Petroleum APL 290.37 100 2,971 53,455 30,341 8,280 -5,309 -0.38 6% 0.10 0%

Hascol Petroleum HASCOL 13.44 999 47,965 78,435 -1,775 4,669 43,296 0.31 61% -27.02 2%

Hi-Tech Lubricants HTL 30.12 116 1,255 4,896 3,022 801 455 0.03 26% 0.42 0%

Pakistan State Oil PSO 145.88 469 110,857 394,261 125,057 2,614 108,243 1.64 28% 0.89 1%

Shel Pakistan SHEL 168.16 107 6,514 59,140 5,030 2,115 4,399 0.29 11% 1.30 0%

Sui Northern Gas Pipelines

SNGP 53.15 634 36,074 571,415 22,025 6,733 29,340 0.33 6% 1.64 0%

REFINERIES

Attock Refinery Limited ATRL 88.32 107 9,063 99,483 32,777 15,470 -6,407 -0.43 9% 0.28 0%

National Refinery Limited

NRL 104.49 80 18,138 70,658 30,888 543 17,595 1.56 26% 0.59 1%

VANASPATI & ALLIED INDUSTRIES

Unity Foods Limited UNITY 11.43 544 4,202 16,570 6,015 70 4,132 0.05 25% 0.70 0%

TECHNOLOGY & COMMUNICATION

Avanceon Limited AVN 35.15 193 466 4,184 3,019 11 455 0.02 11% 0.15 0%

Hum Network Limited HUMNL 15.77 945 1,288 5,084 2,830 403 884 0.01 25% 0.45 0%

Systems Limited SYS 178.54 123 659 6,229 4,882 1,180 -522 -0.03 11% 0.13 0%

Pakistan StrategyImpact of 100bps cut on Selected Companies

Company TickerPrice

(PKR/sh.)

No. of shares O/S

(Mn)

Debt (PKR Mn)

Assets (PKR Mn)

Equity (PKR Mn)

Cash (PKR Mn)

Net Debt (PKR Mn)

EPS Impact (PKR/sh.)

D/A (%) D/E (x)Impact per share (%)

TEXTILE

Gadoon Textile Mills GADT 157.90 28 12,870 30,318 13,599 217 12,653 3.21 42% 0.95 2%

Gul Ahmad Textile Mills GATM 27.61 428 35,050 62,150 15,511 719 34,331 0.57 56% 2.26 2%

Interloop Limited ILP 42.97 869 23,415 47,987 17,884 374 23,041 0.19 49% 1.31 0%

Kohinoor Textile Mills KTML 32.63 299 29,477 88,932 44,383 1,234 28,243 0.67 33% 0.66 2%

Nishat Chunian Limited NCL 32.76 240 29,075 48,671 15,257 57 29,018 0.86 60% 1.91 3%

Nishat Mills Limited NML 75.93 352 29,301 111,589 73,075 97 29,204 0.59 26% 0.40 1%

PHARMACEUTICALS

Abbot Laboratories (Pakistan)

ABOT 601.50 98 0 22,560 13,529 4,297 -4,297 -0.31 0% 0.00 0%

AGP Pharma AGP 106.44 280 1,088 9,778 7,898 252 836 0.02 11% 0.14 0%

Ferozsons Laboratories FEROZ 299.53 30 247 6,875 5,106 435 -188 -0.04 4% 0.05 0%

GlaxoSmithKline GLAXO 172.55 318 0 23,750 16,653 2,654 -2,654 -0.06 0% 0.00 0%

Searle Pharmaceuticals SEARL 198.84 212 39 24,346 15,745 285 -246 -0.01 0% 0.00 0%

Pakistan MarketAbbreviations

List of Abbreviations

SBP State Bank of Pakistan Govt Government of Pakistan

MPC Monetary Policy Committee Fwd Forward

BN Billion IFIs International Financial Institutions

C/A Current Account IMF International Monetary Fund

TP Target Price N-CPI National Consumer Price Inflation

PBS Pakistan Bureau of Statistics U-CPI Urban Consumer Price Inflation

MoM Month over Month R-CPI Rural Consumer Price Inflation

YoY Year over Year PKR Pak Rupee

PR Policy Rate USD US Dollars

Bps Basic Points FY Fiscal Yar

Mn Million PSX Pakistan Stock Exchange

Bn Billion BoP Balance of Payments

Trn Trillion MPS Monetary Policy Statement

FX Foreign Exchange SPI Sensitive Price Indicator

WB World Bank FDI Foreign Direct Investments

ADB Asian Development Bank FPI Foreign Portfolio Investments

AIIB Asian Infrastructure Investment Bank SPLY Same Period Last Year

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Disclaimer

This research report is for information purposes only and does not constitute nor is it intended as an offer or solicitation for the purchase or sale of securities or other financial instruments. Neitherthe information contained in this research report nor any future information made available with the subject matter contained herein will form the basis of any contract. Information and opinionscontained herein have been compiled or arrived at by BMA Capital Management Limited from publicly available information and sources that BMA Capital Management Limited believed to bereliable. Whilst every care has been taken in preparing this research report, no research analyst, director, officer, employee, agent or adviser of any member of BMA Capital Management Limitedgives or makes any representation, warranty or undertaking, whether express or implied, and accepts no responsibility or liability as to the reliability, accuracy or completeness of the informationset out in this research report. Any responsibility or liability for any information contained herein is expressly disclaimed. All information contained herein is subject to change at any time withoutnotice. No member of BMA Capital Management Limited has an obligation to update, modify or amend this research report or to otherwise notify a reader thereof in the event that any matterstated herein, or any opinion, projection, forecast or estimate set forth herein, changes or subsequently becomes inaccurate, or if research on the subject company is withdrawn. Furthermore, pastperformance is not indicative of future results.The investments and strategies discussed herein may not be suitable for all investors or any particular class of investor. Investors should make their own investment decisions using their ownindependent advisors as they believe necessary and based upon their specific financial situations and investment objectives when investing. Investors should consult their independent advisors ifthey have any doubts as to the applicability to their business or investment objectives of the information and the strategies discussed herein. This research report is being furnished to certainpersons as permitted by applicable law, and accordingly may not be reproduced or circulated to any other person without the prior written consent of a member of BMA Capital ManagementLimited. This research report may not be relied upon by any retail customers or person to whom this research report may not be provided by law. Unauthorized use or disclosure of this researchreport is strictly prohibited. Members of BMA Capital Management and/or their respective principals, directors, officers and employees may own, have positions or effect transactions in thesecurities or financial instruments referred herein or in the investments of any issuers discussed herein, may engage in securities transactions in a manner inconsistent with the research contained inthis research report and with respect to securities or financial instruments covered by this research report, may sell to or buy from customers on a principal basis and may serve or act as director,placement agent, advisor or lender, or make a market in, or may have been a manager or a co-manager of the most recent public offering in respect of any investments or issuers of such securitiesor financial instruments referenced in this research report or may perform any other investment banking or other services for, or solicit investment banking or other business from any companymentioned in this research report. Investing in Pakistan involves a high degree of risk and many persons, physical and legal, may be restricted from dealing in the securities market of Pakistan.Investors should perform their own due diligence before investing. No part of the compensation of the authors of this research report was, is or will be directly or indirectly related to the specificrecommendations or views contained in the research report. By accepting this research report, you agree to be bound by the foregoing limitations.BMA Capital Management Limited and / or any of its affiliates, which operate outside Pakistan, do and seek to do business with the company(s) covered in this research document. Investors shouldconsider this research report as only a single factor in making their investment decision. BMA Research Policy prohibits research personnel from disclosing a recommendation, investment rating, orinvestment thesis for review by an issuer/company prior to the publication of a research report containing such rating, recommendation or investment thesis.

Investors should carefully read the definitions of all rating used within every research reports. In addition, research reports carry an analyst’s independent view and investors should ensure carefulreading of the entire research reports and not infer its contents from the rating ascribed by the analyst. Ratings should not be used or relied upon as investment advice. An investor’s decision tobuy, hold or sell a stock should depend on said individual’s circumstances and other considerations. BMA Capital Limited uses a three tier rating system: i) Buy, ii) Neutral and iii) Underperform(new rating system effective Jan 1’18) with our rating being based on total stock returns versus BMA’s index target return for the year. A table presenting BMA’s rating definitions is given below:

Stock Rating

Buy >20% expected total return

Hold 10%-20% expected total return

Underperform <10% expected total return

*Total stock return = capital gain + dividend yield

17

Disclaimer

Old rating system

Overweight Total stock return > expected market return + 2%

Marketweight Expected market return ± 2%

Underweight Total stock return < expected market return - 2%

Valuation Methodology

To arrive at our period end target prices, BMA Capital uses different valuation methodologies including

• Discounted cash flow (DCF, DDM)

• Relative Valuation (P/E, P/B, P/S etc.)

• Equity & Asset return based methodologies (EVA, Residual Income etc.)

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