Samia Umer June 2018 Is Valued at PKR 77.82

Recommendation HOLD We initiate our coverage on Maple Leaf Cement Factory with a HOLD Current Price 75.79 stance on the scrip, offering an upside potential of 6.05% including 3.37% of dividend yield. MLCF is currently trading at a trailing and forward P/E Target Price 77.82 multiple of 8.43x and 11.73x. The 3-yr average $EV/Ton of the stock is D/Y 3.37% $120/Ton. Upside 6.05% Key Stats Demand is Intact Demand for cement is to remain upbeat on the back of increased activity in government and Market Cap (PKR bn) 45.715 private sector housing scheme, rising urbanization, CPEC related infrastructural projects, Market Cap (USD mn) 394.89 construction of motorways, water reservoirs and various hydel power projects and with election just around the corner, we believe demand for cement to remain sturdy during the 52w Low - High 63.05 – 128.82 remainder of the current fiscal year. Outstanding shares 593.7 mn Free float 45% KATAS RAJ - Blessing in Disguise As per MMDP report, since MLCF lies in the safe zone and relies on own sources of water, it is Adj. Beta 1.29 highly plausible that the company may be given green light by the Supreme court while other Relative Performance Graph companies in the negative zone will have to search for other alternatives or cede expansions. This is likely to bode well for MLCF in setting strong foot hold in the region. 30.00% 20.00% 10.00% Brownfield Expansion – Effort to Retain Market Share 0.00% In order to retain its market share MLCF has also announced a brownfield expansion project -10.00% (line-3) to be setup at its existing site, thereby taking total capacity to 7.3 MT. The project is -20.00% worth PKR 23Bn, financed through 48% debt and 52% of equity out of which 19% was raised

-30.00%

May-17 Dec-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Jan-18 Feb-18 Mar-18 Jun-17 through issuing 12.5% right shares.

Energy Mix is All Set to Get Efficient Source: PSX, ASDAIndex Research Performance MLCF Performance The Installation of 40MWcoal fired plant will further lower its dependence on national grid Source: PSX, ASDA Research and thus will eventually make MLCF self-reliant on captive power plants. It was established April 18, 2018 through 100% wholly owned subsidiary ‘Maple Leaf Power Limited’. The plant was imported from Chinese firm ‘Sinoma Energy Conservation limited’ and is build in vicinity to MLCF Iskanderabad plant to ensure uninterrupted power supply.

Valuation The target price is derived using Discounted cash flow method (FCFF). The target price for Samia Umer June 2018 is valued at PKR 77.82. This offers a total return of 6.05% including 3.37% of Investment Analyst dividend yield. [email protected] Key Investment Risks +92 21 32435322 The risks to our target price is 1) Further devaluation of PKR 2) Hike in Interest rates 3) Lower than anticipated demand 4) Unexpected surge in coal prices 5) Price war as a result Refer to last page for important disclosures. of supply glut and 6) Delay in commencement of operations of new plant.

ASDA Research Reports are available on Thomson Reuters 1 Investment Thesis Earlier when other companies were announcing expansions, Maple leaf on the other hand prudently focused on effective and effective utilization of its business. We base our investment case for Maple Leaf Factory Cement (MLCF) on the back of robust demand as a result of increased urbanization and government spending on infrastructural and CPEC related projects, escaping production halt over Katas Raj and other environmental issues, 2.3 MT of expansion project at its existing site and addition of 40MW coal fired power plant to its already cost effective power mix.

Demand is Intact With increasing population, urbanization and several infrastructural projects, reasonable growth in construction sector was observed over the last decade. The size of the total construction sector is PKR 320bn (FY17) and on average it contributes 2.5% to the national GDP. During current government of PML-N, the size of the contribution has risen sharply with incumbent’s strong focus towards mega infrastructural projects and hefty government spending in this regard has led the growth rate of construction to outpace growth rate of GDP. Relative GDP to Construction Growth 3.0% 20.0% 2.5% 15.0% 10.0% 2.0% 5.0% 1.5% 0.0% 1.0% Growth -5.0%

Construction Cont. 0.5% -10.0% 0.0% -15.0% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Const. contribution to GDP GDP Growth Const. contribution growth

Source: PBS, SBP, ASDA Research

Pakistan also enjoys fair share in the world cement industry of 0.77% and is ranked amongst top 20 producer which constitutes 87% of global cement industry. China being the single largest producer covers 57% of world cement industry, followed by India (6%) and USA (1.7%). However in terms of per capita consumption Saudi Arabia is well ahead (1,683kgs) closely followed by China (1,581kgs), South Korea (911kgs) and Iran (770kgs) whereas Pakistan’s consumption is well behind its peers at 140kgs, which implies significant room for growth.

Since the year 2000 Pakistan cement industry has also grown at a CAGR of 9%, dispatches which were only 9.62mn MT now stands at 40.32mn MT (FY17). Going forward demand for cement is to remain upbeat on the back of increased activity in infrastructure and housing sector. Government and private sector housing scheme, rising urbanization, CPEC related infrastructural projects, construction of motorways, water reservoirs and various hydel power projects are the key reasons for increased cement consumptions and with election just around the corner, we believe demand for cement to remain sturdy during the remainder of the current fiscal year as only PKR 607bn (60%) is released so far for PSDP as against total allocated budget of PKR 1,001bn (as of March 30, 2018). Any further release of these funds will have direct benefit on the cement sector.

ASDA Research Reports are available on Thomson Reuters 2 Maple Leaf Cement Factory (MLCF) is primarily engaged in producing grey cement. Besides this MLCF company also manufactures white cement and enjoys a healthy market share of more than 90%. Since white cement sells at a premium of 10%-20%, thereby contributing its fair share in maintaining highest retention level in the industry.

Another key product is sulphate resistant cement, which is used in the construction of dams and barrages especially in the areas where there is high sulphur content in the water. In the back drop of power and water shortage, as per WAPDA a total 21 water dams and hydel power projects are underway. Out of these, three hydro power projects (Kurram Tangi Mohmand dam, and Tarbella - fifth extension are expected to complete in the ongoing year whereas eight other projects are ready for construction including much anticipated mega dams of Diamer- Bhasha and Dasu. Moreover, 12 additional projects are also on the table for which detailed feasibility report is being prepared.

Most of these projects are located in North with Kurram Tangi Mohmand and Tarbela dam (fifth extension) in close proximity to MLCF plant in Iskanderabad. Since MLCF is the fourth largest player in the cement industry and given its strong brand image, the company in our view is well-poised to capture demand growth. In the backdrop of above stated scenario, we believe this will further augment volumetric sales and topline of the company going forward. Major Hydro Projects within 800 km to MLCF

1) Diamer-Bhasha Dam 2) Kurram Tangi Dam 3) Dasu kohistan Dam 4) Maple Leaf Cement Factory 5) Golen Gol 6) Bunji hydro power 7) Tarbella 5th Extension

Source: Google Maps, WAPDA , ASDA Research

On a conservative basis, these projects are expected to complete over 4 to 15 years assuming preliminary work to start off by next year though past record suggests delay is highly probable and same have been incorporated in our estimates. As per our research, on average 58,807mt/km2 of cement in the ratio of 1:2:4 (cement, gravel, mud) is required for hydro projects which is likely to generate total cement demand of around 8.92 mn MT over the prescribed period (0.667mn MT/annum). The grid below illustrates specification of hydel projects in close proximity to MLCF.

Cement Consumption Power Capacity Water Storage Hydro Projects Distance (km) (mn MT) (MW) Capacity (MAF) Kurram Tangi Mohmand 164 0.53 800 1.2 Tarbela 5th Extension 229 0.93 1410 N/A Dasu Kohistan 507 3.46 4320 11.4 Diamer-Bhasha 588 3.56 4500 8.107 Bunji Hydro power 623 0.45 7100 0.2 Sum 8.92 18130 20.91 Source: WAPDA , ASDA Research

ASDA Research Reports are available on Thomson Reuters 3 KATAS RAJ - Blessing in Disguise Supreme Court on Katas Raj case has directed all companies located near Katas Raj Temple to EBITDA Mn seek prior approval before undergoing expansionary projects. Moreover, Mines and Mineral 2022 11714 Department of Punjab (MMDP) also conducted a feasibility report to evaluate impact on 2021 11388 2020 9203 ecology with respect to new addition of cement plants in the Salt Range region. As per 2019 7726 report, MLCF is located in the safe zone plus the company relies on own sources of water 2018 7807 mainly extracted from tube wells situated within the plant while other companies that 2017 9,087 appeared in the negative zone consumed more water than were actually allowed. This has 2016 9,371 resulted in drying of the Katas raj pond. These companies will either have to search for other 2015 7,356 location or cede expansion but in our view all the expansions will eventually come online 2014 6,746 after fullfiling/going through stringent regulations. We believe it is beneficial for MLCF as 2013 6,515 new capacities of 16.4 MT (58%) out of total planned 28.5 MT lies in the Punjab region. 2012 4,438 Furthermore, with the deferral of new plants competition/price war within the region will 0 2000 4000 6000 8000 10000 12000 also ease out and this offers a greater opportunity for MLCF to increase its foot hold in the Source: Company Accounts, ASDA Research region.

Brownfield Expansion – Effort to Retain Market Share Earlier when other companies were announcing expansions, Maple Leaf on the other hand prudently focused on effective and effective utilization of its business. Following the expansion spree and to retain its market share, MLCF has also announced a brownfield expansion project (line-3) of 2.3 MT which is to be build at its existing site at Iskanderabad. The total capacity of the company will go up to 7.3 MT.

The project is worth PKR 23Bn, financed through 48% of debt and 52% of equity, out of which 19% was raised through issuing 12.5% right shares. Following the foot steps of other major players in the industry, MLCF has too ordered the new state-of-the-art plant from a Danish based company, FLS Smidth.

The plant was initially expected to be online by FY19 but the construction was halted over environmental concerns by EPA which was later over-ruled by Lahore High Court. Once the Cash Flow case is completely over, we believe the construction will be is in full swing however, we expect the plant to be operational by FY 1H20 with a delay of 3-5 months, along with a slight 2020 increase in total estimated cost and we have incorporated these assumptions in our model.

The graph below illustrates impact on financial performance following start of commercial 2019 operations of the new plant CFF

2018 CFI 14000 Margins Growth Trend CFO 12000

2017 10000

8000 (15) (10) (5) - 5 10PKR 'mn 6000

Source: Company Accounts, ASDA Research '000 PKR 4000 2000 0 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

GP OP PBT PAT

Source: Company Accounts, ASDA Research

ASDA Research Reports are available on Thomson Reuters 4 Strong cost structure to support margins Market Share Despite facing tough competition in the northern region, MLCF has a reasonable capacity and dispatches wise market share of 8% and 8.7% and post expansion we anticipate it to reach Local Exports 7.8% and 9% respectively. We foresee a slight dip in dispatches share in FY19 on the back of increased competition as expansionary projects becomes operational by other players. This will dent MLCF’s topline but given the efficient cost structure, usage of alternate fuel, highest 11% retention ratio and ability to fully utilize its existing capacity (1HFY18: 95%), all this in our 8% 8% 9% 9% view will partially off-set decline in profit margins. 7% 8% 8% As per our study, with every 2-3% increase in the utilization level, the bottom-line will also have a positive impact of 4% (FY:18) and 5% (FY:19) respectively. 2014 2015 2016 2017 On the exports front, given the geographical location of MLCF, the company mainly exports to Afghanistan and India but during the period sharp decline of 40% (1HFY18) was observed Pre-Expansion Market share in the backdrop of influx of cheaper Iranian cement in Afghanistan and 19% non-tariff Industry North Punjab barriers by India making it exceptionally tough for MLCF to compete with Indian 8% 9.71% 15.72% counterparts. However, MLCF local dispatches grew by 14.8% in IH18 thereby mitigating volumes of ailing exports. The company needs to hunt for new export avenues in order to Post-Expansion Market Share maintain current profit margins, failure to do so will seriously hamper its bottom-line. Industry North Punjab 7.88% 10.18% 14.93% Dispatches vs Capacity Utilization Source: APCMA , ASDA Research 4.00 100% 95% 95% 95% 3.50 88% 90% 3.61 85% 80% 3.00 78% 3.34 3.36 3.35 77% 3.11 2.96 70% 2.50 2.74 60% 2.00 50% 3.29 1.50 3.05 40% 2.74 2.93 2.83 2.35 30% 1.00 2.18 0.56 0.61 0.60 20% 0.43 0.29 0.50 0.27 0.25 10% - 0% 2014 2015 2016 2017 2018 2019 2020

Total Dispatches (MT) Local (MT) Exports (MT) Utilization

Source: Company Accounts, ASDA Research

ASDA Research Reports are available on Thomson Reuters 5 Energy Mix is All Set to Get Efficient With clear lack of planning to counter acute power shortfall, increasing industrialization and CPP (MW) upward trend in urbanization has further worsen the energy situation within the country. As a result large scale manufacturing companies are installing captive power plants for uninterrupted power supply moreover, average cost of electricity generated through these plant is comparatively more economic as opposed to power supplied via national grid. WHR, 16 COAL, 40 GAS, 16 Maple Leaf Power (MLPL) is another addition to its already cost effective power mix, which will further lower its dependence on national grid and thus will eventually make MLCF self- FO, 24 reliant on captive power plants.

The 40 MW coal fired plant was established through 100% wholly owned subsidiary ‘Maple Leaf Power Limited’. The plant was imported from Chinese firm ‘Sinoma Energy Conservation limited’ and is build in vicinity to MLCF Iskanderabad plant over 112 Kanals of land to ensure smooth and uninterrupted supply of power to parent company via three feeders at 6.3 KV. Source: Company Accounts, ASDA Research The plant has a useful life of 25 years and the overall cost of the project is PKR 5.05Bn, financed through 40% equity and 60% debt and was completed within the estimated time frame.

As per management, approximately 150,228 ton/annum of imported coal will be used for power generation which will be supplied via trucks from port to plant location. To recall MLCF has inked a 5 year agreement with Railway authorities for timely and cost effective transportation of 360k ton per annum of coal, translating into annual after tax savings of PKR 0.47-1.1 on a per share basis. Since there is no information on this matter, therefore we have not incorporated cost savings in our model but it is highly probable that the company will review its contract with the railway authorities as the current coal supply is already in line with the production level.

The drawback of this plant is the efficiency factor which is 30.08%, well below the average range of 35%-40%. The plant has already commenced operations and we have incorporated its impact from 3QFY18. The grid below illustrates after tax impact on EPS, gross and net margins after incorporating 10% auxiliary consumption.

Power Mix Additional After Tax Impact of Coal Power Plant Year EPS (PKR) GM NP 3% 0% 2018 0.66 2% 2% 23% 22% 25% 2019 0.97 4% 3% 0% 0% 45% 2020 1.00 3% 3% 28% 33% 23% 2021 0.91 2% 2% 7% 2020 1.22 3% 3% 22% 18% 22% 23% Source: ASDA Research Power Sources & Utilization 27% 27% 27% 25% The table on the right shows ratio of captive power used against total generation capacity. As 2016 2017 2018 2019 of 2017 the company generated78% (WHR: 27%, GAS: 18 and FO: 33%) of power through own sources and remainder was fulfilled via grid. The average cost of power per KWH was WHR GAS FO COAL GRID PKR 7.9 (2017) and with the commencement of coal fired plant in the ongoing year, as per our calculation the same cost is expected to decline to PKR 7.25 (FY:18) and PKR 6.20 (FY:19) Source: Company Accounts, ASDA Research as the cost per unit is the lowest after waste heat recovery plants as evident from the graph below.

ASDA Research Reports are available on Thomson Reuters 6 Going forward we believe the company will also lower its dependence on FO based captive plant given its highest cost per unit. It is also pertinent to mention here that the company may install more WHR as the new plant becomes operational. Our base case does not include above assumption as there is no concrete information.

Power Cost Per KW (PKR) 18.00 9.00 16.00 7.84 8.04 7.90 8.00 14.00 7.25 7.08 7.00 6.65 6.63 6.50 12.00 6.18 6.00 10.00 5.00 8.00 4.00 6.00 3.00 4.00 2.00 2.00 1.00 - - 2014 2015 2016 2017 2018 2019 2020 2021 2022

WHR Gas FO Coal Grid MLCF Avg Cost

Source: ASDA Research

About the company Shareholding Pattern

The company was first established in collaboration between Directors, CEO And Their Government of Canada and Pakistan Industrial Corporation in 1956, 0% Spouses & Minor Children however later in 1992 under privatization scheme it was acquired by Saigol Group, also the owner of one the largest conglomerates 28% 0% Associated Companies, Undertakings And Related ‘Kohinoor Maple Leaf Group’. 50% Parties 0% NIT And ICP Maple Leaf Cement Factory is the fourth largest producer and the 1% single largest production site of cement situated in the upper Punjab 15% 0% region of district Mianwali. The current production capacity of MLCF is 1% Banks, Development 12,000 TPD and 500 TDP for grey and white cement respectively. 4% Financial Institutions, Non- Moreover the company also makes different variants like ordinary 0% 0% Banking Financial Institutions 1% Portland cement, sulphate resistant cement and low alkali cement. 0% Insurance Companies

ASDA Research Reports are available on Thomson Reuters 7 VALUATION We initiate our coverage with a HOLD stance on the scrip, offering an upside potential of 6.05%. MLCF is currently trading at a trailing (FY: 17) and forward P/E multiple (FY: 18) of 8.43x and 11.73x respectively. The 3 year average $EV/Ton of the stock is $120/Ton.

We have used discounted cash flow method (FCFF) in order to calculate intrinsic worth of the stock. The target price for June 2018 is valued to be PKR 77.82, offering an upside of 2.68% from last closing price and assuming 38% of dividend payout ratio in the years to come, this translates into a dividend yield of 3.37%, thereby offering a total return of 6.05%.

'Mn 2018 2019 2020 2021 2022 CFO 5,726 7,200 6,574 7,518 8,747 FCI (1,585) (2,176) (4,495) (2,211) (2,350) Int(1-t) 381 522 701 566 436

FCFF 4,522 5,546 2,780 5,874 6,833

Sensitivity Analysis of target price with respect to 6M KIBOR and growth rate KIBOR 5.0% 5.5% 6.0% 6.5% 7.0% 7.5% 8.0% 8.5% 9.0% 9.5% 2.5% 74.77 74.46 74.15 73.84 73.53 73.23 72.93 72.63 72.33 72.04 3.0% 76.91 76.57 76.24 75.91 75.59 75.26 74.94 74.62 74.31 74.00 GROWTH 3.5% 79.23 78.87 78.51 78.16 77.82 77.47 77.13 76.79 76.45 76.12 RATE 4.0% 81.75 81.37 80.99 80.61 80.24 79.87 79.50 79.14 78.78 78.42 4.5% 84.51 84.1 83.69 83.29 82.89 82.48 82.10 81.71 81.32 80.94 5.0% 87.55 87.1 86.66 86.23 85.79 85.36 84.94 84.52 84.1 83.69 5.5% 90.9 90.42 89.94 89.46 88.99 88.53 88.07 87.61 87.16 86.71 Source: ASDA Research

ASDA Research Reports are available on Thomson Reuters 8 Key Underlying Assumptions . Using Blumes to method to determine five year adjusted Beta of 1.29. . Using 10 year PIBs as a proxy for risk free rate of 8.00% . Terminal growth rate of 3.50% . Target capital structure of 14% of debt and 86% of equity. . Risk Premium of 6.80% FCFF Discounted Value 19,110.63 Terminal growth rate (Real GDP %) 3.50% Terminal Value 57,737.40 Discounted terminal value 32,630.20 Weight of debt 14.00% Weight of equity 86.00% Interest rate Kibor 6M (Target) 7.00% Spread 2.00% Loan rate 9.00% Tax rate 30.00% Cost of Equity 16.81% Risk Free rate 8.00% Risk premium 6.80% Stock Beta 1.295 WACC 15.33%

Total value 51,740.83 Debt 5,541.96 Equity Value 46,198.87 No. of shares outstanding 593.70 Target Price June-18 77.82

ASDA Research Reports are available on Thomson Reuters 9 INVESTMENTS RISKS

 Lower than anticipated demand  Price war as a result of supply glut  Unexpected rise in commodity prices  Further devaluation of PKR  Decline in infrastructural and CPEC related projects  Increase in interest rates

Coal Cost to Slump Off

Coal price is expected to slump off over the next decade over global environmental concerns and availability of cheaper and less toxic sources of power generation. Developed economies have already started shifting towards renewables and other environment friendly sources of power generation. On the contrary, as per International Energy Agency (IEA) decline in coal demand for the next 5-6 years will somewhat be compensated by emerging economies especially South Asian countries on the back of increased electricity requirement for production.

Coal Price US/Ton 120.00 100.00 80.00 60.00 40.00 20.00

-

3Q17 2Q21 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 4Q20 1Q21 3Q21 4Q21 1Q22 2Q22

Source: Bloomberg, ASDA Research

Similar to other players in the industry, MLCF too rely on captive powers for electricity and coal is the major commodity used for power generation which alone accounts for 40% of total COGS. In our view MLCF will rely more on coal based captive power going forward because the cost per KW of producing through coal is the lowest after WHR.

As per our study every 5% change in coal price will also inversely change EPS by 4%, GM by 1% and TP by 3%. Coal Price US/Ton EPS 2018 Gross Margin TP -10% 83.12 7.07 36% 82.92 -5% 87.73 6.8 35% 80.37 Base Case 92.35 6.53 34% 77.82 5% 96.97 6.26 34% 75.26 10% 101.6 5.99 33% 72.71

ASDA Research Reports are available on Thomson Reuters 10 Further Devaluation of PKR Since December’17 with growing concerns over twin deficit and depleting reserves, PKR had depreciated around 10% against the green back and due to the declining trend in exports MLCF can no longer enjoy benefit of higher revenues as a result of currency devaluation. The company recorded only 8.9% of exports for 1HFY18 as against 12.86%, 17.95% and 20.60% for FY17/16/15.

Devaluation (FY18) PKR/USD EPS (FY18E) GP NP -19% 124.72 5.64 31% 14% -14% 119.48 6.08 33% 15% Base Case -9% 114.24 6.53 34% 16% -5% 110.05 6.88 36% 17% As per our study every 5% decrease in PKR will have an inverse impact on EPS of 7.5%

Interest Rate Hike MLCF will fund its new plant through 40% debt. In this regard the company has already taken of around PKR 4bn (as of 2QFY18) of loan and going forward PKR 7bn of additional loan will be drawn for the same purpose and with rupee devaluation acting as a catalyst to bolster inflationary pressure within the economy, surge in finance cost is expected as interest rates are likely to march towards north. This can dent MLCF’s bottom-line in the years to come as major repayments of loan will begin from FY19.

To recall, the company in FY16 has made an early retirement of Sukuk worth PKR 8bn and likewise can happen given the excellent financial position of the company.

Change KIBOR 3M EPS (FY18E) EPS (FY19E) -25bps 6.00 6.55 5.89 Base Case 6.25 6.53 5.87 +25 bps 6.50 6.51 5.84 +50 bps 6.75 6.49 5.81 +100 bps 7.25 6.46 5.75 As per above sensitivity every 25 bps increase/decrease in interest rate will alter EPS by PKR 0.02.

ASDA Research Reports are available on Thomson Reuters 11 ASSUMPTIONS 2012A 2013A 2014A 2015A 2016A 2017A 2018E 2019E 2020E 2021E 2022E PKR/USD 89.34 96.82 103 101.43 104.34 104.81 114.24 117.67 118.85 119.44 120.04 KIBOR 3 Months 11.11% 9.88% 9.48% 8.99% 6.51% 6.08% 6.25% 6.50% 6.75% 7.00% 7.25% Coal Prices USD/Ton 105.66 84.83 77.31 64.15 53.19 74.78 92.35 88.29 82.78 80.2 78.12 MLCF Capacity wise market share 7.90% 7.90% 7.90% 7.73% 7.73% 7.61% 7.20% 6.44% 7.25% 8.45% 8.21% MLCF Dispatches wise market share 8.15% 8.04% 8.00% 8.36% 8.73% 8.34% 8.00% 7.15% 8.01% 9.34% 9.07%

KEY RATIOS 2012A 2013A 2014A 2015A 2016A 2017A 2018E 2019E 2020E 2021E 2022E Gross Margin 26% 35% 34% 36% 43% 40% 34% 36% 36% 35% 36% PAT Margin 3% 19% 15% 17% 21% 20% 16% 16% 16% 16% 17% Tax Burden 112% 102% 79% 77% 69% 70% 70% 70% 70% 70% 70% ROA - 2% 10% 9% 11% 14% 11% 7% 6% 7% 9% ROE - 9% 39% 25% 23% 27% 21% 14% 12% 13% 14% EBITDA ('mn) 4,438 6,515 6,746 7,356 9,371 9,087 7,807 7,726 9,203 11,388 11,714 BVPS 17.28 22.40 27.74 33.47 40.43 44.88 53.13 54.56 58.80 64.09 69.68 Earnings Yield 18% 28% 18% 8% 9% 8% 10% 9% 10% 12% 13% Debt to Equity 78% 64% 48% 27% 9% 16% 18% 27% 20% 13% 8% Debt to Avg Assets - 37% 28% 15% 5% 10% 13% 21% 14% 9% 5% Liabilities/Avg Assets - 63% 54% 43% 34% 43% 40% 41% 37% 33% 28% Financial leverage 8.55 4.78 3.27 2.42 1.91 2.00 1.84 1.88 1.80 1.68 1.54 Times interest earned 1.19 2.86 3.45 5.16 17.34 22.58 10.74 7.67 6.79 9.96 13.25

ASDA Research Reports are available on Thomson Reuters 12 INCOME STATEMENT (PKR 'mn) 2012A 2013A 2014A 2015A 2016A 2017A 2018E 2019E 2020E 2021E 2022E Net Sales 15,461 17,357 18,969 20,720 23,433 23,992 23,711 22,139 25,894 31,559 32,083 Cost of Sales 11,447 11,312 12,446 13,224 13,411 14,510 15,537 14,163 16,485 20,371 20,563 Gross Profit 4,015 6,045 6,523 7,496 10,022 9,482 8,175 7,977 9,409 11,188 11,520 Dist Expense 846 798 1,054 1,314 1,360 1,275 1,374 1,316 1,529 1,846 1,906 Admin Expense 258 254 297 381 486 621 549 565 642 753 807 Other Charges 150 167 197 263 660 536 474 443 518 631 642 Other Income 34 41 81 46 36 139 73 68 79 97 98 Finance Cost 2,351 1,705 1,465 1,083 436 318 544 745 1,001 809 623 PBT 444 3,163 3,591 4,501 7,118 6,870 5,306 4,975 5,798 7,246 7,640 Tax (52) (62) 760 1,047 2,233 2,093 1,592 1,492 1,739 2,174 2,292 PAT 392 3,101 2,831 3,454 4,885 4,777 3,714 3,482 4,059 5,072 5,348 EPS 0.94 6.11 5.36 6.55 9.26 9.05 6.53 5.87 6.84 8.54 9.01

BALANCE SHEET (PKR 'mn) 2012A 2013A 2014A 2015A 2016A 2017A 2018E 2019E 2020E 2021E 2022E Auhtorized share capital 7,000 7,000 7,000 7,000 7,000 7,000 7,000 7,000 7,000 7,000 7,000 Issued 5,806 5,277 5,277 5,277 5,277 5,277 5,937 5,937 5,937 5,937 5,937 Reserves 3,298 2,058 2,058 2,058 2,058 2,058 5,640 5,640 5,640 5,640 5,640 Accumulated loss/profit (5,275) (565) 2,414 5,576 9,414 12,049 14,351 16,510 19,027 22,172 25,487 Total Equity 3,829 6,771 9,750 12,912 16,750 19,384 25,929 28,088 30,604 33,749 37,065

Long term loans 2,157 1,591 479 38 927 2,890 3,800 7,731 5,214 3,023 1,261 Total non-Current Liabilities 12,996 11,982 10,138 5,414 5,657 7,345 8,064 11,883 9,365 7,167 5,405

Trade and other payables 3,727 3,026 3,306 3,164 3,194 3,680 3,928 3,581 4,168 5,150 5,199 Short term borrowings 3,249 3,278 2,619 2,556 1,425 3,138 3,289 1,859 3,541 3,476 2,817 Total Current liabilities 10,604 8,569 7,133 8,144 5,027 7,764 9,470 8,632 10,737 11,328 10,289 Total Equity and Liabilities 32,728 32,373 31,911 31,221 32,022 38,817 47,787 52,926 55,030 56,567 57,082

Property, plant and equipment 26,774 25,630 24,706 23,721 22,822 23,648 30,676 37,723 39,692 38,450 37,220 Long term investment 3 2 2 660 4,670 5,020 4,769 4,531 4,304 4,089 Total Non-Current Assets 26,842 25,690 24,766 23,782 23,544 28,405 35,777 42,574 44,305 42,836 41,391

Stores, spare parts 3,102 3,751 3,773 4,196 5,384 6,751 7,228 6,589 6,224 7,691 7,763 Stock-in-trade 903 939 1,151 1,207 873 1,301 832 758 882 1,090 1,101 Trade debts 576 758 839 571 577 683 813 171 888 1,082 1,100 Total Current Assets 5,886 6,683 7,145 7,439 8,478 10,412 12,009 10,353 10,725 13,731 15,691 Total Assets 32,728 32,373 31,911 31,221 32,022 38,817 47,787 52,927 55,030 56,567 57,082

ASDA Research Reports are available on Thomson Reuters 13 Analyst Certification ASDA Research, primarily involved in the preparation of this report, certifies that (1) the views expressed in this report accurately reflect the researcher’s personal views about the subject company/stock /sector and (2) no part of researcher’s compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.

Research Dissemination Policy ASDA Research endeavours 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.

Valuation Methodology To arrive at our 12-months Target Price, ASDA Research uses multiple valuation methods which include: 1) DCF methodology (DCF, DDM) 2) Relative valuation methodology (P/E/, P/B, P/S etc.) 3) Equity & Asset-based valuation methodology (EVA, Residual Income etc.)

Rating Expected Total Return Buy Greater than 15% Hold Neither Buy nor Sell Sell Less than and equal to -5%

Ratings are updated to account for any development impacting the economy/sector/company, changes in analysts’ assumptions or a combination of these factors.

Disclaimer This report has been prepared by Research Department of ASDA Securities (Pvt.) Limited and is provided for information purposes only. Under no circumstances, should this be used or considered as an offer to sell or solicitation of any offer to buy. While reasonable care has been taken to ensure that the information contained herein is not untrue or misleading at the time of publication, we make no representation as to its accuracy or completeness and it should not be relied upon as such. This report is provided only for the information of professional advisers who are expected to make their own investment decisions without undue reliance on this report. Investments in capital markets are subject to market risk and ASDA Research accepts no responsibility whatsoever for any direct or indirect consequential loss arising from any use of this report or its contents. In particular, the report takes no account of the investment objectives, financial situation and particular needs of investors, who should seek further professional advice or rely upon their own judgment and acumen before making any investment. The views expressed in this report are of the Research Department and do not necessarily reflect those of the company or its directors. All rights reserved by ASDA Securities (Private) Limited. This report or any portion hereof may not be reproduced, distributed or published by any person for any purpose whatsoever. Nor can it be sent to a third party without prior consent of ASDA Research. Action could be taken for unauthorized reproduction, distribution or publication.

Furthermore, in accordance with clause 8(2) sub- clause (i) of RAR 2015, we currently do not have any financial interest associated in the subject security aggregating more than 1% of the value of the company.

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