Pakistan Market: 2007-2008

Equity Research / Pakistan January 2008

AKD Research's take on the Numbers AKD Research Team [email protected] 2008 has begun with clouds of political uncertainty hanging on the Pakistan stock market. With the political risk premium having risen after the ghastly

Priced on January 04, 2008 assassination of Benazir Bhutto the shocked nation is groping for hope. Announcement of election date as February 18, 2008 and a mature stance by KSE-100 Index PPP's new leadership as well as PML(N) to participate in the elections have 14,259.60 provided investors a degree of comfort regarding the transition to a democratically KSE Market Cap elected government. Yet, investors remain cautious keeping in mind that there's PkR4,352.89bn (US$69,982mn) "many a slip betwixt the cup and the lips".

KSE-100 Mkt Cap as % of Total Mkt Cap. The Central Bank’s latest quarterly review (for quarter ended Sep 2007) indicates that 86% political uncertainty has created a drag on the economy and this was before BB's assassination and consequent law & order crisis. While the law & order situation has 1 Year KSE-100 High/Low been brought under control, investors will be keeping a wary eye on the political scene 14,814/10,040 leading up to the election in six week's time. As such, 1QCY2008 is expected to witness high market volatility driven by news flow from the political front. That said, 12m KSE-100 Avg. Traded Value our oft repeated point regarding stronger market resilience than in the past was again PkR26,268mn (US$406.25mn) demonstrated last week when the KSE-100 Index staged a smart recovery in the KSE-30 Mkt Cap. as % of Total Mkt Cap. second half of the week and closed 4% down from its most recent peak. In the first 17% half of the week the Index had been down 10% from its peak.

YTD KSE-30 High/Low By most valuation measures the Pakistan market is arguably the cheapest in the 18,083/11,301 Asian (ex Japan) region. The question investors have to address is whether the Pakistan market could be a value trap in 2008 if longer term political risk premium AKD Universe has significantly increased? That risk cannot be discounted at this point. However, 71% of KSE-100 Market Cap. we need to keep in mind that much more is at stake in Pakistan than merely the stock market. The geo-political dynamic of this region has meant that what happens in

AKD Universe - Valuation Multiples Pakistan is not simply a domestic issue. It has significant regional and global implications. FY07A/F FY08F FY09F That is why we believe the powers that be - both internal and external, are likely to EPS (%) 0.66 20.44 11.23 PER (x) 12.7 10.5 9.5 leave no stone unturned to focus on: (i) medium term socio-political stability; (ii) a P/BVS (x) 3.08 2.64 2.29 new concerted and sustained campaign against terrorism & extremism post the Dividend Yield (%) 4.4 4.9 5.5 elections; (iii) ensuring sufficient economic growth to keep the domestic political ROE (%) 24.25 25.02 24.1 constituencies aligned to the first two objectives. In the above context, we believe that less risk averse investors will likely find significant potential for outperformance in Index KSE-100 Index Shares (mn) Pakistan in 2008. 15,000 600 In this report we have focused primarily on numbers. Both fundamental sector 13,900 500 400 and company performance in 2007 and forecasts for 2008 are provided, as well 12,800 300 as market and valuation data. We believe that this comprehensive databank of 11,700 200 AKD covered universe should prove useful for investors as they mull over their 10,600 100 near term and longer term investment exposure to Pakistan. . 9,500 - Dec-06 Apr-07 Jun-07 Sep-07 Jan-08

Volume(mn) KSE-100 Index Readers are recommended to also keep in mind risk factors (please see page 63) when investing in equities.

Copyright©2007 AKD Securities Limited. All rights reserved. The information provided on this document is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would AKD SECURITIES Find AKD res earch on Bloomberg be contrary to law or regulation or which would subject AKD Securities or its affiliates to any registration requirement (A KDS), firs tcall.c om within such jurisdiction or country. Neither the information, nor any opinion contained in this document constitutes a Member: Karac hi Stock Ex c hange and Reuters Knowledge solicitation or offer by AKD Securities or its affiliates to buy or sell any securities or provide any investment advice or service. AKD Securities does not warrant the accuracy of the information provided herein.

w w w . ak d s ec u rit ies . n et AKD Securities Limited Pakistan Market: 2007 - 2008 January 2008

Please see important disclosures and disclaimers on the last page of this report.

AKD Research Team Analyst Tel no. E-mail Coverage Faiza Naeem (9221) 111 253 111 [email protected] Telecom, Fertilizer, Autos & Paper & Board Naveed Vakil (9221) 111 253 111 [email protected] E&P, Oil & Gas Marketing Umer Pervez (9221) 111 253 111 [email protected] Power, Insurance, Chemical & Textiles Raza Jafri (9221) 111 253 111 [email protected] Commercial Banks Furqan Ayub (9221) 111 253 111 [email protected] Cement Qasim Anwar (9221) 111 253 111 [email protected] Technical Analyst Rizwan Ahmed (9221) 586 9314 [email protected] Research Operations Abdul Wadood (9221) 111 253 111 [email protected] Research Production Hassan Quadri (9221) 111 253 111 [email protected] Research Production

02 AKD Securities Limited Pakistan Market: 2007 - 2008 January 2008

AKD Universe: Growth vs Value Ranking

PER (x) P/BVS (x) Div Yield PB/ROE PEG Ratio Symbol 2009F Symbol 2008F Symbol 2008F Symbol 2008F Symbol 2009 GADT 4.2 GADT 0.50 FFC 11% HCAR 2.1 MLCF 0.0 FCCL 5.7 NML 0.52 AGTL 10% NESTLE 2.6 CHCC 0.1 ACPL 6.0 DGKC 0.68 MLCF 10% PKGS 4.8 SHEL 0.2 PSMC 6.4 MLCF 0.81 KAPCO 10% ENGRO 5.2 GADT 0.3 PIOC 6.4 HUBC 1.25 FFBL 10% ULEVER 5.9 FCCL 0.3 MTL 6.4 FCCL 1.32 HUBC 9% AICL 6.3 ACPL 0.3 MLCF 6.9 CHCC 1.52 PIOC 8% MCB 6.7 PICT 0.3 AGTL 7.0 PSMC 1.53 OGDC 8% DGKC 7.2 HBL 0.4 CHCC 7.0 MTL 1.64 PTC 7% PTC 7.7 BAFL 0.4 INDU 7.1 PIOC 1.78 MTL 6% ICI 8.0 UBL 0.5 AKBL 7.6 ACPL 1.85 ULEVER 6% PICT 8.1 PSMC 0.5 NML 7.8 LUCK 1.93 INDU 6% HUBC 8.3 DGKC 0.6 BAFL 7.9 PTC 1.94 ACPL 6% LUCK 8.5 FFBL 0.6 PPL 8.4 SNGP 1.98 SNGP 5% SHEL 8.5 PPL 0.6 HBL 8.4 AKBL 2.01 PSO 5% UBL 8.6 SNGP 0.6 KAPCO 8.6 HCAR 2.09 SHEL 5% THALL 9.3 OGDC 0.6 OGDC 8.6 BAFL 2.10 PPL 5% SNGP 9.4 AGTL 0.7 LUCK 9.0 SHEL 2.15 ICI 4% BAFL 9.9 INDU 0.7 PICT 9.2 ICI 2.18 GADT 4% MLCF 10.0 LUCK 0.7 FFC 9.3 KAPCO 2.28 BAFL 4% PSO 10.1 AKBL 0.7 DGKC 9.6 THALL 2.37 THALL 4% OGDC 10.1 NML 0.8 SNGP 9.8 INDU 2.42 UBL 3% FFBL 10.3 ICI 0.9 THALL 10.0 PKGS 2.61 FCCL 3% HBL 10.3 PSO 0.9 UBL 10.5 ENGRO 2.63 PICT 3% NML 10.4 NESTLE 1.1 FFBL 10.7 AGTL 2.70 NML 3% PPL 10.5 HUBC 1.1 SHEL 10.7 HBL 2.79 CHCC 2% AKBL 10.8 THALL 1.2 HUBC 11.2 PICT 2.82 PKGS 2% CHCC 10.9 MCB 1.2 ICI 11.4 PSO 3.18 MCB 2% FFC 11.1 ULEVER 1.3 PSO 12.3 UBL 3.41 NESTLE 2% KAPCO 11.3 FFC 1.4 PTC 12.8 PPL 3.65 DGKC 2% PIOC 12.3 PKGS 1.5 MCB 13.6 AICL 3.94 AKBL 2% PSMC 12.8 MTL 1.5 AICL 14.0 FFBL 4.09 ENGRO 2% INDU 12.8 PTC 3.9 ULEVER 14.4 FFC 4.23 HBL 2% AGTL 13.3 KAPCO 5.6 PKGS 18.0 OGDC 4.49 AICL 1% ACPL 13.8 ENGRO 6.8 ENGRO 18.1 MCB 5.05 LUCK 1% MTL 14.7 AICL n.m NESTLE 27.0 ULEVER 15.23 HCAR 0% FCCL 15.0 PIOC n.m HCAR 29.2 NESTLE 20.62 PSMC 0% GADT 20.4 HCAR n.m Priced on January 04, 2008 Source: AKD Research

03 AKD Securities Limited January 2008 Pakistan Market: 2007 - 2008

The Political Backdrop of KSE-100 in 2007

16,000 Assassination of PPP Chairperson - Banazir Bhutto

Emergency lifted, PM states that Constitution restored constitutional 15,000 provisions do not bar Singtel deal with BB arrives in Pakistan and the imposition of Warid in the holds procession which is emergency making PML-Q Pres. stated met with a suicide bombing that govt. is considering on her convoy Rumors over SBP regulations on banking options including provisions emergency Riots disrupt Karachi amid clashes on arrival State of Emergency 14,000 of the CJ President wins SECP not to take punitive declared New Election action against brokers for election and NRO finalized date announced the Mar05 stock market BB announces her Anticipation of meltdown Temasek Group return to Pakistan Emergency lifting buyout of PICIC BAFL 13,000 announces Gen. Kiyani Gen. Musharraf steps down from COAS ABN Amro - Prime Presidential decision to sell SC declares reference appointed as deal news flow Reference against portion of Warid against the CJ as illegal VCOAS Nawas Sharif returns to Pakistan the Chief Justice stake and restores him to his post Former PM Nawaz Elections are SECP and KSE agree on Sharif is sent back into announced bonus and rights with exile execution of CLN system 12,000 Progress reported in talks between the Lal Masjid crisis reaches peak Rumors about the government and PPP and ends with military operation. imposition of Clamp down on political S&P lowers outlook on emergency activists. Commonwealth Rumors of an Pakistan’s credit rating gives ten day deadline to extension in restore constitution capital gains 11,000 tax Rumours on CLN and liquidity issues on CFS financing for bonus shares

Moody's upgrades Pakistan Outlook Corporate results Corporate results Corporate results Corporate results 10,000

04 AKD Securities Limited Pakistan Market: 2007 - 2008 January 2008

Contents

Regional Index Performance ...... 06 Regional PER/EPS ...... 07 Sectoral Performance Dec 29, 2006 to Jan 04, 2008 (All Shares) ...... 08 Changing Sector Weightage ...... 09 Top 20 (KSE-100) Price Performances & Top 20 (All Share) Volume Leaders...... 10 Market - PER & PB Band (FY08F)...... 11 AKD Universe Valuation & Fundamental Ratios ...... 12 KSE-100 Index - Technical Outlook ...... 13 AKD Universe - PER versus EPS Growth (2008) & PB versus ROE (2008) ...... 14 Sectoral 12 Month Fundamental Outlook ...... 15 Economic Snapshot...... 16 Non-Banking Companies with year-end June Results ...... 17 Companies with year-end December Results ...... 18 AKD Universe Sector - Valuation Data...... 19 AKD Universe Companies - Price Performance ...... 20 AKD Universe Companies - Valuation Data...... 21 AKD Universe Companies - Valuation Data...... 22

Sectors Commercial Banks...... 24 Oil & Gas Exploration Cos...... 25 Fertilizer ...... 26 Telecom Sector ...... 27 Insurance ...... 28 FMCGs...... 29 OMCs...... 30 Cement ...... 31 Power Generation ...... 32 Autos...... 33 Gas T&D ...... 34 Chemicals ...... 35 Textiles ...... 36 Transport...... 37 Paper & Board ...... 38 Agri Autos...... 39

Top Picks for 2008 Bank Al-Falah Limited ...... 41 D.G. Khan Cement...... 44 Engro Chemical Limited ...... 46 ...... 48 ...... 50 ...... 53 ...... 55 Nishat Mills...... 57 Oil & Gas Development Co. Ltd ...... 59 ...... 61

Risk Factors...... 63

Company Technicals ...... 64

05 AKD Securities Limited Pakistan Market: 2007 - 2008 January 2008

Regional Markets’ Performance

2002-2007 2003 2004 2005 2006 2007 2008 Return YTD* Indonesia (JKSE) 546% 63% 45% 16% 55% 52% 0.7% India (SENSEX) 501% 73% 13% 42% 47% 47% 2.0% Pakistan (KSE-100) 421% 66% 39% 54% 5% 40% 1.3% Vietnam Index (VNINDEX) 406% -9% 43% 29% 143% 23% -2.6% Philippines (PSEi) 255% 42% 26% 15% 42% 21% -3.8% Sri Lanka (CSEALL) 214% 30% 42% 28% 42% -6% -2.1% Thailand (SET) 136% 110% -13% 7% -5% 26% -4.2% Malaysia (KLSE) 124% 23% 14% -1% 22% 32% 1.5% JAPAN 78% 24% 8% 40% 7% -11% -4.0% S&P 500 (U.S) 67% 26% 9% 3% 14% 4% -3.9% FTSE (U.K) 64% 14% 8% 17% 11% 4% -1.7% *From Dec 31, 2007 to Jan 04, 2008 Source: Datastream

Regional Valuations

PER EPS Growth PBV ROE (%) DY (%) 2008 2009 2008 2009 2008 2008 2008 Pakistan 10.55 9.48 20.44 11.23 2.6 25.0 4.9 Thailand 10.90 10.20 18.10 7.30 1.9 17.3 3.9 Singapore 14.80 12.90 3.90 14.70 2.1 14.1 3.5 Malaysia 16.00 14.40 7.20 11.90 2.4 14.7 3.7 Indonesia 16.10 13.90 11.90 16.00 4.3 26.8 2.7 China 19.00 16.20 21.90 17.20 3.4 18.0 1.9 Hong Kong 20.90 17.90 (8.30) 16.60 2.2 10.3 2.6 India 22.20 17.80 21.10 23.50 4.1 18.6 1.0 Priced on Dec 31, 2007 except Pakistan which is on Jan 04, 2008 Source: Datastream & AKD Research

06 AKD Securities Limited Pakistan Market: 2007 - 2008 January 2008

Regional PER/EPS

PER08 24.00 India 22.00 20.00 18.00 Malaysia Indonesia Philippines 16.00 14.00 12.00 Thailand 10.00 8.00 Pakistan 6.00 6.00 8.00 10.00 12.00 14.00 16.00 18.00 20.00 22.00 EPS Growth08

Source: Datastream

Regional P/B and ROE

PBV2008 5.00

Indonesia India 4.00

3.00 Malaysia Pakistan

2.00 Philippines Thailand

1.00 14.00 16.00 18.00 20.00 22.00 24.00 26.00 28.00 ROE 2008

Source: Datastream

07 AKD Securities Limited Pakistan Market: 2007 - 2008 January 2008

Sectoral Performance Dec 29, 2006 to Jan 04, 2008 (All Share)

Leather (5) 312%

Woolen (5) 197% Insurance (38) 150%

Investment Banks (26) 138%

Jute (6) 125%

Engineering (14) 98%

Refining (4) 97%

Paper & Board (10) 83%

Food & Allied (22) 70%

Banking (25) 70%

Chemicals (24) 67%

Tobacco (3) 63%

Auto Parts (12) 58%

Cable & Elect, (9) 57%

Textile Composite (59) 50%

All Share Index 49%

Cement (21) 47%

Pharmaceuticals (8) 47%

Auto Assembler (12) 45%

Transport (6) 45%

Kse-100 Index 42%

Fertilizer (4) 41%

Miscellaneous (28) 38%

Vanaspati (12) 28%

Glass & Ceramics (10) 27%

Oil & Gas Marketing (6) 26%

Synthetic (19) 22%

Power G&D (13) 21%

Modarabas (35) 15%

Textile Spinning (108) 13%

Oil & Gas Exploration (4) 8%

Sugar & Allied (37) 7%

Closed-&-Mutual Funds (24) 5%

Telco & Tech. (9) 1%

-17% Leasing (19)

-31% Textile Weaving (18)

-50% 0% 50% 100% 150% 200% 250% 300% 350%

*New companies listed in 2007 are not included in the performance which are BPGF, POAF, ARM, AHL, JSIL, PASL, HBL, SCBPL, HIRAT, FLYNG, DSL, SPL & PACE. ( ) Numbers in parenthesis indicate number of companies listed in the sector. Source: AKD Research

08 AKD Securities Limited Pakistan Market: 2007 - 2008 January 2008

Changing Sector Weightage

SECTOR NAME Dec-07 Dec-06 Dec-05 Dec-04 Dec-03 COMMERCIAL BANKS* 33.32 25.06 15.97 9.79 9.30 OIL & GAS EXPLORATION COMPANIES 21.03 29.24 30.50 25.73 3.97 FERTILIZER 4.96 5.30 6.27 7.45 7.67 OIL & GAS MARKETING COMPANIES 4.72 5.62 6.75 8.20 12.12 TELECOM & TECHNOLOGY 4.54 6.85 10.54 12.15 22.13 INSURANCE 4.00 1.93 1.05 1.15 1.62 INVESTMENT BANKS/COS./SECURITIES 3.95 2.14 1.83 2.24 1.01 FOOD & PERSONAL CARE-PRUDUCTS 3.89 3.31 2.78 3.64 5.41 CEMENT 3.19 3.18 4.32 3.95 3.88 POWER GENERATION & DISTRIBUTION 2.65 3.47 3.96 4.26 7.93 AUTOMOBILE ASSEMBLER 2.10 2.49 2.14 2.55 3.69 TOBACCO 1.78 1.65 1.47 2.24 1.58 REFINING 1.70 1.30 2.08 2.24 1.76 PHARMACEUTICALS 1.45 1.47 1.51 2.08 2.39 CHEMICALS 1.35 1.39 1.81 3.14 4.80 TRANSPORT 0.87 0.91 1.41 1.68 1.60 TEXTILE COMPOSITE 0.81 0.80 1.55 1.53 1.24 PAPER & BOARD 0.71 0.59 0.83 1.11 1.49 SYNTHETIC & RAYON 0.57 0.76 0.93 1.96 2.54 CABLE & ELECTRICAL GOODS 0.55 0.34 0.29 0.33 0.37 MISCELLANEOUS 0.49 0.68 0.40 0.56 1.24 ENGINEERING 0.29 0.25 0.29 0.41 0.17 JUTE 0.23 0.16 0.11 0.11 0.17 CLOSED-END-MUTUAL FUNDS 0.22 0.49 0.62 0.48 0.71 GLASS & CERAMICS 0.18 0.22 0.09 0.16 0.11 LEATHER & TANNERIES 0.10 0.04 0.03 0.04 0.04 AUTOMOBILE PARTS & ACCESSORIES 0.07 0.06 0.09 0.18 0.29 TEXTILE SPINNING 0.07 0.06 0.08 0.15 0.10 SUGAR & ALLIED INDUSTRIES 0.07 0.09 0.09 0.12 0.10 LEASING COMPANIES 0.05 0.07 0.09 0.14 0.24 MODARABAS 0.02 0.05 0.04 0.08 0.17 TEXTILE WEAVING 0.02 0.04 0.06 0.11 0.11 WOOLEN 0.01 0.01 0.01 0.01 0.04 VANASPATI & ALLIED INDUSTRIES 0.01 0.01 0.01 0.01 0.01 Total 100.00 100.00 100.00 100.00 100.00 * excluding Standard Chartered Bank Pakistan Ltd., banking sector weight in Dec 07 would be approx. 29% Source: AKD Research

09 AKD Securities Limited Pakistan Market: 2007 - 2008 January 2008

Top 20 (KSE-100) Price Performance

S.# Company Symbol 1Year Chg. 3M Chg. 1 Jahangir Siddiqui & Company JSCL 1,231% 126% 2 Bata (Pakistan) BATA 292% 28% 3 Pakistan Reinsurance PAKRI 288% -2% 4 Attock Refinery ATRL 278% 21% 5 EFU General Insurance EFUG 254% 45% 6 Thal Limited THALL 197% 22% 7 New Jubilee Insurance NJICL 197% 10% 8 Rafhan Maize Products RMPL 161% 27% 9 P.N.S.C. PNSC 145% 5% 10 Arif Habib Securities AHSL 138% 23% 11 Mari Gas MARI 124% 8% 12 Adamjee Insurance AICL 118% -10% 13 Bannu Woollen BNWM 116% 33% 14 Azgard Nine Limited ANL 110% 10% 15 Lucky Cement LUCK 105% -14% 16 Pakistan Tobacco PAKT 102% -4% 17 MEBL 98% 8% 18 Attock petroleum APL 82% 19% 19 ATLH 82% 42% 20 Packages Ltd PKGS 80% 0% Source: KSE & AKD Research

Top 20 (All Share) Volume Leaders

S.# Company Symbol 1Yr Avg Daily % of Total 1Yr Avg Value (US$mn) Market AD Value Volume (mn) 1 National Bank of Pakistan NBP 40.98 10.1% 10.24 2 Oil & Gas Development Co. Ltd. OGDC 33.32 8.2% 16.76 3 Limited PPL 29.41 7.2% 7.49 4 Pak Oilfields POL 26.67 6.5% 4.85 5 MCB Bank MCB 22.81 5.6% 4.58 6 Lucky Cement LUCK 20.65 5.1% 11.47 7 DG Khan Cement DGKC 18.79 4.6% 11.47 8 Arif Habib Securities AHSL 17.93 4.4% 7.42 9 BOP 16.19 4.0% 10.66 10 Engro Chemical ENGRO 15.78 3.9% 4.09 11 Pakistan State Oil PSO 13.71 3.4% 2.24 12 Adamjee Insurance AICL 12.65 3.1% 2.68 13 Limited AKBL 10.28 2.5% 6.69 14 Habib Bank Limited HBL 9.78 2.4% 2.19 15 J.O.V. & Company Ltd. JOVC 9.24 2.3% 4.40 16 Attock Refinery ATRL 8.24 2.0% 2.60 17 Nishat Mills NML 8.19 2.0% 4.28 18 Bank Al-Falah BAFL 7.67 1.9% 9.19 19 Fauji Fertilizer Bin Qasim FFBL 7.02 1.7% 11.10 20 (A) PTC 6.65 1.6% 7.69 Source: KSE & AKD Research

10 AKD Securities Limited Pakistan Market: 2007 - 2008 January 2008

AKD Universe - PER Band (FY08F)

(x)

11.5

10.0

8.5

7.0

Jul-03 May-04 Apr-05 Mar-06 Feb-07 Jan-08

*AKD Universe comprises 71% of KSE-100 Index capitalization Source: KSE & AKD Research

AKD Universe - PB Band (FY08F)

(x)

3.0

2.5

2.0

1.5

Jul-03 May-04 Apr-05 Mar-06 Feb-07 Jan-08

Source: KSE & AKD Research

11 AKD Securities Limited Pakistan Market: 2007 - 2008 January 2008

AKD Universe Valuation

January 04, 2008 FY05A FY06A FY07A/F FY08F FY09F EPS (PkR) 7.59 9.24 9.30 11.20 12.46 EPS Chg (%) 34.29 21.69 0.66 20.44 11.23 Price to Earnings (x) 15.56 12.79 12.70 10.55 9.48 Price to Book (x) 4.24 3.52 3.08 2.64 2.29 Price to CF (x) 11.92 12.55 11.87 10.01 8.54 Earnings Yield (%) 6.43 7.82 7.87 9.48 10.55 Dividend Yield (%) 3.7 4.7 4.4 4.9 5.5 Payout (%) 57.80 59.78 55.65 52.04 52.22 EV / EBITDA (x) 7.64 6.59 6.91 5.87 5.41 FCFE Yield (%) 4.8% 4.3% 5.9% 7.3% 9.5% Price to Sales (x) 2.48 1.92 1.72 1.49 1.37 Book Value per Share (PkR) 27.86 33.52 38.34 44.75 51.69 Return on Equity (%) 27.24 27.56 24.25 25.02 24.10 Return on Assets (%) 5.40 5.67 5.11 5.51 5.63 Chg in Sales (%) 29.69 29.49 11.46 15.39 9.16 Gross Margin (%) 34.63 32.75 30.57 31.41 31.44 Operating Margin (%) 22.90 21.90 19.68 21.22 21.53 Net Margin (%) 15.95 14.99 13.54 14.13 14.40

AKD Fundamental Ratios (%)

Non-Financial Sector 2005A 2006A 2007A/E 2008F 2009F Sales Growth 24% 27% 9% 16% 10% Gross Margin 25% 23% 20% 21% 21% Operating Margin 19% 18% 15% 16% 16% Net Margin 14% 12% 11% 11% 11% LT Debt / Equity 19% 19% 21% 20% 18% CA/CL (x) 1.98 1.81 1.97 1.98 0.27 Growth in Operating CF 20% -5% 6% 19% 17% ROE 29% 29% 24% 25% 25%

Banking Sector 2005A 2006A 2007E 2008F 2009F Asset Growth 17% 15% 13% 10% 9% Deposits Growth 15% 11% 14% 9% 7% Loan Growth 31% 17% 7% 13% 11% Net Int Inc. Growth 76% 32% 11% 13% 11% Fee Inc. Growth 14% 27% 12% 16% 13% Net Int Inc./Total Income 80% 80% 84% 79% 79% L/D Ratio 67% 71% 66% 69% 71% ROA 2.0% 2.5% 2.3% 2.6% 2.7% Source: AKD Research

12 AKD Securities Limited January 2008 Pakistan Market: 2007 - 2008

Pakistan KSE-100 Index Stock Market Closing Index: 14,259.60

Qasim Anwar Major Support § During the year 2007, KSE 100-index posted a whooping gain of 40.2% or Technical13,146~13,350 Analyst levels 4,035 points to settle at 14,075 levels from 10,040 levels on year ended

Qasim.anwarShort Term [email protected] December 29, 2006. Looking at the Index’s movement over the last three years, the series of successively higher peaks and troughs along with the 14,480~17,580 levels rising OBV (On Balance Volume) suggests that the primary bullish trend is Intermediate Target intact, despite high volatility witnessed in recent months. 16,280~16,400 levels Long Term Target § The rising long-term channel on weekly chart is leading towards our 15,300~15,500 levels December 2008 objective of 17,480~17,574 levels – anticipated around 123.6% Fibonacci Projection (9,696-14,290). Recent movements suggest Moving Averages that a breakout above the formidable resistance around 14,200~14,290 004-Week 14,561.76 levels would push the index to hit its short-term target of 15,300~15,500 006-Week 14,453.24 levels (76.4% Fibonacci Projection (9,696-14,290). Once these levels are 020-Week 13,727.41 achieved, a smoother rally could be constructed toward the Index’s 030-Week 13,659.87 intermediate target of 16,280~16,400 levels around 100% Fibonacci 100-Week 11,825.12 Projection (9,696-14,290), which if also breached (on weekly closing basis) DEMAND / SUPPORT LEVEL then our 2008 objective will be on cards.

S1 13,146~13,350 S2 12,800~12,950 § On the down side, two major supports exist between 13,399~13,550 levels S3 12,076~12,337 and 12,800~12,881 levels if market takes any near-term dip.

SUPPLY / RESISTANCE LEVEL § INVESTMENT PERSPECTIVE: Take selective positions in fundamentally R1 14,200~14,290 strong scrips at weekly close above 14,290 levels for the KSE-100 Index. R2 14,908 Short-term trading oriented investors are suggested to cut positions if Index R3 15,320 slips below 14,100~14,200 levels (on weekly closing basis). For investors R4 16,415~16,500 with 3-month horizon strategy of buy on dips up to 13,548 levels should yield R5 16,930~17,000 positive results. R6 17,480~17,580

13 AKD Securities Limited Pakistan Market: 2007 - 2008 January 2008

AKD Universe - PER versus EPS Growth (2008)

20.8 PKGS PER (x) EPS Growth HCAR 48.5 -159% ENGRO 18.7 AICL 16.0 -46% CHCC 9.2 131% 16.6 ULEVER SHEL 11.7 176% SSGC 10.2 509% MCB NESTLE 38.0 31% 14.5 DGKC PTC ABL ICI 12.4 HUBC LUCK BAFL PICT THALL UBL AKD Universe SNGP 10.3 NML OGDC AKBL PPL HBL FFBL PSO KAPCO FFC 8.2 INDU NBP PSMC AGTL ACPL FCCL POL 6.1 MTL GADT 4.0 4% 11% 18% 25% 33% 40% 47% 54% EPS Growth 2008F Priced on January 04, 2008 Source: AKD Research

AKD Universe - PB versus ROE (2008)

5.0 MCB 4.7 OGDC 4.3 FFC 4.0 AICL FFBL 3.6 UBL PPL 3.2 PSO ABL 2.9 HBL POL ENGRO PICT AKD Universe AGTL 2.5 PKGS THALL INDU SHEL KAPCO 2.2 ICI BAFL HCAR PTC AKBL NBP SNGP 1.8 LUCK PIOC ACPL SSGC PSMC MTL 1.4 CHCC P/BVS (x) ROE HUBC 1.1 FCCL ULEVER 15.23 91% NESTLE 20.62 54% 0.7 DGKC MLCF NML GADT 0.4 4% 7% 11% 14% 17% 21% 24% 27% 30% 34% 37% 40% 44% 47% Return on Equity 2008F Priced on January 04, 2008 Source: AKD Research

14 AKD Securities Limited Pakistan Market: 2007 - 2008 January 2008

Sectoral 12 Month Fundamental Outlook

Capacity Pricing 3Yr EPS Sector Demand Margins Leverage RoE Utilization Power Growth

Oil & Gas (E&P)

Banking

Telecom (Fixed)

Telecom (Cellular)

Fertilizer

Oil Marketing

Cement

Au to

Insuarance

Power Generation

Better than 2007 Worse than 2007 Stable Source: AKD Sector Analysts’ Expectations

How the Analysts view their sectors' 2008 performance

We asked our sector analysts to provide a considered fundamental outlook for their sectors for 2008. The above chart captures their views. The key point to note is that despite a higher level of uncertainty, most sectors (with the exception of autos and fixed line telephony) are expected to see demand rising at or above last year's level. This should enable increasing capacity utilization which is especially welcome for sectors such as oil & gas, cement and cellular players who have recently enhanced their capacities.

The flip side of higher capacity is however, that pricing power has been diluted with only 3 out of 10 sectors expected to show improvement in pricing power. Two of the three (Oil & gas exploration and Oil marketing) are expected to benefit from reduction in subsidies to end-users while the fertilizer sector is expected to benefit from rising government support to farmers in the form of agri-credit & higher offtake prices of key grains in line with the global trend in food prices. Along with diluted pricing power, the pressure of costs in key raw materials as well as energy will likely keep margins under pressure in all covered sectors.

At the same time, continued strong cash flows are expected to bring down borrowing requirements and thus ease financial expenses. As a result, earnings growth is expected to remain healthy with ROE's in most sectors (except autos & power) expected to improve compared to 2007. .

15 AKD Securities Limited Pakistan Market: 2007 - 2008 January 2008

Economic Snapshot

FY08 Provisional Original SBP FY07 targets projection Growth rates (percent) GDP 7.0 7.2 6.6 - 7.0 Inflation 7.8 6.5 6.5 - 7.5 Monetary assets (M2) 19.3 13.7* 13.5 - 14.5 billion US Dollars Exports (fob-BoP data) 17.1 18.9 18.3 Imports (fob-BoP data) 27.0 29.6 28.9 Exports (fob-Customs data) 17.0 19.2 19.2 Imports (cif-Customs data) 30.5 32.3 32.3 Workers' remittances 5.5 5.8 6.0 - 6.5 percent of GDP Budgetary balance -4.3 -4.0** -4.0 Current account balance -0.5 -5.0 -5.2 (*) Announced in MPS Jul-Dec FY08: (**) Budget estimates. Source:

Selected Economic Indicators FY06 FY07 FY08 Growth rate (percent) Large scale manufacturing Jul-Sep 9.0 10.4 6.9 Exports (FOB) Jul-Oct 14.6 4.1 10.9 Imports (FOB) Jul-Oct 37.4 14.5 3.4 Tax revenue (CBR) Jul-Oct 20.8 17.9 14.4 CPI (12 month MA) Nov 9.0 7.9 7.6 Private sector credit Jul- 1st Dec 12.2 7.0 5.4 Money supply (M2) Jul- 1st Dec 3.4 4.2 4.2 million US Dollars Total liquid reserves -1 End-Nov 11,255 12,298 15,778 Home remittances Jul-Oct 1,372 1,644 2,081 Foreign private investment Jul-Oct 696 1,741 1,642 percent of GDP -2 Fiscal deficit Jul-Sep 0.5 1.0 1.6 Trade deficit Jul-Oct 2.1 2.5 2.0 Current a/c deficit Jul-Oct 1.7 2.4 1.8 1- With SBP & commercial banks. 2- Based on full-year GDP in the denominator. For FY08 estimated full year GDP has been used. Source: State Bank of Pakistan

Fiscal Performance Indicators (Jul-Sep) as percent of GDP (1) FY06 FY07 FY08 Fiscal balance -0.5 -1.0 -1.6 Primary balance 0.1 -0.3 -0.5 Revenue balance 0.2 0.1 -0.3 1 Based on projected full-year GDP Source: State Bank of Pakistan

16 AKD Securities Limited Pakistan Market: 2007 - 2008 January 2008

AKD Universe Companies’ Fundamental Performance

Non-Banking Companies with year-end June Results (FY2007-06) Sales Growth Gross Margin Operating Profit Operating Margin EPS Growth (%) Net Margin (%) 2007 2007 2007 2007 (%) 2007 2007 Pakistan Telecom Company -6% n.a -38% 26% -25% 24% Cherat Cement Company 4% 18% -60% 13% -66% 7% DG Khan Cement -19% 32% -51% 29% -33% 25% Lucky Cement 55% 29% 11% 24% 32% 20% Factory -27% 12% -82% 9% -96% 1% Fauji Cement -21% 35% -48% 30% -46% 19% Pioneer Cement 10% 18% -61% 13% -114% -3% Pakistan Limited 28% 36% -8% 29% -12% 18% Oil & Gas Development Company 4% 39% -6% 11% -1% 7% Pakistan Petroleum Limited 21% n.a 23% 11% 25% 6% Pak Oilfields Limited 20% 33% 24% 11% 29% 7% 6% 9% 47% 4% -67% 0% Sui Northern Gas Piplines 6% 15% 7% 5% -28% 2% Pakistan State Oil 17% 4% -35% 2% -38% 1% Limited -2% 6% -81% 1% -77% 1% Hub Power Company Limited 12% 14% 1% 13% -4% 8% -4% 26% -16% 26% -6% 16% Pakistan Int'l Container Terminal 22% 42% 36% 35% 14% 16% Limited 2% 12% 4% 10% 5% 8% Indus Motors 22% 11% 9% 9% 4% 6% Nishat Mills 5% 17% -15% 9% 3% 10% Gadoon Textile 13% 12% -13% 8% -21% 4% Source: Company Reports

Non-Banking Companies with year-end June (1QFY08 vs 1QFY07) Sales Growth Gross Operating Operating EPS Growth Net (%) Margin Profit Margin (%) Margin Pakistan Telecom Company -7% n.a -46% 22% -43% 17% Cherat Cement Company 2% 6% -97% 1% -97% 0% DG Khan Cement 21% 17% -61% 14% -45% 12% Lucky Cement 19% 27% -12% 21% 53% 20% Maple Leaf Cement Factory -30% 10% -78% 5% -97% 0% Fauji Cement -23% 20% -71% 16% -77% 7% Pioneer Cement 40% 5% -155% -5% n.a -12% Attock Cement Pakistan Limited -10% 25% -59% 21% -72% 8% Oil & Gas Development Company 10% 66% 3% 63% 0% 44% Pakistan Petroleum Limited 17% n.a. 25% 68% 26% 47% Pak Oilfields Limited -8% 61% -3% 60% 3% 51% Sui Southern Gas Company -2% 9% 32% 7% -21% 2% Sui Northern Gas Piplines 13% 13% 18% 3% 30% 3% Pakistan State Oil 21% 4% 444% 3% 271% 2% Shell Pakistan Limited -5% 7% -442% 3% n.a 2% Hub Power Company Limited 13% 8% 2% 8% -16% 5% Kot Addu Power Company 16% 23% 17% 22% 17% 13% Pakistan Int'l Container Terminal 28% 41% 31% 33% 37% 17% Millat Tractors Limited 3% 12% -4% 6% -3% 6% Indus Motors 11% 13% 45% 11% 46% 9% Nishat Mills -1% 19% 5% 11% 14% 11% Gadoon Textile 2% 11% -32% 7% -37% 3% Source: Company Reports

17 AKD Securities Limited Pakistan Market: 2007 - 2008 January 2008

AKD Universe Companies’ Fundamental Performance

Non-Banking Companies with year-end December Results (FY2007-06) Sales Growth Gross Margin Operating Profit Operating Margin EPS Growth (%) Net Margin (%) 2006 2006 2006 2006 (%) 2006 2006 Fauji Fertilizer Company 18% 32% 2% 23% -5% 15% Engro Chemical -4% 24% 4% 16% 10% 14% Fauji Fertilizer Bin Qasim Ltd. 3% 32% -3% 20% 0% 17% Limited 19% 38% 4% 13% 3% 8% Nestle Pakistan Limited 29% 28% 24% 12% 18% 6% Al-Ghazi Tractor 17% 18% 2% 17% 16% 14% ICI Pakistan 6% 21% 35% 13% -35% 7% 33% 12% 50% 12% 50% 7% Honda Atlas Car 55% 5% 974% 3% 335% 3% Adamjee Insurance Co. Limited 32% 9% 40% 40% 36% 30% 11% 16% -16% 10% 20% 16% Source: Company Reports

Non-Banking Companies with year-end December (9MCY07 vs 9MCY06) Sales Growth Gross Operating Operating EPS Growth Net (%) Margin Profit Margin (%) Margin Fauji Fertilizer Company -3% 39% 24% 21% 27% 21% Engro Chemical 33% 24% 18% 12% 17% 12% Fauji Fertilizer Bin Qasim Ltd. -9% 34% 37% 20% 16% 20% Unilever Pakistan Limited 10% 40% 11% 8% 4% 8% Nestle Pakistan Limited 28% 29% 64% 7% 74% 7% Al-Ghazi Tractor 1% 18% 1% 14% 4% 14% ICI Pakistan 11% 20% 10% 7% 19% 7% Pak Suzuki Motors 8% 11% -10% 7% -14% 7% Honda Atlas Car -13% 4% -151% 1% n.a 1% Adamjee Insurance Co. Limited 5% 10% 21% 41% 20% 38% Packages Limited 13% 16% 12% 10% -9% 10% Source: Company Reports

18 AKD Securities Limited Pakistan Market: 2007 - 2008 January 2008

AKD Universe Sector - Valuation Data

EPS Growth PER* (x) P/BVS* (x) Dividend Yield* ROE 2007A/F 2008F 2009F 2007A/F 2008F 2009F 2007A/F 2008F 2009F 2006A 2007A/F 2008F 2007A/F 2008F Banks 7% 26% 14% 13.6 10.8 9.5 3.8 3.0 2.4 2.0% 2.5% 3.5% 30% 31% E&P 5% 19% 15% 11.3 9.5 8.2 5.0 4.1 3.4 6.1% 7.0% 7.0% 44% 43% Telecom -25% 5% 2% 13.6 13.0 12.8 2.0 1.9 1.9 11.9% 4.8% 6.6% 14% 15% Fertilizer 17% 21% -3% 13.5 11.2 11.6 4.1 3.5 3.4 5.9% 6.2% 7.7% 30% 31% FMCGs 13% 20% 29% 33.7 28.1 21.7 21.3 18.8 15.5 1.6% 2.5% 3.2% 63% 67% OMCs -49% 69% -13% 17.5 10.3 11.9 3.1 2.8 2.7 7.9% 4.7% 5.3% 18% 28% Cement -28% 27% 33% 13.0 10.2 7.7 1.3 1.1 1.0 2.9% 1.3% 3.3% 10% 10% Power -5% 4% 5% 10.5 10.1 9.6 1.7 1.7 1.6 13.3% 10.7% 9.6% 16% 16% Autos -3% 11% 17% 5.3 4.7 4.1 2.3 1.9 1.5 1.6% 1.8% 2.5% 26% 24% Gas T&D -36% 74% 14% 18.3 10.5 9.2 2.0 1.8 1.7 4.6% 3.7% 6.5% 11% 17% Insurance 180% -46% 14% 7.7 14.3 12.5 4.4 3.5 2.9 0.8% 1.3% 1.5% 57% 25% Chemical 25% 19% 10% 14.9 12.5 11.4 2.4 2.2 2.0 2.8% 3.9% 4.4% 16% 17% Paper & Board -7% 12% 16% 23.4 20.8 18.0 2.8 2.6 2.4 1.7% 2.1% 2.4% 12% 13% Textile -1% 4% 23% 9.3 9.0 7.3 0.5 0.5 0.5 1.7% 2.6% 2.7% 6% 6% Agri Autos 12% 11% 7% 8.1 7.3 6.8 2.6 2.3 2.0 7.6% 8.7% 9.1% 32% 31% Jute 12% 11% 7% 11.9 10.7 10.0 2.8 2.4 2.0 1.7% 1.2% 3.6% 24% 22% Transport 14% 52% 34% 18.9 12.4 9.2 3.5 2.8 2.3 0.0% 0.0% 2.9% 18% 23% AKD Universe 1% 20% 11% 12.7 10.5 9.5 3.1 2.6 2.3 4.7% 4.4% 4.9% 24% 25% *Priced on January 04, 2008

Revenue Growth Operating CF Growth Operating Margin Net Margin 2007A/F 2008F 2009F 2007A/F 2008F 2009F 2007A/F 2008F 2009F 2007A/F 2008F 2009F Banks 18.8% 12.7% 10.9% n.a n.a n.a 58.5% 62.5% 63.8% 39.7% 42.2% 43.1% E&P 9.1% 18.1% 12.4% -2% 34% 12% 61.1% 63.2% 65.0% 43.8% 44.1% 45.2% Telecom -6.5% 1.4% 1.9% 0% -41% 35% 26.1% 31.1% 30.9% 24.2% 25.0% 25.0% Fertilizer 10.4% 15.5% 14.2% 108% 16% -43% 21.6% 21.7% 18.5% 16.3% 17.1% 14.5% FMCGs 21.5% 20.0% 19.4% -36% 123% -35% 11.4% 11.3% 11.8% 6.5% 6.5% 7.1% OMCs 11.9% 18.1% 6.6% 58% -5% 236% 1.8% 3.1% 2.4% 1.2% 1.7% 1.4% Cement 5.4% 49.3% 16.2% -59% 90% 27% 22.8% 26.0% 27.8% 15.6% 14.7% 16.7% Power 3.3% 0.9% 1.4% -41% 29% 3% 19.4% 19.9% 19.9% 12.2% 12.6% 13.1% Autos 5.5% 22.3% 10.4% n.m 25% 18% 7.8% 7.9% 8.0% 4.9% 4.8% 5.1% Gas T&D 6.1% 9.0% 12.1% -69% 81% 44% 4.5% 5.0% 5.2% 1.6% 2.6% 2.6% Insurance 20.0% 17.5% 18.1% n.m -30% 79% 86.6% 43.4% 41.7% 69.6% 32.0% 30.9% Chemical 12.5% 8.7% 7.4% n.m 101% -7% 14.0% 15.3% 15.5% 8.3% 9.0% 9.2% Paper & Board 4.6% 28.7% 19.4% n.m -50% 46% 10.5% 10.3% 13.4% 13.8% 12.0% 11.7% Textile 6.8% 8.3% 8.7% 35% -17% 30% 8.5% 9.1% 9.5% 8.1% 7.8% 8.8% Agri Autos 6.5% 7.8% 7.2% 53% 13% 6% 13.7% 14.4% 14.5% 11.0% 11.2% 11.2% Jute 12.8% 12.9% 9.4% 45% 17% 31% 17.9% 17.2% 16.9% 11.1% 10.9% 10.7% Transport 22.5% 27.7% 17.2% -6% -11% 38% 35.1% 37.8% 40.0% 15.8% 18.9% 21.7% AKD Universe 11.5% 15.4% 9.2% 2% 19% 18% 19.7% 21.2% 21.5% 13.5% 14.1% 14.4%

Source: AKD Research

19 AKD Securities Limited Pakistan Market: 2007 - 2008 January 2008

AKD Universe Companies - Price Performance

Mkt. Cap 6M AD Val Price (PkR) % Chg. 12M (Price-PkR) 3M (Price-PkR) 1W (Price-PkR)* Chg from 1 Year Company (US$mn) (US$mn) 4-Jan-08 in CY07 High Low High Low High Low All Time High STD MCB 4,091 20.79 398.80 86% 433.00 222.17 433.00 338.00 399.95 363.45 -8% 16% NBP 3,109 34.50 233.50 20% 278.85 201.74 278.85 214.10 233.50 214.10 -16% 5% HBL 2,656 9.78 235.80 -19% 298.70 218.00 298.70 218.00 239.90 218.00 -21% 6% UBL 2,429 3.78 183.80 50% 224.25 123.68 205.70 157.65 183.80 166.00 -18% 13% ABL 1,175 1.35 133.60 71% 145.45 77.58 141.25 120.40 137.45 128.00 -8% 15% BAFL 572 6.43 53.90 68% 65.10 33.15 62.10 48.80 53.90 49.40 -17% 15% AKBL 511 7.83 104.05 49% 105.95 71.67 105.95 84.60 104.05 98.60 -2% 9% OGDC 8,528 31.13 121.45 6% 132.80 104.90 132.80 113.40 121.45 113.40 -36% 4% PPL 3,066 26.63 248.95 18% 276.82 212.73 276.82 233.00 248.95 233.00 -13% 5% POL 1,080 27.15 335.50 -4% 373.95 280.25 363.85 305.55 335.50 307.40 -29% 6% PTC 3,485 4.54 41.85 -6% 61.35 38.75 56.00 38.75 42.05 38.75 -53% 9% FFC 995 3.27 123.50 17% 129.15 103.70 127.00 114.85 125.20 118.75 -14% 5% ENGRO 829 20.13 262.50 66% 296.70 158.65 296.70 241.00 265.75 241.00 -12% 17% FFBL 658 6.77 43.15 51% 48.30 28.40 48.30 39.50 43.15 39.50 -11% 15% NESTLE 1,348 0.01 1,820 74% 1,855 1,036 1,855 1,480 1,820 1,800 -2% 12% ULEVER 525 0.04 2,420 21% 2,625 2,000 2,625 2,280 2,420 2,280 -8% 7% PSO 1,166 13.11 416.50 42% 434.00 297.85 434.00 373.00 416.50 387.00 -15% 9% SHEL 373 0.37 417.00 5% 499.10 370.00 460.00 394.90 417.00 394.90 -38% 7% LUCK 510 19.64 118.70 98% 143.05 58.00 143.05 107.70 118.70 107.70 -17% 22% DGKC 389 13.39 94.00 49% 120.00 62.25 117.10 85.50 94.70 85.50 -23% 14% ACPL 123 0.12 104.70 58% 126.90 65.80 126.10 90.00 104.70 95.00 -21% 12% MLCF 118 1.09 19.45 18% 25.90 14.82 24.40 18.05 19.45 18.05 -54% 13% FCCL 329 1.64 15.55 0% 19.50 14.45 17.95 14.45 15.55 14.45 -31% 10% PIOC 86 0.53 31.00 39% 51.50 21.20 38.55 28.55 31.60 28.55 -54% 20% CHCC 64 0.09 40.90 0% 63.85 37.45 48.00 37.45 40.90 38.80 -57% 13% KAPCO 721 0.77 50.15 23% 62.55 40.50 56.75 47.00 50.80 48.45 -20% 11% HUBC 718 1.29 31.40 28% 36.15 24.64 36.15 29.25 31.40 30.20 -25% 8% PSMC 434 0.69 327.75 17% 429.00 272.70 429.00 311.00 329.65 311.00 -24% 11% INDU 393 0.78 306.00 57% 406.00 193.25 406.00 297.00 319.20 297.00 -25% 18% HCAR 62 0.40 52.80 58% 81.40 31.08 81.40 48.85 54.10 48.85 -35% 27% SNGP 592 1.18 66.00 1% 86.20 58.50 71.40 61.50 66.00 61.50 -41% 8% SSGC 294 0.98 26.85 14% 31.70 24.00 29.15 25.45 26.85 25.45 -42% 6% AICL 556 15.32 333.00 121% 417.00 152.15 417.00 310.90 358.35 323.45 -20% 27% ICI 441 3.30 194.60 68% 234.30 117.40 234.30 162.65 196.65 177.55 -17% 18% PKGS 432 3.83 360.95 80% 416.20 193.81 416.20 340.00 363.80 340.00 -13% 21% NML 267 5.14 102.40 17% 133.75 88.30 132.90 95.00 105.20 95.00 -23% 11% GADT 23 0.00 59.10 -6% 84.45 56.05 74.00 56.10 59.10 56.10 -52% 11% AGTL 199 0.03 283.95 30% 293.00 199.90 291.50 250.00 283.95 268.10 -3% 12% MTL 89 0.05 290.00 3% 342.45 256.50 320.00 256.50 290.00 270.50 -15% 7% THALL 144 0.17 290.00 198% 303.00 97.04 303.00 238.00 290.00 275.00 -4% 24% PICT 85 0.32 68.95 21% 84.80 50.70 75.45 58.50 70.40 64.75 -40% 14%

*1week: Dec 27, 07 - Jan 04, 2008 Source: AKD Research

20 AKD Securities Limited Pakistan Market: 2007 - 2008 January 2008

AKD Universe Companies - Valuation Data EPS Growth PER* (x) P/BVS* (x) Dividend Yield* Company 2007A/F 2008F 2009F 2007A/F 2008F 2009F 2007A/F 2008F 2009F 2006A 2007A/F 2008F MCB 29% 20% 12% 15.9 13.3 11.9 5.5 4.3 3.4 1.8% 2.1% 2.4% NBP 28% 16% 5% 8.8 7.5 7.2 1.9 1.6 1.3 1.7% 2.1% 2.6% HBL -14% 38% 19% 13.3 9.6 8.1 3.0 2.3 1.8 0.4% 1.5% 1.7% UBL -4% 41% 11% 16.4 11.6 10.5 4.0 3.2 2.7 2.2% 2.7% 3.3% ABL 35% 16% 8% 12.2 10.5 9.8 3.2 2.6 2.2 1.9% 2.6% 3.0% BAFL 75% 14% 26% 11.4 9.9 7.9 2.5 2.1 1.7 0% 2.8% 3.7% AKBL 45% 20% 13% 9.6 8.0 7.1 2.2 1.8 1.5 1.0% 1.4% 1.9% OGDC -1% 15% 15% 11.4 9.9 8.6 5.3 4.5 3.8 7.2% 8.2% 7.8% PPL 25% 18% 14% 11.2 9.5 8.4 4.7 3.6 2.9 3.6% 4.4% 4.8% POL 3% 48% 18% 10.5 7.1 6.0 3.6 2.9 2.3 4.5% 4.5% 7.2% PTC -25% 5% 2% 13.6 13.0 12.8 2.0 1.9 1.9 11.9% 4.8% 6.6% FFC 25% 16% -3% 10.5 9.0 9.3 4.4 4.2 4.3 8.1% 9.5% 11.1% ENGRO 4% 0% 5% 19.1 19.1 18.1 3.6 2.6 2.4 3.4% 1.8% 1.8% FFBL 14% 49% -9% 14.5 9.7 10.7 4.4 4.1 4.1 5.8% 6.7% 10.1% NESTLE 21% 31% 41% 49.8 38.0 27.0 23.5 20.6 16.4 0.3% 1.5% 2.1% ULEVER 6% 10% 17% 18.4 16.8 14.4 17.1 15.2 13.5 5.0% 5.2% 5.9% PSO -38% 53% -19% 15.2 9.9 12.3 3.4 3.2 3.0 8.2% 5.0% 5.3% SHEL -77% 176% 9% 32.3 11.7 10.7 2.4 2.1 2.0 7.2% 3.8% 5.3% LUCK 32% 4% 31% 12.3 11.8 9.0 3.3 1.9 1.3 0.8% 1.1% 1.3% DGKC -33% 5% 46% 14.7 13.9 9.6 0.7 0.7 0.6 1.6% 1.6% 2.1% ACPL -12% 31% 20% 9.5 7.2 6.0 2.2 1.9 1.5 4.8% 4.3% 5.7% FCCL -46% 33% 17% 8.9 6.7 5.7 1.6 1.3 1.1 9.6% 0.0% 3.2% CHCC -66% 131% 31% 21.2 9.2 7.0 1.8 1.5 1.3 5.1% 2.4% 2.4% KAPCO -6% 0% 3% 8.8 8.9 8.6 2.3 2.3 2.2 16.2% 12.0% 10.3% HUBC -4% 13% 8% 13.7 12.1 11.2 1.2 1.2 1.2 9.9% 9.1% 8.8% PSMC -8% 10% 23% 8.6 7.8 6.4 1.9 1.5 1.2 0.0% 0.0% 0.0% INDU 4% 12% 10% 8.8 7.8 7.1 3.0 2.4 2.0 3.9% 4.2% 5.8% HCAR n.m n.m 66% n.m 48.5 29.2 2.5 2.1 1.8 0.0% 0.0% 0.4% SNGP -28% 27% 9% 13.5 10.7 9.8 2.2 2.0 1.8 4.5% 4.5% 5.3% SSGC -67% 509% 25% 62.1 10.2 8.2 1.7 1.6 1.5 4.8% 1.9% 8.8% AICL 180% -46% 14% 7.7 14.3 12.5 4.4 3.5 2.9 0.8% 1.3% 1.5% ICI 25% 19% 10% 14.9 12.5 11.4 2.4 2.2 2.0 2.8% 3.9% 4.4% PKGS -7% 12% 16% 23.4 20.8 18.0 2.8 2.6 2.4 1.7% 2.1% 2.4% NML 3% 1% 24% 9.8 9.7 7.8 0.5 0.5 0.5 1.5% 2.4% 2.6% GADT -21% 22% 16% 6.0 4.9 4.2 0.5 0.5 0.5 4.2% 4.2% 4.2% AGTL 15% 14% 8% 8.6 7.5 7.0 3.0 2.7 2.4 7.9% 9.1% 10.4% MTL 5% 4% 5% 7.1 6.8 6.4 1.9 1.6 1.4 6.9% 7.6% 6.2% THALL 12% 11% 7% 11.9 10.7 10.0 2.8 2.4 2.0 1.7% 1.2% 3.6% PICT 14% 52% 34% 18.9 12.4 9.2 3.5 2.8 2.3 0.0% 0.0% 2.9%

*Priced on January 04, 2008

21 AKD Securities Limited Pakistan Market: 2007 - 2008 January 2008

AKD Universe Companies - Valuation Data

ROE Revenue Growth Operating Margin Net Margin 07A/F 2008F 2009F 2007A/F 2008F 2009F 2007A/F 2008F 2009F 2007A/F 2008F 2009F Company 34% 32% 29% 35.8% 19.5% 12.6% 67.3% 67.7% 67.2% 44.9% 45.2% 44.8% MCB 22% 21% 18% 31.6% 13.7% 4.2% 58.0% 59.3% 59.4% 37.7% 38.5% 38.6% NBP 23% 24% 22% 25.7% 8.6% 4.8% 38.5% 50.4% 56.6% 23.2% 29.4% 33.3% HBL 24% 28% 25% 22.4% 16.7% 11.7% 32.6% 39.7% 38.9% 22.4% 27.2% 26.9% UBL 27% 25% 23% 42.2% 8.7% 3.2% 36.1% 38.6% 40.3% 24.2% 25.8% 26.8% ABL 25% 23% 23% 20.8% 12.1% 8.3% 35.4% 36.7% 39.3% 24.5% 23.9% 25.6% BAFL 23% 22% 21% 20.7% 8.3% 6.9% 32.2% 35.7% 37.6% 21.4% 23.8% 25.0% AKBL 46% 45% 45% 3.6% 18.9% 11.7% 60.9% 63.4% 65.6% 45.5% 44.2% 45.6% OGDC 42% 38% 34% 20.6% 17.1% 12.4% 60.1% 61.5% 62.2% 43.8% 44.0% 44.6% PPL 35% 41% 39% 19.6% 16.2% 16.4% 63.8% 65.6% 67.4% 34.3% 43.8% 44.2% POL 14% 15% 15% -6.5% 1.4% 1.9% 26.1% 31.1% 30.9% 24.2% 25.0% 25.0% PTC 42% 47% 46% 22.5% 5.3% 7.4% 20.8% 20.0% 18.8% 15.8% 17.5% 15.8% FFC 19% 14% 13% 12.4% 13.4% 8.8% 17.3% 16.2% 15.0% 13.4% 11.9% 11.5% ENGRO 30% 42% 38% -16.8% 49.6% 35.1% 30.8% 32.1% 21.6% 22.7% 22.6% 15.2% FFBL 47% 54% 61% 25.0% 20.0% 20.0% 11.4% 11.9% 13.3% 6.0% 6.6% 7.7% NESTLE 92% 91% 93% 17.9% 20.0% 18.8% 11.4% 10.6% 10.2% 7.1% 6.4% 6.3% ULEVER 22% 32% 24% 17.3% 19.2% 7.1% 2.2% 3.1% 2.3% 1.3% 1.7% 1.3% PSO 7% 18% 19% -1.9% 14.6% 5.0% 0.8% 2.8% 2.9% 0.6% 1.5% 1.5% SHEL 27% 16% 15% 55.5% 45.3% 19.7% 24.5% 24.6% 27.3% 20.3% 14.6% 15.9% LUCK 5% 5% 7% -19.3% 79.1% 17.7% 29.0% 24.2% 26.3% 25.3% 14.9% 18.4% DGKC 23% 26% 26% 28.5% 10.5% 14.4% 29.1% 33.4% 34.3% 17.9% 21.2% 22.2% ACPL 17% 20% 19% -20.9% 19.1% 7.1% 30.4% 34.8% 35.1% 19.1% 21.4% 23.2% FCCL 8% 17% 19% 3.6% 22.8% 12.0% 12.9% 19.4% 22.9% 7.3% 13.8% 16.1% CHCC 26% 26% 26% -4.1% 3.2% 2.2% 25.7% 26.0% 25.6% 15.9% 15.3% 15.5% KAPCO 9% 10% 11% 12.1% -1.3% 0.6% 13.2% 13.4% 13.8% 8.5% 9.7% 10.5% HUBC 22% 20% 19% 14.2% 26.4% 3.0% 9.8% 9.4% 10.1% 5.7% 5.0% 5.9% PSMC 34% 31% 29% 22.2% 20.3% 16.2% 8.9% 8.2% 8.0% 6.4% 5.9% 5.7% INDU -9% 4% 6% -33.5% 14.5% 21.1% -1.5% 2.1% 2.0% -1.6% 0.8% 1.1% HCAR 16% 18% 18% 6.0% 4.2% 12.9% 4.5% 4.9% 5.0% 2.3% 2.9% 2.8% SNGP 3% 16% 18% 6.3% 16.7% 10.9% 4.4% 5.1% 5.4% 0.4% 2.2% 2.4% SSGC 57% 25% 23% 20.0% 17.5% 18.1% 86.6% 43.4% 41.7% 69.6% 32.0% 30.9% AICL 16% 17% 18% 12.5% 8.7% 7.4% 14.0% 15.3% 15.5% 8.3% 9.0% 9.2% ICI 12% 13% 14% 4.6% 28.7% 19.4% 10.5% 10.3% 13.4% 13.8% 12.0% 11.7% PKGS 6% 5% 6% 4.6% 11.4% 9.4% 8.8% 9.5% 10.1% 9.7% 8.9% 10.0% NML 9% 10% 11% 12.9% 0.0% 6.6% 7.7% 7.8% 8.0% 3.7% 4.5% 4.9% GADT 35% 36% 35% 10.8% 11.3% 9.3% 17.7% 18.7% 18.8% 14.2% 14.5% 14.4% AGTL 27% 24% 22% 2.5% 4.3% 5.1% 9.8% 9.7% 9.8% 7.7% 7.7% 7.7% MTL 24% 22% 20% 12.8% 12.9% 9.4% 17.9% 17.2% 16.9% 11.1% 10.9% 10.7% THALL 18% 23% 25% 22.5% 27.7% 17.2% 35.1% 37.8% 40.0% 15.8% 18.9% 21.7% PICT

Source: Company Reports & AKD Estimates

22 AKD Securities Limited Pakistan Market: 2007 - 2008 January 2008

Sectors

23 AKD Securities Limited Pakistan Market: 2007 - 2008 January 2008

Commercial Banks 33.3% weight in KSE-100 Index

Sector Valuation & Relative Performance

Sector Market cap. (US$mn) 12,839 PkR/USD61.25 1M 3M 6M 12M Absolute (%) 1.5 (0.9) (3.2) 48.6 Rel. Index (%) (0.1) (2.0) (6.0) 8.6 Banking Sector vs KSE-100 Index Banking - Valuation Multiples 47% CY06A CY07E CY08F CY09F EPS (PkR) 13.83 14.76 18.63 21.28 36%

EPS growth 42% 7% 26% 14% 25% PER (x) 14.5 13.6 10.8 9.4 Tier I BVS (PkR) 44.7 52.4 66.5 82.7 14% PB (Tier I) (x) 4.5 3.8 3.0 2.4 PB (Total Equity) (x) 3.6 3.2 2.6 2.1 3% ROE/PB Tier-I (x) 8.2 7.9 10.4 11.7 Loan to Deposit 71% 66% 69% 71% -8% Dec-06 Mar-07 Jun-07 Sep-07 Jan-08 Market Cap to Deposits 42% 37% 34% 31% Growth in Loan Book 17% 7% 13% 11% KSE-100 Index Commercial Banks Cost/Income 39% 41% 37% 36% ROE (Tier-I) 37% 30% 31% 29% ROE (Total Equity) 28% 25% 26% 25% Companies Covered ROA 2.5% 2.3% 2.6% 2.7% AKBL BAFL HBL UBL ABL Sec. Topline Inc. as % of AKD Universe 14% 15% 15% 15% Sector NPAT as % of AKD Universe 29% 31% 33% 34% MCB NBP (Under Restriction)

Beyond Provisioning!

Advances growth, at an estimated 5% in CY07 has been sharply slower this year. Deposits however, have continued to show solid growth, at 30%YoY in 3QCY07. Going forward, the banking sector is well poised to take advantage of expected demand pickup from the corporate side while the potential in SME and consumer financing is high as well. The banking sector was again one of the better performers in the Pakistani market in 2007, its market cap growing by 48.6%YoY. On a relative basis, the listed banking sector outperformed the benchmark KSE-100 Index by 8.6%YoY in 2007.

The Forced Sale Value (FSV) regulation, while reducing systemic risk in the banking system will lead to one-off higher provisions in 2007 confining sector EPS growth to 7% We expect the bottom line to make a strong comeback next year with estimated EPS growth of 26% in CY08. .

The AKD Banking Universe is trading at a CY08 Tier-I P/B of 3.0x and PER of 10.8x, against market CY08 P/B of 2.6x and PER of 10.55x. We remain Overweight on the banking sector in view of attractive growth opportunities. Our top picks are HBL and BAFL with upsides of 50.6% and 41.2% to their respective target prices of PkR355 and PkR76.10.

24 AKD Securities Limited Pakistan Market: 2007 - 2008 January 2008

Oil & Gas Exploration 21.0% weight in KSE-100 Index

Sector Valuation & Relative Performance

Sector Market Cap. (US$mn) 12,839 PkR/USD61.25 1M 3M 6M 12M Absolute (%) (0.7) (2.5) 1.1 7.3 Rel. Index (%) (2.3) (3.6) (1.7) (32.7) E&P Sector vs KSE-100 Index 45%

E&P Sector - Valuation Multiples 34% FY06A FY07A FY08F FY09F EPS (PkR) 12.47 13.08 15.57 17.93 23% EPS growth 45% 5% 19% 15% PER (x) 11.9 11.3 9.5 8.2 12% ROE 47% 44% 43% 41% ROA 35% 33% 34% 34% 1% BVS (PkR) 26.6 29.7 36.3 43.9 P/BVS (x) 5.6 5.0 4.1 3.4 -10% CFS (PkR) 14.4 14.1 19.0 21.2 Dec-06 Mar-07 Jun-07 Sep-07 Jan-08 P/CFS (x) 10.3 10.5 7.8 7.0 KSE-100 Index Oil & Gas Expl DPS (PkR) 9.0 10.3 10.4 12.0 Dividend yield 6% 7% 7% 8% Payout Ratio 72% 79% 67% 67% EV/EBITDA (x) 7.03 5.78 5.01 4.29 Companies Covered Sector Sales as % of AKD Universe 10% 10% 10% 11% OGDC PPL POL - Under review Sector NPAT as % of AKD Universe 31% 33% 32% 34%

Fast Track Development!

The E&P sector gained 7.3%YoY in absolute terms and thus underperformed the benchmark KSE-100 Index by 33% during CY07.

Going forward, we expect the sector to outperform against the market as exploration activity picks ups and subsequent discovery news flow comes in, especially in an environment of record high oil prices.

For FY08, we expect the Exploration and Production sector to post a bottomline growth of 19%YoY through fast track development of new discoveries, production ramp ups from company portfolios and higher price environment. We recommend OGDC as our top pick on the back of management efficacy, offering an upside of 20.6% to our target price of PkR146.50.

The E&P sector trades at a forward PER of 9.5x which is at discount to the market multiple of 10.55x. The sector also offers an attractive dividend yield of 7% against the market's average dividend yield of 5%.

We remain Overweight on the sector, and believe that, given E&P sector’s 2nd highest weight in the KSE-100 Index, its performance will underpin index performance in 2008. .

25 AKD Securities Limited Pakistan Market: 2007 - 2008 January 2008

Fertilizer 5.0% weight in KSE-100 Index

Sector Valuation & Relative Performance

Sector Market cap. (US$mn) 3,030 PkR/USD61.25 1M 3M 6M 12M Absolute (%) (3.3) (5.2) 3.9 36.7 Rel. Index (%) (4.9) (6.3) 1.1 (3.3) Fertilizer Sector vs KSE-100 Index 45% Fertilizer Sector - Valuation Multiples 34% CY06A CY07E CY08F CY09F EPS (PkR) 5.94 6.93 8.36 8.09 23% EPS growth 0% 17% 21% -3% PER (x) 15.8 13.5 11.2 11.6 12% ROE 31% 30% 31% 29% ROA 14% 14% 14% 12% 1% BVS (PkR) 19.0 22.9 26.9 27.9 P/BVS (x) 4.9 4.1 3.5 3.4 -10% Dec-06 Mar-07 Jun-07 Sep-07 Jan-08 CFS (PkR) 2.0 7.6 8.4 6.1 P/CFS (x) 46.9 12.4 11.2 15.5 KSE-100 Index Fertilizer DPS (PkR) 5.6 5.8 7.2 6.8 Dividend yield 5.9% 6.2% 7.7% 7.3% Payout Ratio 94% 84% 87% 84% Companies Covered EV/EBITDA (X) 10.0 8.1 7.9 6.9 Sector Sales as % of AKD Universe 4% 4% 4% 5% ENGRO FFBL FFC Sector NPAT as % of AKD Universe 5% 5% 5% 5%

Strong prices looking for volumetric growth

The fertilizer sector gained 36.7% over the past one year, but was still short of the index’s gain of 40%YoY. While Engro and FFBL performed above the market, FFC, the sector heavy weight, pulled the average down.

With 19.2% outperfromance relative to the index, Engro has been the main driver for the overall sector’s performance followed by FFBL which generated interest on the back of the company’s DAP expansion plans combined with continuously increasing DAP prices. FFC, with its defensive nature was sidelined by investors looking for growth in 2007.

Sector’s performance in CY08 is likely to be a function of strong DAP and urea prices with expansions likely to drive volumetric growth in a supply starved sector. With an additional advantage of being well diversified, Engro is likely to dominate the sector’s performance on the back of newsflow regarding separate listing of and Engro Foods. .

Fertilizer sector trades at a marginal premium to the index, which we believe is justified owing to sector average dividend yield of 7.7% as well as 21%YoY earnings growth in CY08 which should lead to outperformance against the market in CY08. We remain overweight on the sector.

26 AKD Securities Limited Pakistan Market: 2007 - 2008 January 2008

Telecom Sector 4.5% weight in KSE-100 Index

Sector Valuation & Relative Performance

Sector Market Cap. (US$mn) 3,121 PkR/USD61.25 1M 3M 6M 12M Absolute (%) (5.3) (25.0) (26.9) (9.8) Rel. Index (%) (6.9) (26.1) (29.7) (49.8) 45% PTC vs KSE-100 Index

Telecom Sector - Valuation Multiples 35% FY06A FY07A FY08F FY09F 25% EPS (PkR) 4.07 3.07 3.21 3.27 EPS growth -22% -25% 5% 2% 15% PER (x) 10.27 13.65 13.03 12.79 ROE 20% 14% 15% 15% 5% ROA 14% 9% 10% 10% -5% BVS (PkR) 20.7 21.2 21.6 22.1 P/BVS (x) 2.0 2.0 1.9 1.9 -15% CFS (PkR) 6.9 6.9 4.1 5.5 Dec-06 Mar-07 Jun-07 Sep-07 Jan-08 P/CFS (x) 6.1 6.1 10.2 7.6 DPS (PkR) 5.0 2.0 2.8 2.8 KSE-100 Index Telecom Dividend yield 11.9% 4.8% 6.6% 6.6% Payout Ratio 123% 65% 86% 84% Company Covered EV/EBITDA (X) 4.5 6.1 5.6 5.7 Sector Sales as % of AKD Universe 5% 4% 4% 3% PTC Sector NPAT as % of AKD Universe 10% 7% 6% 6%

Harder the fall, faster the rise!

The telecom sector underperformed the index by 50% over the past one year, making it the worst performing major sector in the KSE-100. PTCL has been marred by disappointing quarterly results on the back of plunging fixed line revenues. The company saw a continuous decline in not only its topline but also its bottomline which had been hit by high bad debt provisioning as well as Technical Assistance fee of 3% of Revenues. .

We believe that PTCL’s earnings are likely to trough in 2008 because of declining fixed line revenues and also owing to PkR17bn worth of VSS payments, which should translate into an EPS of PkR3.21 for FY08. However, efficiency gains are likely to start positively impacting the bottomline from 1HFY09 onwards which should be further supported with growth in its cellular subsidiary. .

While the company may seem expensive on FY08 valuations (PER:13.03x), we consider this a transition phase and believe investors still need to price in the impact of broadband, VSS and Ufone into its stock price. However, except for its cellular subsidiary, Ufone, other initiatives are unlikely to fully show their positive impact on the bottom line until FY10.

27 AKD Securities Limited Pakistan Market: 2007 - 2008 January 2008

Insurance 4.0% weight in KSE-100 Index

Sector Valuation & Relative Performance

Sector Market cap. (US$mn) 2,923 PkR/USD61.25 1M 3M 6M 12M Absolute (%) (9.8) (10.5) 4.5 117.9 Rel. Index (%) (11.3) (11.6) 1.7 77.8 AICL vs KSE-100 Index 165%

Insurance Sector - Valuation Multiples 135%

CY06A CY07E CY08F FY09F 105% EPS (PkR) 15.43 43.16 23.30 26.57 EPS growth 36% 180% -46% 14% 75% PER (x) 21.59 7.71 14.29 12.53 ROE 42% 57% 25% 23% 45% ROA 14% 25% 11% 11% 15% BVS (PkR) 37.06 75.98 94.43 115.49 P/BVS (x) 8.98 4.38 3.53 2.88 -15% CFS (PkR) (2.77) 8.24 5.74 10.28 Dec-06 Mar-07 Jun-07 Sep-07 Jan-08 P/CFS (x) (120.14) 40.43 57.96 32.38 DPS (PkR) 2.80 4.25 4.85 5.50 KSE-100 Index Insurance Dividend yield 0.8% 1.3% 1.5% 1.7% Payout Ratio 18% 10% 21% 21% Company Covered Sector Sales as % of AKD Universe 0.4% 0.4% 0.4% 0.5% AICL Sector NPAT as % of AKD Universe 0.8% 2.1% 0.9% 1.0%

Premiums unjustified

The AKD non-life insurance sector universe handsomely outperformed the benchmark KSE-100 Index by 78% during CY07 on the back of strong underwriting portfolios and favorable capital market conditions.

For CY08, we expect the bottom line to contract by 46%YoY as compared with CY07. This contraction is a result of a higher base effect under the head of investment income in CY07 as the sector continued to aggressively book unrealized capital gains ahead of the exemption of capital gains tax expiring in CY07. Furthermore, core underwriting profitability is expected to be impacted in CY08 following the recent acts of arson in the country.

With non-life insurance penetration at 0.5% compared with insurance penetration in emerging markets average of 1.3%, non-life insurers of Pakistan are poised to increase penetration by identifying profitable opportunities and building attractive new general insurance businesses. Expectation of at least 6% real economic growth and introduction of broad retail products underpin the likelihood of increased penetration. The insurance sector trades at a forward CY08 PER of 14.3x versus the market PER of 10.55x. We maintain our Neutral stance on the sector.

28 AKD Securities Limited Pakistan Market: 2007 - 2008 January 2008

FMCGs 3.9% weight in KSE-100 Index

Sector Valuation & Relative Performance

Sector Market cap. (US$mn) 2,633 PkR/USD61.25 1M 3M 6M 12M Absolute (%) (0.7) 10.3 15.1 50.4 Rel. Index (%) (2.2) 9.1 12.3 10.4 FMCGs Sector vs KSE-100 Index 78% FMCGs - Valuation Multiples 67% CY06A CY07E CY08F CY09F 56% EPS (PkR) 51.28 57.99 69.72 90.14 45% EPS growth 9% 13% 20% 29% 34% PER (x) 38.14 33.73 28.06 21.70 23% ROE 69% 63% 67% 71% 12% ROA 16% 15% 16% 18% BVS (PkR) 74.37 91.96 104.28 126.29 1% P/BVS (x) 26.30 21.27 18.76 15.49 -10% CFS (PkR) 64.04 40.80 91.07 58.79 Dec-06 Mar-07 Jun-07 Sep-07 Jan-08 P/CFS (x) 30.54 47.95 21.48 33.27 KSE-100 Index FMCGs DPS (PkR) 31.52 49.67 62.35 72.75 Dividend yield 1.6% 2.5% 3.2% 3.7% Payout Ratio 61% 86% 89% 81% Companies Covered EV/EBITDA (x) 1.4 1.4 0.9 12.4 NESTLE ULEVER Sector Sales as % of AKD Universe 3% 3% 4% 4% Sector NPAT as % of AKD Universe 1% 2% 2% 2%

Consumer Wave!

Riding the consumer wave, the FMCG sector was able to outperform the index by 10.4%. In absolute terms the sector gained 50.4%.

The sector’s performance was mainly led by Unilever and Nestle which reported an impressive growth of 32%YoY in their combined bottomlines in 9MCY07 on the back of aggressive marketing and deeply penetrating distribution network.

Going forward, we expect the FMCG sector to continue marketing aggressively which can slightly impact operating margins but will continue to pay off in terms of increasing topline going forward. For CY08, we expect the FMCG sector to report a bottomline growth of 20%. .

While the sector may seem expensive on valuations when compared to the AKD universe valuations, it still trades at a discount to its regional counterparts. The fact that FMCG sector has an RoE of 67% and and companies like Unilever and Nestle are perceived to be run on global management standards justify the sector’s premium to the market valuations. While Nestle trades near our fair value, at current price, Unilever is our top pick with a fair value of PkR2,472. .

29 AKD Securities Limited Pakistan Market: 2007 - 2008 January 2008

OMCs 3.3% weight in KSE-100 Index

Sector Valuation & Relative Performance

Sector Market Cap. (US$mn) 2,888 PkR/USD61.25 1M 3M 6M 12M Absolute (%) (2.6) 7.3 1.4 28.2 Rel. Index (%) (4.2) 6.1 (1.4) (11.8) 45% OMCs Sector vs KSE-100 Index

OMCs Sector - Valuation Multiples 35% FY06A FY07A FY08F FY09F EPS (PkR) 46.98 23.85 40.40 35.01 25% EPS growth 31% -49% 69% -13% PER (x) 8.87 17.47 10.31 11.90 15% ROE 34% 18% 28% 22% ROA 11% 5% 7% 6% 5% BVS (PkR) 136.85 134.33 146.33 155.82 P/BVS (x) 3.04 3.10 2.85 2.67 -5% CFS (PkR) 10.71 16.92 16.02 53.87 Dec-06 Mar-07 Jun-07 Sep-07 Jan-08 P/CFS (x) 38.90 24.63 26.01 7.73 KSE-100 Index OMCs DPS (PkR) 33.03 19.79 22.00 24.48 Dividend yield 7.9% 4.7% 5.3% 5.9% Payout Ratio 70% 83% 54% 70% Companies Covered EV/EBITDA (x) 6.2 11.9 6.2 7.6 PSO SHEL Sector Sales as % of AKD Universe 30% 30% 31% 30% Sector NPAT as % of AKD Universe 5% 3% 4% 3%

The year of Inventory Gains! Overweight

The Oil Marketing Sector gained 28.2%YoY in absolute terms; however the sector underperformed the KSE-100 by 11.8% in 2007. Over the past three months, the OMC sector has outperformed the KSE-100 by 6% on the back of growth witnessed in overall sales volumes and expectations of windfall inventory gains due to rising international and refined product prices. Volume growth is the key long term driver in the OMC Sector where we estimate a 3-year volume CAGR of 7% with PSO as our top pick offering an upside of 12.7% to our target price of PkR469.5. Our liking for PSO is premised upon volume outperformance through aggressive retail level initiatives and long term industrial supply contracts, particularly for power sector as well as several large projects expected to commence in CY09. On estimated FY08 EPS, the sector is trading at 10.31x which is slightly below the market multiple of 10.55x. On forward P/BVS, the sector is at a slight premium trading at 2.85x versus the market FY08 P/BVS of 2.6x. We maintain our Overweight stance on the sector.

30 AKD Securities Limited Pakistan Market: 2007 - 2008 January 2008

Cement 3.2% weight in KSE-100 Index

Sector Valuation & Relative Performance

Sector Market Cap. (US$mn) 2,384 PkR/USD61.25 1M 3M 6M 12M Absolute (%) (3.3) (15.9) (19.0) 55.1 Rel. Index (%) (4.9) (17.0) (21.8) 15.1 70% Cement Sector vs KSE-100 Index

55% Cement Sector - Valuation Multiples FY06A FY07A FY08F FY09F 40% EPS (PkR) 5.47 3.60 5.05 6.67 EPS growth 60% -34% 40% 32% 25% PER (x) 9.71 14.77 10.52 7.96 10% ROE 20% 9% 11% 12% ROA 9% 5% 6% 8% -5% BVS (PkR) 27.7 39.6 46.5 54.5 P/BVS (x) 1.9 1.3 1.1 1.0 -20% CFS (PkR) 8.3 3.4 6.4 8.1 Dec-06 Mar-07 Jun-07 Sep-07 Jan-08 P/CFS (x) 6.4 15.8 8.3 6.6 KSE-100 Index Cement DPS (PkR) 1.6 0.7 1.7 2.0 Dividend yield 2.9% 1.3% 3.3% 3.8% Payout Ratio 28% 20% 35% 30% Companies Covered EV/EBITDA (x) 6.20 8.52 6.27 5.42 ACPL CHCC DGKC FCCL Sector Sales as % of AKD Universe 3% 2% 3% 3% Sector NPAT as % of AKD Universe 4% 3% 3% 4% LUCK MLCF PIOC

Light at the end of the tunnel

Even though the cement sector has underperformed the index over the past three months by 17%, it managed to report outperformance of 15.1% against the index for 2007 as a whole. . The sector’s performance has been a function of cement prices as well as newsflow regarding cement export to India. After the resumption of price agreement in Feb 07, stock prices began to move up, resulting in the overall sector perfromance outpacing index performance in 1HCY07. However decline in output prices followed by disappointing 1QFY08 results dampened the sector’s performance in 2HCY07. Cement prices have started moving upwards again from Oct/Nov 2007, driving interest back into the sector. We believe that price concensus among manufacturers combined with greater export opportunities on the export front should drive the sector’s earnings in CY08. . The sector trades at a PER of 10.52x, which is at a slight discount to the market PER of 10.55x. The sector trades at a cheap EV/MT of US$82.36 and FY08 P/B of 1.1x, 58% discount to the market P/B of 2.64x.

31 AKD Securities Limited Pakistan Market: 2007 - 2008 January 2008

Power Generation 2.7% weight in KSE-100 Index

Sector Valuation & Relative Performance

Sector Market Cap. (US$mn) 1,791 PkR/USD61.25 1M 3M 6M 12M Absolute (%) 0.2 (9.3) (15.7) 18.8 Rel. Index (%) (1.4) (10.4) (18.5) (21.2) Power Sector vs KSE-100 Index 44%

Power Sector - Valuation Multiples 34% FY06A FY07A FY08F FY09F EPS (PkR) 3.97 3.75 3.92 4.12 24% EPS growth -40% -5% 4% 5% PER (x) 9.95 10.53 10.08 9.58 14% ROE 16% 16% 16% 17% ROA 10% 10% 11% 12% 4% BVS (PkR) 24.59 23.62 23.76 24.18 P/BVS (x) 1.61 1.67 1.66 1.63 -6% CFS (PkR) 6.88 4.08 5.27 5.44 Dec-06 Mar-07 Jun-07 Sep-07 Jan-08 P/CFS (x) 5.74 9.69 7.49 7.26 DPS (PkR) 5.26 4.21 3.79 3.97 KSE-100 Index Power Dividend yield 13.3% 10.7% 9.6% 10.1% Payout Ratio 133% 112% 97% 96% Companies Covered EV/EBITDA (x) 4.8 4.6 5.3 5.9 Sector Sales as % of AKD Universe 4.4% 4.1% 3.5% 3.3% HUBC KAPCO Sector NPAT as % of AKD Universe 3.9% 3.6% 3.2% 3.0%

Horizon of the expansion chapter!

The AKD Universe power sector gained 18.8%YoY in absolute terms but underperformed the benchmark KSE-100 Index by 21.2% in CY07.

For FY08, we forecast the sector to post a bottomline growth of 4%YoY in line with pre-defined tariff structures.

Pakistan's electricity infrastructure is under tremendous pressure with power consumption expected to grow at 8%-9% p.a. The existing demand and supply gap in power consumption is estimated to grow at 1,000MW/year and is expected to reach approximately 5,550MW by CY10 unless new generation capacity is brought on line on a fast-track basis.

We are now beginning to see some real signs of investment activity in the power sector with the recent signing of Implementation Agreements (IAs) with seven companies totaling 1,210MWs of power generation capacity and financial close by six companies. This brightens expansion prospects for companies under our coverage.

The power sector trades at a forward FY08 PER of 10.08x versus the market at 10.55x and provides a dividend yield of 9.6%. We maintain our Overweight stance on the sector. .

32 AKD Securities Limited Pakistan Market: 2007 - 2008 January 2008

Autos 1.6% weight in KSE-100 Index

Sector Valuation & Relative Performance

Sector Market Cap. (US$mn) 1,604 PkR/USD61.25 1M 3M 6M 12M Absolute (%) (13.7) (11.2) (6.7) 36.6 Rel. Index (%) (15.3) (12.3) (9.5) (3.4) Autos Sector vs KSE-100 Index 74% Auto Sector - Valuation Multiples 64% 54% FY06A FY07A/E FY08F FY09F 44% EPS (PkR) 22.17 18.43 21.93 25.91 EPS growth 73% -17% 19% 18% 34% PER (x) 8.68 10.44 8.77 7.42 24% ROE 34% 22% 21% 21% 14% ROA 14% 11% 11% 11% 4% BVS (PkR) 65.73 83.23 102.28 124.80 -6% P/BVS (x) 2.93 2.31 1.88 1.54 Dec-06 Mar-07 Jun-07 Sep-07 Jan-08 CFS (PkR) (14.33) 17.44 21.87 25.77 P/CFS (x) (13.42) 11.03 8.79 7.46 KSE-100 Index Autos DPS (PkR) 3.12 3.38 4.74 5.46 Dividend yield 1.6% 1.8% 2.5% 2.8% Payout Ratio 14% 18% 22% 21% Companies Covered EV/EBITDA (x) 3.6 4.0 3.3 3.1 Sector Sales as % of AKD Universe 7.8% 7.4% 7.8% 7.9% HCAR INDU PSMC Sector NPAT as % of AKD Universe 3.2% 2.7% 2.6% 2.8%

Shrinking margins reduce speed

Having gained by 36.6%YoY, the auto sector underperformed the index by 3.4% in CY07. The increase in JPY/USD and steel prices coupled with plans to lower production kept price performance limited. While most auto companies reported an increase in their quarterly earnings, higher input costs (from June onwards) drove investor interest out of the sector even as volumes posted a marginal improvement of 0.4%YoY. We believe that the impact of JPY appreciation and higher steel prices, which is likely to become obvious in 4QCY07 and 1QCY08 results, is likely to be further priced in by investors. The sector underperformed the index by 15% over the past one month and is likely to lose more market cap. However, we think PSMC is worth looking at on the back of increasing volumes through low end market positioning. Auto sector is trading at a discount to the market PER of 10.55x. However, keeping in mind higher input costs as well as lower volumes, we expect the auto sector to underperform the index, justifying the discount on valuations.

33 AKD Securities Limited Pakistan Market: 2007 - 2008 January 2008

Gas T&D 1.4% weight in KSE-100 Index

Sector Valuation & Relative Performance

Sector Market Cap. (US$mn) 849 PkR/USD61.25 1M 3M 6M 12M Absolute (%) (4.3) (1.3) (9.5) (0.0) Rel. Index (%) (5.9) (2.4) (12.3) (40.0) Gas T&D vs KSE-100 Index 45%

Gas T&D - Valuation Multiples 35%

FY06A FY07A FY08F FY09F 25% EPS (PkR) 3.78 2.43 4.23 4.84 EPS growth 23% -36% 74% 14% 15% PER (x) 12.58 19.54 11.25 9.83 ROE 18% 11% 17% 18% 5% ROA 4% 2% 4% 4% -5% BVS (PkR) 20.86 22.40 24.33 26.29 P/BVS (x) 2.28 2.12 1.95 1.81 -15% CFS (PkR) 18.37 5.67 10.27 14.80 Dec-06 Mar-07 Jun-07 Sep-07 Jan-08 P/CFS (x) 2.59 8.39 4.63 3.21 DPS (PkR) 2.06 1.62 2.88 3.43 KSE-100 Index Gas Dividend yield 4.3% 3.4% 6.1% 7.2% Payout Ratio 55% 67% 68% 71% Companies Covered EV/EBITDA (x) 3.8 3.7 3.3 2.9 SNGP SSGC Sector Sales as % of AKD Universe 12.5% 11.9% 11.3% 11.6% Sector NPAT as % of AKD Universe 2.2% 1.4% 2.0% 2.1%

Capex to lead earnings growth!

The Gas Transmission and Distribution companies underperformed the benchmark KSE-100 Index by a massive 40% over the past 12 months while remaining unchanged in terms of market capitalization. The companies’ lackluster fundamental performance has largely been driven by extensive line losses or unaccounted for gas to the tune of PkR2bn recorded by both gas utilities over pre-set targets by the regulator, OGRA. As a result, aggressive capex to enhance the asset return base has failed to translate into higher earnings this year.

We expect price performance to improve going forward at par with the market. Last announced results have shown improvement in bottomline with sector profitability growing by 14%YoY. Aggressive capex and efforts to lower line losses undertaken by both companies should translate into further earnings growth.

SNGP is currently under our active coverage and the scrip trades at a forward PER of 9.8x and P/BVS of 1.8x. We recommend an Accumulate stance on the stock with a target price of PkR68.90.

34 AKD Securities Limited Pakistan Market: 2007 - 2008 January 2008

Chemicals 1.4% weight in KSE-100 Index

Sector Valuation & Relative Performance

Sector Market Cap. (US$mn) 1,294 PkR/USD61.25 1M 3M 6M 12M Absolute (%) (9.4) 19.6 14.1 65.0 Rel. Index (%) (11.0) 18.5 11.3 25.0 ICI vs KSE-100 Index 105% Chemical Sector - Valuation Multiples CY06A CY07E CY08F CY09F 75% EPS (PkR) 10.49 13.09 15.57 17.09 EPS growth -35% 25% 19% 10% PER (x) 18.56 14.86 12.50 11.39 45% ROE 13% 16% 17% 18% ROA 9% 11% 12% 13% 15% BVS (PkR) 82.05 80.98 89.30 97.64 P/BVS (x) 2.37 2.40 2.18 1.99 CFS (PkR) (80.51) 10.69 21.50 19.93 -15% P/CFS (x) (2.42) 18.21 9.05 9.77 Dec-06 Mar-07 Jun-07 Sep-07 Jan-08 DPS (PkR) 5.50 7.50 8.50 10.00 Dividend yield 2.8% 3.9% 4.4% 5.1% KSE-100 Index Chemical Payout Ratio 52% 57% 55% 59% EV/EBITDA (x) 8.0 6.5 5.7 5.1 Company Covered Sector Sales as % of AKD Universe 1.4% 1.4% 1.3% 1.3% ICI Sector NPAT as % of AKD Universe 0.7% 0.9% 0.9% 0.8%

Industrial expansions & construction sector to support growth

The chemicals sector has outperformed the benchmark KSE-100 Index by 25%YoY on the back of surge in sales volume and capacity expansions coming online earlier in the year, as a result of which quarterly EPS growth momentum has been improving, underpinning share price performance.

We forecast the sector to post EPS growth of 19%YoY during CY08 as demand is expected to increase from an expanding industrial sector and as further expansions come online. The slowdown in earnings growth rate in 2008 versus 2007 largely factors in higher input costs and the drag created by sharp slow down in the auto sector where ICI supplies paint, its highest margin product. The chemicals sector trades at a CY08E PER of 12.5x versus the market PER of 10.55x. We think this premium is justified on the back of strong earnings growth represented by a PEG of 0.7.

We maintain our Overweight stance on the sector.

35 AKD Securities Limited Pakistan Market: 2007 - 2008 January 2008

Textiles 0.9% weight in KSE-100 Index

Sector Valuation & Relative Performance

Sector Market Cap. (US$mn) 1,580 PkR/USD61.25 1M 3M 6M 12M Absolute (%) (7.9) (18.1) (23.2) 13.8

Rel. Index (%) (9.5) (19.2) (26.0) (26.2) Textile vs KSE-100 Index 50%

Textile Sector - Valuation 40%

FY06A FY07A FY08F FY09F 30% EPS (PkR) 10.51 10.41 10.79 13.27 EPS growth -7% -1% 4% 23% 20% PER (x) 9.22 9.31 8.98 7.30 ROE 8% 6% 6% 7% 10% ROA 11% 12% 11% 13% 0% BVS (PkR) 128.1 177.3 185.6 196.1 P/BVS (x) 0.8 0.5 0.5 0.5 -10% CFS (PkR) 10.0 13.5 11.2 14.5 Dec-06 Mar-07 Jun-07 Sep-07 Jan-08 P/CFS (x) 9.7 7.2 8.7 6.7 DPS (PkR) 1.6 2.5 2.6 2.7 KSE-100 Index Textile Dividend yield 1.7% 2.6% 2.7% 2.8% Payout Ratio 15% 24% 24% 21% Companies Covered EV/EBITDA (x) 6.92 6.38 6.51 6.03 Sector Sales as % of AKD Universe 1.6% 1.5% 1.4% 1.4% GADT NML Sector NPAT as % of AKD Universe 0.9% 0.9% 0.8% 0.9%

Exports to cushion cost burden

The AKD textile sector universe underperformed the KSE-100 Index by 26.2% during CY07, and was up 13.8% in absolute terms.

We expect the sector to post a marginal bottomline growth of 4%YoY during FY08 as cost efficiencies are achieved and topline shows capacity driven growth rather than price driven growth.

Cost of production is expected to remain high during FY08 but the export oriented companies are expected to survive the current business cycle downturn through their large export base and economies of scale.

Among recent developments, FTAs have been signed with China and Malaysia to boost market access. Duties on various textile categories are expected to be zero-rated on January 1st, '08 under FTA with China, where NML in particular should see benefits in terms of better margins on its yarn exports to China.

The sector trades at a FY08E PER of 8.98x compared to market PER of 10.55x and at a cheap P/BVS of 0.5x. We maintain our Overweight stance on the sector.

36 AKD Securities Limited Pakistan Market: 2007 - 2008 January 2008

Transport 0.9% weight in KSE-100 Index

Sector Valuation & Relative Performance

Sector Market Cap. (US$mn) 539 PkR/USD61.25 1M 3M 6M 12M Absolute (%) (6.0) 9.4 (16.5) 25.4 Rel. Index (%) (7.6) 8.3 (19.3) (14.6) PICT vs KSE-100 Index 50%

Transport Sector - Valuation Multiples 40%

FY06A FY07A FY08F FY09F 30% EPS (PkR) 3.20 3.64 5.55 7.47 EPS growth 29% 14% 52% 34% 20% PER (x) 21.53 18.94 12.42 9.24 ROE 19% 18% 23% 25% 10% ROA 8% 7% 9% 12% 0% BVS (PkR) 16.44 19.95 24.47 30.08 P/BVS (x) 4.19 3.46 2.82 2.29 -10% CFS (PkR) 6.21 5.84 5.18 7.17 Dec-06 Mar-07 Jun-07 Sep-07 Jan-08 P/CFS (x) 11.11 11.81 13.30 9.62 DPS (PkR) - - 2.00 3.00 KSE-100 Index Transport Dividend yield 0.0% 0.0% 2.9% 4.4% Payout Ratio 0% 0% 36% 40% Company Covered EV/EBITDA (x) 10.4 7.7 5.9 4.9 Sector Sales as % of AKD Universe 0.1% 0.1% 0.1% 0.2% PICT Sector NPAT as % of AKD Universe 0.1% 0.2% 0.2% 0.2%

Handling volumes on the rise!

Despite gaining 25.4% in absolute terms, the transport sector underperformed the KSE-100 Index by 14.6% over the past year. However, over the past three months, the transport sector has outperformed the KSE by 8.3%.

Price outperformance over the past three months has largely been driven by higher volumes translating into improving profitability. Within the transport sector, PICT has posted an impressive growth of 37%YoY (35%QoQ) in 1QFY08 on the back of higher handling volumes, up 27%YoY.

PICT is likely to continue posting bottomline growth particularly with deepening of the Karachi Port Channel by the Karachi Port Trust in 2008. As a result, PICT will be able to handle larger vessels increasing overall handling volumes.

We recommend an Accumulate stance on PICT with a target price of PkR72.0 offering an upside of 4.4% to our target price. On valuations, PICT trades at a forward PER12.4x versus the market PER of 10.55x.

37 AKD Securities Limited Pakistan Market: 2007 - 2008 January 2008

Paper & Board 0.7% weight in KSE-100 Index

Sector Valuation & Relative Performance

Sector Market Cap. (US$mn) 612 PkR/USD61.25 1M 3M 6M 12M Absolute (%) (4.5) 0.3 10.4 71.9 Rel. Index (%) (6.1) (0.9) 7.6 31.9 105% PKGS vs KSE-100 Index Paper & Board - Valuation Multiples 75% CY06A CY07E CY08F FY09F EPS (PkR) 16.60 15.41 17.34 20.10 EPS growth 20% -7% 12% 16% 45% PER (x) 21.7 23.4 20.8 18.0 ROE 14% 12% 13% 14% 15% ROA 5% 5% 5% 5% BVS (PkR) 119.8 129.5 138.2 148.2 P/BVS (x) 3.0 2.8 2.6 2.4 -15% CFS (PkR) (59.6) 10.9 5.4 7.9 Dec-06 Mar-07 Jun-07 Sep-07 Jan-08 P/CFS (x) (6.1) 33.1 66.8 45.8 DPS (PkR) 6.0 7.7 8.7 10.1 KSE-100 Index Paper & Board Dividend yield 1.7% 2.1% 2.4% 2.8% Payout Ratio 36% 50% 50% 50% Company Covered EV/EBITDA (x) 5.6 5.2 4.7 3.9 PKGS Sector Sales as % of AKD Universe 0.6% 0.5% 0.6% 0.6% Sector NPAT as % of AKD Universe 0.6% 0.5% 0.5% 0.5%

Burdened by high costs

The paper and board segment is dominated by Packages Limited which saw 72% increase in its stock price over the past one year, leading to an outperformance of 32% to the KSE-100 Index..

While during 9MCY07 the company’s bottomline declined by 9%YoY, the stock appreciated on expectations of an increase in the company’s massive expansion plan which will increase its capacity threefold. The company’s margins have been affected by higher depreciation costs and lower optimization levels of Bulleh Shah Paper Machine no. 6.

Cost pressure on the back of increased oil price is a menace the company is likely to be faced with in CY08. We do not expect the company to fully pass on the increase to the consumers and as a result, these costs should partially offset the growth in the company’s topline. . PKGS trades at par with its fair value of PkR364.20 and with all good news being priced in we do not expect it to outperform the market in the near term except if one time gain in form of land sell off or revaluation of its investment portfolio takes place.

38 AKD Securities Limited Pakistan Market: 2007 - 2008 January 2008

Agri Autos 0.5% weight in KSE-100 Index

Sector Valuation & Relative Performance

Sector Market Cap. (US$mn) 277 PkR/USD61.25 1M 3M 6M 12M Absolute (%) 0.2 (3.8) (5.3) 19.3 Tractors vs KSE-100 Index Rel. Index (%) (1.4) (4.9) (8.1) (20.7) 45%

Agri Auto Sector - Valuation Multiples 35% FY06A FY07A/E FY08F FY09F 25% EPS (PkR) 31.78 35.50 39.25 42.05 EPS growth 29% 12% 11% 7% PER (x) 8.99 8.05 7.28 6.80 15% ROE 33% 32% 31% 30% ROA 13% 14% 14% 13% 5% BVS (PkR) 96.36 110.98 126.67 142.35 P/BVS (x) 2.97 2.58 2.26 2.01 -5% CFS (PkR) 28.62 43.74 49.26 52.21 Dec-06 Mar-07 Jun-07 Sep-07 Jan-08 P/CFS (x) 9.98 6.53 5.80 5.47 DPS (PkR) 21.74 23.25 26.11 28.69 KSE-100 Index Agri Auto Dividend yield 7.6% 8.1% 9.1% 10.0% Payout Ratio 68% 65% 67% 68% Companies Covered EV/EBITDA (x) 4.0 3.6 3.3 3.1 AGTL MTL Sector Sales as % of AKD Universe 1.4% 1.3% 1.2% 1.2% Sector NPAT as % of AKD Universe 0.9% 1.0% 1.0% 0.9%

Seeking Deregulation

Agriautos have underperformed the benchmark KSE 100 index by 20.7% in CY07. However, in absolute terms, the sector appreciated by 19.3%YoY over the same time frame. .

During 9MCY07, the sector reported a 5% decline in bottomline combined with 2% decline in sales volumes, hence failing to generate investor interest. However, attractive dividend payout (dividend yield of 9.1%) has controlled the stock prices from plunging significantly.

Over the past six months, GB pound has appreciated by 3% against the Pak Rupee, increasing the cost of imported parts for the tractor assemblers, with increasing steel prices adding greater burden. Regulated tractor prices on the local front will result in an inability of the manufacturers to increase the prices, which is likely to negatively impact gross margins, going forward. .

Possible deregulation of the tractor prices can act as a potential price trigger for the manufacturers going forward. However, influx of cheaper imported tractors is likely to threaten in the medium to long term. While we expect cost pressures to persist on the back of increase in steel prices and appreciating GBP vs. PkR, we estimate the sector to report 11%YoY growth in bottomline based on growth in volumes. However, we feel this is insufficient for the sector to outperform the index in CY08.

39 AKD Securities Limited Pakistan Market: 2007 - 2008 January 2008

Top Picks for 2008

40 AKD Securities Limited January 2008 Pakistan Market: 2007 - 2008

Pakistan Bank Al-Falah Limited Buy Banking Sector Price-PkR53.9; target Price-PkR76.1; Potential Upside to target Price:41.2%

BAFL - Valuation Multiples Raza Jafri Investment Analyst CY06A CY07E CY08F CY09F [email protected] EPS (PkR) 2.71 4.75 5.41 6.79 EPS growth 4% 75% 14% 26% PER (x) 19.88 11.35 9.97 7.94 Priced on January 4, 2008 P/B Tier I (x) 3.3 2.5 2.1 1.69 KATS Code BAFL P/B (Tier I + Tier II) (x) 2.86 2.21 1.87 1.57 Tier I to Assets 3.8% 4.6% 5% 6% Bloomberg Code BAFL PA Market Cap to Deposits 15% 13% 12% 11% Price PkR 53.90 ROE (average) 17% 22% 20% 21% ROA (average) 1% 1% 1% 1%

Market Cap (PkRmn) 35,035 Market Cap (US$mn) 572 Deposits continue to show robust growth, exhibiting 21%YoY growth to reach PkR260bn at Sep ‘07. However, YTD deposits have grown by 9% while deposits Shares (mn) 650 in Sep’07 actually declined by 4%QoQ. We expect deposit growth to continue showing slightly moderated growth going forward while management has indicated BAFL - Stock performance that focus on branch expansion is to remain for the next two years at least (addition 1M 3M 12M of 40 branches p.a.). Absolute (%) -0.9 -4.3 62.6 On the advances front, growth of 12%YoY has been witnessed in Sep’07 although Rel. Index (%) -2.5 -5.5 22.6 advances have declined by PkR6.5bn from Jun ‘07 to reach PkR149bn at end Absolute (PkR) -0.5 -2.5 20.8 3QCY07. Management believes that potential in the consumer segment is still high and that the current downturn in this segment is temporary. We expect loan growth to recover in CY08F, on the back of a resurgent corporate cycle and 1M High (PkR) 57.80 recovery on the consumer side, with the ADR to inch to 61%. . 1M Low (PkR) 49.40 Accelerated deposit growth in tandem with high funding costs (>6%) have understandably led to spreads just below 4%. Going forward, we expect funding 1Yr High (PkR) 65.10 costs to come down as existing branches mature and new branches enhance the 1Yr Low (PkR) 33.15 ‘convenience’ factor for BAFL. On this basis, we expect spreads to breach the 4% barrier in CY08F and show consistent improvement going forward. We thus 3M Avg D Vol (shares) '000 6,539 expect net interest income to show CY06-CY09 CAGR of 28%. 1 Yr Avg Turnover '000 9,189 Fee income continues to display impressive growth, increasing by 39%YoY to reach PkR643mn in 3QCY07. Growth over nine months is even more impressive; 3M AD Value (US$mn) 6.0 growing by 43%YoY in 9MCY07. Aided by the consumer business, we expect fee income to further rally the bottom line, even as core income rises through improving spreads. On a cautionary note, the normalized cost/income ratio reached a high BAFL - PER Band CY08F (x) (PkR) 75% in 3QCY07. If the issue is ignored, rising expenses have the potential to eat 70 into improving topline income but we expect management to address the matter. 60 12.0 With regards to the new Forced Sale Value (FSV) regulation, we estimate an EPS 50 10.0 impact for BAFL of close to PkR0.88 for full-year CY07 due to estimated incremental 40 8.0 30 6.0 provisioning amounting to PkR880mn. 20 In 3QCY07, BAFL recorded capital gains of PkR1.789bn on the sale of 48.8mn 10 shares of Warid Telecom to Singtel. The ace up the sleeve for BAFL is the Jan-05 Aug-05 Mar-06 Oct-06 May-07 Jan-08 remaining stake (12.38%) in Warid Telecom where the remaining 267.957mn shares are held at a book cost of PkR2.19bn. Using the terms of the current sell- PkR BAFL Price & Volume Chart Vol (mn) 50 off as a proxy, these shares are potentially worth PkR12.55bn. As it stands, BAFL 65 40 is sitting on a potential capital gain of PkR10.4bn, translating into a post-tax gain 50 30 of PkR11.76/share! 20 35 10 BAFL is currently trading at a CY08F Tier-I P/B multiple of 2.1x and a CY08F 20 - PER of 9.97x. The remaining stake in Warid, if sold, represents a potential total Jan-07 May-07 Aug-07 Jan-08 Vol (mn) (RHS) BAFL (LHS) Tier-I BVPS of PkR32.6 on which basis BAFL is trading at a Tier-I P/B multiple of just 1.7x. The scrip has outperformed the KSE-Index by 22.6% over the past 12 months. As it stands, BAFL offers 41.2% upside to our target price of PkR76.10.

41 AKD Securities Limited Pakistan Market: 2007 - 2008 January 2008

Bank Alfalah - Annual Databank

BAFL - Valuation Multiples Year End Dec 31 CY06A CY07E CY08F CY09F EPS (PkR) 2.71 4.75 5.41 6.79 EPS growth 4% 75% 14% 26% PER (x) 19.88 11.35 9.97 7.94 Tier I BVS (PkR) 16.27 21.82 26.23 31.81 P/B Tier I (x) 3.3 2.5 2.1 1.69 Tier II BVS (PkR) 2.57 2.57 2.57 2.57 BVS (PkR) 18.83 24.39 28.80 34.38 P/B (Tier I + Tier II) (x) 2.86 2.21 1.87 1.57 Tier I to Assets 3.8% 4.6% 5% 6% Tier I + Tier II to Assets 4.4% 5.1% 5.6% 6.1% Loan to Deposit 63% 59% 61% 63% Yield on earning assets 9.5% 10.2% 10.1% 10.0% Cost of Funds 6.2% 6.3% 6.1% 5.9% Growth in Loan Book 26% 4% 13% 11% Growth in Deposits 8% 11% 8% 8% Spread 3.3% 3.9% 4.0% 4.1% Market Cap to Deposits 15% 13% 12% 11% Cost/Income 69% 64% 62% 59% ROE (average) 17% 22% 20% 21% ROA (average) 1% 1% 1% 1% DPS (PkR) - 1.5 2.0 2.5 Dividend yield 0% 3% 4% 5% Payout Ratio 0% 32% 37% 37%

BAFL- Income Statement (In PkRmn) CY06A CY07E CY08F CY09F Mark-up / return / interest earned 21,191 25,609 28,721 31,101 Mark-up / return / interest expensed 15,233 16,787 17,981 18,602 Net Mark-up / interest income 5,959 8,823 10,740 12,500 Provision against non-performing loans and advances - net 698 2,103 966 972 Bad debts written off directly 2 5 14 42 Provisions 699 2,107 979 1,014 Net mark-up / Interest Income after provisions 5,259 6,716 9,760 11,486 Fee, commission and brokerage income 1,805 2,346 3,050 3,661 Dividend income 37 47 51 57 Income from dealing in foreign currencies 387 445 534 641 Other income 985 1,035 1,086 1,141 Total non mark-up / return / interest income 3,225 5,883 4,923 5,720 Administrative expenses 5,875 8,048 9,115 10,072 Other Charges 43 89 182 374 Total non mark-up / interest expenses 5,918 8,137 9,297 10,446 NPBT 2,566 4,461 5,386 6,760 Total Tax 803 1,374 1,872 2,349 NPAT 1,763 3,087 3,514 4,411

42 AKD Securities Limited Pakistan Market: 2007 - 2008 January 2008

BAFL - Balance Sheet (In PkRmn) CY06A CY07E CY08F CY09F Cash and balances with treasury bank 27,859 19,295 19,630 21,343 Balances with other banks 12,732 15,309 18,316 23,504 Lending to financial institutions 12,457 13,834 15,047 16,339 Investments 56,502 85,730 88,250 90,401 Performing loans and advances 149,999 155,744 175,557 194,431 Other Assets 5,633 6,889 7,493 8,136 Fixed Assets 10,503 11,635 12,655 13,741 Total Assets 275,686 308,437 336,948 367,896 Bills payable 3,091 3,400 3,740 4,114 Borrowings from financial institutions 8,394 9,234 9,926 10,671 Deposits and Other Accounts 239,509 265,448 287,516 310,558 Sub-ordinated loans 3,222 3,544 3,899 4,289 Other Liabilites 7,305 9,132 11,415 14,269 Deferred Liabilites 1,921 1,825 1,734 1,647 Total Liabilities 263,444 292,583 318,229 345,547 Net Assets 12,242 15,854 18,718 22,349 Share Capital 5,000 6,500 6,500 6,500 Reserves 2,750 3,590 4,680 6,020 Unappropriated Profits 2,823 4,095 5,869 8,160 Total Tier I Equity 10,573 14,185 17,049 20,680 Surplus on Revaluation of assets 1,669 1,669 1,669 1,669 Total Tier II Equity 1,669 1,669 1,669 1,669 Total SHEQ 12,242 15,854 18,718 22,349 Total SHEQ and Liabilities 275,686 308,437 336,948 367,896

43 AKD Securities Limited January 2008 Pakistan Market: 2007 - 2008

Pakistan D.G. Khan Cement Buy Cement Sector Price-PkR94; target Price-PkR124; Potential Upside to target Price:31.9%

Furqan Ayub DGKC - Valuation Multiples Investment Analyst FY06A FY07A FY08F FY09F [email protected] EPS (PkR) 9.54 6.40 6.74 9.82 EPS growth 43.8% -33% 5% 46% PER (x) 9.9 14.7 13.9 9.6 Priced on January 4, 2008 ROE 13% 5% 5% 7% P/BVS (x) 1.2 0.7 0.7 0.6 KATS Code DGKC Dividend yield 1.6% 1.6% 2.1% 2.7% Bloomberg Code DGKC PA EV/Ebitda (x) 3.2 5.6 4.0 3.3 Price PkR 94.00 Cement sector is completing an expansionary phase with annual capacity in FY08 Market Cap (PkRmn) 23,832.86 expected to reach 38mn tpa versus 30mn tpa in FY07. The recent demand trend Market Cap (US$mn) 389.11 has remained robust with total dispatches in the industry surging by 32%YoY in 5MFY08. DGKC's total dispatches in 5MFY08 amounted to 1.64mn tons, depicting Shares (mn) 253.54 a growth rate of 71%YoY. Domestic demand is likely to remain robust over the medium term considering Pakistan's low capita consumption, large population DGKC - Stock performance and 6% plus GDP growth. Exports should continue to elevate the growth rate as 1M 3M 12M construction boom coupled with infrastructure developments in India, Middle East Absolute (%) -5.2 -18.5 51.0 and Afghanistan are likely to keep Pakistani cement manufacturers busy in the Rel. Index (%) -6.8 -19.6 11.0 long run Absolute (PkR) -5.2 -21.3 31.8 While the 1HFY08 results are likely to be a dampener on the stock price owing to increased costs and low retention prices, the real impact of increase in prices is likely to become obvious in 3QFY08 onwards. Furthermore, with DGKC expected 1M High (PkR) 104.40 to take export exposure to complement the company's domestic lionshare, we 1M Low (PkR) 85.50 expect a 3-year volume CAGR of 25%. With volumes taking care of their end of the equation, we expect a "price consensus" to take care of the rising input cost 1Yr High (PkR) 120.00 and improve overall margins. 1Yr Low (PkR) 62.25 In November 07, DGKC sold nearly 40k tons to India and has targeted 300k tons of export to India for FY08. This will help in improving gross margin since average 3M Avg D Vol (shares) '000 7,991 retention prices from Indian sales are around US$65/ton. We believe shortage 1 Yr Avg Turnover '000 11,472 in India is likely to persist till FY10 after which major capacity expansions come online. However for now cement manufacturers in Pakistan have enough idle capacity to step in and contribute to reducing the demand supply gap in India. 3M AD Value (US$mn) 13.41 Prices on the local front have gradually improved by PkR35/ per bag as it was becoming increasingly difficult for cement manufacturers to absorb the rise in input costs at previous prices. Retail prices have gone up to PkR225-PkR230 per PkR DKGC - FY08F Per Band (x) bag in the North and PkR245-PkR250 per bag in South. We expect prices to 140 120 gradually improve as the demand rides a seasonal upturn from 3QFY08 onwards. 100 14 80 12 In line with the industry's price performance, over the past one year, DGKC's price 60 10 8 appreciated by 11% relative to the market. The performance could have been 40 20 much better was it not for the disappointing quarterly results, which resulted in Jul-04 Mar-05 Nov-05 Aug-06 Apr-07 Jan-08 the company underperforming the index by 19.6% since the announcement of the 1HFY07 results. At current market price, the stock trades at FY08 PER of 13.9x and P/B of 0.7x versus the regional average PER of 21x. However, DGKC's PkR DKGC Price & Volume Chart Vol (mn) 125 60 core EV/ton of US$47 is significantly less than the regional average of US$183. 110 50 40 95 30 80 20 65 10 50 - Jan-07 May-07 Aug-07 Jan-08 Vol (mn) RHS DGKC (LHS)

44 AKD Securities Limited January 2008 Pakistan Market: 2007 - 2008

D.G. Khan Cement - Annual Databank

DGKC - Income Statement (In PkRmn) FY06A FY07A FY08F FY09F Sales 7,956 7,776 9,716 11,444 Cost of sales 3,993 4,660 5,485 6,206 Gross profit 3,963 3,116 4,231 5,237 Operating expenses 156 156 194 229 Operating profit 3,807 2,960 4,037 5,008 EBITDA 4,151 3,695 4,786 5,760 Financial charges 460 1,121 1,013 1,115 Other income/(expenses) 294 441 496 557 Profit before tax 3,640 2,280 3,520 4,450 Taxation 1,030 730 952 1,196 Net Profit 2,418 1,551 2,568 3,254

DGKC - Balance Sheet (In PkRmn) FY06A FY07A FY08F FY09F Current assets 9,910 10,161 10,165 10,973 Operating assets 19,576 21,041 20,792 20,141 Total assets 34,304 51,744 51,944 51,842 Current liabilities 6,015 4,868 4,045 3,371 Long-term Debt 7,401 8,732 7,243 5,452 Other long term liabilities 34 1,093 593 593 Shareholders equity 19,268 21,327 23,895 26,515 Total equity and libilities 34,304 36,020 35,776 35,932

DGKC - Cashflow Statement (In PkRmn) FY06A FY07A FY08F FY09F C.F from Operating Activities 4,196 1,587 2,625 3,407 C.F from Investing Activities (8,945) (1,499) (12) 448 C.F from Financing Activities 4,732 (64) (2,656) (3,202) Net change in cash (17) 24 (44) 652 Beginning cash balance 94 77 101 57 Ending cash balance 77 101 57 709

DGKC - Key Ratios FY06A FY07A FY08F FY09F Sales growth 51% -19% 79% 18% Gross profit margin 50% 32% 27% 29% EBITDA margin 52% 37% 29% 30% Net profit margin 30% 25% 15% 18% L.T debt/Equity 38% 26% 27% 16% Current Ratio (x) 1.6 2.6 3.7 2.9 ROE 13% 5% 5% 7% ROA 15% 9% 12% 14%

45 AKD Securities Limited January 2008 Pakistan Market: 2007 - 2008

Pakistan Engro Chemical Limited Buy Fertilizer Sector Price-PkR262.5; target Price-PkR350; Potential Upside to target Price:33.3%

Faiza Naeem ENGRO - Valuation Multiples Investment Analyst CY06A CY07E CY08F CY09F [email protected] EPS (PkR) 13.17 13.73 13.77 14.51 EPS growth 9.8% 4.3% 0.3% 5.4% PER (x) 19.9 19.1 19.1 18.1 ROE 27% 19% 14% 13% Priced on January 4, 2008 P/BVS (x) 5.4 3.6 2.6 2.4 KATS Code ENGRO Dividend yield 3.4% 1.8% 1.8% 1.9% EV/Ebitda (x) 8.2 7.2 6.7 6.4 Bloomberg Code ENGRO PA Price PkR 262.50 Urea demand reported flat growth during CY07 as a result of carryover inventory at dealer level at the beginning of the year. During the year, the local companies benefited Market Cap (PkRmn) 50,786 from rising international prices as well as strong pricing power on the local front Market Cap (US$mn) 829 However, going forward, in a supply constrained market local fertilizer companies are Shares (mn) 193.47 likely to benefit from increasing urea prices which while subsidized following the international trend for CY08, we expect 4%YoY increase in urea prices. Strong pricing power and improved other income for most fertilizer companies is likely to drive earnings ENGRO - Stock performance growth of the fertilizer sector. 1M 3M 12M Absolute (%) -5.0 -11.5 59.2 Engro Chemicals is well placed to encash upon its status as a conglomerate through Rel. Index (%) -6.6 -12.7 19.2 exploiting the growth in demand for urea, FMCG and power segments through aggressive Absolute (PkR) -14.0 -34.2 97.6 expansions. Furthermore the company is also increasing the capacity of Engro Polymer, Engro's 80% owned subsidiary which is likely to come online in the 2HCY08. Engro Polymer is expected to be listed separately after the company issues an IPO in March 1M High (PkR) 281.50 08. While this may not change the fundamental value of Engro Chemicals, it is likely 1M Low (PkR) 241.00 to act as a significant price trigger for the stock. Strong pricing power of the companies is likely to allow them to pass on input cost (gas 1Yr High (PkR) 296.70 prices increased by 6% in January 08) increases to consumers. As a result, we expect 1Yr Low (PkR) 158.65 the margins to remain stable for most fertilizer companies if not improve any further. 4QCY07 results are likely to act as a potential short term trigger for the stock. Engro's 3M Avg D Vol (shares) '000 5,040 4QCY07 bottomline is likely to be enhanced on the back of higher dividend from Engro 1 Yr Avg Turnover '000 4,089 Eximp, Engro's subsidiary involved in marketing DAP. Increased sales of DAP as well as inventory gains as a result of continuous rise in the international DAP prices are likely to result in enhanced 4QCY07 results (Engro will book dividends from both the 3M AD Value (US$mn) 23 quarters in the 4QCY07), translating into higher dividends for Engro Chemicals. As a result, Engro Chemicals can potentially report an EPS of PkR6.5 to PkR7.5, the highest (PkR) ENGRO - PER Band (CY08F) (x) ever being reported by the company in a quarter. Furthermore, plant shut down of 280 FFBL during 1QCY07 should provide opportunity for Engro to import greater quantity 250 18 220 16 of DAP and cash upon inventory gains on the back of expected continuous increase 190 14 in DAP prices. 160 12 130 Engro outperformed the benchmark KSE-100 index by 19.2% over the past 12 months 100 70 and should continue to perform on the back of the value the stock holds in form of Jan-04 Oct-04 Aug-05 Jun-06 Mar-07 Jan-08 Engro Foods as well as news flow regarding the IPO of Engro Polymer. While the company's NPAT is likely to grow at a meager rate of 3% till CY09, once the expansion PkR ENGRO Price & Volume Chart Vol (mn) comes online Engro's 4-year (CY09-CY15) earnings CAGR is likely to increase up to

320 18 25%, translating into a PEG ratio of 0.81. 280 14 240 10 200 6 160 2 120 - Jan-07 May-07 Aug-07 Jan-08 Vol (mn) RHS ENGRO (LHS)

46 AKD Securities Limited January 2008 Pakistan Market: 2007 - 2008

Engro Chemicals - Annual Databank

ENGRO - Income Statement (In PkRmn) CY06A CY07E CY08F CY09F Net Revenues 17,602 19,789 22,434 24,410 COGS 13,365 14,762 17,017 18,814 Gross Profit 4,237 5,027 5,417 5,596 Distribution expenses 1,482 1,609 1,778 1,926 Other expenses 287 321 347 354 Other income 1,339 1,159 1,311 1,374 Financial charges 363 626 961 879 Profit before tax 3,445 3,630 3,642 3,811 Taxation 897 974 978 1,003 Net Profit 2,547 2,656 2,664 2,808

ENGRO - Balance Sheet (In PkRmn) CY06A CY07E CY08F CY09F Current assets 5,684 9,898 8,597 8,389 Operating assets 10,296 15,683 30,762 48,773 Total assets 15,981 25,581 39,359 57,161 Current liabilities 3,642 2,434 1,732 4,038 Long term liabilities 2,968 9,168 18,350 32,009 Shareholders equity 9,370 13,978 19,276 21,114 Total equity and liabilities 15,981 25,581 39,359 57,161

ENGRO - Cashflow Statement (In PkRmn) CY06A CY07E CY08F CY09F Cashflow from Operating Activities 1,380 2,713 1,568 1,973 Cashflow from Investing Activities (689) (4,713) (14,627) (17,444) Cashflow from Financing Activities (1,238) 6,564 10,991 14,863 Net change in cash (547) 4,564 (2,067) (608) Ending cash balance 1,805 6,369 4,302 3,694

ENGRO - Key Ratios CY06A CY07E CY08F CY09F Sales growth -4% 12% 13% 9% Gross profit margin 24% 25% 24% 23% Net profit margin 14% 13% 12% 12% EBITDA margin 25% 24% 23% 21% Return on assets 16% 10% 7% 5% Return on equity 27% 19% 14% 13% LT debt/Equity 19% 57% 89% 129% Debt/Equity Ratio 45% 64% 90% 140% Current Ratio (x) 1.56 4.07 4.96 2.08

47 AKD Securities Limited January 2008 Pakistan Market: 2007 - 2008

Pakistan Fauji Fertilizer Company Accumulate Fertilizer Sector Price-PkR123.5; target Price-PkR137; Potential Upside to target Price:10.9%

FFC - Valuation Multiples Faiza Naeem Investment Analyst CY06A CY07E CY08F CY09F [email protected] EPS (PkR) 9.39 11.75 13.67 13.29 EPS growth -5% 25% 16% -3% PER (x) 13.1 10.5 9.0 9.3 ROE 36% 42% 47% 46% Priced on January 4, 2008 P/BVS (x) 4.7 4.4 4.2 4.3 KATS Code FFC Dividend yield 8% 10% 11% 11% EV/EBITDA (x) 7.0 6.1 5.5 5.6 Bloomberg Code FFC PA Price PkR 123.50 Being the market leader with 49% market share in a supply constrained urea Market Cap (PkRmn) 60,944.06 market, FFC is allowed a degree of pricing power, which enables it to maintain Market Cap (US$mn) 995.01 its gross margins in case of an increase in raw material and fuel costs (which includes increase in gas prices mainly). Like most fertilizer companies CY07 has Shares (mn) 493.47 been a dull year for urea when fertilizer companies, reported a 7%YoY decline in urea sales. However, the company banked upon growth in output prices of FFC - Stock performance urea and purchased DAP, resulting in the company's operating income increasing 1M 3M 12M by 22%YoY in 9MCY07. Absolute (%) -0.4 0.4 17.0 Rel. Index (%) -2.0 -0.7 -23.0 FFC has no major capacity expansion plans except for 37k MT of debottlenecking Absolute (PkR) -0.5 0.5 18.0 which is likely to come online in CY08, which is expected to be fully absorbed in the same year. While we estimate the urea sales volumes to grow by 3%YoY in 1M High (PkR) 125.20 CY08, we expect Fauji Fertilizer Company to post a 17%YoY growth in CY08 bottomline on the back of 1) 4%YoY growth in average urea prices, 2) Inflated 1M Low (PkR) 118.75 other income from FFBL, which is likely to bring its 51% DAP capacity expansion online in 2QCY08, and 3) relatively higher DAP sales volume owing to FFBL's 1Yr High (PkR) 129.15 shutdown for BMR completion. 1Yr Low (PkR) 103.70 Fauji Fertilizer Company currently offers a dividend yield of 11% on forecasted CY07 DPS, which makes it a unique defensive stock with a twist of growth coming 3M Avg D Vol (shares) '000 1,776 from its 51% stake in FFBL. This is against the market average of 5%. The 1 Yr Avg Turnover '000 1,637 company has historically maintained a 100%+ payout ratio and we expect the company to continue doing so in the future since it has no significant expansion or diversification plans coming up in the short-term. Therefore, in the wake of 3M AD Value (US$mn) 3.54 political uncertainty which is likely to persist during 1QCY08, FFC can add value to an investor's portfolio as a defensive stock and at the same time offer potential (PkR) FFC - PER Band (CY08F) (x) for growth from 2HCY08, when the benefits from FFBL's expansion start flowing 190 in from higher dividends. 160 12.0 10.0 130 Over the past one year, we believe that investors have overlooked the key player 8.0 100 in the local fertilizer industry, Fauji Fertilizer Company Ltd which has underperformed 6.0 70 the index by 23% over the same period of time. FFC currently trades at a forecasted 40 CY08F PER of 9.3x compared to the sector average of 11.2x. At the same time, Jan-04 Oct-04 Aug-05 Jun-06 Mar-07 Jan-08 the stock offers an impressive dividend yield of 11% on forecasted CY08 DPS. Considering that FFBL has outperformed the index by 12% over the past one year on the back of capacity expansions expected to be completed in CY08, we PkR FFC Price & Volume Chart Vol (mn) 12 believe that FFC should be in the investors' limelight owing to its 51% stake in 125 10 FFBL. Based on cheap multiples and its relative underperformance, we re-iterate 8 our Accumulate stance on FFC with a DCF based target price of PkR137. 115 6 4 105 2 95 - Jan-07 May-07 Aug-07 Jan-08 Vol (mn) RHS FFC (LHS)

48 AKD Securities Limited January 2008 Pakistan Market: 2007 - 2008

Fauji Fertilizer Company - Annual Databank

FFC- Income Statement (In PkRmn) CY06A CY07E CY08F CY09F Net Revenues 29,951 36,695 38,627 41,492 COGS 20,242 25,693 27,213 29,607 Gross Profit 9,709 11,002 11,414 11,885 Distribution expenses 2,747 3,353 3,694 4,087 Other expenses 735 755 776 797 Other income 1,276 1,896 2,864 2,562 Financial charges 517 507 380 301 Profit before tax 6,985 8,283 9,427 9,263 Taxation 2,349 2,486 2,681 2,704 Net Profit 4,636 5,796 6,747 6,559

FFC - Balance Sheet (In PkRmn) CY06A CY07E CY08F CY09F Current assets 9,765 10,591 9,306 9,501 Operating assets 17,666 17,456 18,491 18,148 Total assets 27,430 28,047 27,797 27,648 Current liabilities 10,884 11,586 11,201 11,465 Long term liabilities 3,590 2,531 2,191 1,872 Shareholders equity 12,957 13,930 14,405 14,311 Total equity and liabilities 27,430 28,047 27,797 27,648

FFC - Cashflow Statement (In PkRmn) CY06A CY07E CY08F CY09F Cashflow from Operating Activites (396) 4,698 4,745 4,833 Cashflow from Investing Activities (354) 3,770 985 2,047 Cashflow from Financing Activites (2,555) (6,060) (7,340) (7,028) Net change in cash (3,305) 2,408 (1,610) (148) Ending cash balance 1,623 4,031 2,421 2,273

FFC - Key Ratios CY06A CY07E CY08F CY09F Sales growth 18% 23% 5% 7% Operating margin 25% 24% 25% 23% Net profit margin 15% 16% 17% 16% LT debt/Equity 9% 4% 7% 3% Current Ratio (x) 90% 91% 83% 83% ROE 36% 42% 47% 46% ROA 17% 21% 24% 24%

49 AKD Securities Limited January 2008 Pakistan Market: 2007 - 2008

Pakistan Habib Bank Limited Buy Banking Sector Price-PkR235.8; target Price-PkR355; Potential Upside to target Price:50.6% HBL - Valuation Multiples Raza Jafri CY06A CY07E CY08F CY09F Investment Analyst EPS (PkR) 20.69 17.97 24.37 28.11 [email protected] EPS growth 60% -13% 36% 15% PER (x) 11.40 13.12 9.67 8.39 PB Tier I (x) 3.6 3.7 2.8 2.2 Habib Bank Ltd. P/B (Tier I + Tier II) (x) 3.1 3.1 2.4 2.0 Listed on main KSE on September 24, 2007 Tier I to Assets 8% 7% 8% 10% Market Cap to Deposits 37% 32% 30% 28% ROE 31% 24% 28% 26% Priced on January 4, 2008 ROA 3% 2% 3% 3% KATS Code HBL Bloomberg Code HBL PA As characterized by the rest of the sector, deposit growth at 23%YoY has been Price PkR 235.80 strong for HBL this year, deposits having reached PkR506bn in Sep’07. Advances growth has been relatively modest, at 6.17%YoY in the nine months to Sep’07. Market Cap (PkRmn) 162,702.00 Advances have reached PkR327bn in 3QCY07, leaving the ADR at 65%. Going forward, we expect HBL to be a prime beneficiary as the corporate borrowing Market Cap (US$mn) 2,656.36 cycle picks speed, as the Bank’s high equity size implies high per-party exposure. Shares (mn) 690.00 In tandem with further expansion in the consumer financing space (through credit cards), we expect the ADR to reach close to 70% by CY08F end. .

HBL - Stock performance A strong deposit franchise continues to manifest through the largest branch 1M 3M network in Pakistan (more than 1400 domestic branches). As a result, HBL continues to enjoy high spreads of close to 6%. With growth focus on retail deposits Absolute (%) -8.4 -20.7 and recent entry into high-yielding consumer segments, we expect spreads to be Rel. Index (%) -10.0 -21.9 maintained above 6% going forward. On the non-core income side, HBL’ fee Absolute (PkR) -21.6 -61.7 income has declined by 5.5%YoY in 9MCY07. We expect a significant improvement on this front as the bank develops its consumer financing portfolio. .

Data since Listing: Recent poor price performance of HBL (the scrip has underperformed the KSE- 100 Index by 10.0% over the last month) is attributable in part to asset quality Avg Turnover '000 2,193 fears, with the bank expected to face incremental provisioning of more than Avg Daily T.D Val (US$mn) 7.5 PkR4bn in full-year CY07, due to the new FSV regulation. However, investor High (PkR) 298.70 sentiment also seems to have been damaged due to the bank reversing a sizeable Low (PkR) 218.00 capital gain (of PkR9.8bn) of mark-to-market of an associate in 3QCY07. That said, the FSV rule has no cash-flow impact, leaving fundamentals intact and the capital gain u-turn in 3QCY07 simply reverses the gain booked in 2QCY07. With strong provisions built-in, we expect the quality of 2008 earnings to significantly improve, especially as HBL looks to flex its lending muscle. The story of HBL is all about the restructuring process. We expect expenses to normalize on the back of completed Voluntary Separation Scheme (for CY06 and CY05 the pre-tax VSS expense per share has been PkR2.5 and PkR2.3 respectively). At the same time, we remain admirers of HBL’s solid topline whereby an efficient deposit base leads to high spreads and consequently high profitability. Further penetration of the consumer financing space through credit cards and

PkR HBL Price & Volume Chart Vol (mn) more focus on SMEs represent potentially high-reward growth areas. Execution 305 14 efficiency is key for HBL whereby the Bank is ahead of other newly-privatized 290 12 peer banks in the upgrade of IT infrastructure. 275 10 260 8 In light of recent poor price performance, we expect a turnaround as HBL’s distinct 245 6 advantages such as low funding costs (<4%), large customer base (more than 230 4 5mn customers, translating into significant cross-sell opportunities) and a solid 2 215 brand name manifest themselves going forward. HBL is currently trading at a 200 - 24-Sep 22-Oct 14-Nov 6-Dec 3-Jan CY08F Tier-I P/B multiple of 2.8x and a CY08F PER of 9.67x. The scrip offers Vol (mn)(RHS) HBL (LHS) 50.6% upside to our target price of PkR355. Buy!

50 AKD Securities Limited Pakistan Market: 2007 - 2008 January 2008

Habib Bank Limited - Annual Databank

HBL - Valuation Multiples Year End Dec 31 CY06A CY07E CY08F CY09F EPS (PkR) 20.7 17.97 24.4 28.1 EPS growth 60% -13% 36% 15% PER (x) 11.4 13.1 9.7 8.4 Tier I BVS (PkR) 66.3 64.0 84.4 108.1 PB Tier I (x) 3.6 3.7 2.8 2.2 Tier II BVS (PkR) 10.6 12.0 12.0 12.0 BVS (PkR) (Tier I + Tier II) 77.0 75.9 96.4 120.1 PB (Tier I + Tier II) (x) 3.1 3.1 2.4 2.0 ROE/PB Tier-I (x) 10.3 7.5 11.8 13.4 ROE/PB (x) 10.0 7.6 11.6 13.2 Tier I to Assets 8% 7% 8% 10% Loan to Deposit 76% 67% 69% 71% Yield on earning assets 9.1% 9.6% 9.6% 9.6% Cost of Funds 2.6% 3.5% 3.5% 3.5% Spread 6.4% 6.1% 6.1% 6.1% Market Cap to Deposits 37% 32% 30% 28% Growth in Loan Book 9% 2% 12% 8% Growth in Deposits 6% 16% 7% 6% Cost/Income 39% 45% 38% 35% ROE (Tier-I) 37% 28% 33% 29% ROE 31% 24% 28% 26% ROA 3% 2% 3% 3% DPS (PkR) 3.0 3.5 4.0 4.5 Dividend yield 1% 1% 2% 2% Payout Ratio 14% 19% 16% 16%

HBL- Income Statement (In PkRmn) CY06A CY07E CY08F CY09F Mark-up / return / interest earned 42,153 49,130 54,345 58,949 Mark-up / return / interest expensed 12,504 18,395 20,267 21,952 Net Mark-up / interest income 29,648 30,734 34,078 36,997 Provision against NPLs and adv. - net 2,861 4,096 1,904 1,852 Provision/(reversal) for dim. in value of invest. - net (14) - - - Provisions against off balance sheet obligations (45) - - - Net mark-up / Interest Income after provisions 26,846 26,638 32,175 35,145 Fee, commission and brokerage income 3,608 2,556 2,939 3,468 Dividend income / gain on sale of investments 3,266 1,281 1,511 1,662 Income from dealing in foreign currencies 1,098 1,268 1,458 1,560 Other income 2,174 2,683 3,220 3,542 Total non mark-up / return / interest income 10,146 7,787 9,127 10,232 Administrative expenses 14,589 15,657 15,813 15,972 Other provisions / write offs / (reversals) 123 129 135 142 Other charges 55 58 61 64 Total non mark-up / interest expenses 14,766 15,843 16,009 16,177 Extraordinary items 1,724 - - - NPBT 20,503 18,582 25,293 29,200 Total Tax 6,227 6,183 8,475 9,804 NPAT 14,276 12,398 16,818 19,395

51 AKD Securities Limited Pakistan Market: 2007 - 2008 January 2008

HBL - Balance Sheet (In PkRmn) CY06A CY07E CY08F CY09F Cash and balances with treasury bank 46,245 55,653 60,920 69,954 Balances with other banks 23,532 31,940 36,005 39,901 Lending to financial institutions 6,550 9,582 10,287 14,509 Investments 119,129 159,698 164,594 166,859 Loans & advances 335,985 341,364 380,734 411,565 Other Assets 17,448 19,225 20,640 21,834 Fixed Assets 11,803 12,937 13,889 14,693 Deferred tax asset - net 2,224 2,949 3,167 3,350 Total Assets 562,916 633,348 690,236 742,665 Bills payable 5,577 6,885 7,573 7,952 Borrowings from financial institutions 49,981 45,114 48,272 50,685 Deposits and Other Accounts 439,724 511,822 549,538 581,900 Other Liabilities 14,522 17,136 18,336 19,252 Total Liabilities 509,804 580,956 623,719 659,790 Net Assets 53,112 52,392 66,517 82,874 Share Capital 6,900 6,900 6,900 6,900 Reserves 16,817 19,344 20,984 22,725 Unappropriated Profits 22,048 17,883 30,367 44,983 Total Tier I Equity 45,765 44,126 58,251 74,609 Surplus on Revaluation of assets 7,346 7,352 7,352 7,352 Minority Interest - 913 913 913 Total Tier II Equity 7,346 8,266 8,266 8,266 Total SHEQ 53,112 52,392 66,517 82,874 Total SHEQ and Liabilities 562,916 633,348 690,236 742,665

52 AKD Securities Limited January 2008 Pakistan Market: 2007 - 2008

Pakistan Hub Power Company Accumulate Power Sector Price-PkR31.4; target Price-PkR34.2; Potential Upside to target Price:8.8%

Umer Pervez HUBC - Valuation Multiples Investment Analyst FY06A FY07A FY08F FY09F [email protected] EPS (PkR) 2.39 2.29 2.51 2.80 EPS growth -49% -4% 10% 11% PER (x) 13.1 13.7 12.5 11.2 Priced on January 4, 2008 P/BVS (x) 1.2 1.3 1.3 1.3 KATS Code HUBC ROE 9% 9% 10% 11% Dividend yield 10% 9% 9% 9% Bloomberg Code HUBC PA EV/EBITDA (x) 7.2 7.5 7.5 7.5 Price PkR 31.40

With the economy growing at an average of 6.2% over the past 5 years, Pakistan's Market Cap (PkRmn) 36,334.65 electricity infrastructure is being put to test. With GDP growth expected to hover Market Cap (US$mn) 593.22 close to 7% mark, power consumption is expected to grow by 8%-9% p.a. However, Shares (mn) 1,157.15 lack of investment over the past decade in power sector now stands as a major obstacle ahead of the current economic growth trajectory. The existing demand HUBC - Stock performance and supply gap in power consumption is estimated to be growing at a rate of 1,000MW/year and is expected to reach approximately 5,550MW by CY10. 1M 3M 12M Absolute (%) 1.6 -10.3 14.4 Since the power sector companies receive a fixed return on equity (ROE) Rel. Index (%) 0.0 -11.4 -25.6 guaranteed by the Government of Pakistan (GoP), they operate as quasi-sovereign Absolute (PkR) 0.5 -3.6 4.0 bond instruments. At current market price, Hubco offers a dividend yield of 9% on estimated FY08 DPS. However, dividend yield for Hubco is expected to increase from FY09 onwards based on higher project company equity (PCE) payments in the re-negotiated tariff structure. In this regard, Hubco is offering a 3-year dividend 1M High (PkR) 32.15 CAGR of 14% (CY08 - CY11). 1M Low (PkR) 30.20 Hubco is also a play on the expansion front where it is set to increase its power generation capacity by 225MWs. This project is in the advanced stages of 1Yr High (PkR) 36.15 negotiations with the government of Pakistan. The management has reiterated that the project is expected to be in commercial operation by March 2010. In such 1Yr Low (PkR) 24.64 case, our expansion based target price rises to PkR37.1 offering an upside of 8.8% from current levels. Regarding further expansion, we anticipate that a 3M Avg D Vol (shares) '000 1,211 favorable development will be witnessed soon for at least one generation project 1 Yr Avg Turnover '000 3,737 out of three projects (350-450MWs) solicited by the PPIB for which Hubco had previously qualified. We are holding off on pricing the potential upside from this 3M AD Value (US$mn) 0.63 project until a material development transpires. With regards to its strategy of becoming a large, diversified energy player in Pakistan, Hubco plans to actively pursue the privatization of SSGC when the sell- PkR HUBC - FY08F Per Band 70 (x) off resumes. Furthermore, Hubco in collaboration with Mitsui of Japan is also 60 seeking alternative power generation and in this regard is looking at setting up 50 an imported coal based integrated power project in excess of 1000MWs along 40 the coast of Karachi. A LoI was issued to Hubco in March '07 and development 30 12 10 on this front is expected to be seen when the feasibility process is completed and 20 8 6 approved by the GoP. 10 Jul-04 Mar-05 Nov-05 Aug-06 Apr-07 Jan-08 With the capital market gaining back its upward momentum in the last few months, the price performance of Hubco has shown fatigue, underperforming the benchmark HUBC Price & Volume Chart Vol (mn) PkR KSE-100 Index by 16% over the last three months. At current price levels, Hubco 36 41 32 is trading at a potential FY08E PER of 12.5x and against the market PER of 28 37 24 10.55x. We believe the premium Hubco is trading at against the market is justified 20 33 16 on the back of Hubco's growth prospects in becoming a diversified energy player. 12 On the P/BVS multiple, Hubco is trading at a 1.3x for FY08F. At present, we 29 8 4 recommend Accumulate on Hubco which is offering a potential upside of 6.8% 25 Jan-07 May-07 Aug-07 Jan-08 to its base-case target price of PkR34.17/share. Vol (mn) HUBC

53 AKD Securities Limited January 2008 Pakistan Market: 2007 - 2008

Hub Power Company - Annual Databank

HUBC- Income Statement (In PkRmn) FY06A FY07A FY08F FY09F Net sales 27,911 44,131 30,881 31,067 Cost of sales 23,564 39,967 26,403 26,418 Gross profit 4,348 4,164 4,478 4,649 Operating expenses 270 253 326 358 Operating profit 4,078 3,911 4,152 4,291 Financial charges 1,577 1,417 1,279 1,133 Other income/(expenses) 268 161 37 80 Profit before tax 2,768 2,654 2,910 3,238 Net Profit 2,768 2,654 2,910 3,238

HUBC - Balance Sheet (In PkRmn) FY06A FY07A FY08F FY09F Current assets 10,186 13,126 10,278 10,638 Operating assets 33,325 31,862 30,392 29,042 Total assets 43,515 44,994 40,865 39,885 Current liabilities 4,265 7,652 4,775 4,775 Long-term Debt 9,250 8,271 7,292 6,313 Other Liabilities 15 18 18 20 Shareholders equity 29,985 29,052 28,780 28,778 Total equity and libilities 43,515 44,994 40,865 39,885

HUBC - Cashflow Statement (In PkRmn) FY06A FY07A FY08F FY09F Cashflow from Operating Activities 3,889 78 8,319 4,601 Cashflow from Financial Activities (6,648) (4,568) (6,252) (4,217) Net change in cash (2,675) (4,710) 1,910 350 Beginning cash balance 6,038 3,363 743 2,653 Ending cash balance 3,363 (1,347) 2,653 3,002

HUBC - Key Ratios FY06A FY07A FY08F FY09F Sales growth 64% 58% -30% 1% Operating profit margin 15% 9% 13% 14% Net profit margin 10% 6% 9% 10% Current ratio(X) 2.4 1.7 2.2 2.2 Return on operating assets 8% 8% 10% 11% Return on equity 9% 9% 10% 11% LT debt/Equity 31% 28% 25% 22%

54 AKD Securities Limited January 2008 Pakistan Market: 2007 - 2008

Pakistan Lucky Cement Buy Cement Sector Price-PkR118.7; target Price-PkR151.6; Potential Upside to target Price:27.7%

LUCK - Valuation Multiples Furqan Ayub Investment Analyst FY06A FY07A FY08F FY09F [email protected] EPS (PkR) 7.35 9.67 10.08 13.18 EPS growth 134% 32% 4% 31% PER (x) 16.1 12.3 11.8 9.0 ROE 27% 27% 16% 15% Priced on January 4, 2008 P/BVS (x) 4.4 3.3 1.9 1.3 KATS Code LUCK Dividend yield 1% 1% 1% 2% EV/EBITDA (x) 12.7 10.3 7.5 6.0 Bloomberg Code LUCK PA Price PkR 118.70 With the price agreement falling apart in December 06, cement manufacturers Market Cap (PkRmn) 31,262.61 lost their pricing power to competition and undercutting with excess capacity lying Market Cap (US$mn) 510.41 with most cement manufacturers. However, unlike others, Lucky was able to benefit from greater exposure on the export front, which enabled it to report best Shares (mn) 263.38 gross margins in the industry owing to better retention prices on the export front. With prices on the local front falling, exports became a viable option for most LUCK - Stock performance manufacturers. Having presence in both the north and the south, Lucky was able 1M 3M 12M to grab a lion's share on exports front with India being the avenue explored recently Absolute (%) -4.0 -13.7 104.7 and demand in Afghanistan and Middle East staying robust. During 5MCY08, Rel. Index (%) -5.6 -14.8 64.6 lucky was able to capture 38% in the exports market. Absolute (PkR) -4.9 -18.8 60.7 Average retention prices have dropped to PkR2,633 per ton in 1QFY08 as 1M High (PkR) 124.50 compared to PkR3,347 per ton in the corresponding period last year, a decline of 21%YoY. Plunging retention prices combined with rising coal prices have kept 1M Low (PkR) 107.70 the gross margins under pressure. During 1QFY08, Lucky's gross margins fell to 27% from 37% in 4QFY07, but still higher than the industry's average margin 1Yr High (PkR) 143.05 of 19%. With input prices increasing at a rapid pace, cement manufacturers 1Yr Low (PkR) 58.00 resumed a price consensus in late November 07. With resumption of price consensus, we witnessed a PkR30/bag increase during 3M Avg D Vol (shares) '000 8,506 November and December 07. We expect average retention prices for the industry 1 Yr Avg Turnover '000 11,469 to settle at PkR2,900 per ton for the full year FY08. Lucky's prices are however expected to be further supported by an increasing concentration of exports in the overall sales mix. While higher coal prices should keep margins under pressure, 3M AD Value (US$mn) 17.71 healthy demand domestically as well as regionally should enable Lucky to post 4-year earnings CAGR of 19%. PkR LUCK - FY08F Per Band (x) Despite the fact that Lucky has underperformed the benchmark KSE 100 Index 160 15 140 13 by 15% over the past three months, mainly because of disappointing results of 120 11 100 the cement sector, over the past one year Lucky has managed to outperform the 9 80 KSE-100 index by 65%. However, resumption of price agreement among 60 40 manufacturers as well as robust demand on the export front warrants an 20 outperfromance of Lucky. While 1HFY08 results are likely to keep cement stock Jul-04 Mar-05 Nov-05 Aug-06 Apr-07 Jan-08 prices under pressure, once the full impact of increase in output prices becomes obvious and volumes take off post winter season, we are likely to see an uptrend

PkR LUCK Price & Volume Chart Vol (mn) in 2HFY08. Therefore, even though the YoY growth of 4% may not fully reflect the positives, 31%YoY growth in FY09 should lure the investor interest into the 155 40 140 scrip. At current market price, the stock trades at FY08 PER of 11.8x, P/B of 1.9x 125 30 and EV/ton of US$100. 110 20 95 80 10 65 50 - Jan-07 May-07 Aug-07 Jan-08 Vol (mn) RHS LUCK (LHS)

55 AKD Securities Limited January 2008 Pakistan Market: 2007 - 2008

Lucky Cement - Annual Databank

LUCK - Income Statement (In PkRmn) FY06A FY07A FY08F FY09F Net sales 8,054 12,522 18,195 21,778 Cost of sales 4,918 8,845 12,482 14,129 Gross profit 3,136 3,677 5,713 7,649 EBITDA 3,188 3,949 5,374 6,696 Operating profit 2,770 3,066 4,474 5,944 Financial charges 83 863 1,145 710 Profit before tax 2,553 2,690 3,123 4,960 Taxation 657 206 468 1,488 Net Profit 1,936 2,547 2,655 3,472

LUCK - Balance Sheet (In PkRmn) FY06A FY07A FY08F FY09F Current assets 4,455 5,403 8,518 9,468 Operating assets 16,364 20,116 19,908 19,628 Total assets 23,623 25,724 30,631 35,300 Current liabilities 4,752 6,353 6,356 7,227 Long term liabilities 11,801 10,018 8,096 4,449 Shareholders equity 7,070 9,354 16,179 23,624 Total equity and liabilities 23,623 25,724 30,631 35,301

LUCK - Cashflow Statement (In PkRmn) FY06A FY07A FY08F FY09F Cashflow from Operating Activities 2,724 1,850 2,613 3,675 Cashflow from Investing Activities (6,053) (2,037) (2,692) (4,471) Cashflow from Financing Activites 6,038 (637) 1,885 859 Net change in cash 2,709 (825) 1,805 63 Beginning cash balance (645) 2,064 983 3,044 Ending cash balance 2,064 983 3,044 3,107

LUCK - Key Ratios FY06A FY07A FY08F FY09F Sales growth 102% 55% 45% 20% EBITDA margin 40% 32% 30% 31% Net margin 24% 20% 15% 16% LT debt/Equity 167% 107% 50% 19% D/E Ratio 30% 36% 53% 67% Current ratio 94% 85% 134% 131% ROA 8% 10% 9% 10% ROE 27% 27% 16% 15%

56 AKD Securities Limited January 2008 Pakistan Market: 2007 - 2008

Pakistan Nishat Mills Buy Textile Sector Price-PkR102.4; target Price-PkR144; Potential Upside to target Price:40.6%

Umer Pervez NML - Valuation Multiples Investment Analyst FY06A FY07A FY08F FY09F [email protected] EPS (PkR) 10.22 10.48 10.60 13.15 EPS growth -13% 3% 1% 24% PER (x) 10.0 9.8 9.7 7.8 Priced on January 4, 2008 ROE 8% 6% 5% 6% KATS Code NML P/BVS (x) 0.8 0.5 0.5 0.5 Dividend yield 1% 2% 3% 3% Bloomberg Code NML PA EV/EBITDA (x) 7.5 6.8 6.9 6.4 Price PkR 102.40

Nishat Mills Ltd. (NML) posted an earnings growth of 14%YoY in 1QFY08 where Market Cap (PkRmn) 16,362 EPS came in at PkR3.03. The topline decreased marginally by 2%YoY to reach Market Cap (US$mn) 267 PkR4.27bn in 1QFY08 as compared with PkR4.36bn reported in the same period Shares (mn) 160 last year. As NML buys the bulk of its cotton during September to December, the increase in the price of cotton in 1QFY08 did not have a significant impact on NML - Stock performance margins. Gross margins remained stable at 19% in 1QFY08. Other income 1M 3M 12M channeling in from associate companies posted a growth of 5%YoY to further supplement the bottomline. In FY07, the company posted a 3%YoY earnings Absolute (%) -8.1 -18.1 15.9 growth while topline grew by 3%YoY. However, higher raw material costs (cotton) Rel. Index (%) -9.7 -19.2 -24.1 and overheads (especially utilities) decreased the gross margin to 16.5% in FY07 Absolute (PkR) -9.0 -22.6 14.1 versus 17.7% in FY06. The growth in earnings was achieved on the back of capital gains from its investment portfolio as other income surged 102%YoY in FY07, and represented 31% of pre-tax profits. 1M High (PkR) 115.00 1M Low (PkR) 95.00 The current shortage of cotton in the country continues to drive up cotton prices which have risen 19%YoY in the first five months of the current fiscal year (5MFY08). The shortfall continues to be concentrated in Punjab, where arrivals 1Yr High (PkR) 133.75 are down 25%YoY as of December 15th, ’07. In FY08 and FY09, we estimate 1Yr Low (PkR) 88.30 NML will buy cotton at an average rate of PkR2,800/maund which will compress gross margins further. Being predominantly export oriented, NML has the ability 3M Avg D Vol (shares) '000 2,460 to pass on the higher cost of production but competition from the region will keep 1 Yr Avg Turnover '000 4,277 price hikes checked. We have forecasted gross margins to be 15.8% and 16.1% in FY08 and FY09, respectively. Going forward gross margins should average 16.8% p.a. during FY10-FY12 as cost efficiencies are achieved and topline is 3M AD Value (US$mn) 5 further bolstered by exports. China is the largest importer of cotton and cotton yarn in the world. We expect PkR NML- FY08F Per Band (x) the regional environment to change in the shape of greater yarn demand from 140 China as quota imposition from the EU is set to expire in Dec ‘07. Pakistan enjoys 120 10 special market access to China under the Free Trade Agreement (FTA) that gives 100 9 8 80 7 Pakistan zero-rated access to many textile products. NML is expected to benefit 60 as Hong Kong and China are the major markets for its cotton yarn. Duty on cotton 40 yarn, which is currently at 5%, will be zero rated under the FTA with China on 20 Jul-04 Mar-05 Nov-05 Aug-06 Apr-07 Jan-08 January 1st, '08, in contrast to the 15% duty imposed on other countries. Over the last year, the AKD textile universe has failed to show a stellar performance, NML Price & Volume Chart Vol (mn) underperfoming the benchmark KSE-100 Index by 26%YoY. Similarly, NML has PkR 33 underperformed the benchmark index by 24%YoY in the same time frame. We 150 30 27 believe that the hike in cotton prices and the unclear impact of the pest attack 135 24 21 affecting the cotton crop have been largely overplayed by investors. At current 120 18 15 market levels, NML is trading at a forward PER of 9.7x on FY08 expected earnings 105 12 9 as compared with the market PER at 10.55x. Furthermore, the company is also 90 6 trading below its book value of PkR195/share which makes NML an attractive 3 75 - buy on the FY08 P/B multiple of 0.5x. We maintain our Buy stance on the scrip Jan-07 May-07 Aug-07 Jan-08 Vol (mn) RHS NML (LHS) which is offering an upside of 40.6% to our Sum-of-the-Parts (SOP) based target price of PkR144/share. 57 AKD Securities Limited January 2008 Pakistan Market: 2007 - 2008

Nishat Mills - Annual Databank

NML - Income Statement (In PkRmn) FY06A FY07A FY08F FY09F Net sales 16,417 17,180 19,136 20,940 Cost of sales 13,702 14,335 16,172 17,577 Gross profit 2,716 2,845 2,965 3,363 Operating expenses 940 1,341 1,148 1,256 Operating Profit 1,776 1,504 1,816 2,107 EBITDA 2,563 2,487 2,703 2,986 Other Income 278 563 368 436 Financial charges 755 881 822 685 Other Expenses 67 2 27 46 Profit before tax 1,759 1,819 1,885 2,311 Taxation 126 145 191 209 Net Profit 1,633 1,674 1,694 2,101

NML - Balance Sheet (In PkRmn) FY06A FY07A FY08F FY09F Current assets 9,758 13,309 16,164 16,465 Operating assets 8,398 10,310 10,194 10,115 Other Assets 2,213 277 - - Total assets 31,179 39,381 41,843 42,065 Current liabilities 7,052 7,649 9,128 8,598 Long-term Loans 2,982 1,774 1,484 574 Other long term liabilities 33 - - - Shareholders equity 21,112 29,957 31,232 32,893 Total equity and liabilities 31,179 39,381 41,843 42,065

NML - Cashflow Statement (In PkRmn) FY06A FY07A FY08F FY09F Cashflow from Operating Activities 1,673 2,041 1,605 2,111 Cashflow from Investing Activities (2,605) (1,263) (495) (800) Cashflow from Financing Activities 461 (701) 372 (1,150) Net change in cash (471) 77 1,482 161 Beginning cash balance 521 50 70 1,552 Ending cash balance 50 127 1,552 1,713

NML - Key Ratios (In PkRmn) FY06A FY07A FY08F FY09F Sales growth 44% 5% 11% 9% EBITA margin 16% 14% 14% 14% Net profit margin 10% 10% 9% 10% LT Debt/Equity 14% 6% 5% 2% Total Debt/Equity 41% 27% 29% 23% Current Ratio (x) 1.38 1.74 1.77 1.92 ROA 5% 4% 4% 5% ROE 8% 6% 5% 6%

58 AKD Securities Limited January 2008 Pakistan Market: 2007 - 2008

Pakistan Oil & Gas Development Co. Ltd Buy E&P Sector Price-PkR121.45; target Price-PkR146.5; Potential Upside to target Price:20.6%

OGDC - Valuation Multiples Naveed Vakil Investment Analyst FY06A FY07A FY08F FY09F EPS (PkR) 10.69 10.61 12.25 14.12 [email protected] EPS growth 39% -1% 15% 15% PER (x) 11.4 11.4 9.9 8.6 Priced on January 4, 2008 ROE 49% 46% 45% 45% P/BVS (x) 5.5 5.3 4.5 3.8 KATS Code OGDC Dividend yield 7% 8% 7.8% 9.1% Bloomberg Code OGDC PA EV / EBITDA (x) 7.2 7.6 6.2 5.4 Price PkR 121.45 Guidance estimates targeting production of 10-11% over the next three years for Market Cap (PkRmn) 522,347.75 OGDC seems achievable in our view. Fast track development of new discoveries Market Cap (US$mn) 8,528.13 and production ramp for the portfolio adds credence to guidance estimates (see Shares (mn) 4,300.93 AKD OGDC Epigram: Fast Track Guidance! dated: November 15, 2007). Production driven earnings growth (15%YoY) in FY08, coupled with reserve addition and increasing confidence in the company's ability to deliver on exploration OGDC - Stock performance prospects reinforce our positive stance on the stock. OGDC has targeted 41 wells 1M 3M 12M in FY08 with an additional 9 wells pending security clearance. In FY08, the Absolute (%) -0.7 -2.8 6.1 company has announced one small discovery at Moolan 1 exploration well. Rel. Index (%) -2.3 -4.0 -33.9 However drilling update available on PPIS indicates discovery news flow to come. Absolute (PkR) -0.8 -3.6 7.0 OGDC's management while streaming online new discoveries has shifted focus towards fast track development. In FY08, out of the 41 well spudding target, OGDC 1M High (PkR) 127.10 is planning to spud 24 appraisal/development wells versus 16 targeted last year. 1M Low (PkR) 113.40 As a result, the wildcat target has dropped to 17 for FY08. OGDC is slated to show improvement in overall margins where volume growth 1Yr High (PkR) 132.80 and improved price environment should have its impact on the topline while a 1Yr Low (PkR) 104.90 stable drilling target similar to last year should keep the surge in exploration expenditure limited. 3M Avg D Vol (shares) '000 19,104 While OGDC continues to add to its offshore portfolio, the company is also making 1 Yr Avg Turnover '000 16,765 efforts to take its onshore portfolio global. OGDC has qualified for operator status in Libya and is in the bidding process for exploration licenses. . 3M AD Value (US$mn) 38.64 OGDC repeated last year's 1Q financial performance by recording NPAT of PkR12.336bn in 1QFY08 against NPAT of PkR12.327bn in the corresponding

PkR OGDC - FY08F Per Band (x) period last year translating into an EPS of PkR2.87. The company was able to 195 record an increase of 9.8%YoY in topline emanating from growth in oil and gas 15 155 13 production despite lower realized prices. The company's fast track development 11 and streaming online new discoveries led oil and gas volumes to increase by 115 9 15.7%YoY and 13.9%YoY respectively. Growth in gas volumes however, has also 75 been driven by a lower base recorded last year due to prolonged turnaround time 35 Jul-04 Mar-05 Nov-05 Aug-06 Apr-07 Jan-08 at key production assets. With volume growth coming through, the company's bottomline remained flat due to higher royalty payments relating to prior year PkR OGDC Price & Volume Chart Vol (mn) adjustments on condensate and LPG production from Dhodak and Dakhni fields. 145 90 While adjustment has taken place, we expect a marginal adjustment relating to 75 the aforementioned head to be witnessed in 2QFY08. That said, with the surge 130 60 in exploration expenditure expected to remain in check in FY08, the company is 45 slated to show improvement QoQ and YoY. 115 30 At 10.3x forward earnings, OGDC is trading lower than its historic valuation range 15 and with forecasted EPS growth of 15%, OGDC has clearly been overlooked by 100 - Jan-07 May-07 Aug-07 Jan-08 investors in the recent bull run. At current market price OGDC offers an upside Vol (mn) RHS OGDC (LHS) of 20.6% to our target price of PkR146.50 - Accumulate

59 AKD Securities Limited January 2008 Pakistan Market: 2007 - 2008

Oil & Gas Development Co. Ltd - Annual Databank

OGDC - Income Statement (In PkRmn) FY06A FY07A FY08F FY09F Net sales 96,755 100,261 119,222 133,153 Cost of sales 30,541 37,869 42,118 44,134 Gross profit 66,214 62,392 77,105 89,019 Operating Expenses 1,072 1,285 1,467 1,629 Operating Profit 65,142 61,107 75,637 87,389 Financial charges 10 450 454 459 WPPF 3,469 3,214 3,971 4,585 Other Income - net 4,248 3,615 4,044 4,408 Profit before tax 65,911 61,059 75,255 86,754 EBITDA 71,758 68,145 83,173 95,052 Taxation 19,944 15,429 22,577 26,026 Net Profit 45,968 45,630 52,679 60,728

OGDC - Balance Sheet (In PkRmn) FY06A FY07A FY08F FY09F Current assets 72,677 68,519 78,160 94,963 Operating assets 44,458 56,716 62,796 58,513 Other Assets 4,179 4,104 4,104 4,104 Total assets 121,315 129,338 145,060 157,579 Current liabilities 10,891 11,123 10,723 11,976 Long-term Liabilities (Other) 15,653 17,599 17,599 17,599 Paid up capital 43,009 43,009 43,009 43,009 Reserves and Unappropriated Profits 51,761 57,607 73,728 84,995 Total Equity 94,770 98,179 114,299 125,566 Total equity and libilities 121,315 129,338 145,060 157,579

OGDC - Cashflow Statement (In PkRmn) FY06A FY07A FY08F FY09F Cashflow from operations 57,990 50,538 72,469 80,069 Cashflow from Investing Activities (7,140) (13,002) (9,562) 639 Cashflow from Financing Activities (41,445) (38,154) (38,660) (49,461) Net change in cash 9,406 (618) 24,247 31,247 Beginning cash balance 37,799 32,178 17,995 23,991 Ending cash balance 47,205 31,560 42,242 55,238 OGDC - Key Ratios FY06A FY07A FY08F FY09F Sales growth 31% 4% 19% 12% Gross profit margin 68% 62% 65% 67% EBITDA margin 74% 68% 70% 71% Net profit margin 48% 46% 44% 46% L.T debt/Equity 0% 0% 0% 0% Current Ratio (x) 6.7 6.2 7.3 7.9 Return on equity 49% 45% 45% 47% Return on assets 38% 36% 37% 39%

60 AKD Securities Limited January 2008 Pakistan Market: 2007 - 2008

Pakistan Pakistan State Oil Buy OMCs Sector Price-PkR416.5; target Price-PkR469.5; Potential Upside to target Price:12.7%

Naveed Vakil PSO - Valuation Multiples Investment Analyst FY06A FY07A FY08F FY09F [email protected] EPS (PkR) 43.87 27.34 41.92 33.79 EPS growth 33% -38% 53% -19% PER (x) 9.49 15.23 9.94 12.33 Priced on January 4, 2008 ROE 36% 21% 32% 24% P/BVS (x) 3.4 3.2 3.2 3.0 KATS Code PSO Dividend yield 8% 5% 5% 6% Bloomberg Code PSO PA EV / EBITDA (x) 7.1 10.7 6.2 8.5 Price PkR 416.50 Pakistan State Oil has posted stellar volume growth this year with 5MFY08 sales Market Cap (PkRmn) 71,437.91 volumes increasing by 17%YoY outperforming sector volume growth by 5%. Market Cap (US$mn) 1,166.33 During the review period, PSO has increased overall product market share by 3ppt to 68%. We expect PSO's sales volumes to continue outperforming sector Shares (mn) 171.52 growth through aggressive retail level sales initiatives, extensive distribution network and long term secured supply contracts. PSO - Stock performance 1M 3M 12M Inventory gains and robust growth in overall sales volumes resulted in the company Absolute (%) -2.3 11.2 38.4 posting a bottomline growth of 271%YoY. During the review period, PSO posted Rel. Index (%) -3.9 10.0 -1.6 NPAT of PkR2.1bn (EPS-PkR12.26) in 1QFY08 versus NPAT of PkR0.567bn Absolute (PkR) -9.9 41.9 115.5 (EPS-PkR3.30) in 1QFY07. The company's topline increased by 12%YoY to PkR122bn driven by a 16%YoY increase in overall sales volumes. The company's 1M High (PkR) 433.90 earnings growth was also supported by lower financial charges, down 12%YoY. We expect financial charges to increase going forward with rising PDC funding. 1M Low (PkR) 387.00 However, with the GoP taking out a syndicated financing facility to pay-off oil marketing companies, should lower the burden and with more windfall inventory 1Yr High (PkR) 434.00 gains to come, PSO is poised to show a bottomline growth of 53%YoY in FY08. 1Yr Low (PkR) 297.85 We expect PSO to record bumper earnings this year with a projected bottomline growth of 53% YoY (NPAT PkR7.19bn - EPS PkR41.92). Growth in earnings is 3M Avg D Vol (shares) '000 2,955.01 likely to be driven by windfall inventory gains on the back of record high crude 1 Yr Avg Turnover '000 2,238.27 and refined product prices versus heavy inventory losses recorded last year. Earnings should see further support from stellar volume growth and with the GoP providing some relief on the increasing PDC burden should keep the increase in 3M AD Value (US$mn) 19.75 financing requirements in check. PkR PSO - FY08F Pe r Band (x) 500 PSO remains our preferred long term play in the oil marketing sector where we 11.0 expect current volume outperformance to continue. We expect PSO to post a 400 9.5 comfortable 3-year volume CAGR of 7% versus sector volume growth of 5%. 8.0 300 6.5 Volume outperformance should continue on the back of value added services to 200 generate forecourt traffic backed by long term supply contracts particularly for FO supply to new IPPs. Furthermore, with PSO sitting on an unleveraged balance 100 Jul-04 Mar-05 Nov-05 Aug-06 Apr-07 Jan-08 sheet, we believe once the privatization chapter closes, the scrip will be in for a re-rating through potential movement along the value chain.

PkR PSO Price & Volume Chart Vol (mn) We expect the CNG side of PSO to add to the company's core strength. With 210 440 12 sites current under the company's belt, we expect the company to continue 10 benefiting from retail site expansion. At 18% market share, PSO holds claim to 380 8 the largest stake within oil marketing companies. We expect CNG income to 6 increase at a 3-year CAGR of 23%. 4 320 On forecasted FY08 PER, the stock trades at 9.9x which is at a discount to the 2 market PER of 10.55x. The stock also offers a dividend yield of 9% against regional 260 - Jan-07 May-07 Aug-07 Jan-08 energy group average of 2.5%. Vol (mn) RHS PSO (LHS)

61 AKD Securities Limited January 2008 Pakistan Market: 2007 - 2008

Pakistan State Oil - Annual Databank

PSO - Income Statement (In PkRmn) FY06A FY07A FY08F FY09F Net Sales 298,250 349,706 416,806 446,240 COGS 281,043 337,447 398,913 431,470 Gross Profit 17,207 12,259 17,893 14,770 Operating Expenses 7,102 6,013 6,273 6,694 Operating Profit 11,499 7,526 13,043 10,166 Other Income 1,394 1,279 1,423 2,090 EBIT 12,893 8,804 14,465 12,257 Financial and other charges 884 1,158 2,311 1,580 Taxation 4,129 2,432 3,872 3,121 Net Profit 7,525 4,690 7,190 5,796

PSO - Balance Sheet (In PkRmn) FY06A FY07A FY08F FY09F Current Assets 58,119 62,513 80,579 79,825 Fixed Assets 7,639 8,139 6,721 6,853 Other Assets 4,410 4,086 4,092 4,099 Total Assets 70,169 74,737 91,393 90,777 Current Liabilities 47,057 51,386 66,268 64,086 Other Liabilites 2,299 2,412 2,655 2,886 Total Share Holders Equity (SHEQ) 20,813 20,939 22,469 23,805 Tot. Liabilities and SHEQ 70,169 74,737 91,393 90,777

PSO - Cashflow Statement (In PkRmn) FY06A FY07A FY08F FY09F Cash from Operating Activities 1,599 3,691 1,067 9,544 Cash from Investing Activities (139) (708) 249 (1,401) Cash from Financial Activities (4,104) (1,566) 1,230 (9,388) Net Cash Balance 1,899 1,522 4,069 2,823

PSO - Key Ratios FY06A FY07A FY08F FY09F Sales Growth 40% 17% 19% 7% Gross Margin 6% 4% 4% 3% EBITDA Margin 3.2% 1.8% 2.6% 1.7% Net Profit Margin 3% 1% 2% 1% Current Ratio (x) 1.24 1.22 1.22 1.25 ROE 36% 22% 32% 24% ROA 11% 6% 8% 6%

62 AKD Securities Limited January 2008 Pakistan Market: 2007 - 2008

RISK FACTORS

Political risk between now and elections and any post election disturbance.

Economic risk due to slowdown in economic growth or imbalance in external accounts, inflation, etc.

Sectoral risk related to demand slowdown, high energy / input costs.

Specific company related risks.

Regulatory risks related to the market or corporate sector regulation changes.

Any or all of the above risk factors can adversely impact companies financial & price performance thereby negating share price targets .

63 AKD Securities Limited Pakistan Market: 2007 - 2008 January 2008

Technical Analysis

64 AKD Securities Limited Pakistan Market: 2007 - 2008 January 2008

Pakistan Bank Al-Falah Limited Banking Sector Closing Price: PkR53.90

Qasim Anwar Technical Analyst § A bullish wave witnessed in January 2007 carried BAFL toward its record closing high of PKR62.10 posted on June 29, 2007, followed by [email protected] a corrective wave retracing around 61.8% of the move. On the weekly chart, a symmetrical triangle has evolved where penetration – projected Major Support by March 2008 -- above falling trend line (placed around PKR60~61) is PKR49~50.35 required to validate the pattern.

Short-term Target § A breakout above this line, coupled with healthy volume would fuel a rally toward our intermediate target price of 65.85~68 levels -- PKR59.65~60.35 anticipated between bearish belt-hold (long red body) and 76.4% Fibonacci Projection (30.96-65.80). Intermediate Target PKR65.85~68 § A strong momentum would then be needed to breach this target, before the stock looks set to meet our December 08 price- objective of PKR85~87 -- as projected by the triangle pattern. Long Term Target PKR85~87 § In the immediate term, major support is anticipated around PKR49~50.35.

65 AKD Securities Limited Pakistan Market: 2007 - 2008 January 2008

Pakistan DG Khan Cement Cement Sector Closing Price: PkR94.00

Qasim Anwar Technical Analyst § Series of higher bottoms along with rising OBV (On Balance Volume) [email protected] over the past three years is suggestive of an up trend to remain intact. Keeping faith with the implications, we hold a bullish outlook on DGKC for the year 2008.

Major Support § A formidable resistance exits around our short-term target of PKR105 – PKR84 anticipate at 61.8% Fibonacci Projection (84-118.20) where close above the mentioned level will pave the way toward our intermediate price target of PKR116.75~118.20 around 100% Fibonacci Projection (84- Short Term Target PKR105 118.20).

§ Moreover, if strong momentum is able to penetrate (weekly closing Intermediate Target basis) above the mentioned levels, then DGKC would be on its final PKR116.75~118.20 move toward our long-term price objective of PKR139.30 – anticipated

around 161.80% Fibonacci Projection (84-118.20). Long Term Target § Two major supports exist at PKR84 and PKR59.74 PKR139.30

66 AKD Securities Limited Pakistan Market: 2007 - 2008 January 2008

Pakistan Engro Chemicals Fertilizer Sector Closing Price: PkR262.50

Qasim Anwar Technical Analyst § ENGRO’s price activity remained largely flat during the period July - [email protected] December 2006, before commencing its northward trend by the fag end of December 2006. The stock then achieved a new milestone on October 4, 2007 – settling at an all-time high of PKR294.70 -- followed by a reaction rally, which dragged the share sharply lower to bottom an Major Support intraweek-low PKR248.50 on the week ended November 16, 2007. The PKR238 case is prime example of Eliot Wave – sans the temporary downward spike seen between December 31st2007- January 3rd 2008.

Short Term Target PKR296~300 § Our analysis suggests, that a fifth Eliot Wave is on the cards, where ENGRO seems quite strong to breach (on weekly basis) its formidable

resistance around our short-term target of PKR296~300 levels – seen at Intermediate Target 161.8% Fibonacci Projection (98.3-197.7). A continuing rally can then PKR348~350 pull the stock toward our intermediate target of PKR348~350 anticipated around 123.6% Fibonacci Projection (163.60-272.50). Long Term Target § A successful penetration on weekly close backed by strong momentum PKR390~400 would then be required above our medium-term target, to drive the scrip to its 161% Fibonacci Projection (163.60-272.50) of PKR390~400 – our December 2008 technical price objective.

§ Two major supports exist at PKR238 and PKR215~216

67 AKD Securities Limited Pakistan Market: 2007 - 2008 January 2008

Pakistan Fauji Fertilizer Company Fertilizer Sector Closing Price: PkR123.50

Qasim Anwar Technical Analyst § The story of FFC looks bittersweet, where looking at higher troughs amid rising OBV (On Balance Volume) over the past three years; we [email protected] hold a strong view on the stock. However, the upper black line of the ascending triangle – formed in three years of price action- is just as strong of a resistance at the same time. Major Support PKR111~112 § Given this, we feel the key to FFC rally lies in the completion of the triangle pattern in the form of a break out above the upper black line. A close above PKR126.65~128 (breakout) along with healthy volumes Short Term Target PKR126.65~128 would fuel a bullish rally toward our medium-term target of PKR140.80 – seen at 61.8% Fibonacci Projection (66.15-125.38).

Intermediate Target § This when breached on a weekly closing basis, will carry the stock to its

PKR140.80 December 2008 price objective of PKR160~163 -- anticipated around 100% Fibonacci Projection (66.15-125.38). Long Term Target § On the demand side, major support exists around PKR111~112 PKR160~163

68 AKD Securities Limited Pakistan Market: 2007 - 2008 January 2008

Pakistan Hub Power Company Power Sector Closing Price: PkR31.40

Qasim Anwar § Bullish rally witnessed in June 2007 carried HUBC toward its all-time Technical Analyst high of PKR37.75 touched on week ended June 8, 2007. Thereafter, [email protected] corrective wave pushed the stock down to bottom at PKR26.90 on week ended September 7, 2007. Keeping faith with bullish implications emitted by the rising OBV (On Balance Volume) and higher troughs over the past Major Support two years, we project a steady and firm momentum for the upcoming PKR24.40 months.

Short Term Target § Going forward, weekly close above formidable resistance at PKR32.30 around 50% Fibonacci Retracement (26.90~37.75) is required to trigger PKR34.80~35 a renewed rally, which may carry the stock toward our short-term target of PKR34.80~35 anticipated around 76.4% Fibonacci Projection Intermediate Target (26.90~34.95). If the mentioned target is breached with healthy PKR37.75 momentum, then the stock would be on its way towards our intermediate- target of PKR37.75 completing its 100% Retracement (26.90~37.75). Once that high is breached, then stock would be on its way toward our Long Term Target long-term technical price objective of PKR42 anticipated at 161.80 PKR42 Fibonacci Projection (26.90~37.75).

§ Major support exists at PKR24.40 (a bullish belt-hold formed on week ended January 19, 2007.

69 AKD Securities Limited Pakistan Market: 2007 - 2008 January 2008

Pakistan Lucky Cement Cement Sector Closing Price: PkR118.70

Qasim Anwar § LUCK’s rising OBV (On Balance Line) along with higher troughs over the Technical Analyst past three years is projecting a steady and firm trend. However, the stock [email protected] holds a crucial price-barrier around its 2007- closing-high of PKR143.05 seen on October 18th, following which it saw a reaction rally where it retraced the move by 76.4% on daily chart. Major Support PKR104.70 § For the immediate term, a break above minor resistance at PKR116.50 is required to generate a rally toward our price target of PKR130 -- seen at

Short Term Target 76.4% Fibonacci Projection (30.25~130.05). A weekly closing above this formidable resistance will take the stock towards our medium-term target PKR130 of PKR139.95~141.80.

Intermediate Target § Once this target is achieved, a sharp breakout backed by a strong PKR139.95~141.80 momentum would then confirm a smooth rally until our long-term price objective is met at PKR54 -- anticipated around 100% Projection (30.25~130.05). Long Term Target PKR154 § Major support exists around PKR104.70.

70 AKD Securities Limited Pakistan Market: 2007 - 2008 January 2008

Pakistan Nishat Mills Textile Sector Closing Price: PkR102.40

Qasim Anwar § Looking at NML’s movement over the past three years, the series of Technical Analyst successively higher troughs along with steady OBV (On Balance [email protected] Volume), suggests that the primary trend is up and firm.

§ In immediate term, weekly penetration above formidable resistance Major Support anticipated around PKR110.70 is likely to ignite a rally toward our short- PKR97.25 term target of PKR120~121.30 levels anticipated around 50% Fibonacci Projection (86~135). Which if breached on weekly closing basis, then it is

Short Term Target likely that the stock would then be on its move toward our intermediate target of PKR132~135 levels anticipated between upper black line PKR120~121.30 (major resistance) and 76.4% Fibonacci Projection (86-135).

Intermediate Target § And if the stock is successful in breaching the mentioned levels, backed PKR132.35~135 by healthy momentum, which is not going to be an easy task, will pave the way towards our long-term price objective of PKR145.50 – anticipated at 100% Fibonacci Projection (86-135). Long Term Target

PKR145.50 § Major support exists around PKR97.25.

71 AKD Securities Limited Pakistan Market: 2007 - 2008 January 2008

Pakistan Oil & Gas Development Co. E&P Sector Closing Price: PkR121.45

Qasim Anwar § After tapping its all time high of PKR177.10 (adjusted) on March 18, Technical Analyst 2005; OGDC saw a major fall-out in the March-2005 meltdown, forming a [email protected] bottom at PKR65 (adjusted) on June 3, 2005 – loosing almost 63.3% of its value in just three months. The rally witnessed in November 2005 then lifted the stock toward PKR155.75 following which the activity Major Support remained within a broader band of PKR98.60~148.45 price levels.

PKR113.80 § On the weekly chart, price action over the past three years has evolved

Short Term Target into a bullish symmetrical triangle pattern, where weekly close above the upper falling line (i.e PKR125~127.50) will complete the pattern by mid- PKR134.90~135.70 March 2008, lifting the stock towards our short-term target of PKR134.90~135.70 – 50% Fibonacci Projection (86~155.75). Though a Intermediate Target penetration above this level would not be an easy task, but a breakout PKR142.75~144 driven by healthy volumes is likely to fuel an unchecked rally towards our intermediate target of PKR142.75~144 – anticipated around 61.8% Fibonacci Projection (86~155.75). A weekly closing above these levels Long Term Target will pave way toward the stock’s December 2008 price objective of PKR154.10~155.75 PKR154.10~155.75 anticipated around 76.4% Fibonacci Projection(86- 155.75).

§ Meanwhile, two major supports are anticipated around PKR113.80 and PKR107.90

72 AKD Securities Limited Pakistan Market: 2007 - 2008 January 2008

Pakistan Pakistan State Oil OMCs Sector Closing Price: PkR416.50

Qasim Anwar § Over the last 18-months, the series of higher bottoms along with rising Technical Analyst OBV (On Balance Volume) suggest that the primary trend is up and firm. [email protected] An ascending triangle pattern has evolved during the last two years where the price level of PKR412~415 holds the key in the form of an upper line. Although, heavy and unsymmetrical battering seen last week Major Support has pushed the stock price below the upper line, we feel it is but PKR376 inevitable for the stock to breakout and re-validate the pattern it showed earlier on September 23, 2007.

Short Term Target § The breakout would then trigger a rally to lead PSO toward its short-term PKR436~438.50 target placed at PKR436~438.50 around 76.4% Fibonacci Projection

(176-412). Keeping aside the fact that these levels would prove a tough Intermediate Target barrier to cross, we believe that a strong momentum can carry the stock PKR490~495 toward its intermediate target of PKR490~495 -- anticipated around 100% Fibonacci Projection (176-412). The stock would then be awaiting a trigger to push it through the gap until the level of PKR550, which Long Term Target would be our December-2008 technical price objecive for the stock – PKR550 seen at 123.6% Fibonacci Projection (176~412).

§ Major support exists around PKR376~380.

73 AKD SECURITIES LIMITED Member: Karachi PAKISTAN

AKD Sales Team

Domestic Sales Team

Muhammad Farid Alam Mustafa Iqbal Khaldoon Bin Latif Deputy Chief Executive Officer Head of Institutional Sales Deputy Head of Institutional Sales Tel: (9221) 111 253 111 (Ext:695) Tel: (9221) 537 1300 Tel: (9221) 111 253 111 (Ext:696) [email protected] [email protected] [email protected]

Tahir Naqvi Fahad Muhammed Ali Zulqarnain Khan Institutional Sales Institutional Sales Institutional Sales Tel: (9221) 111 253 111 (Ext:696) Tel: (9221) 111 253 111 (Ext:696) Tel: (9221) 111 253 111 (Ext:696) [email protected] [email protected] [email protected]

Fauz Jamal Institutional Sales Tel: (9221) 111 253 111 (Ext:696) [email protected]

International Sales

Aqib Elahi Mehboob Samira Omer Aisha Kirmani Director, International Sales & Business Development International Sales International Sales Tel: (9221) 111 253 111 (Ext:704) Tel: (9221) 111 253 111 (Ext:705) Tel: (9221) 111 253 111 (Ext:705) [email protected] [email protected] [email protected]

AKD Research Team Naveed Vakil Faiza Naeem Umer Pervez Investment Analyst Investment Analyst Investment Analyst Sector: E&P, Oil & Gas Marketing Sector: Telecom, Fertilizer, Autos & Paper & Board Sector: Power, Insurance, Chemicals & Textiles Tel: (9221) 111 253 111 (Ext:692) Tel: (9221) 111 253 111 (Ext:664) Tel: (9221) 111 253 111 (Ext:693) [email protected] [email protected] [email protected]

Raza Jafri Furqan Ayub Investment Analyst Investment Analyst Sector: Commercial Banks Sector: Cement Tel: (9221) 111 253 111 (Ext:693) Tel: (9221) 111 253 111 (Ext:693) [email protected] [email protected]

The information and opinion contained in this report have been complied by our research department from sources believed by it to be reliable and in good faith, but no representation or warranty, express or implied, is made as to their accuracy, completeness or correctness. All opinions and estimates contained in the document constitute the department's judgment as of the date of this document and are subject to change without notice an are provided in good faith but without legal responsibility.

This report is not, and should not be construed as, an offer to sell or a solicitation of an offer to buy any securities. AKD Securities (the company) or persons connected with it may from time to time have an investment banking or other relationship, including but not limited to, the participation or investment in commercial banking transaction (including loans) with some or all of the issuers mentioned therein, either for their own account or the account of their customers. Persons connected with the company may provide corporate finance and other services to the issuer of the securities mentioned herein, including the issuance of options on securities mentioned herein or any related investment and may make a purchase and/or sale of the securities or any related investment from time to time in the open market or otherwise, in each case either as principal or agent.

Neither the company or any of its affiliates, nor any other person, accepts any liability whatsoever for any director or consequential loss arising from any use of this report or the information contained therein.

Subject to any applicable laws and regulations, AKD, its associate or group companies or individuals connected with AKD may have used the information contained herein before publication and may have positions in, may from time to time purchase or sell or have a material interest in any of the securities mentioned or related securities or may currently or in future have or have had a relationship with, or may provide or to have provided investment banking, capital markets and or other services to, the entities referred to herein, their advisors and/or any other connected parties.

This document is being distributed in the United State solely to "major institutional investors" as defined in Rule 15a-6 under the U.S. Securities Exchange Act of 1934, and may not be furnished to any other person in the United States. Each U.S. person that receives this document by its acceptance hereof represents and agrees that it: is a "major intuitional investor", as so defined; understands document wishing to follow-up any of the information or to effect a transaction in such securities should do so by contacting a registered representative of AKD Securities Limited.

The securities discussed in this report may not be eligible for sale in some states in the U.S. or in some countries.

Any recipient, other than a U.S. recipient that whishes further information should contact the company.

This report may not be reproduced, distributed or published, in whole or in part, by any recipient hereof for any purpose.

January 2008