PSX: The ‘hundred thousand’ question

The ‘million-dollar’ or rather the ‘hundred-thousand’ question heading into JS Research

2024 is whether the bull run of PSX (+51% in 2HCY23) is going to propel [email protected]
benchmark KSE-100 to the coveted 100k mark from 62,451 at end CY23:
1. We believe 100k (i.e. 60% return in 2024) is achievable. Aided by PAT
JS Universe: Market valuation snapshot
growth (14%) & div yield (13%), PSX requires to re-rate from current PE
FY22A/ FY23A/ FY24F/ FY25F/
of 3.3x to 4.7x – which would still be ~30% discount to its 10-yr average.
CY22A CY23E CY24F CY25F
We also highlight trajectory of KSE100 if market does not re-rate and why PAT Growth 24.5% 46.6% 14.4% -1.5%
we believe re-rating is more likely than not. P/E (x) 4.2 3.7 3.3 3.3

2. If market reverts to its bear-run tendency of pricing in dividends or only Price/BV (x) 0.8 0.8 0.7 0.6
part of them, it will need 4 years to touch 100k. Such a scenario would D/Y 8.9% 12.5% 11.9% 13.7%
however mean that P/E re-traces to sub-2x, a level that priced in a near ROE 19.7% 24.8% 24.1% 20.7%
default situation which appears to have been averted for now. Source: JS Research

3. Scenario of market pricing in dividend + PAT growth (no re-rating) is

similar with 100k arriving in 3.5 years – as we build flat PAT growth over Pakistan: Macro snapshot
2025-26 due to lower earnings of banks (monetary easing) & oil. FY23A FY24F
Lowering of macro noise and prospect of monetary easing… GDP YoY -0.17% 2.8%
Pakistan economy is not out of the woods and policy makers cannot afford Agri YoY 2.3% 3.3%
to step on the growth pedal anytime soon but signing of IMF program and
Industrial YoY -3.8% 3.7%
expectation of inflation easing off have helped lower macro noise. While
secondary market yields have started declining, we expect first rate cut in Services YoY 0.0% 4.4%
Mar-2024 and rates to decline to 18% by Jun-2024 and 15% by Dec-2024. CPI avg. 29.2% 24.2%
Policy Rate p/e 22% 18%
… which magnifies attraction of earnings yields & dividends
Trade balance US$bn (23.96) (20.95)
Prospect of easing interest rates could find an added push from contraction
of earnings & dividend yield spreads vis-à-vis risk free rates – where both C/A balance US$bn (2.24) (3.34)
widened more than their historic averages due to uncertainty of last few C/A balance % of GDP -0.7% -1.0%
years. A 5% cut in 12M Bill rates, while leaving earnings yield spread at Fiscal balance Rsbn (6,522) (7,377)
current levels (i.e. 9%) would alone yield an upside of over 25%.
Fiscal balance % of GDP -7.7% -7.0%

Elections – Faces matter but reforms important Primary balance % of GDP -0.8% 1.0%
2024 is an election year for Pakistan. While faces matter, market is focused PKR/US$ Avg. 248.55 290
on continuation of reforms – irrespective of faces. Given importance of a Source: JS Research, *govt. estimates
new IMF program post completion of the current one in 1Q24, it is likely that
any incoming government will abide by the discipline necessary to attract
foreign flows which are adequate to fund the debt repayment and current
account. Elections in India, US, UK and Russia will also be closely tracked.

How to ride this journey – Dividend Yield & Reform Plays to lead
Companies exhibiting earnings & dividend prowess with reforms underway
will continue finding favor. Banks & Ferts lead the list and MEBL, MCB, UBL,
EFERT & FFC are our top picks in the space. Given ongoing reforms in
energy, OGDC & PSO will lead event-based excitement. We however prefer
MARI & HUBC. Cements will merit rotation within top picks depending on
how energy prices trend for each player. On current landscape, we prefer
MLCF & FCCL. In addition, we like consumption plays like PABC.

Pak Rupee remains the poster child of risks to our thesis

The poster child of risks will continue to be PKR. With recent consolidation
and administrative measures, some stability has emerged. Any adverse
move on int’l commodities, IMF / foreign flows or inflation will reflect in PKR
and pose a threat to equities deterring recent nascent FPI flow.

Research Entity Notification # JS Research is available on Bloomberg, Thomson Reuters, CapitalIQ and www.jsgcl.com
REP-084 Please refer to the important disclosures and disclaimer on the last page
Analysing journey to 100,000 for KSE100 Index
1. Dividends + PAT Growth + Re-rating - Our base case: 100k within 2024

20,783 100,000

8,866
7,900
62,451

P/E from 3.3x to 4.7x

PAT D: 14%
DY: 13%

KSE100 today Dividend Earnings Re-rating Total

points growth points points

2. Crawling to 100k on the back of dividends alone – Painful and less likely!

10,721 100,111
10,027
9,013
7,900
62,451

DY: 17%
P/E 1.3x
DY: 16%
P/E 1.7x
DY: 14%
P/E 2.2x
DY: 13%
P/E 2.6x

KSE100 today 2024 2025 2026 2027 Total

3. Lower banks & oil earnings mute the role of earnings growth beyond CY24

11,499 100,169
9,733
16,487
PAT D:-3%
DY: 16%
PAT D :-2%

62,451
DY: 14%
PAT D:14%
DY: 13%

KSE100 today 2024 2025 2026 Total

Source: JS Research

PAKISTAN MARKET STRATEGY 2024 | 2

Themes for CY24
1. Initiation of monetary easing cycle March 2024 onwards
We expect the monetary easing cycle to finally begin from CY24, specifically Impact of interest rate cut
from Mar-2024. If announced, this would be the first interest rate cut after
Jun-2020. Finance cost savings:
▪ Cement
Our thesis is based on the disinflation trend projection, marking real interest ▪ Steel
rates turning positive in 1HCY24. As inflation trend has been on a relatively ▪ PSO
lower growth pace of late (barring exception of November 2023 with Gas ▪ FFBL
price impact), in addition to the pending high base impact, we expect the ▪ EPCL
first cut to be from the time the country’s real effective interest rates (RIR) ▪ Pharma (through lower CPI, not limiting price
increase to cap as per regulation)
are in the green zone on a spot basis, which would be by Mar-2024.
Demand pick up:
Having said that, on a forward-looking basis, the RIR stands at ~400bp+ at
▪ Cement
present as our projections for CY24 CPI are 18%. Our base case
▪ Steel
incorporates gradual PKR depreciation, its impact on POL product and food ▪ Auto (through financing)
prices and regular increase in gas & electricity tariffs. ▪ FMCG

We expect interest rates to decline to 18% by Jun-2024 and 15% by Dec- Reduction in interest income:
2024. At the same time, our CPI projections reflect disinflation trend, where ▪ Banks
Jun-2024 CPI reaches at 17%, and Dec-2024 CPI reaches to 10%. The ▪ E&P
same has also been built into our earnings forecasts in our coverage. ▪ APL
Alongside the monetary easing cycle, we expect the present yield curve, ▪ ENGRO
which has been inverted since Apr-2022, to turn upward sloping. ▪ FFC
▪ EFERT
As a result, the decline in yields of shorter tenor instruments is expected to ▪ INDU
outpace the yield cut in longer tenor bonds. We hence do not change our
basic cost of equity components (Risk free: 16%, Risk premium: 6%) used
for the purpose of our valuations.

The secondary market has already begun to price in a potential rate cut in All-time high interest rates among key
the near future. Yields across the tenors have trimmed 100bp since Sep- reasons of depressed multiples
2023. We do not rule out the market to continue a similar movement and P/E Policy Rate - RHS
secondary market yields to reflect a potential cut before the actual 14.00 25%
announcement. 12.00
20%
10.00
Impact of interest rate cut would be most notable in the country’s fiscal 8.00 15%
accounts this time. Given Pakistan’s mark-up expenses have reached 75% 6.00 10%
of total revenue, any decline in the same would have a meaningful impact 4.00
5%
on expected fiscal deficit. On an annualized basis, every 100bp cut in 2.00
interest rates would decline the expected fiscal deficit by Rs400bn, - 0%
May-15
May-16
May-17
May-18
May-19
May-20
May-21
May-22
May-23

amounting to 40bp as % of GDP.

As the cut is expected from Mar-2024, savings in FY24’s fiscal deficit can
Source: SBP, JS Research
be relatively limited. Albeit, if secondary markets trim down before any
change in Policy Rate announced by SBP, the savings can be higher from
our current base case. Conversely, as lower interest rates can tend to
decrease currency's relative value, timing of potential cuts in global interest
rate would be key in this equation.

In the listed space, cut in interest rates would have diverging impacts on
companies, even if they are from the same sectors. On one hand, while
lower interest rates would move the financing cost/income, we believe a
lagged impact would also be reflected in demand rebound with time. For our
base case, we only incorporate the effect of the former, where potential
impact of the latter would be an addition to our projections.

PAKISTAN MARKET STRATEGY 2024 | 3

2. Rerating / pricing in of backlog profits
Market participants have not priced in the phenomenal increase in corporate
profitability of 3x in the past 5 years (22% CAGR), which is more evident
with the disconnect of market multiples since 2021. P/E multiples that
averaged 6x just 3 years ago and 8x just 4 years ago, have now dropped to
3x.

JS Universe existing P/E vs. historical average

P/E Discount
7.00 -60%

6.00 -50%
5.00
-40%
4.00
-30%
3.00
-20%
2.00

1.00 -10%

0.00 0%
Today 3-year average 5-year average 10-year average

Source: JS Research

We believe the key reasons of the derating since 2021 have been rising Higher interest rates and sticky AUMs in
concerns on external and domestic debt, sharp monetary tightening and Equity funds
PKR depreciation and unprecedented geo-political and state-level political 25%
1,000
developments, where these concerns outweighed the sharp profit growth.
20%
Pricing in the backlog of profits alone would expand the current market cap 800
by 100%, bringing market multiples back to 6x. 15%
600
Pricing in monetary easing is expected to be followed by drop in earnings 10%
400
yield (E/Y) i.e. a re-rating of the PE multiple. Once again, taking JS Universe
as sample size, forward earnings yield at 30% - towers 9ppt above the 200 5%
prevailing 12M bond yield of 21.3%. A 5% cut in 12M Bill rates, while leaving
earnings yield spread at current levels (i.e. 9%) would alone yield an upside 0 0%
CY22
CY13
CY14
CY15
CY16
CY17
CY18
CY19
CY20
CY21

CY23TD
of over 25%.

Higher risk-free returns kept equity markets valuations locked Money market
Income
P/E 12M yield - RHS Equity
15.00 30% Others
12.50 25% Discount Rate (avg)
10.00 20% Source: MUFAP, JS Research
7.50 15%
5.00 10%
2.50 5%
0.00 0%
Jul-15

Jul-20
Dec-15

Jan-18
Jun-18

Jan-23
Jun-23
Oct-16

Nov-18
Aug-17

Apr-19
Sep-19
Feb-20

Dec-20

Oct-21

Nov-23
Mar-22
Aug-22
May-16

Mar-17

May-21

Source: MUFAP, JS Research

PAKISTAN MARKET STRATEGY 2024 | 4

3. Dividends and its rerating with interest rates
With depressed market caps and consistent payout ratio of 35% - 40% of Listed companies’ D/Y vs. other annual return
JS Universe, the average D/Y of 13% has captured investor attention. asset classes
Where the top layer of D/Y picks offer D/Y of 18% - 25%, these defensive
Defence Saving… 14%
returns have been a compelling story at PSX as well.
Regular Income… 15%
The dividend yield of stocks has broadly been compared to prevailing Behbood savings… 16%
secondary market yields as the closest comparable asset class, especially
Pensioner's benefit… 16%
the 12M/3Y/5YR yields. Albeit, an inverted yield curve prevailing since
Special savings… 16%
2QCY22 has dispersed the spread trend between D/Ys and yields of various
tenors. For market participants who would want to remain risk averse till Special savings… 16%
further clarity on the macro and other external factors emerge, PSX is ABL 17%
paying to wait through the high D/Y stocks in our list. HUBC 17%
ENGRO 18%
Average FY/CY24 D/Y for our top D/Y picks clocks in at 22%. These yields
are based on sustainable profits and payout ratios considering the FABL 18%
respective historical strategy practiced by these companies and the capacity HMB 18%
each maintains to continue and/or increase in the future. FFC 19%
EFERT 20%
JS Universe D/Y and secondary market yields remain correlated
Savings account 21%
D/Y 3YR yield 5YR yield
Short term savings… 21%
25%
Short term savings… 21%
20%
Short term savings… 21%
15% 12M Tbill 21%

10% MCB 21%

BAHL 22%
5%
POL 24%
0%
UBL 25%
Jul-17

Jul-22
Sep-21
Jun-15
Nov-15

Sep-16

Dec-17

Aug-19
Jan-20
Jun-20
Apr-16

Oct-18
Mar-19

Nov-20

Dec-22
Apr-21

Oct-23
Feb-17

May-18

Feb-22

May-23

Source: JS Research
Source: MUFAP, JS Research

Monetary easing also carries implications for required dividend yields on

stocks. We look at scenario of the required dividend yields on key dividend
plays declining by 250bp and 500bp and also of all stocks pricing in a
required yield of 15% or 17% - the upside from here in most scenarios is
significant on this metric too (10% to 65%)

Sensitivity on potential capital upside

D/Y declining D/Y declining All D/Y reaching All D/Y reaching
250bp 500bp 17% 15%

UBL 11% 25% 46% 65%

POL 12% 27% 39% 58%
BAHL 13% 29% 31% 49%
MCB 14% 32% 23% 39%
EFERT 15% 34% 15% 31%
FFC 15% 35% 14% 30%
FABL 16% 37% 8% 23%
HMB 16% 38% 6% 21%
HUBC 17% 41% 0% 14%
ABL 17% 42% -1% 12%
ENGRO 18% 43% -2% 11%

PAKISTAN MARKET STRATEGY 2024 | 5

4. General elections
With more than 35% of the world’s population and more than 40% of the National Assembly seating
world’s GDP entering into the year of elections in their respective home Province / General Women Non- Total
countries this year, Pakistan will also be one of the countries to decide its Area Seats Seats Muslim Seats
government – in this case for the next 5 years. From the key nations, some Balochistan 16 4 20
of them are United States, Russia, India, United Kingdom, Bangladesh, KPK 45 10 55
Mexico, South Africa, where the cumulative contribution to world GDP of
Punjab 141 32 173
these 40 nations are 42% to the tally.
Sindh 61 14 75
With General Elections scheduled for 8th February 2024, the ongoing Federal 3 - 3
Caretaker set up is set to complete a tenor of almost 6 months. The Capital
10 10
timeliness of elections, is not only a part of IMF’s base case assumption in
the ongoing SBA program, but has also started to become among a key Total 266 60 10 336
factor for longer tenor development projects involving foreign investments. Source: na.gov.pk, JS Research

From equity markets vantage point, alongside timeliness of the elections

would be continued focus on ongoing energy and trade reforms,
discouraging illicit trade and undocumented sectors and steps required to
ensure US$ inflow. The above may also be a higher priority for market
participants, disregarding governing faces as the same would result in
Pakistan’s external balance in check, keeping least pressure on PKR
movement against US$.

The continuity of policies set by the Special Investment Facilitation Council

(SIFC) a recent set up that includes government officials and the Army
Chief, also holds importance for equity markets.

Index return Pak Rupee performance versus US$

Before Elections After Elections Before Elections After Elections
6 mnth 3 mnth 1 mnth 1 mnth 3 mnth 6 mnth 6 mnth 3 mnth 1 mnth 1 mnth 3 mnth 6 mnth
Elections 2018 -8.3% -9.9% 0.9% 3.0% -5.0% -2.5% -13.8% -9.9% -5.3% 3.3% -3.0% -7.6%
Elections 2013 22.8% 13.5% 6.1% 11.5% 17.7% 17.4% -2.5% -0.4% -0.2% -0.1% -4.2% -8.4%
Elections 2008 12.3% 9.5% 2.1% 5.1% 0.9% -28.5% -4.3% -3.1% -0.9% 0.6% -8.8% -17.4%
Elections 2002 13.9% 16.9% 5.9% 6.1% 34.8% 35.6% 1.8% 1.8% 0.3% 0.6% 1.4% 2.4%
Elections 1997 6.2% 9.5% 16.6% 2.4% -3.4% 21.0% -11.7% 0.0% 0.0% 0.0% -0.3% -1.0%
Elections 1993 23.0% 11.1% 5.3% 14.9% 69.0% 80.4% -11.0% -10.5% 0.6% 0.9% 7.3% 2.4%

Average volumes (mn shares) Average value traded (Rsmn)

Before Elections After Elections Before Elections After Elections
6 mnth 3 mnth 1 mnth 1 mnth 3 mnth 6 mnth 6 mnth 3 mnth 1 mnth 1 mnth 3 mnth 6 mnth
Elections 2018 181 152 160 221 180 175 7,695 6,557 6,511 9,586 7,150 7,443
Elections 2013 199 210 177 415 317 247 5,475 6,521 5,986 10,950 10,416 8,600
Elections 2008 239 231 213 292 258 188 25,248 23,675 21,745 36,539 32,309 21,490
Elections 2002 114 114 117 229 277 249 4,484 5,538 6,652 8,966 11,810 11,205
Elections 1997 28 36 28 62 49 58 735 864 776 1,940 1,431 1,866
Elections 1993 181 152 160 221 180 175 7,695 6,557 6,511 9,586 7,150 7,443
Source: SBP, PSX, JS Research

PAKISTAN MARKET STRATEGY 2024 | 6

Key risks for CY24
1. Delays in US$ inflows
A key underlying assumption of our thesis for CY24 lies on Pakistan’s
external financing needs being met through 1) adhoc measures, 2) a fresh
IMF program after the ongoing program expires in Mar-2024 and 3) support
from other external lenders. Any unfavourable developments such as
Pakistan’s inability to secure a fresh IMF program owing to lagged reform-
related measures, delayed support from friendly countries backed by
changing geopolitical preferences etc, is expected to bring SBP foreign
exchange reserves back to concerning levels, as witnessed in 1HCY23. The
same would likely lead to negatively impact investor confidence on country’s
macroeconomic outlook.

2. CPI pressure delaying monetary easing cycle

The recent decline in secondary market yields is reflecting some anticipation
of interest rates peaking at current levels, with the first cut expected in the
near future. We believe most quarters of the market share a similar view on
interest rates peaking and now only differ on the timing and quantum of cut
in interest rates in CY24. Any further pressure on CPI, which could be
reasoned by higher PKR depreciation, rise in global commodity prices
(especially oil), higher than expected impact of energy reforms on gas and
power utility costs etc, could continue the negative real interest rate zone,
delaying any prospects of a monetary easing cycle.

3. Uncertainty with regards to elections / new set up

The General Elections would be held after a relatively pro-longed Caretaker
set up of ~6 months (usually of 3 months). Any further delay or concerns
with regards to focus of the new set up’s tilt towards populist measure that
may lead to instability in the macroeconomic landscape could lead to
reduction in the ongoing market optimism and confidence revival.

All comes down to PKR movement

All key risks boil down to the route to sharp PKR depreciation, which we
expect to be among the key concerns for CY24. Given Pakistan has
witnessed almost 40% PKR depreciation in the last two years already, we
believe broader currency adjustment has already taken place. The
favourable move of late has only been 8%. Having aid that, a sharp decline
in PKR against US$ would not only dent investor sentiments but would result
in a negative earnings impact on a number of sectors.

Among the key losers would be Oil & Gas Marketing, Refineries, Steel,
Chemicals, Cement, Auto, Pharma sectors, while among the key gainers
would be E&Ps, Textiles, Technology sectors and other companies that
benefit from exports.

Furthermore, any measures such as administrative controls on imports to

curb trade deficit as a way to reduce any potential sharp PKR depreciation
would bear negative impact on the Autos, Pharma, Chemicals, Textiles,
Steel and Mobile assembling sectors.

PAKISTAN MARKET STRATEGY 2024 | 7

 49.4% Jan-23 8.7 Jan-23 0.6%
CY13 -14.9%
37.8%
27.2% Feb-23 8.5 Feb-23 -0.4%
CY14

Index
33.3% 2.0%
Mar-23 (9.0) Mar-23 -1.3%
2.1% -9.0%
CY15
-2.0%

US$mn
Apr-23 (8.4) Apr-23 3.9%
45.7% 3.9%
CY16
45.8%
Dollarized

May-23 (3.5) May-23 -0.6%

-15.3% -1.2%
CY23 in pictures

CY17
-19.8% 0.3%
Jun-23 6.2 Jun-23
0.1%

KSE100 Index: Yearly returns

-8.4%
CY18
-27.2% 15.9%
Jul-23 18.1 Jul-23
15.6%

Index
9.9%
CY19
-1.5% Aug-23 12.9 Aug-23 -6.3%
-12.1%
7.4%

Source: PSX, NCCPL, Bloomberg, JS Research

KSE100 Index: Monthly returns for CY23

CY20 2.7%
4.1% Sep-23 (9.0) Sep-23
9.1%
1.9%

Dollarized
CY21 12.3%
-7.7% Oct-23 (12.0) Oct-23
14.8%
-9.4% 16.6%
CY22 Nov-23 34.4 Nov-23
-29.3% 15.1%
54.5% 3.2%
CY23 Dec-23 26.5 Dec-23
Foreign portfolio investment activity witnesses increase
24.1% 4.4%

100
150
200
250
300
350
400
450
500

0
50
Companies
200
400
600
800

0
1,000
1,200

126
CY13
Jan-23
FIPI 73
CY14
Feb-23
CY15 Mar-23
Individuals 24

Rsmn
CY16
mn shares

Apr-23

mn shares
NBFCs 1
US$mn (RHS)

CY17 May-23
CY18 Jun-23

Average yearly volumes trend

Insurance (1)
CY19 Jul-23
CY23: FIPI & LIPI activity (US$mn)

CY20 Other FIs (2) Aug-23

Average monthly volumes trend in CY23

CY21 Sep-23
Brokers (29)
CY22 Oct-23

Banks/DFIs (62) Nov-23

CY23
Dec-23

PAKISTAN MARKET STRATEGY 2024 | 8

Mutual Funds (131)
0
10
20
30
40
50
60
70
80
90

2,000
4,000
6,000
8,000
100

10,000
14,000
16,000
18,000

12,000
 0.0
0.5
1.0
1.5
2.0
3.0

2.5
Jan-13 CY13 395.3
Jun-13
Mar-14 CY14 386.2
Aug-14
Jan-15
Jul-15 CY15 (309.4)
Dec-15
May-16 CY16 (339.1)
Nov-16
Apr-17
CY17 (487.5)

MSCI FM PBV
Sep-17
Feb-18
Aug-18 CY18 (523.3)
Jan-19
Jun-19

Source: NCCPL, Bloomberg, JS Research

CY19 55.3
Dec-19
May-20
CY20 (570.3)

P/B: Pakistan's discount to peers at 46%

Oct-20
Mar-21
Sep-21 CY21 (358.6)
Feb-22
Jul-22

MSCI EM PBV
Jan-23 CY22 (46.6)
Jul-23
CY23 73.4
Foreign portfolio investment reached 9-year high (US$mn)

10.0
12.0
16.0
18.0

0.0
2.0
4.0
6.0
8.0
14.0
0.0
5.0
10.0
15.0
20.0
25.0
30.0

Jan-13 Jan-13
Jun-13 Jun-13
Mar-14 Mar-14
Sep-14 Sep-14
Feb-15 Feb-15
Aug-15 Aug-15
Jan-16 Jan-16
Jul-16 Jul-16
Dec-16 Dec-16
Jun-17 Jun-17
MSCI FM DY

Nov-17
MSCI FM PE

Nov-17
May-18 May-18
Oct-18 Oct-18
Apr-19 Apr-19
Oct-19 Oct-19
Mar-20 Mar-20
P/E: Pakistan's discount to peers at 67%

Sep-20 Sep-20
Feb-21 Feb-21
Aug-21 Aug-21
Pakistan's D/Y remains among higher globally

Jan-22 Jan-22
Jul-22
MSCI EM DY

Jul-22
MSCI EM PE

Dec-22 Dec-22
Jul-23 Jul-23

PAKISTAN MARKET STRATEGY 2024 | 9

 P A K I S T A N M A R K E T S T R A T E G Y 2 0 2 4 | 10
75,000
SBP
Reserves
increase by
70,000 US$852mn
65,000
SBP reserves hit 9- Petrol price
Reserves at month high cut by
60,000 almost 9-year low reaching US$8.7bn Rs40/litre
level at US$3.6bn
IMF board
55,000 approves Rupee surges
US$3bn against dollar in
SBA open market
Policy
50,000 Additional
rate SBP raises
hiked to taxes imposed Govt disburses
through money policy rate
17% by100bp to Rs142bn to settle IMF staff level
45,000 bill IPPs’ dues approval for
21%
US$700mn
tranche
40,000
Imran Khan Policy rate kept
sentenced to unchanged at
3 years in jail 22%
35,000
Policy rate hiked by
US$10.7bn 300bps to 20%
pledged for Pakistan
Pakistan at Dissolves
30,000 the Geneva IK’s temporary
Parliament
CY23: Major events

Source: PSX, JS Research

conference Gas prices hiked for arrest triggers
different sectors outrage
25,000

7-Aug

4-Sep
13-Feb
20-Feb
27-Feb

13-Mar
20-Mar
27-Mar
3-Apr
6-Feb

15-May
22-May
29-May
6-Mar

1-May
8-May
16-Jan
23-Jan
30-Jan

12-Jun

10-Jul
17-Jul

31-Jul
19-Jun
26-Jun

24-Jul

13-Nov
20-Nov
27-Nov

11-Dec
18-Dec
25-Dec
16-Oct
23-Oct
30-Oct
2-Jan
9-Jan

5-Jun

3-Jul

2-Oct
9-Oct

6-Nov

4-Dec
10-Apr
17-Apr
24-Apr

14-Aug
21-Aug
28-Aug

11-Sep
18-Sep
25-Sep
Macroeconomics

P A K I S T A N M A R K E T S T R A T E G Y 2 0 2 4 | 11
IMF program & reforms – Turning point
Concerns on going towards a default…
The scarce SBP’s reserves that covered imports of 3 weeks during 1HCY23
had become a key concern of all stakeholders. The said was compounded
by delays in Pakistan’s review with IMF (previous program expiring in Jun-
2023) and other external support. For FY24, SBP reserves barely cover for
the expected Current Account Deficit projected at US$5bn. This left the
US$21bn debt obligations scheduled for FY24 in need of fresh external
borrowings to fund the same, increasing importance of securing an IMF
program, leading to disbursement by other lenders.

…addressed with a fresh IMF program in Jun-2023

Entering into a fresh IMF program, an SBA of 9 months led to an immediate
release of the first tranche of US$1.2bn in July-2023. Remaining funds
would be disbursed after 2 quarterly reviews scheduled in Nov-2023
(already approved on Staff level), and now the next in Feb-2024. Post IMF
agreement, Pakistan also received US$3bn from Saudi Arabia and UAE, in
total. Including IMF’s tranche, these disbursements doubled SBP’s FX
reserves at the time in a month to ~US$8bn.

SBP reserves and import cover

25,000 7.00
6.00
20,000
5.00
US$mn

15,000 4.00

10,000 3.00
2.00
5,000
1.00
- -
Jul-15

Jul-16

Jul-17

Jul-18

Jul-19

Jul-20

Jul-21

Jul-22

Jul-23
Nov-17
Nov-15

Nov-16

Nov-18

Nov-19

Nov-20
Mar-21

Nov-21

Nov-22

Nov-23
Mar-16

Mar-17

Mar-18

Mar-19

Mar-20

Mar-22

Mar-23

SBP forex reserves (US$mn) Import cover - RHS

Source: SBP, JS Research

Reforms and ground work on track to ensure external flows

While key preparations such as further monetary tightening in Jun-2023,
easing administrative controls on imports, taking the recommended
measures in Finance Act 2023 broadly led to affirmation of the new program,
IMF suggests the road ahead to be challenging and would require attention
from all policy makers, despite perils of an election years.

Among key benchmarks are flexible exchange rate market to address BoP
pressures, energy sector reforms to address the burgeoning circular debt
and staying on track with recommendations on the fiscal front. Regular
adjustments in gas and power tariffs would be inevitable from here onward,
as witnessed in the past six months, in addition to potential implementation
of weighted average cost of gas pricing (WACOG).

P A K I S T A N M A R K E T S T R A T E G Y 2 0 2 4 | 12
IMF: Quantitative Performance Criteria & Indicative Targets
2QFY24
I. Quantitative Performance Criteria
Floor on net international reserves of the SBP US$mn (13,800)
Ceiling on net domestic assets of the SBP (stock) Rsbn 14,888
Ceiling on SBP's stock of net foreign currency swaps/forward
US$mn 4,000
position (negative)
Ceiling on net government budgetary borrowing from the SBP
Rsbn 4,708
(stock)
Ceiling on the general government primary budget deficit
Rsbn -1232
(cumulative)
Ceiling on the amount of government guarantees (stock) Rsbn 4,050
Cumulative floor on targeted cash transfers spending (BISP) Rsbn 185.5
II. Continuous Performance Criteria
Zero new flow of SBP's credit to general government 0
Zero ceiling on accumulation of external public payment arrears by the
0
general government
III. Indicative Targets
Cumulative floor on general government budgetary health and
Rsbn 1,031
education spending
Floor on net tax revenues collected by the FBR (cumulative) Rsbn 4,425
Ceiling on net accumulation of tax refund arrears (cumulative) Rsbn 43
Ceiling on power sector payment arrears (cumulative flow) Rsbn 64
Source: IMF, JS Research

Key risks to track

IMF has highlighted risks to the program implementation which include
policy slippages, external financing risks from delays of lending, higher
global commodity prices, delays on structural reforms – especially in the
financial sector and elevated near-term domestic financing needs. The Fund
also identified areas that may put pressures on the government to provide
incentives/exemptions, disturbing fiscal discipline. Weak institutional
capacity and powerful vested interests, could undermine effective reform
implementation. Moreover, the latest report also highlights higher risk of
sovereign stress, reflecting a high level of vulnerability from elevated debt
and gross financing needs and low reserve buffers.

IMF: Selected Economic Indicators of Pak

FY20 FY21 FY22 FY23 FY24 FY25 FY26 FY27 FY28
Projected
Real GDP growth % (0.9) 5.8 6.1 (0.5) 2.5 3.6 4.5 5.0 5.0
Consumer prices avg. (%) 10.7 8.9 12.1 29.6 25.9 11.4 7.4 6.5 6.5
Gen. gov. overall balance % of GDP (7.0) (6.0) (7.8) (7.6) (7.5) (6.6) (5.2) (4.6) (4.2)
Gen. gov. primary balance % of GDP (1.6) (0.5) (2.3) (0.8) 0.4 0.4 0.4 0.4 0.4
Gen. gov. debt % of GDP 79.6 73.5 76.1 77.4 70.9 68.5 67.3 65.1 63.1
Current account balance % of GDP (1.5) (0.8) (4.6) (1.2) (1.8) (1.7) (1.7) (1.7) (1.7)
External debt % of GDP 37.6 35.1 32.1 36.4 37.3 36.8 35.2 33.5 31.7
Gross official reserves US$ bn 12.2 17.3 9.8 4.1 9.0 12.9 14.1 15.3 15.7
Gross official reserves months 2.3 2.5 1.9 0.7 1.4 1.8 1.9 1.9 1.9
Source: IMF Report Jul-2023, JS Research

P A K I S T A N M A R K E T S T R A T E G Y 2 0 2 4 | 13
Current account – Inflows to determine imports
FY24E CAD to remain below US$4bn
We expect Current Account Deficit to expand from US$2.2bn in FY23 to
US$3.3bn in FY24. The expansion in deficit is over a lower base as 4 months
of FY23 had witnessed a surplus in current account over administrative
measures controlling imports. To recall, IMF has not appreciated ad hoc
measures taken to control import bill and the tightly controlled exchange rate
in its recent Staff level report for Pakistan, terming them causing significant
damage to growth and intensified external pressures by dissuading inflows,
especially remittances.

Current account balance trend (US$mn)

4,000
3,000
2,000
1,000
-
(1,000)
(2,000)
(3,000)
(4,000)
(5,000)
(6,000)
Jul-15

Jul-20
Nov-18
Dec-15

Aug-17
Jan-18
Jun-18

Sep-19

Dec-20

Aug-22
Jan-23
Jun-23
Nov-23
May-16
Oct-16
Mar-17

Apr-19

Oct-21
Mar-22
Feb-20

May-21

Trde and services balance Remittances

Income balance Current account balance

Source: SBP, JS Research

We project CAD to expand in later months of the remainder of FY24, still

only taking the monthly pace to US$325mn as compared to ~US$210mn in
5MFY24 as we incorporate import flows under raw materials, consumption
etc. to elevate given respite in administrative controls. While our projection
for FY24 comes to 1% of GDP, compared to 1.4%/1.5%/1.8% of GDP
estimated by government/SBP/IMF, these would still not be normalized
levels. Assessing the last 10, 20, 30 and 40 odd years, Pakistan’s average
CAD levels come to 2% - 2.5% of GDP in all the aforementioned periods.

Gradual import normalization…

Oil price movement would be crucial as the segment contributes 30% to the
import bill. Similarly, softening oil prices would mirror in contract-based
RLNG supply to Pakistan as well, determining smooth energy supply from
RLNG-based plants. Our international oil price assumption for FY24 stands
at US$90/bbl., where every US$5/bbl. reduces our import bill estimates by
~US$1bn (annualized). So far, oil has averaged at US$89/bbl in FY24TD.

For the remaining ~70% imports, we expect gradual uptick as imports ease
across almost all segments. We expect Machinery and Metals imports
(~22% of total) to expand as they may contribute toward economic
productivity, while Food imports (~15% of total) may remain sticky.

…to be offset by increasing exports + remittances

On the Exports front, we see positive contribution to the external balance
this year. Albeit with single-digit growth at 9% YoY for FY24E, we expect
Exports for the year to clock in at US$30bn, which would though be lower
than FY22 levels of US$32bn. The expansion is expected to be led by

P A K I S T A N M A R K E T S T R A T E G Y 2 0 2 4 | 14
increasing diversification where segments other than textiles may outpace
overall growth in Exports.

During FY24 so far, textile exports have witnessed a 5% YoY growth where
the ~25% growth in volumes have been broadly offset by declining unit
prices. The sector’s share in total exports have trimmed from 64% during
the same period last year to now 55% in 5MFY24. The remaining exports
have witnessed 32% YoY jump in exports, broadly led by Food segment
(21% of total).

Remittances, the other key contributor to the external front, is expected to

remain flat this year, despite higher growth in NRPs. While the monthly run
rate of remittance per NRP (Non-Resident Pakistanis) has come down to
US$168, we expect the same to bounce back to US$175. These levels
would still be lower as compared to the peak of US$223 in CY21 and 10-
year average of US$180.

Concentrated in Middle-East, Remittances is window of opportunity on the

external front, which prospectively may have higher odds in supporting the
external balance. Remittances per NRP only going back to its mean
(addition of US$5/month) could lead to filling the balance gap by almost
US$1bn addition in remittances on an annual basis. The said inflow would
still only improve our base case remittance growth to 4% YoY for FY24.

Current account balance

(US$ mn) FY22 FY23 FY24E
Current Account Balance (17,481) (2,235) (3,335)
% of GDP -4.7% -0.7% -1.0%
Trade Balance (39,050) (23,955) (20,945)
Goods Exports 32,493 27,879 30,356
Textile Exports 19,329 16,632 16,721
Other Exports 13,164 11,247 13,453
Goods Imports 71,543 (51,834) (51,301)
Oil Imports (18,743) (17,593) (13,892)
Machinery Imports (9,641) (4,432) (6,138)
Food Imports (9,054) (7,966) (6,674)
Other Imports (34,105) (21,843) (24,430)
Services Balance (5,840) (969) (2,430)
Income Balance (5,248) (5,671) (7,773)
Net Current Transfers 32,657 28,360 27,813
Source: SBP, JS Research

P A K I S T A N M A R K E T S T R A T E G Y 2 0 2 4 | 15
Debt woes reduce but don’t eliminate
External debt payment pressures catch a break
Recent external flows post IMF’s fresh program addressed investor’s
concerns on piling external debt and its servicing. Where Pakistan’s external
debt has reached 21% of GDP, its servicing is at 2.8x of outstanding SBP
reserves. These levels have remained at ~1x historically, while increasing
to 7.5x in Jan-2023. A key factor for Pakistan’s external debt is its lender
composition. The majority share of the pie is contributed by China and its
lenders, followed by bilateral/multi-lateral lending agencies and Middle East
countries.

US$100bn Foreign loans - Lender wise Debt to GDP side

Other Paris Club lenders 80%

3% Other Non-Paris Club 70%
Japan - Paris Club 3% 60%
4% 50%
Saudi Arabia China 40%
5% 24%
30%
Chinese 20%
commercial banks 10%
6% 0%

2QFY20
1QFY15
4QFY15
3QFY16
2QFY17
1QFY18
4QFY18
3QFY19

1QFY21
4QFY21
3QFY22
2QFY23
1QFY24
Others World Bank
7% 18%

IMF
7% External Government Debt (%GDP)
Bonds ADB/AfDB/IADB
8% 15% Domestic Public Debt (%GDP)

Source: IMF, JS Research Source: SBP, JS Research

For FY24, the government expects external financing source of US$8.7bn

(budgeted at Rs290/US$), resulting in 33% of the year’s fiscal deficit to be
financed from the same. This is derived from fresh loans of US$23.9bn, out
of which we expect US$20.5bn to materialize via roll overs (~US$12bn),
refinancing and fresh loans. This would keep the import cover at current
levels at ~1.8x, however, the target of taking SBP reserves to US$10bn by
Jun-2024 would have lower possibility in our view. For at least the medium
term, dependency on roll overs and refinancing would dominate. The path
between now and reaching a comfortable position still needs to be navigated
with caution.

SBP reported pre-determined short-term net drains on foreign currency

asset (US$mn) FY24E: External loan payments status
30,000 25
25,000
20,000 20
4.3
15,000
15 4.4
10,000
Debt paid
5,000
10
-
Remaining
Jul-15

Jul-20
Jan-18
Jun-18

Jan-23
Jun-23
Dec-15

Aug-17

Aug-22
Oct-16
Mar-17

Nov-18

Sep-19
Apr-19

Feb-20

Dec-20
May-21
Oct-21
Mar-22
May-16

12.3 debt
5
payments
Expected
1 month 1 - 3 months 0 rollovers
External payments
3 months - 1 year Total dues in next 12 months status (US$ bn)

Source: SBP, JS Research Source: SBP Briefing, JS Research

P A K I S T A N M A R K E T S T R A T E G Y 2 0 2 4 | 16
Rebound in yields open international borrowing avenues
So far, the country’s international bond yields and credit default swaps, both,
have rebounded from the sharp correction witnessed in the earlier part of
CY23. We believe the same also reflects regained confidence on the
country’s payment capacities. Having said that, as Pakistan witnessed
downgrades by agencies such as Moody’s, S&P and Fitch last year, citing
reasons that pertained to weaker external position requiring larger fundings
bearing risks, the same could hinder any fresh borrowings from the global
capital markets.

Pak international bond yields

70.0% 140.0%
60.0% 2024
120.0%
50.0%
100.0%
40.0%
30.0% 26.7% 80.0%
20.0% 60.0%
15.7%
10.0%
40.0% 29.1%
0.0%
Jul-23
Jan-23

Jun-23

Nov-23
Dec-23
Apr-23

Aug-23

Sep-23
Oct-23
Feb-23
Mar-23

May-23

20.0%

0.0%
2025 2026 2027 2029

Jul-23
Jan-23

Jun-23

Nov-23

Dec-23
Apr-23

Aug-23

Sep-23

Oct-23
Feb-23

Mar-23

May-23
2031 2036 2051

Source: Bloomberg, JS Research

Pakistan International Bond details

Amount Duration
CODE Maturity
(US$ mn) (yrs)
PKSTAN 8.25 24 15-Apr-24 1,000 10
PKSTAN 8.25 25 30-Sep-25 500 10
PKSTAN 6 26 8-Apr-26 1,300 24
PKSTAN 6.875 27 5-Dec-27 1,500 10
PKSTAN 7.95 29 31-Jan-29 1,000 7
PKSTAN 7.375 31 8-Apr-31 1,400 10
PKSTAN 7.875 36 31-Mar-36 300 30
PKSTAN 8.875 51 8-Apr-51 800 30
Source: Bloomberg, JS Research

Domestic debt mark-up a greater concern

Where domestic debt has reached 46% of GDP, its interest payment
expense takes up almost half of the country’s revenue collection. With that,
ongoing monetary tightening also makes the scenario tougher to meet with
its scheduled payments, broadly exposed to the banking sector (53% of
domestic debt in the form of federal government securities to banks).
Interest payments have ballooned by more than 50% YoY in 1QFY23, way
higher than the debt expansion of ~30% during the same time.

IMF’s recent report on Pakistan emphasizes on any further downward

revisions to the debt baseline to push debt towards unsustainability. Interest
payments now absorbing a significant part of federal government revenue
is also among the key risks. The report also highlighted importance and
need of lengthening the maturity profile of public debt as well as managing
the cost-risk trade-off of fixed-rate versus floating-rate long-dated debt. Also,

P A K I S T A N M A R K E T S T R A T E G Y 2 0 2 4 | 17
work with international partners to develop the local bond market has been Ghana domestic debt holders
recommended to address Pakistan’s debt management challenges. Banks 33%
Growing funding pressures suggest the need for a contingency plan to deal Institutions 25%
with possible payment issues. Foreign Investors 9%
Bank of Ghana 9%
Concerns on restructuring on both fronts Pension funds 6%
While Pak debt statistics seem weak, they are relatively better when Others 18%
compared to countries who recently entered into debt restructuring
programs.
Pakistan domestic debt holders
On the face of it, Pakistan lands under similar circumstances to Ghana. In Banks 54%
Ghana, right before the recent restructuring, domestic debt had reached Insurance Cos 4%
46% of GDP and its interest payment expense took up 40% of the country’s Funds 5%
revenue collection. On the external front, the debt amounted to 25% of GDP, Corporates 13%
out of which more than half pertain to bilateral and multilateral long-term Other 24%
loans (excluding IMF, Paris Club, Eurobonds & Commercial loans). Source: SBP, Ghana govt., JS Research

Pakistan’s Debt to GDP remains sticky, while Interest payments % of govt revenue witness sharp increase

Ghana: Debt and interest payment burden Pakistan: Debt and interest payment burden
building to restructuring
65%
Interest payments % of govt

Interest payments % of govt

50% 60% 2023
2021 55%
45% 2020 50%
revenue

revenue

45% 2019
2022 2020
40% 40%
2021
2019 35%
35% 30%
2018
2017 2017 2018
25%
30% 20%
50% 60% 70% 80% 90% 55% 60% 65% 70% 75% 80%
Govt debt % of GDP
Govt debt % of GDP

Source: SBP, Ghana govt., JS Research

Pertaining to domestic debt there is a difference in debt holder composition

of both countries. Domestic debt holders in Ghana were diversified. While
banks were largest holders, their exposure limited to 33% of the total bonds.
Moreover, 9% of domestic bondholders were foreigners. In comparison to
that, Pak banks’ exposure to government domestic debt is 54%. Pak
government pre-dominantly depends on the banking sector to broadly Comparison between Sri Lanka and Pak
finance 60% of fiscal deficit every year through fresh government security external payment ratios
Sri Lanka
investments, with remaining 40% through external sources, signifying the % of GDP (side) Pakistan
(2022)
importance of banking sector and its sustainability in the system. Public Debt 72% 128%
Gross Financing Needs 7% 35%
As Pakistan is expected to enter a monetary easing cycle, we expect the
hefty mark up costs would normalize in the next 12 months. Moreover, we Foreign Debt Servicing 5% 9%
expect Pak government to take other routes to address the pressure on Source: SBP, Sri Lanka govt, JS Research
fiscal account arising from higher markup expenses, such as raising taxes,
other corrective actions at a higher priority, etc.

P A K I S T A N M A R K E T S T R A T E G Y 2 0 2 4 | 18
FY24: Expected external inflows
(US$mn) PKR/US$ assumed by govt at 290 Budgeted by govt JS Estimates
EXTERNAL LOANS 23,705 20,305
Project Loans 2,043 2,043
Federal Government 236 236
Provinces 1,807 1,807
Programme Loans 2,660 2,660
Other Aid 19,002 15,602
Saudi Arabia (Time Deposit roll over) 3,000 3,000
New Deposit KSA – (received) 2,000 2,000
New Deposit UAE – (received) 1,000 1,000
Euro Bond/International Sukuk – (least likely) 1,500 -
Commercial Banks – (least likely) 4,500 2,000
SAFE China Deposit (roll over) 4,000 4,000
IMF Loan for Budgetary Support 2,400 3,000
Others 602 602
EXTERNAL GRANTS 166 166
External Resources 23,870 20,471
Project Loans Outside PSDP 169 169
GROSS EXTERNAL RESOURCES 24,040 20,640
Foreign Loans and Repayment (15,166) (15,160)
Repayment of Foreign Credits (161) (161)
NET EXTERNAL RESOURCES: 8,713 5,319
Source: Budget Documents, JS Research

P A K I S T A N M A R K E T S T R A T E G Y 2 0 2 4 | 19
Fiscal account – Room to rationalize costs
Revenue targets remain tall
The Budget revealed a tall tax target of Rs9.4trn (+31% YoY), taking total
revenue collection to Rs12.4trn (+39% YoY). More than half of the jump is
targeted from Indirect Taxes, largely through Sales Tax. The government
targets to increase collection from Direct Taxes by more than 30% YoY,
which is broadly contributed by Income Tax. From Indirect Taxes (~60% of
total taxes), highest contribution would be from Sales tax, amounting to
almost 40% of total tax collection, and marking a growth target of 25%+ YoY.

The Non-tax revenue segment is an area that has relatively realistic targets
this year, compared to last year, in our view. The two main sub-segments
that contribute to two third of the Non-tax revenue target are: 1. SBP Profits
at Rs1.1trn – achievable with the outstanding Repurchase borrowing levels
with prevailing high interest rates. 2. PDL collection at Rs869bn. –
achievable assuming flat growth in POL product volumes and keeping PDL
intact at Rs60/ltr on MS & HSD.

To recall, the government resumed Petroleum Development Levy (PDL) on

Motor Spirit (MS) and High-Speed Diesel (HSD) during the previous fiscal
year, where PDL charges gradually reached to Rs50/liter for both MS (in
November 2022) and HSD (by April 2023). Subsequently, the PDL on MS
was further raised Rs60/liter by September 2023 and Rs55/ltr on HSD in
October 2023.

Despite meeting 1Q tax targets, targets for FY24 have kept some quarters
of the market concerned regarding slippages on the fiscal side. While IMF
has provided rather specific suggestions to reach out to contingencies at the
earliest signs of fiscal program underperformance under its previous
program, IMF’s report under the SBA recommends measures such as
increase of personal income tax, rationalization of tax exemptions for
fertilizer, expanding tax filers by another 300,000 persons through the use
of data on the withholding tax of businesses, third-party data and physical
surveys to book new individuals etc.

Wider budget outlay leaves room for prospective cost cuts

Total outlay of the budget clocks in at Rs14.46trn, up 30% YoY. More than
90% is allocated under Current expenses (+27% YoY), where mark up on
domestic loans expenses are almost half of the segment.

This year, the high interest rates and continued borrowing are estimated to
take markup expenses up by 34% YoY. This would also add up to 75%+ of
the total revenue.

Development expenses, albeit ~8% of total expenses, are expected to jump

2x YoY and targets a 20% YoY jump in PSDP. Moreover, while PSDP
targets reach all-time high to push development-led growth, subsidies
allocation budgeted are also close to realistic levels this year. The ambitious
targets provide room for any prospective cuts in any scenario of slippages
on the revenue front, in order to keep the fiscal deficit under targets.

P A K I S T A N M A R K E T S T R A T E G Y 2 0 2 4 | 20
Mark up expenses % of Total revenue - sensitivity on various interest
rates on an annual basis
80%
74% 22%
70% 67% 20%
61% 18%
60%
16%
54%
50%
40%
30%
20%
FY14

FY15

FY16

FY17

FY18

FY19

FY20

FY21

FY22

FY23

FY24E
Source: MoF, JS Research

Primary and fiscal deficit targets met so far

Fiscal deficit target for FY24 expands 18% YoY on Federal level, and 17%
YoY on overall level. As % of GDP, fiscal deficit is targeted at 6.5%, showing
minimal improvement from FY23R levels of 7.0%, while primary balance
target stands at 0.4% of GDP, in line with IMF’s projections. Government
has started to enhance its efforts towards a contractionary fiscal policy
through controlled development expenditures, strict subsidy spending etc.
Key risks to IMF’s FY24 primary surplus projection of 0.4% of GDP, emit
from higher general election expenditures and populist measures counter
effective to tax collection post general elections, especially after the expiry
of the ongoing SBA in Mar-2024.

During 1QFY24, government has met the primary balance target. Pakistan’s
budget deficit contracted to 0.9% of GDP in 1QFY24 from 1% of GDP during
same period last year. Similarly, the primary surplus also recorded an
expansion, reporting at 0.4% of GDP, versus 0.2% in 1QFY23. The surplus
surpassed performance criteria defined by IMF in the latest Staff Report
where at 1QFY24 end Pakistan’s ceiling for primary account was set at a
surplus of Rs87bn (0.1% of GDP).

Funding the fiscal deficit relied on banking sector

The expanding fiscal deficit is, as always, dependent on the banking sector,
funding two third of the deficit. Other sources of funding this year are also
the usuals for the government. Heavily relying on banks, the government
continues to increase the sector’s contribution to total domestic loans,
further increasing the fear of implication on the sector in the scenario of any
potential domestic debt restructuring scenario.

On the external front, government estimates to borrow a net amount of

Rs2.5trn; 57% higher than FY23 Budgeted levels. Assuming PKR/US$ at
290, government has estimated external support of US$24bn, and
repayment of US$15bn.

Breaking down the net external lending, government expects 2 times higher
external resources this year, compared to FY23, over 3x YoY more support
from friendly countries alone (FY24: US$10bn). The government also
targets 3x YoY higher lending from global commercial banks, in addition to
US$1.5bn worth of international bonds. Lending also include IMF’s tranches
worth US$2.4bn.

P A K I S T A N M A R K E T S T R A T E G Y 2 0 2 4 | 21
Fiscal Account (Rsbn)
FY24
FY22 FY23
(JS Estimates)
1. Total Revenue (a+b) 8,035 9,633 11,431
(a) Tax Revenue 6,755 7,818 9,555
Federal 6,143 7,169 8,799
Provincial 612 650 756
(b) Non-Tax 1,280 1,815 1,875
Federal 1,152 1,649 1,740
Provincial 128 166 136
2. Total Expenditure (a+b+c) 13,295 16,156 18,808
(a) Current Expenditure 11,521 14,584 17,397
Of which : Mark-up Payments 3,182 5,831 8,480
Defence 1,412 1,585 1,668
Others 6,927 7,168 7,250
(b) Development Expenditure & net lending 1,657 1,952 1,217
(c) Statistical Discrepancy 116 (381) 194
3.Overall Budget Balance (5,260) (6,522) (7,377)
% of GDP -6.25% -7.70% -6.97%
4.Primary Balance (2,077) (692) 1,102
% of GDP -2.47% -0.82% 1.04%
Source: MoF, JS Research

Fiscal deficit budgeted numbers

YoY growth
Rs bn FY23 B FY23 R FY23 A FY24 B target for
FY24
Revenue Receipt (FBR) 7,470 7,200 7,169 9,415 31%
Non Tax Revenue 1,935 1,618 1,710 2,963 73%
Gross Revenue 9,405 8,818 8,879 12,378 39%
Transfer to Provinces (4,373) (4,129) (4,223) (5,399) 28%
Net Revenue for Federal Govt 5,032 4,689 4,656 6,979 50%

Current Expenditure 8,709 10,528 10,867 13,320 23%

Development Expenditure 870 562 890 1,164 31%
Total Expenditures 9,579 11,090 11,332 14,484 28%

Federal Budget Deficit (4,547) (6,401) (6,676) (7,505) 12%

Provincial Surplus 750 459 154 600 290%
Overall Fiscal Balance (3,797) (5,942) (6,522) (6,905) 6%
Primary Fiscal Balance 153 (421) (845) 397 N/M
% of GDP
Federal Fiscal Balance -5.81% -7.56% -7.89% -7.09% 0.79%
Overall Fiscal Balance -4.86% -7.02% -7.70% -6.53% 1.18%
Primary Fiscal Balance 0.20% -0.50% -1.00% 0.38% 1.37%
Source: Budget Documents, MoF, JS Research

P A K I S T A N M A R K E T S T R A T E G Y 2 0 2 4 | 22
Interest Rates & CPI – Monetary easing on the
cards as real interest rates to turn positive
CPI expected to turn to disinflation trend
Even after Policy Rates increasing by 700bp in a span of one year, Pakistan
is still staying deep in the negative real interest rates zone. CPI readings
have remained above 27%, to now be followed by a high base effect play,
leading to a disinflation scenario this year.

The prevailing CPI levels have been multi-year high with the last time
Pakistan witnessed CPI readings of similar levels on an annual basis was in
FY09 (20.8%), and before that in the mid-1970s.

CPI and Policy Rate projections

30.00%
25.00%
20.00%
15.00%
10.00%
5.00%
0.00%
Jul-24

Dec-24
Jan-24

Jun-24

Nov-24

Jan-25

Jun-25
Oct-24
Aug-24
Sep-24
Feb-24
Mar-24
Apr-24

Feb-25
Mar-25
Apr-25
May-24

May-25

12M fwd CPI CPI Policy Rate

Source: JS Research

We expect CPI to clock in at 24%/16% for FY24/CY24, where we

incorporate semi-annual gas price increases, regular power tariff
adjustments, steady global oil prices and gradual PKR depreciation. Beyond
the measures, we take a MoM inflation increase of ~75bp for various
segments. As transportation segment alone is 6% of the CPI basket, while
food segment – dependent on transportation, is ~30% of CPI, any favorable
oil price shock is an upside to our base case estimates. On the other hand,
any sharp PKR depreciation is a key risk to our projections.

On the monetary policy stance, IMF has been pressing on importance of

tightening policy to reduce inflation and for the central bank to be proactive
as the situation unfolds. Recent Staff report states achieving real positive
interest rates through tightening cycle and control CPI to target a medium-
term range of 5% - 7%, also considering degree of fiscal adjustment.

Policy Rate expected to cut 700bp in CY24…

Averaging the 12M forward inflation, real interest rates stand at +600bp
today. Having said that, real interest rates are expected to turn positive by
Mar-2024 on a spot basis. We hence expect the first cut in interest rates in
Mar-2024, where we expect a 150bp - 200bp cut in every quarter of CY24.
We expect Policy Rate to land at 18% in Jun-2024, 15% by Dec-2024 and
12% by Jun-2025, maintaining it at these levels in the longer run.

We do not rule out secondary market yields pricing in interest rate cuts
earlier than the actual announcement by SBP, a phenomenon witnessed in
the past as well. Any scenario of earlier movement in secondary market
yields would broadly impact government securities auction yields and
lending rates in the shorter-term.

P A K I S T A N M A R K E T S T R A T E G Y 2 0 2 4 | 23
…shifting yield curve back to normal upward-sloping curve
During the monetary easing cycle, we expect present inverted yield curve to
normalize too. This would result in sharper decline in shorter tenor yields,
compared to longer tenor yields. To recall, Pakistan’s yield curve, which was
upward sloping till Oct-2021, turned flattish by Apr-2022. Since then, it has
moved towards an inversion with highest spreads between shorter and
longer tenors in at least two decades. While inverted yield curves are
relatively short-lived, the last time Pakistan witnessed the same lasted for
nine months, in 2019-2020. This, however, was not a different phenomenon
when compared to other countries owing to global inflation pressures and
recession fears.

P A K I S T A N M A R K E T S T R A T E G Y 2 0 2 4 | 24
Economic indicators snapshot
units FY18 FY19 FY20 FY21 FY22 FY23 FY24E
GDP YoY 6.10% 3.12% -0.94% 5.74% 5.97% -0.17% 2.83%
Agriculture YoY 3.88% 0.94% 3.91% 3.48% 4.40% 2.25% 3.30%
Industrial YoY 9.18% 0.25% -5.75% 7.81% 7.19% -3.76% 3.70%
Services YoY 5.95% 5.00% -1.21% 6.00% 6.19% 0.01% 4.35%
Nominal GDP Rsbn 36,514 41,110 44,747 52,213 66,640 84,069 106,801
GDP per capita US$mn 1,585 1,412 1,297 1,466 1,651 1,424 1,560

Population mn 210 214 218 223 227 231 236

CPI avg. 4.70% 6.80% 10.74% 8.90% 12.15% 29.18% 24.21%

CPI Y.E 5.70% 8.02% 8.59% 9.65% 21.33% 29.40% 17.60%
Policy rate avg. 6.00% 10.38% 11.13% 7.00% 9.10% 17.23% 21.00%
Policy rate Y.E 6.50% 12.25% 7.00% 7.00% 13.75% 22.00% 18.00%

Current account balance US$mn (19,195) (13,434) (4,449) (2,820) (17,405) (2,235) (3,335)
Current account balance % of GDP -5.41% -4.18% -1.48% -0.81% -4.62% -0.66% -0.98%
Exports US$mn 24,768 24,257 22,536 25,639 32,471 27,879 30,356
Imports US$mn 55,671 51,869 43,645 54,273 72,152 51,843 51,301
Trade balance US$mn (30,903) (27,612) (21,109) (28,634) (39,681) (23,964) (20,945)
PKR/US$ avg. 109.84 136.09 158.03 160.02 177.81 248.55 290

Total Revenue Rsbn 5,228 4,901 6,272 6,903 8,035 9,633 11,431
Tax Revenue Rsbn 4,467 4,473 4,411 5,273 6,755 7,818 9,555
Non-Tax Revenue Rsbn 761 427 1,860 1,631 1,280 1,815 1,875
Fiscal Balance Rsbn (2,260) (3,445) (3,376) (3,404) (5,260) (6,522) (7,377)
Primary Balance Rsbn (760) (1,354) (757) (654) (2,077) (692) 1,102
Total Revenue % of GDP 14.32% 11.92% 14.02% 13.22% 12.00% 11.38% 10.80%
FBR Tax Revenue % of GDP 12.23% 10.88% 9.86% 10.10% 10.09% 9.23% 9.03%
Non-Tax Revenue % of GDP 2.08% 1.04% 4.16% 3.12% 1.91% 2.14% 1.77%
Expenditure % of GDP 20.51% 20.30% 21.56% 19.74% 19.86% 19.08% 17.77%
Fiscal Balance % of GDP -6.19% -8.38% -7.54% -6.52% -7.86% -7.70% -6.97%
Primary Balance % of GDP -2.08% -3.29% -1.69% -1.25% -3.10% -0.82% 1.04%

Gross Public Debt (incl. IMF) % of GDP 63.70% 74.70% 76.60% 71.50% 73.50% 74.30% 74.30%
Domestic % of GDP 41.90% 47.30% 49.00% 47.10% 46.40% 45.80% 45.80%
External % of GDP 19.90% 25.20% 24.90% 22.30% 25.00% 26.00% 26.00%
Source: SBP, PBS, JS Research

P A K I S T A N M A R K E T S T R A T E G Y 2 0 2 4 | 25
Sectors & Stocks

P A K I S T A N M A R K E T S T R A T E G Y 2 0 2 4 | 26
Banks
Steady growth and lucrative returns at distressed valuations
Sector Performance
With deposit mobilization broadly driven from the conventional brick and
mortar model, Pakistan’s banking sector has remained defensive in placing 150% Banks KSE100 Index
those deposits by tilting its asset allocation broadly towards shorter and 140%
130%
longer tenor government securities being a key lender to the cash hungry
120%
government. The sector has managed to register 13% 5-year CAGR in 110%
deposits and an even higher growth in zero-cost deposits during the same 100%
period. This has significant room to improve as banking penetration stands 90%
at just 30%. 80%
70%
With a 12.25ppt increase in Policy Rate in a span of two years (9.75% to 60%

Jul-22

Jul-23
Jan-22

Sep-22
Mar-22

Nov-22
Jan-23

Sep-23
Mar-23

Nov-23
May-22

May-23
22%), Pakistan banks have marked record profits and ROEs. During this
time, credit costs have remained relatively under control (~40bp/annum),
despite record-high interest rates, including buffers being built under general Source: PSX, JS Research
provisions. With CPI set to enter a disinflation phase due to a high base,
interest rates are also expected to start reducing in the near future. For Pak
Banks, while this would mean normalization of NIMs and ROEs, an upside JS Banking Universe: NIMs and ROE to
of higher volumetric growth cannot be ruled out. We expect Policy Rate to normalize with Policy Rate
reduce from current levels of 22% to 18% by Jun-2024,15% by Dec-2024 Tier I ROE Policy Rate
and 12% by Jun-2025.
NIMs - RHS
35% 7%
On valuations, while sector average ROE touched 30% (recurring: 21% on
30% 6%
long-term interest rates of 12%), a record-high level, multiples remained
depressed, in-line with the overall KSE100 sentiments. The sector traded at 25% 5%
P/B of 0.6x, with average D/Y of 15%. 20% 4%
15% 3%
Asset and liability re-pricing
10% 2%
A three-to-four-month re-pricing period can safely be assumed for the
5% 1%
sector’s loan book, as most lending can safely be assumed for the sector’s
loan book, as most lending pertains to the Corporate sector, with an ADR of 0% 0%
CY06

CY16

CY24F
CY26F
CY28F
CY08
CY10
CY12
CY14

CY18
CY20
CY22
45%. Moreover, recent shift towards shorter tenor investments (~20% of
deposits) and inclusion of variable papers (Floater PIBs, ~30% of Deposits)
in the longer tenor investment portfolio should bring the sector’s NIMs back Source: PSX, SBP, JS Research
to recurring levels.

On the liability end, 35% of the sector’s deposits sit in zero-cost accounts.
The 40% that are placed in savings would re-price immediately with
movement in Policy Rate (Minimum Deposit Rate on savings deposits is
pinned 150bps below the PR). The remaining 25% in term deposits would
re-price according to its existing average duration of three months.

The sector has also been availing SBP borrowing window and has benefited
by leverage expansion to further increase exposure in government
securities. With these borrowings now at 32% of deposits, banks IDRs have
now scaled 90%.

The borrowing from SBP has allowed banks to lever their balance sheet
beyond the organic deposit base that has been generated in the process of
banking penetration rising from 23% in 2017 to 30% currently.

Record low multiples with strong ROE, double-digit D/Y

Despite lower interest rates and moderate deposit growth assumption of
12% per annum already incorporated in our base case, we believe
valuations still offer much room for capital upside, in addition to attractive
D/Ys. While earnings profile may remain sticky during the monetary easing

P A K I S T A N M A R K E T S T R A T E G Y 2 0 2 4 | 27
cycle, BV growth will continue to build attractive valuations for shareholders.
Pak banks trade at CY24F P/B of 0.6x, where we believe current valuations
are unjustified and provide an attractive entry level to investors over (1)
double-digit growth in deposit mobilization, (2) decline in cost of deposits
and (3) sound asset quality, leading to the sector’s sustainable Tier I ROE
averaging at 21%.

Pak Banks report comfortable CAR, built on improving profitability and

environment of low risk weighted assets (RWA) concentration (36% of total
interest earning assets due to tilt towards risk free govt securities). CAR
currently stands at 19% (minimum required: 12.5%), keeping payout
prospects intact, offering D/Y of 15%. The sector remains well equipped for
implementation of IFRS 9 – which is currently optional but turning mandatory
from January 2024 (unless again extended). In 2023, the extension came in
March / April 2023.

Deposit mix Asset quality in check

General Coverage
Fixed Deposits Saving and other Deposits
Specific Coverage
Zero-cost Deposits
Gross Infection ratio - RHS
100% 120% 16%
90% 14%
80% 100%
70% 12%
60% 80% 10%
50% 60% 8%
40%
30% 40% 6%
20% 4%
10% 20% 2%
0%
0% 0%
CY09
CY03
CY04
CY05
CY06
CY07
CY08

CY10
CY11
CY12
CY13
CY14
CY15
CY16
CY17
CY18
CY19
CY20
CY21
CY22
Sep-23

CY11
CY06
CY07
CY08
CY09
CY10

CY12
CY13
CY14
CY15
CY16
CY17
CY18
CY19
CY20
CY21
CY22
Pak Banks multiples remain distressed despite
Asset allocation supported by higher leverage normalized ROE...

100% ADR IDR 2.50 Tier I ROE P/B 35.0%

90%
30.0%
80% 2.00
70% 25.0%
60% 1.50 20.0%
50%
1.00 15.0%
40%
30% 10.0%
0.50
20% 5.0%
10%
- 0.0%
0%
CY06
CY08
CY10
CY12
CY14
CY16
CY18
CY20
CY22
CY24F
CY26F
CY28F
Nov-23
2006

2020
2002
2003
2004
2005

2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019

2021
2022

Source: Company accounts, JS Research

P A K I S T A N M A R K E T S T R A T E G Y 2 0 2 4 | 28
Meezan Bank Limited (MEBL PA)
Higher ROE by a wide margin warrants premium to peers
With Target Price of Rs190, MEBL – the largest Shariah Bank of Pakistan Target Price PKR 190
and 5th largest bank in total, is currently offering an upside of ~20%, in
Share Price PKR161.36
addition to a compounding story with 20% CAGR in its BV for the next 5
years. Being a case of right mix of superior ROE (highest in JS Banking
Universe) and higher asset growth, we believe the bank’s multiples justify
Statistics
premium over peers. MEBL's Tier I ROE for CY23 is expected to clock in at
52w high / low (PKR) 175.04 / 82.96
58%, projecting its recurring Tier I ROE to average at 27% even with PR
3m avg turnover (USDmn) 1.1
trimming to 12% from mid-CY25. This is the highest ROE generated in the
Free float (%) 25.0
Pak Banking space (industry average: 32%), and gives room for further
Issued shares (mn) 1,791.3
capital upside. The tall ROE is generated from its ROA of 2.8% - also highest
Market capitalisation PKR289B
among peers, in addition to a higher leverage ratio of ~19x maintained by
USD1.0B
the bank.
Price Performance
High growth yet to be priced in
180% MEBL KSE100 Index
We believe MEBL’s potential of registering 5-year CAGR in book value of
160%
20% (including a Policy Rate cut to 12% in CY23) is yet to be priced into the
stock price. After expanding its deposit base by a 5-year CAGR of 22% 140%
(sector: 12%), we expect Deposits growth to slow down for CY24F (15% 120%
YoY) with steady mix in deposits; where we expect Advances growth at 11% 100%
YoY and Investments at zero growth. We flag the bank faces limited 80%
investment avenues as compared to conventional banks given dearth of
60%
Shariah based investments available at present.

Jul-22

Jul-23
Jan-22

Sep-22
Nov-22
Jan-23

Sep-23
Mar-22

Mar-23
May-23

Nov-23
May-22
While the bank’s savings rate is lower than MDR requirement implemented
on conventional banks, we bring the ongoing abnormal spread of 950bp, at
present, down to normalized levels of ~400bps spread from conventional -1M -6M -12M
banks’ Minimum Deposit Rate. To recall, Islamic banks are currently offering Absolute (%) 4 100 85
savings rates at ~700-950bps lower than conventional banks’ MDR. The Relative to index (%) 1 49 30
recent sharp rise in interest rates has widened the said spread, which used Source: PSX
to range between 300bp – 500bp previously.
MEBL: Key statistics
Potential of change in current regulatory set up (Rs mn) CY23E CY24F CY25F
Government officials pointing out the vast spread between savings rate of Net Int. Income 226,903 299,976 252,311
Islamic and conventional banks has raised concerns over any potential NIMs 8.55% 9.96% 7.59%
unfavorable development for the former. In our base case, we gradually Total Income 250,990 332,095 288,293
normalize the present spread of ~950bp down to 400bp by 1QCY25. This
Operating exp. 72,345 89,743 101,368
means, in our assumption of monetary easing cycle initiating from Mar-2024,
PAT 87,609 113,782 88,305
where conventional banks would witness decline in MDR of 10ppt (from
20.5% to 10.5% by mid-CY25, MEBL’s savings rate is expected to decline EPS (Rs) 48.95 63.58 49.34
by 4.5ppt (from 11% to 6.5% in the same time). EPS growth 93% 30% -22%
DPS (Rs) 17.00 20.00 22.00
We believe MEBL stores potential to counter the negative impact from the
Tier I ROE 58% 52% 31%
prospective development, on two key moving parts; (1) the Shariah
conscious market segment MEBL currently caters to, evident from its P/B (x) 1.62 1.13 0.94
expanding mix of zero-cost deposits in the pie over the years, and (2) the P/E (x) 3.30 2.54 3.27
growth potential MEBL’s deposits would unlock when offering similar DY 11% 12% 14%
deposit returns as peers, inviting the other side of the market segment (5- Policy Rate (avg) 20.25% 18.88% 13.00%
year CAGR in savings deposit of 20% despite offering lower rates). Source: Company accounts, JS Research

Leaving deposit growth unchanged at 15% per annum, an MDR regulation

similar to the conventional banks would slash our earnings estimates for
Meezan Bank (MEBL) by 22-29% if the MDR is applied on Islamic banks
from 1QCY24. As a result, our recurring Tier I ROE would fall from 27% to
24%.

P A K I S T A N M A R K E T S T R A T E G Y 2 0 2 4 | 29
Key drivers Key risks
▪ Continued higher than expected volumetric growth, ▪ Unfavorable development on savings rate
driven from zero-cost deposits
▪ Increase in Shariah-based government securities

About the Company

Meezan Bank (MEBL) is owned by the Noor Financial Investment Company (35%) and Pakistan Kuwait Investment Co
(30%). In 2002, the bank was the first to be issued license for Islamic commercial banking. It operates 983 branches and
has a deposit base of Rs2trn, occupying ~9% market share of the country’s deposits (5th largest) in a span of only 19
years. The bank holds a 65% owned subsidiary, Al-Meezan Investment Management Limited, which is Pakistan’s largest
asset management company and 6.25% of Pak Kuwait Takaful Company Limited.

Deposit growth and mix (Rsmn) Normalized NIMs and ROE

Current Deposits - Non Rem Current Deposits - Rem
Tier I ROE NIMs - RHS
Fixed Deposits Saving Deposits 70.0% 12.00%
3,000,000 60.0% 10.00%
2,500,000 50.0%
8.00%
2,000,000 40.0%
6.00%
1,500,000 30.0%
4.00%
1,000,000 20.0%

10.0% 2.00%
500,000

- 0.0% 0.00%

CY23F
CY24F
CY25F
CY26F
CY27F
CY28F
CY29F
CY17
CY18
CY19
CY20
CY21
CY22
CY17

CY18

CY19

CY20

CY21

CY22

CY23F

CY24F

Asset quality Adequacy Ratios

Coverage Ratio Gross Infection Ratio CET I Tier I Total CAR

180.0% 3.0% 25.00%

160.0%
2.5%
140.0% 20.00%

120.0% 2.0%
100.0% 15.00%
1.5%
80.0%
60.0% 1.0% 10.00%
40.0%
0.5%
20.0% 5.00%
0.0% 0.0%
CY24F
CY17

CY18

CY19

CY20

CY21

CY22

CY23F

0.00%
CY18 CY19 CY20 CY21 CY22 9MCY23

Source: Company accounts, JS Research

P A K I S T A N M A R K E T S T R A T E G Y 2 0 2 4 | 30
MCB Bank Limited (MCB PA)
Highest CASA among peers
MCB has largely been conservative in asset allocation towards risky assets Target Price PKR 210
in the past few years, while registering a 5-year CAGR of 12% during CY18-
23. During the same time, asset allocation towards Investments escalated, Share Price PKR172.55
keeping IDR above 65% for most years in the past 10 years with 66% of
Investments parked in moving rate longer tenor papers and 26% of the
Investment book in shorter tenor bonds. Statistics
52w high / low (PKR) 191.57 / 107.56
MCB has unprecedentedly maintained one of the highest CASA in the 3m avg turnover (USDmn) 0.5
industry, achieved by remarkable 10-year meagre CAGR of 5% in fixed Free float (%) 35.0
deposits (industry: +11%), however has primarily been funded by savings Issued shares (mn) 1,185.1
deposits (47% of deposits, that carry a cost of 20.5% currently and are Market capitalisation PKR204.5B
directly linked at 150bps below the Policy Rate of the country). The share of USD0.7B
bank’s zero-cost deposits however stands at 45%, compared to industry
average of 39%. Price Performance
190% MCB KSE100 Index
Focus on cost optimization 170%
The higher CASA and timely asset placements have kept MCB’s NIMs 150%
among the higher ranked from conventional banking peers, which we expect 130%
to continue in the years to come.
110%

Alongside higher core income margins, MCB has also kept operating costs 90%
at a low level where the bank’s low Administrative Expenses relative to 70%

Jul-22

Jan-23

Jul-23
Jan-22

Sep-22
Nov-22

Sep-23
Nov-23
Mar-22

Mar-23
May-22

May-23
branch network and asset size keeps the bank’s Cost to Income ratio low at
29%, while industry’s Cost to Income ratio averages at 56%. The bank
maintains one of the lowest cost counts per branch and per staff in the
sector, keeping its infrastructure and function costs at one the most efficient -1M -6M -12M
levels of the sector. Absolute (%) 3 67 82
Relative to index (%) (0) 16 28
Both factors bode well, driving the banks sustainable Tier I ROE to 22%,
Source: PSX
including Policy Rate cut assumptions to 12% from mid-CY25. We believe
the stock is currently trading at a discount to its justified P/B of 1.1. MCB has MCB: Key statistics
managed robust return generation in spite of staying largely conservative by
(Rs mn) CY23E CY24F CY25F
maintaining a high Tier II CAR (19.6%) and low leverage ratio (12x). This
Net Int. Income 167,210 205,346 191,627
leaves the bank to take its payout ratio up to its average of 85% (D/Y: 26%),
compared to 70% (D/Y: 21%) in our average projections. NIMs 7.49% 8.26% 7.05%
Total Income 200,164 240,734 231,216
Operating exp. 63,145 78,862 89,720
PAT 67,720 70,682 61,198
EPS (Rs) 57.15 59.65 51.64
EPS growth 97% 4% -13%
DPS (Rs) 30.00 36.00 36.00
Tier I ROE 35% 31% 24%
P/B (x) 0.88 0.78 0.73
P/E (x) 3.02 2.89 3.34
DY 17% 21% 21%
Policy Rate (avg) 20.25% 18.88% 13.00%
Source: Company accounts, JS Research

P A K I S T A N M A R K E T S T R A T E G Y 2 0 2 4 | 31
Key drivers Key risks
▪ Growth in volumes, especially through the Islamic ▪ Higher than expected credit cost
banking subsidiary

About the Company

MCB Bank Ltd (MCB) is a private commercial bank of Pakistan, owned by its Associated Companies namely Nishat Mills,
Adamjee Insurance and other companies; operating 1,439 branches in Pakistan and 11 branches outside of Pakistan.
The bank holds 100% of MCB Islamic Bank Ltd, the bank’s Shariah banking arm and substantial shareholding in an asset
management company named MCB Investments, which is also listed on the PSX.

Deposit growth and mix (Rsmn) Normalized NIMs and ROE

Current Deposits - Non Rem Current Deposits - Rem
NIMs - RHS Tier I ROE
Fixed Deposits Saving Deposits 9.0% 40.0%
3,000,000 8.0% 35.0%
7.0% 30.0%
2,500,000
6.0%
25.0%
2,000,000 5.0%
20.0%
1,500,000 4.0%
15.0%
3.0%
1,000,000 10.0%
2.0%
500,000 1.0% 5.0%

- 0.0% 0.0%
CY17
CY18
CY19
CY20
CY21
CY22
CY23F
CY24F
CY25F
CY26F
CY27F
CY28F
CY29F
CY17

CY18

CY19

CY20

CY21

CY22

CY23F

CY24F

Asset quality Adequacy Ratios

Gross Infection Ratio Coverage Ratio CET I Tier I Total CAR

10.0% 100.0% 25.00%
9.0%
95.0%
8.0% 20.00%
7.0%
90.0%
6.0%
15.00%
5.0% 85.0%
4.0%
80.0% 10.00%
3.0%
2.0%
75.0%
1.0% 5.00%
0.0% 70.0%
CY22
CY17

CY18

CY19

CY20

CY21

CY23F

CY24F

0.00%
CY18 CY19 CY20 CY21 CY22 9MCY23

Source: Company accounts, JS Research

P A K I S T A N M A R K E T S T R A T E G Y 2 0 2 4 | 32
United Bank Limited (UBL PA)
Value play with an attractive D/Y
Even after delivering a return of 89% in CY23 (including dividends), we Target Price PKR 220
believe UBL – the second largest private bank and third largest bank - will
Share Price PKR177.84
continue its outperformance in CY24. We flag UBL as a key value and D/Y
play, despite the relative diluted impact of the ongoing interest rate
movement. We believe the bank holds the potential to report recurring Tier-
Statistics
I ROE of 23%. This makes a strong case for the stock to trade at least at its
52w high / low (PKR) 190.05 / 92.11
BV, as against its prevailing P/B of 0.8x.
3m avg turnover (USDmn) 0.8
At a current payout ratio of ~85%, the stock’s D/Y computes to 25%. We Free float (%) 40.0
believe the existing D/Y is stable given its Tier II CAR standing at 16.5% Issued shares (mn) 1,224.2
(minimum requirement for UBL is 12% being one of the Domestic Market capitalisation PKR217.7B
systemically important banks in Pakistan). USD0.8B

Assets tilt towards Investment book Price Performance

220% UBL KSE100 Index
UBL has remained one of the few banks to maintain a higher exposure in
fixed PIBs. While the strategy has led to a relatively lagged NIMs expansion 190%
in the monetary tightening cycle, the same would shield the NIMs trim in a
160%
potential monetary easing cycle. The bank’s Investment book (IDR: 105%)
holds a higher exposure to fixed long term government papers (UBL: 47% 130%
of total PIBs, sector: 38% of total PIBs). 100%

In addition, the higher mix of international business in its total operations 70%

Jul-22

Jul-23
Jan-22

Sep-22
Nov-22
Jan-23

Sep-23
Mar-22

Mar-23
May-23

Nov-23
May-22
also limits the overall negative impact of domestic interest rate cut. The local
currency deposits/lending contributes to 73%/50% of the respective heads,
with rest of the pie adding up from FCY heads.
-1M -6M -12M
UBL has also reported a conservative strategy with one of the largest Absolute (%) (2) 74 141
contractions in loan portfolio this year. With a lower ADR of 38%, our base Relative to index (%) (5) 23 86
case incorporates higher credit costs to cover for any unforeseen Source: PSX
provisioning expenses stemming from in the bank’s overseas loan portfolio,
as it has been its Achilles’ heel. While we take credit cost of 100bp for CY24, UBL: Key statistics
any unfavorable provisioning expense reported by the bank is likely to limit (Rs mn) CY23E CY24F CY25F
unlocking of its valuations.
Net Int. Income 160,539 200,063 202,369
NIMs 4.78% 5.09% 5.04%
Total Income 183,087 238,326 244,899
Operating exp. 72,147 84,417 95,073
PAT 60,841 64,827 62,597
EPS (Rs) 49.70 52.96 51.13
EPS growth 93% 7% -3%
DPS (Rs) 44.00 44.00 44.00
Tier I ROE 27% 26% 24%
P/B (x) 0.85 0.82 0.79
P/E (x) 3.58 3.36 3.48
DY 25% 25% 25%
Policy Rate (avg) 20.25% 18.88% 13.00%
Source: Company accounts, JS Research

P A K I S T A N M A R K E T S T R A T E G Y 2 0 2 4 | 33
Key drivers Key risks
▪ Faster build-up of capital adequacy ▪ Cut in payouts amid pressure on adequacy ratios

About the Company

United Bank Ltd (UBL) is the second largest private commercial bank of Pakistan, with a deposit size of Rs2.5trn and
operating over 1,349 branches (including 8 branches outside the country). The bank was privatized during 2002 and is
owned by Bestway (Holdings) Limited. UBL also runs an asset management company as a subsidiary in Pakistan under
the name of UBL Funds Managers.

Deposit growth and mix (Rsmn) Normalized NIMs and ROE

Current Deposits - Non Rem Current Deposits - Rem NIMs - RHS Tier I ROE
6.0% 30.0%
Fixed Deposits Saving Deposits
3,000,000 5.0% 25.0%

2,500,000 4.0% 20.0%

2,000,000
3.0% 15.0%
1,500,000
2.0% 10.0%
1,000,000
1.0% 5.0%
500,000

- 0.0% 0.0%
CY17
CY18
CY19
CY20
CY21
CY22
CY23F
CY24F
CY25F
CY26F
CY27F
CY28F
CY29F
CY23F

CY24F
CY17

CY18

CY19

CY20

CY21

CY22

Asset quality Adequacy Ratios

Gross Infection Ratio Coverage Ratio
14.0% 100.0% 25.00% CET I Tier I Total CAR

12.0% 95.0%
20.00%
10.0%
90.0%
8.0% 15.00%
85.0%
6.0%
80.0% 10.00%
4.0%

2.0% 75.0%
5.00%
0.0% 70.0%
CY22

CY23F

CY24F
CY17

CY18

CY19

CY20

CY21

0.00%
CY18 CY19 CY20 CY21 CY22 9MCY23

Source: Company accounts, JS Research

P A K I S T A N M A R K E T S T R A T E G Y 2 0 2 4 | 34
Bank Alfalah Limited (BAFL PA)
Expanding branch network
Embarking on the journey of growth, BAFL has been maintaining an average Target Price PKR 65
of opening 1 new branch almost every week. With a target to reach to 1,000
Share Price PKR48.51
branches soon, the bank wants to further add 160 new branches, out of
which 100 would be Islamic branches in the next 12 months. The higher
branch expansion has so far led to BAFL marking among the highest deposit
Statistics
growth in 9MCY23, at 31%. The bank maintains higher than peer average
52w high / low (PKR) 53.19 / 28.31
zero-cost deposits of 41% (average: 39%).
3m avg turnover (USDmn) 0.3

Reducing exposure to lending Free float (%) 45.0

Issued shares (mn) 1,577.2
Otherwise known for its tall ADR (CY15 – CY22 average: 60%), BAFL has Market capitalisation PKR76.5B
trimmed down ADR down to 35% of late amid the high interest rate USD0.3B
environment in the country. Moreover, the asset quality provides much
comfort on expanding Coverage ratio to 113% on a Gross Infection ratio of Price Performance
only 5.4%. The higher Coverage ratio is a result of the bank consistently
210% BAFL KSE100 Index
providing for loans under subjective reasoning amid ongoing macro situation
190%
in the country.
170%

The shift has been seen as IDR expands where the bank’s Investment 150%

portfolio broadly consists of floater PIBs. Bank’s domestic portfolio 130%

comprises 18% of Fixed-rate longer tenor government papers with ~3-year 110%
90%
duration at almost 14% yields, while around two-thirds of the total
70%
Investment book is variable and eligible to adjust more-or-less

Jul-22

Jul-23
Jan-23
Jan-22

Nov-22

Nov-23
Sep-23
Mar-22
May-22

Sep-22

Mar-23
May-23
simultaneously with changes in yields.

Focus on optimal deposit mix

The bank has also managed to maintain among the largest mix of zero-cost -1M -6M -12M
deposit consistently since CY11, where the contribution from the said Absolute (%) 7 71 88
segment has now reached 41%, while peer average is 39%. The higher Relative to index (%) 4 21 33

zero/low-cost deposits have kept BAFL’s cost of funds under much control, Source: PSX
keeping its NIMs competitive. In addition, BAFL’s mix of savings deposits is
BAFL: Key statistics
also one of the lowest among other banks, out of which 20% of the savings
deposits are contributed by Islamic savings deposits. With the advantage of (Rs mn) CY23E CY24F CY25F
no MDR on Islamic savings deposits, contribution of savings deposits from Net Int. Income 124,753 146,718 155,661
Islamic banking operations decreases overall cost of deposits of the bank. NIMs 5.31% 5.33% 5.06%
Total Income 149,997 175,177 187,195
On a sweet spot with a value and growth play
Operating exp. 64,345 80,042 91,827
We believe BAFL offers an opportunity as a value and growth play offering
PAT 38,392 40,648 39,578
capital upside of 35%+. With recurring Tier-I ROE for the coming five years
EPS (Rs) 24.34 25.77 25.10
to average at 20%, we believe prevailing sub-2x P/E and P/B of 0.5x do not
justify. On the dividend front, we expect regular semi-annual dividends to EPS growth 111% 6% -3%
continue at steady levels on an absolute basis, where increase in the same DPS (Rs) 6.00 6.00 6.00
is an upside to our base case investment thesis. The bank’s CET-I/total CAR Tier I ROE 34% 28% 23%
stands at comfortable levels of 10.9/15.5% as of Sep-23, which is more than
P/B (x) 0.58 0.47 0.40
300/400bp above the current minimum requirement, respectively
P/E (x) 1.99 1.88 1.93
DY 12% 12% 12%
Policy Rate (avg) 20.25% 18.88% 13.00%
Source: Company accounts, JS Research

P A K I S T A N M A R K E T S T R A T E G Y 2 0 2 4 | 35
Key drivers Key risks
▪ Increase in fixed rate instruments to shield NIMs ▪ Higher than expected credit costs
deterioration during prospective monetary easing cycle

About the Company

Bank Alfalah Ltd (BAFL) is the eighth largest bank in Pakistan, with a branch network size of 942 (11 overseas), out of
which 312 branches operate under Islamic banking mode. The bank’s largest shareholding pertains to Sheikh Nahayan
Mabarak Al Nahayan. BAFL owns substantial shareholding in a brokerage house, Alfalah CLSA Securities (Pvt) Ltd, in
addition to investments in an asset management company - Alfalah GHP Investment Management.

Deposit growth and mix (Rsmn) Normalized NIMs and ROE

Current Deposits - Non Rem Current Deposits - Rem

6.0% NIMs - RHS Tier I ROE 40.0%
Fixed Deposits Saving Deposits
35.0%
2,500,000 5.0%
30.0%
2,000,000 4.0%
25.0%

1,500,000 3.0% 20.0%

15.0%
1,000,000 2.0%
10.0%
500,000 1.0%
5.0%

- 0.0% 0.0%
CY17
CY18
CY19
CY20
CY21
CY22
CY23F
CY24F
CY25F
CY26F
CY27F
CY28F
CY29F
CY17

CY18

CY19

CY20

CY21

CY22

CY23F

CY24F

Asset quality Adequacy Ratios

Gross Infection Ratio Coverage Ratio CET I Tier I Total CAR

7.0% 120.0% 18.00%

6.0% 16.00%
100.0%
14.00%
5.0%
80.0% 12.00%
4.0%
60.0% 10.00%
3.0%
8.00%
40.0%
2.0% 6.00%
1.0% 20.0% 4.00%

0.0% 0.0% 2.00%

CY20
CY17

CY18

CY19

CY21

CY22

CY23F

CY24F

0.00%
CY18 CY19 CY20 CY21 CY22 9MCY23

Source: Company accounts, JS Research

P A K I S T A N M A R K E T S T R A T E G Y 2 0 2 4 | 36
Other notable mentions
Bank Al-Habib Limited (BAHL PA)
Bank Al Habib Ltd (BAHL) remains among our picks with a Target Price of Target Price PKR 115
Rs115, offering 40%+ upside from current levels. Following 50%
Share Price PKR80.54
outperformance vs KSE100 Index over CY23, we believe the stock still
provides an attractive investment opportunity. Trading at 0.6x CY24F P/B,
we believe BAHL's current multiples are undervalued owing to (1) recurring
Statistics
Tier I ROE at 20% (conventional banks: 19%) and (2) superior asset quality
52w high / low (PKR) 86.95 / 40.03
of the bank. Moreover, despite focus on growth, the stock's D/Y is among
3m avg turnover (USDmn) 0.3
the highest compared to peers at 22% - even if we maintain current absolute
Free float (%) 65.0
dividends (which translates into a payout ratio of below 50% for CY24F).
Issued shares (mn) 1,111.4
Among key risks to our thesis are higher than expected Cost to Income ratio
Market capitalisation PKR89.5B
and limited buffer on CAR when compared to peers.
USD0.3B
BAHL: Key statistics
(Rs mn) CY22A CY23E CY24F CY25F
Net Interest Income 77,319 121,719 153,184 154,128
NIMs 4.06% 5.47% 6.20% 5.51%
Total Income 98,516 145,320 180,218 184,134
Operating expenses 52,760 69,162 80,449 92,120
PAT 16,572 40,602 42,477 40,060
EPS (Rs) 14.91 36.53 38.22 36.04
EPS growth -11% 145% 5% -6%
DPS (Rs) 7.00 13.50 18.00 18.00
Tier I ROE 19% 38% 33% 27%
P/B (x) 0.75 0.72 0.61 0.54
P/E (x) 4.19 2.20 2.11 2.23
DY 11% 17% 22% 22%
Policy Rate (avg) 12.90% 20.25% 18.88% 13.00%
Source: Company accounts, JS Research

Habib Metropolitan Bank Limited (HMB PA)

We highlight Habib Metropolitan Bank (HMB) among our picks with TP of Target Price PKR 70
Rs70. The market has been assigning a P/B of 0.5x to HMB, despite
Share Price PKR55.32
reported and potential ROEs of 18%, which incorporates more than usual
credit costs from here onwards. The compelling multiples are in addition to
DY of 18%, based on payout ratio of 35% (CY19 - 22: ~40%). We highlight
the strong CET-I ratio that the bank maintains at 16.3%, one of the highest Statistics
52w high / low (PKR) 59.61 / 27.4
among peers. Asset quality remains a key concern especially with more than
3m avg turnover (USDmn) 0.1
40% of loan book exposure to Textile sector, and some accretion in NPL of
Free float (%) 45.0
late.
Issued shares (mn) 1,047.8
HMB: Key statistics Market capitalisation PKR58B
(Rs mn) CY22A CY23E CY24F CY25F USD0.2B
Net Interest Income 40,611 74,739 88,546 82,508
NIMs 3.31% 5.77% 6.66% 5.70%
Total Income 53,824 89,308 106,364 102,327
Operating expenses 22,677 30,132 37,490 42,797
PAT 14,260 28,241 30,730 26,377
EPS (Rs) 13.61 26.95 29.33 25.17
EPS growth 6% 98% 9% -14%
DPS (Rs) 5.25 10.00 10.00 10.00
Tier I ROE 21% 34% 30% 22%
P/B (x) 0.61 0.62 0.51 0.45
P/E (x) 2.94 2.05 1.89 2.20
DY 13% 18% 18% 18%
Policy Rate (avg) 12.90% 20.25% 18.88% 13.00%
Source: Company accounts, JS Research

P A K I S T A N M A R K E T S T R A T E G Y 2 0 2 4 | 37
Faysal bank Limited (FABL PA)
With Shariah conversion now complete and multi-year high growth and Target Price PKR 40
efficiency momentum reported in CY22 and 9MCY23, FABL appears well
Share Price PKR32.58
positioned to garner investor interest as one of only three Islamic banking
plays at the PSX. Valuations at 0.5x P/B along with recurring Tier I ROE of
15% provide further support to our Buy rating with Target Price of Rs40
Statistics
(20% upside). Key area of ROE accretion in our view remains lowering
52w high / low (PKR) 33.41 / 20.00
deposit costs, especially, savings deposit post Shariah conversion and
3m avg turnover (USDmn) 0.2
efficiencies in Cost to Income (FABL: 47%: peers: 35%). With 16.5% CET I
Free float (%) 25.0
levels, the bank has potential to increase its payout ratio from our base case
Issued shares (mn) 1,517.7
of 33% for CY24, which provides a D/Y of 18%.
Market capitalisation PKR49.4B
HMB: Key statistics USD0.2B
(Rs mn) CY22A CY23E CY24F CY25F
Net Interest Income 39,988 74,369 92,548 84,220
NIMs 4.48% 6.97% 7.61% 6.22%
Total Income 48,945 84,461 106,701 100,107
Operating expenses 27,493 37,713 47,295 53,887
PAT 11,233 20,999 27,714 21,756
EPS (Rs) 7.40 13.84 18.26 14.34
EPS growth 38% 87% 32% -21%
DPS (Rs) 7.00 4.00 6.00 6.00
Tier I ROE 19% 31% 33% 22%
P/B (x) 0.57 0.57 0.48 0.42
P/E (x) 3.47 2.35 1.78 2.27
DY 27% 12% 18% 18%
Policy Rate (avg) 12.90% 20.25% 18.88% 13.00%
Source: Company accounts, JS Research

P A K I S T A N M A R K E T S T R A T E G Y 2 0 2 4 | 38
Oil & Gas Exploration Companies – Overweight
Unlocking of valuations warranted over ongoing reforms
With revenues tilted towards gas production (oil/gas: 35%/60% of Sector performance
revenues), Pakistan’s E&P sector is broadly driven by global oil prices and 150% E&Ps KSE100 Index
the movement in Rs/US$. The two bigger players out of the four listed 140%
players are state-owned (OGDC & PPL), while MARI is owned by Fauji
130%
Foundation (and OGDC: 20%).
120%
While the sector is relatively shielded to macroeconomic pressures, it is at 110%
present grappled with the circular debt on account of gas-based receivables, 100%
with 88%/74% receivables of OGDC & PPL outstanding beyond 180 days. 90%
Despite earnings growth over the years, the circular debt has limited sector’s 80%

Jul-22

Jul-23
Sep-22
Jan-22

Sep-23
Mar-22

Nov-22
Jan-23
Mar-23

Nov-23
May-22

May-23
cash earnings, denting its valuations at the PSX. From here onwards, we
believe the sector’s earnings (and payouts) will remain steadfast, even after
incorporating the declining production. Sector’s EV/EBITDA had reached to
Source: PSX, JS Research
decades low to 1.40x during FY23, which has recently witnessed a rebound
to 1.60x. The valuations still remain below recent and long-term average of
4.5x, respectively. Industry: Oil & Gas Production
100,000 4,500
Bi-annual gas price revisions to bode well 90,000 4,000
Persistence by the IMF with regards to bi-annual gas revisions, with the 80,000 3,500
70,000 3,000
more recent call by the international lender to target further hikes by 100% 60,000
2,500
for the protected categories (constituting ~60% of total consumers for 50,000
2,000
SNGP). Any gas price hikes, particularly on the highly subsidized protected 40,000
30,000 1,500
consumers, stands to be beneficial in terms of cashflows for both state- 1,000
20,000
owned E&Ps, where cash receipts have averaged 55%/30% for OGDC/PPL 10,000 500
in the recent past. 0 0

4MFY24
FY8
FY10
FY12
FY14
FY16
FY18
FY20
FY22
Assuming the proposed increase goes through, we estimate weighted
average system-gas price for SNGPL to closely align with the current year’s
revenue requirement (assuming full recoveries on RLNG diversion to Oil BPD Gas (mmcfd) - RHS
domestic sector). For this reason, collection rates for upstream SOEs are
expected to bolster significantly. The positive development was already Source: PPIS, JS Research
evident in OGDC’s 1QFY24 improved gas receipt collection rate, which
stood at 70% (vs. 31% in 1QFY23).

Incoming capex to enhance sustainability

Further, in addition to attractive valuations, ongoing fundamental gas
distribution reforms (on the persistence by the IMF) and diversification
efforts by the SOEs alongside possible Reko Diq stake sale continue to align
as positive triggers for our thesis going forward. Overall, the focus of
authorities has shifted greatly towards the sustainability of the sector, given
the consistently declining hydrocarbon resources (Reserve Replacement
Ratio down to ~30% avg), where-in sector reserve life presently stands at
7.2/15.0 years for oil/gas, respectively (assuming no reserve replacement).
Notably, 10 blocks were awarded in 1HFY24 alone (6 in Balochistan) vs. 5
awards on an average annually in previous 5 years.

Following a subdued FY23 in terms of drilling and development activities on

account of import restrictions alongside flood hinderances in various fields
(particularly in the south), domestic E&P companies have resoluted towards
allocating substantial capex to compensate for the preceding year.

In total, OGDC and PPL are projected to collectively invest ~US$280mn, in

line with their typical annual expenditures of US$250-300mn. Overall, both

P A K I S T A N M A R K E T S T R A T E G Y 2 0 2 4 | 39
company’s plan to drill 33 wells in this regard (vs. 15 last year), however,
actual development/exploration activity often falls short of initial targets.

…and diversification to other income segments

From the listed space, OGDC and PPL have an 8.33% ownership stake
each in the Reqo Diq mining project, renowned for containing one of the
most extensive untapped reserves of copper and gold in the world. Both the
SOEs have committed to drive in investments of US$100-120mn annually.
Moreover, with investments in PIOL (Abu Dhabi offshore block) and active
participations in domestic bidding rounds of new blocks, future exploratory
efforts in E&P space seem to be already underway.

P A K I S T A N M A R K E T S T R A T E G Y 2 0 2 4 | 40
Mari Petroleum Company (MARI PA)
Sector’s standout performer
MARI remains our top pick from the sector space, with a Dec-2024 Target Target Price PKR3,000
Price of Rs3,000/sh, offering upside of 37% from current levels and trading
Share Price PKR2,096.10
at FY24E P/E of sub-4x. Cornerstones of our thesis include company’s ever-
growing production profile on the back of various development projects,
highest 2P production life in the sector alongside relatively cleaner balance
Statistics
sheet and earnings quality compared to peers. Further, with cap on
52w high / low (PKR) 2,191.83 / 1,389.70
company’s dividend payouts lifted during early FY21, company has
3m avg turnover (USDmn) 0.7
demonstrated resilient payouts averaging around 50% since then. Overall,
Free float (%) 20.0
Fauji Foundation (40%) and OGDC (20%) have stakes in the company,
Issued shares (mn) 133.4
demonstrating MARI’s strengthened bargaining power with the authorities
Market capitalisation PKR279.6B
in regards to pricing of new discoveries and ability to effectively manage
USD1.0B
prompt cashflow collections.
Price Performance
Strong production profile
160% MARI KSE100 Index
The company has demonstrated consistent production growth, with total gas
production expected to end the year at 860MMCFD (FY24E), a CAGR of 140%
4% since FY16 (compared to industry’s annual decline of 3%). To note,
company significantly increased its production profile during the outgoing 120%
year (+13%), largely marked by the full commissioning of the SGPC facility
during 4QFY23 (+110 MMCFD). Further, with the onset of Shewa-1 (+50 100%
MMCFD) by late FY24 alongside inclusions of several wells from Mari Ghazij
80%
and horizontal reservoirs (Mari 122 to 124H) by FY24/25E, we expect

Jul-22

Jul-23
Jan-23
Jan-22

Nov-22

Nov-23
Mar-22
May-22

Sep-22

Mar-23
May-23

Sep-23
company’s total gas production to top the 900 MMCFD mark by FY25F.

Robust portfolio and abundant reserves

-1M -6M -12M
MARI’s expansion of its exploration acreage has been one of the most
Absolute (%) 23 44 49
aggressive in the industry, with the company acquiring 16 blocks in last three
Relative to index (%) 20 (7) (5)
years, including the Abu Dhabi block (with consortium of OGDC, PPL and
Source: PSX
GHPL). This aggressive development and exploration strategy has led to
the discovery of four major producing reservoirs (Mari Horizontal in HRL,
MARI: Key statistics
Ghazij, Bannu West, Hilal and Iqbal) since July 2020, culminating to a
Rs mn FY23A FY24F FY25F
reserve replacement ratio of over 100% during FY21-23. Further, company
continues to actively develop its flagship reservoir i.e. Mari HRL through Revenue 145,770 194,968 221,460
Mari Revitalization program to extend the field’s recoverable base. Overall, PAT 56,129 71,895 72,128
Mari Gas Field in Sindh boasts total recoverable reserves of 4.37 TCF, EPS (Rs) 420.75 538.93 540.68
resulting in an estimated production life of ~15 years, assuming production
DPS (Rs) 147.00 190.00 215.00
of 800MMCFD annually.
Oil Production - BPD 1,062 1,145 1,113
Circular Debt concerns remain relatively low Gas Production - mmcfd 754 845 888

Seeing MARI's outstanding receivables grow at a rapid pace over past 12 Reserve life (yrs) 15.7 14.3 13.1
months (1QFY24: Rs60.8bn, up 81% YoY), especially after initiation of ROE (%) 33.3% 32.7% 27.4%
supplying pipeline gas to SNGPL (+100MMCFD since FY22), liquidity ROA (%) 22.0% 22.5% 18.8%
concerns similar to those seen in gas heavy E&P companies have taken Source: Company accounts, JS Research
shape. Concerns, however, seem to be overplayed since major gas-price
rationalization efforts have already begun, with bi-annual consumer gas
price reviews in effect (on persistence by IMF). Further, with MARI’s
permeate gas supplies important for the fertilizer sector, and subsequently
for country’s food security sustainability, we believe authorities to be up to
the task to ensure prioritized gas collections for the company to support the
fields development going forward. Finally, the affected revenues towards the
problematic gas utility only account for 15-20% of total sales (vs. OGDC &
PPL: >45%), hence future pay-outs (FY24-25E pay-out: ~40%) and
operational activities are expected to remain unaffected going forward.

P A K I S T A N M A R K E T S T R A T E G Y 2 0 2 4 | 41
Key drivers Key risks
▪ Continued expenditures in development expenditures ▪ Unchecked gas circular debt flow
to maintain production growth ▪ Key field concentration risk, as revenues from Mari gas
▪ Strong cash collection amidst lower exposure to gas field account for over 80% of total sales.
circular debt (compared to peers)
▪ Strongest production life in the sector in the sector
space

About the Company

MPCL is an integrated exploration and production company, currently managing and operating Pakistan’s largest gas
reservoir at Mari Gas Field, Daharki, Sindh. With over 24% market share, it is the largest gas producer in Pakistan and
owns the second highest reserves base.

Gas Production (mmcfd) vs. EBITDA/BOE US$ Exploration Blocks vs. Exploration Expenses (US$ mn)
1,000 9.00 40 70
900 8.00 35 60
800 7.00 30
700 50
6.00 25
600 40
5.00 20
500 30
4.00 15
400
3.00 10 20
300
200 2.00 5 10
100 1.00 0 0
FY14
FY13

FY15

FY16

FY17

FY18

FY19

FY20

FY21

FY22

FY23
0 0.00
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22
FY23
FY24F
FY25F

Exploration Blocks
Gas MMCFD EBITDA/BOE US$ - RHS Exploration Expenses (US$ Mn) - RHS

Estimated Reserve Life (Yrs) EPS & DPS vs. ROE (%)
16.00 600 45%
40%
14.00 500
35%
12.00 400 30%
25%
10.00 300
20%
8.00 200 15%
10%
6.00 100
5%
4.00 - 0%
FY16

FY17

FY18

FY19

FY20

FY21

FY22

FY23

FY24E

FY25F

2.00

0.00
MARI Industry OGDC PPL POL* EPS DPS ROE (%) - RHS

Source: Company accounts, JS Research

P A K I S T A N M A R K E T S T R A T E G Y 2 0 2 4 | 42
Oil & Gas Development Co. (OGDC PA)
Solid prospects, dimmed by receivable challenges
OGDC, being state-owned with 85% govt ownership, is the largest E&P Target Price PKR 165
company in Pakistan. Company’s revenue mix comprises of 44%/46%/10%
Share Price PKR112.45
Gas/Oil/LPG, where-in estimated total production life currently stands at a
little over 13 years. Additionally, being the largest E&P in the country, OGDC
continues to be exposed to intercorporate circular debt. However, the
Statistics
impact on its operational activities and payouts has not been as severe as
52w high / low (PKR) 126.75 / 73.69
its other GoP owned counterpart, PPL. At present, the company's total trade
3m avg turnover (USDmn) 4.4
receivables amount to Rs595bn (Rs138/sh), equating to an outstanding of
Free float (%) 15.0
approximately 450 days. Further, OGDC also has decent upside potential
Issued shares (mn) 4,300.9
from its investments in Reko Diq mine and PIOL (offshore Abu Dhabi
Market capitalisation PKR483.6B
exploration block). The stock is currently trading at an undemanding 1.50x
USD1.7B
EV/EBITDA and 2.6x P/E (compared to LT averages of 4.0x/6.5x), while our
Dec-2024 target price currently stands at Rs165/sh, an upside of 47% from
Price Performance
last close. Additionally, OGDC’s 2P reserves presently stand at 673MN BOE
190% OGDC KSE100 Index
(Oil 80; Gas 593), translating into an indicative reserve value of
Rs460/share. 170%
150%
…keep valuations undemanding 130%
With GoP currently exploring ways to curb the Gas Circular Debt (GCD) flow 110%
of the energy SOEs through diligent bi-annual tariff adjustments, we 90%
anticipate a substantial reduction in liquidity woes of the country’s largest
70%
E&P going forward, in contrast to situation in the past. Moreover, with

Jul-22

Jul-23
Jan-23
Jan-22

Nov-22

Nov-23
Sep-23
Mar-22
May-22

Sep-22

Mar-23
May-23
company’s earnings and payouts showing sustenance throughout the
medium term largely due to consistent capex and reserve replacement
activities, valuations continue to remain highly discounted. Overall,
company presently trades at an unprecedented P/E & EV/EBITDA of -1M -6M -12M

2.62x/1.50x (discount of 37%/46% to 5-year averages). Absolute (%) 3 51 55

Relative to index (%) 0 0 0
Sizing up sustainability Source: PSX

Company remains steadfast in developing its extensive asset base, with

OGDC: Key statistics
three projects in the pipeline, namely KPD-TAY, Uch and Dakhni
Rs mn FY23A FY24E FY25F
compression pumps, expected to cumulatively yield 119mmcfd once
commissioned by late FY25. To note, Uch and KPD collectively accounted Revenue 413,594 480,774 510,651
for 52% of OGDC's total gas production in FY23, hence continued PAT 224,618 184,931 189,386
monetization of these assets remains of utmost significance for the EPS (Rs) 52.23 43.00 44.03
company.
DPS (Rs) 8.55 8.35 12.00

Further, OGDC remains the leading E&P company in terms of participation Oil Production - BPD 32,478 33,019 33,418
in block auctions, with company securing over 50% of the exploration leases Gas Production - mmcfd 764 768 774
on offer since June-22, mostly in highly prospective (and risky) zones of Oil - Reserve Life (yrs) 6.6 5.8 4.8
Balochistan and Pishin basins. Moreover, the discovery of Wali Bettani
Gas - Reserve Life (yrs) 14.8 14.3 13.7
reserve last year has been a crucial milestone (currently yielding
ROE (%) 22.9% 15.9% 14.5%
866bpd/13mmcfd of oi/gas), with Bettani-2 and Deep already in the works.
Source: Company accounts, JS Research
With the field expecting to last over 11 years (production: ~50mmcfd),
accounting for ~6%/7% of FY25/26 revenues, respectively.

Gas Circular Debt influence to slow down

With the authorities aiming to push down the gap between cost and sale
price of gas (substantial portion of adjustment already implemented), as
over 120% of hikes for SNGPL were done during the calendar year. For this
reason, we expect GCD buildup to greatly slowdown come FY25 and
beyond. Overall, resolution of the circular debt backlog (and the future flows)
may unlock significant growth avenues for the sector as a whole, and

P A K I S T A N M A R K E T S T R A T E G Y 2 0 2 4 | 43
possibly rerate valuations. However, achieving this monumental task will be
a slow and gradual process for the authorities.

Key drivers Key risks

▪ Stable discovery success rate (historical avg. 27%) ▪ Unchecked gas circular debt flow
▪ Bi-annual gas tariff revisions alleviating liquidity ▪ Lower discovery success in high risk areas, leading to
concerns significant dry well costs
▪ Capex activities to enhance pressure/flow buildup ▪ Delays in commencement of planned projects

About the Company

OGDC is the largest oil & gas exploration company of Pakistan and the flagship of the E&P sector. It has the largest
exploration acreage in the country and holds the largest share of oil reserves (42%) and gas reserves (36%). Further, its
percentage share in oil production stands at 46% and gas production stands at 29%. During FY23, company’s average
net crude oil production clocked-in at 32,478bpd, average net gas production at 764mmcfd.

Oil & Gas Production Trade Debts (Rs mn) vs. Cash Collection (%)
45,000 1200 700,000 120%
40,000 600,000
1000 100%
35,000
500,000
30,000 800 80%
25,000 400,000
600 60%
20,000 300,000
15,000 400 40%
200,000
10,000
200 100,000 20%
5,000
0 0 - 0%
4MFY24
FY18

FY19

FY20

FY21

FY22

FY23

FY21
FY15

FY16

FY17

FY18

FY19

FY20

FY22

FY23

1QFY24
Oil BPD Gas MMCFD - RHS Trade Debts (Rs mn) Cash Collection (%) - RHS

Wells drilled vs. Discoveries EBITDA/BOE vs. OPEX/BOE (US$)

30 40% 20.00 8.00
25 18.00 7.00
35% 16.00
20 6.00
14.00
15 30% 12.00 5.00

10 10.00 4.00
25% 8.00 3.00
5 6.00
2.00
0 20% 4.00
FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23 2.00 1.00
- -
Wells Drilled
FY21
FY15

FY16

FY17

FY18

FY19

FY20

FY22

FY23

Discoveries
Avg. Success Ratio (%) - RHS EBITDA/BOE (US$) OPEX/BOE (US$) - RHS

Source: Company accounts, JS Research

P A K I S T A N M A R K E T S T R A T E G Y 2 0 2 4 | 44
Oil & Gas Marketing Companies – Overweight
Fueling the country’s growth
Sector performance
Country’s OMC sector consists of 34 formal supply/distribution companies
OMCs KSE100 Index
offering a range of POL products. However, sector’s market share is 160%
concentrated at the top, with leading 8 players commanding nearly 90% of 140%
the POL market. State-owned OMC i.e. PSO (GoP shareholding: 25.5%)
remains at the helm, controlling a market share of over 50%. Country’s 120%
annual demand ranges between 17 to 23 mn tons, peaking at 25.6 mn in
100%
FY17, with 70-75% of the fuel products being imported by the players.
Overall, sales of retail fuel products (MS, HSD & HOBC) control majority of 80%
the pie, comprising over 75% of total POL sales.
60%

Jul-22

Jul-23
Sep-22
Jan-22

Nov-22
Jan-23

Sep-23
Nov-23
Mar-22

Mar-23
May-22

May-23
Volatile outgoing year – Recovery ahead
FY23 stood as one of the abysmal years in the sector’s history, with total
volumes clocking in at 16.6mn tons (down 26.5%YoY), 3-year lows, almost Source: PSX, JS Research
on par with offtakes witnessed back in the pandemic period of 16.3mn tons.
This was largely due to volatile petroleum prices internationally coupled with POL Sales ('000) vs. GDP Growth (%)
sharp depreciation of the domestic currency (35% YoY in FY23), prompting
25,000 8%
exchange losses, product shortages, challenges related to working capital
and subsequently causing the sector participants to suffer greatly in the face 20,000 6%
of volatile retail finished product prices. That said, we believe the future 15,000 4%
volumetric recovery remains intact (by 2% - 4%) as recuperating economic 10,000 2%
activity and improved mobility underpins our positive outlook for the sector
5,000 0%
going forward.
0 -2%

FY23
FY18

FY19

FY20

FY21

FY22
Upward OMC margin revision to bode well
OGRA more recently induced a second hike for OMC margins in the Others
calendar year, taking regulated product margins (MS & HSD only) to FO
Rs7.87/liter, up 31% from June-2023 end. The revision was majorly on the HSD
back of OMCs/Dealers strongly advocating for increasing their regulated MS
profits due to soaring costs-of-supplies/inflation. 4QFY23 saw ratio of GDP Growth (%) - RHS
regulated margins to fuel prices falling below 2.0%, compared to long-term Source: OCAC, PBS & JS Research
averages of 2.5%, threatening long term sustainability for OMCs and
Dealers alike in the wake of rising overheads. Given retail fuels being a cash OMC Industry market shares
product, the aforementioned increase will directly increase liquidity,
translating into decreased borrowing in case of PSO while for APL, it may 52.2% 50.5%
potentially lead to higher payouts.

Exchange loss reimbursement was much needed

Another positive development during the second half of FY23 was the
introduction of exchange loss recovery mechanism into the fuel prices. This
10.8%
10.1%
9.4%
9.2%

was essential as import heavy private OMCs including Shell, Hascol, GOPL
5.8%

3.4%
2.7%
1.8%

suffered greatly in the wake of constant volatility the Rs/US$ parity

witnessed largely since FY21. This was due to regulated fuel prices offering
no flexibility to compensate for these incurred overheads. Subsequently, FX
5MFY23 5MFY24
loss recoveries have been a part of fortnightly fuel price revisions (on basis
of PSO’s calculations) since April-2023. This adjustment has allowed for PSO TPPL APL GOPL HASCOL
partial recoveries of the losses for the respective OMCs.
Source: OCAC, PBS & JS Research
Circular Debt resolution to clear liquidity concerns
Government’s recent efforts to increase gas prices amidst burgeoning gas
circular debt (reported figure: Rs2.1tn), alongside implementing stringent
recoveries of RLNG diversion subsidies towards the domestic/fertilizer
sectors during winters may greatly ease liquidity concerns of the country’s
largest fuel supplier, PSO. To note, PSO’s receivables from the gas utilities

P A K I S T A N M A R K E T S T R A T E G Y 2 0 2 4 | 45
stood at Rs365.5bn as of Sep’23, approximating ~4.5x of the company’s
total market cap. For this reason, any improvements in future cash
collections (or clearances of past dues) may be highly positive not only for
future capex/opex, but also for reductions in financial charges (finance costs
to EBIT: 60% in FY23). This is due to company being heavily reliant on short
term financing to bridge the working capital gaps.

P A K I S T A N M A R K E T S T R A T E G Y 2 0 2 4 | 46
Pakistan State Oil Company (PSO PA)
Cash droughts amidst Gas Receivables burden
Country’s state-owned OMC is presently battling out working capital issues, Target Price PKR 260
more specifically burgeoning trade debt situation owed on account of RLNG
Share Price PKR176.71
supplies to SNGPL. Company’s trade debts have jumped drastically over
the previous 3 years, with total receivables increasing by Rs315bn
(Rs670/sh) during the period. Not only has this resulted in PSO borrowing
Statistics
heavily to finance the short fall in this high interest rate cycle (finance costs
52w high / low (PKR) 217.22 / 99.03
up 8.5x YoY), it has also constrained the company’s ability to carry out
3m avg turnover (USDmn) 2.7
operations effectively (POL imports/capex), resulting in significant liability
Free float (%) 45.0
buildups to foreign suppliers e.g. Kuwait Petroleum and QatarGas (total
Issued shares (mn) 469.5
trade payables Rs408bn, up 32% since June-2023).
Market capitalisation PKR83B
However, recent measures taken by the Govt (power and gas tariff USD0.3B
revisions) in order to meet with conditions, set out by the IMF, may be a sigh
Price Performance
of relief for the SOE energy chain overall. With another gas price revision
during early CY24, we expect belligerent build-up of RLNG receivables from PSO KSE100 Index
150%
the gas utilities company to gradually slowdown starting FY24/FY25,
assuming RLNG based recoveries remain consistent as opposed to 130%
previously where there was no mechanism to recover RLNG diversion 110%
subsidies. 90%

Retail presence remains strong 70%

50%
Company’s retail fuel market share has remained ever growing, reaching

Jul-22

Jul-23
Jan-23
Jan-22

Nov-22

Nov-23
Sep-22

Sep-23
Mar-22
May-22

Mar-23
May-23
51% during 5MFY24, compared to only 31% back in FY19. This is primarily
due to company’s strong retail footprint (3,528 outlets, 36% of country’s
total) amidst a highly distressing outgoing period witnessed by the domestic
sector. Outgoing 20-24 months saw many smaller players falling -1M -6M -12M
out/becoming un-operational due to increased WC requirements, exchange Absolute (%) 1 69 30
losses and higher importing/LC charges. This led to the sector consolidating Relative to index (%) (2) 18 (24)
up top, with the company capitalizing on domestic sales forfeited by these Source: PSX
smaller players. Company remained relatively unaffected by the volatile
macros largely due to government's coverage against exchange losses PSO: Key statistics
incurred on both trade and foreign exchange liabilities. As a result, Rs mn FY23 FY24F FY25F
company’s operational activities remained healthier, even in the wake of Revenue 3,605,464 3,874,406 4,694,026
PDL subsidy offered back in May-2022, compared to peers in the sector.
PAT 5,662 26,746 28,153

Upgradation of Refinery subsidiary to be fruitful EPS (Rs) 12.06 56.97 59.97

DPS (Rs) 7.50 17.00 18.00
With PRL (PSO subsidiary: 63.6% stake) recently entering into MoUs with
OGDC and United Energy Group (UEG) of China with regards to brownfield BVPS (Rs) 461 512 555
refinery upgradation plans, the subsidiary is poised to benefit from the duty PER (x) 11.66 3.10 2.95
protections offered in the recently introduced Brownfield policy. Moreover, Dividend Yield 5% 10% 10%
post-upgradation, PRL may begin producing high margin products
P/BV (x) 0.31 0.35 0.32
(MS/HSD/HOBC) locally, enabling PSO to procure them from the refinery.
ROE 3% 9% 10%
This may essentially reduce dependence on imported supplies and
contribute to price/margin stability in the longer run. ROA 1% 2% 2%
Source: Company accounts, JS Research

P A K I S T A N M A R K E T S T R A T E G Y 2 0 2 4 | 47
Key drivers Key risks
▪ Gas & power tariff adjustments may prove to be cash- ▪ Unchecked flow of the power circular debt, hindering
positive operations and payouts
▪ Consistent OMC margin revisions on an annual basis ▪ Irregular OMC margin revisions
▪ Modernization plans in refinery subsidiary (PRL) to ▪ Volatility in international oil prices, inducing inventory
enhance productivity gains/losses
▪ Phasing out of RFO coupled with increasing share of
retail fuels

About the Company

PSO, the largest energy company of Pakistan is operating with an extensive country-wide network of 3,528 retail outlets,
9 installations, 19 depots, refuelling facilities at 14 airports and operations at 2 seaports. PSO’s storage capacity of 1.14
million tons is the largest in the country.

LNG Sales, Receivables Outstanding vs. Receivable Days OMC Margin/liter: MS & HSD
450,000 180 9.00
400,000 160 8.00
350,000 140
300,000 120 7.00
250,000 100 6.00
200,000 80 5.00
150,000 60
100,000 40 4.00
50,000 20 3.00
0 0 2.00
Sep-21
Sep-18

Sep-19

Sep-20

Sep-22

Sep-23
Mar-19

Mar-20

Mar-21

Mar-22

Mar-23

1.00
0.00
LNG Revenues (Rs mn) FY18 FY19 FY20 FY21 FY22 FY23 Dec-23
LNG Receivables (Rs mn)
MS HSD
Receivable Days - RHS

FY23: Revenue Contribution Retail Fuel Market Share vs. Total Market Share (%)

FY23 55%

Others, 0% 50%

RLNG, 29% 45%

40%

35%

30%

25%

20%
Petroleum 5MFY19 5MFY20 5MFY21 5MFY22 5MFY23 5MFY24
Products,
71% Retail MS (%) Total MS (%)

Source: Company accounts, JS Research

P A K I S T A N M A R K E T S T R A T E G Y 2 0 2 4 | 48
Power Generation – Neutral
Power Circular Debt continues to plague
Country’s power sector capacity has continued to grow year over year Sector performance
(current: 41,450 MW, almost 2x since FY14), amidst a highly lucrative 160% Power KSE100 Index
guaranteed take-or-pay regime on offer. However, unresolved fundamental
issues (e.g. high AT&C losses etc.) amidst this burgeoning capacity growth 140%

have exacerbated the phenomenon of power circular debt. Overall, sector’s 120%
inefficiencies have greatly impacted the national exchequer over the
previous two decades. Growing circular debt remains not only worrisome for 100%
the energy chain but also for the end users of electricity who eventually bear 80%
the burden through power outages & higher tariffs.
60%

Jul-22

Jul-23
Jan-22

Sep-22
Nov-22
Jan-23

Nov-23
Sep-23
Mar-22
May-22

Mar-23
May-23
As of end Oct-2023, circular debt stood at Rs2.61tn (~US$9.1bn), higher by
Rs300bn from FY23 end. Major causes of the burgeoning pileup are the
delays in necessary tariff adjustments, disbursement of subsidies and rising
Source: PSX, JS Research
capacity payments due to consistent new additions to the grid load.
Furthermore, exchange rate devaluation (Rs/US$: ↓70% since June-2019)
has caused this number to soar even further, resulting in escalating dollar Industry Capacity Charges (Rs bn) vs.
indexations and input prices. Exchange Rate
2,000 350
Efforts keeping pileup at bay 1,800
300
1,600
Authorities have managed the outstanding stock through fiscal allocations 1,400 250
towards both IPP and GPPs, coupled with prudent tariff consumer 1,200 200
adjustments amidst surging input costs. Notably, average monthly increase 1,000
800 150
for FY22/23 stood at ~Rs10-15bn as compared to Rs50/55bn in FY19/20,
600 100
respectively. Reason for the slowdown in pace of accumulation may be 400
attributable to prudent fuel/quarterly adjustments alongside annual revisions 50
200
in base tariffs (+Rs16/kwh since FY21). Furthermore, adherence to 0 0

FY24F
FY18

FY19

FY20

FY21

FY22

FY23
budgeted subsidies towards the power/energy sector (FY22/23 budget:
Rs870/894bn) to curb future accumulations stand as another reason,
Capacity Charges (Rs bn)
including two sizable payouts agreed under MoUs signed with the IPPs
operating under 1992 and 2002 power policies. PkR/USD - RHS

Source: NEPRA, JS Research

Burdening Capacity Payments – more efforts needed
Capacity Payments towards the power sector are budgeted at Rs1.87tn for
FY24, up 49%YoY compared to Rs1.25tn in FY23, constituting 65% of total
power purchase costs. This severe increase is largely attributed to
significant capacity additions (5500+ MW added since FY18) under the take-
or-pay regime (indexations with currency, interest rates and inflation etc.).
For this reason, despite substantial budgetary allocations, sharp consumer
tariff hikes, and a transition toward a low-cost energy mix, authorities have
only succeeded in mitigating the accumulation of outstanding stock of the
power circular debt.

Competitive Trading Bi-lateral Market (CTBCM)

The CTBCM (Competitive Trading Bilateral Contract Market) refers to a shift
from the existing single buyer regime (CPPA-G) to a wholesale market
where bidders (competitive suppliers) may select accordingly to their
demands/requirements. With the current generation capacity overburdened
with low utilization, this may result in amendments of PPAs towards
older/inefficient plants. Further, reducing the capacity payment bill may also
involve re-negotiating PPAs with currently operational plants, especially
those under the 2015 power policy (similar to amendments with 1994 & 2002
plants).

P A K I S T A N M A R K E T S T R A T E G Y 2 0 2 4 | 49
The Hub Power Company (HUBC PA)
Cash Generation to remain strong
Company's recent years have been notably eventful, highlighted by the full Target Price PKR 170
commissioning of CPHGC (China Hub Power Generation Company) in
Share Price PKR117.09
FY20 – a 1,320MW IPP utilizing bituminous coal, situated just off the coast
of Hub, followed by additions of two mine-mouth Thar-based 330MW plants
to its portfolio last year. Moreover, HUBC’s investment in SECMC also went
Statistics
through successful expansion last year, doubling its annual output capacity
52w high / low (PKR) 123.69 / 57.75
to 7.6mn tons. Consequently, company went through a dividend drought
3m avg turnover (USDmn) 1.9
pre-FY23 amidst the wave of capex, which was fully addressed in FY23 with
Free float (%) 75.0
a total DPS of Rs30 (FY23 payout: 68%, D/Y 45%).
Issued shares (mn) 1,297.2
Our investment thesis is built upon the anticipation of sustained payouts on Market capitalisation PKR151.9B
the horizon, amidst no significant capex and subdued liquidity stress from USD0.5B
the CPPA-G, given GoP's efforts to minimize future accumulation of circular
Price Performance
debt stock. HUBC’s current stock of over-due receivables stands at
Rs104bn, largely unmoved since Sep-2020. This is aligned with the GoP's 310% HUBC KSE100 Index
efforts to halt the flow of power circular debt, through prudent tariff revisions 260%
and consistent budgetary allocations to sector participants.
210%
Dominating the country’s IPPs space 160%
With the resolution of issues related to the 'Energy Revolving Fund' account 110%
and the declaration of project completion by Chinese lenders for the
60%
company's largest plant (CPHGC), we anticipate first dividend from the

Jul-22

Jul-23
Jan-23
Jan-22

Nov-22

Nov-23
Sep-22

Sep-23
Mar-22
May-22

Mar-23
May-23
associate to be a pivotal milestone in the current year. Further, cash payouts
are only expected to grow going forward amidst further watering down of
short-term liabilities accumulated during the past years to alleviate the
liquidity crunch. To note, CPHGC alone contributed to 40% of HUBC’s -1M -6M -12M
consolidated PBT during FY23. Absolute (%) (4) 89 135
Relative to index (%) (7) 39 80
Company’s CPEC-based investments are expected to remain insulated Source: PSX
from sluggish cash receipts from the GoP amidst them ranking higher on the
NTDC’s Merit Order race alongside significant foreign stakes involved. HUBC: Key statistics
Further, HUBC’s investments in CPEC-based power projects make it the Rs mn FY23 FY24F FY25F
only listed IPP with a mechanism to mitigate currency and inflation risks on
Revenue 114,263 130,173 128,460
its ROE components. This is in contrast to locked dollar indexation for IPPs
PAT 57,554 75,130 82,612
under the 2002 policy at PKR/US$ of 168 due to MoUs signed in 2020.
Finally, contribution (and payouts) from recently commissioned TharEnergy EPS (Rs) 44.37 57.92 63.69
and ThalNova will also steadily increase as both plants move past their DPS (Rs) 30.00 20.00 29.00
routine gestation stages by FY25, with both expected to contribute ~13% as BVPS (Rs) 122 171 219
dollarized ROEs towards HUBC until then.
P/E (x) 1.51 2.02 1.84

Diversification into upstream oil and other ventures P/BV (x) 0.61 0.68 0.53
Div. Yield 45% 17% 25%
Company’s acquisition of ENI Pakistan’s D&P assets last year marked
company’s formal entry into the domestic E&P space. Notably, Prime ROE 41% 39% 33%
International Oil & Gas (PIOGCL), which was previously ENI, was awarded Earnings Growth 102% 31% 10%
a block in Sindh (S.W Miano-III) with a 65% working interest in June this Source: Company accounts, JS Research
year. The subsidiary may begin development/production operations
sometime during FY24/25F once exploratory activity is deemed successful.
To note, ENI had been present in Pakistan since 2000 with 12 onshore
exploration licenses, 5 of which being wholly operated. Major blocks include
Bhit, Badhra and Kadanwari with total production standing at 10.7mn BOE
during FY23. Overall, the associate is expected to contribute ~5% of the
company’s consolidated PBT during FY24E. Further, company’s future
initiatives also include venturing into renewable energy projects (EV

P A K I S T A N M A R K E T S T R A T E G Y 2 0 2 4 | 50
segment) alongside wastewater solutions in Karachi with feasibility studies
already complete (awaiting approval from local government).

Key drivers Key risks

▪ Strong cash generation amidst new plant additions ▪ Unchecked flow of the power circular debt, hindering
▪ Subdued exposure to power circular debt amidst future payouts
sovereign liquidity injections. ▪ Volatility in international coal prices, hindering
▪ Currency, CPI and KIBOR indexations on CPEC plants CPHGC’s utilization.
▪ Diversifications into E&P and renewables space ▪ Unfavorable PPA adjustments to company’s CPEC
plants in the wake of escalating power tariffs

About the Company

The Hub Power Company Limited (HUBCO) was the first Independent Power Producer (IPP) in the country, setting up a
1292MW RFO-fired thermal power in Hub back in 1992. Company now operates and/or owns various power plants with
a combined installed power generation capacity of 3,581MW, constituting approximately 9% of the country’s total installed
generation capacity

Total Capacity (MW) vs. Load Factor (%) Trade Debts vs. Receivable Days
4,000 70.00% 120,000 800
3,500 60.00% 700
100,000
3,000 50.00% 600
2,500 80,000
500
40.00%
2,000 60,000 400
30.00%
1,500 300
40,000
1,000 20.00% 200
500 10.00% 20,000
100
0 0.00% 0 0
5MFY24
FY18

FY19

FY20

FY21

FY22

FY23

1QFY24
FY18

FY19

FY20

FY21

FY22

FY23

Capacity (MW) Load Factor (%) - RHS Trade Debts (Rs mn) Receivable Days - RHS

EPS & DPS vs. ROE (%) SOTP Valuation (Rs/sh)

70.0 40%
ThalNova, 12
60.0 35%
Base Plant, 37
50.0 30%
Thar
25% Energy, 26
40.0
20%
30.0
15%
20.0 10%
10.0 5% Narowal, 14
0.0 0%
FY19

FY20

FY21

FY22

FY23

FY24E

FY25F

Laraib, 12

EPS DPS ROE(%) - RHS CPHGC, 69

Source: Company accounts, JS Research

P A K I S T A N M A R K E T S T R A T E G Y 2 0 2 4 | 51
Fertilizers – Overweight
Play on agricultural dynamics
Sector performance
Pakistan's growth, being largely agrarian, hinges greatly on the performance
150% Fertilizer KSE100 Index
of fertilizer industry where increased awareness among farmers has driven
up fertilizer consumption in recent years. Local Urea manufacturers benefit 140%
from preferential gas arrangements compared to other industries and 130%
minimal offtake risk due to limited domestic production, resulting in pricing 120%
110%
power. The premium cost of imported urea currently at ~70% compared to
100%
local Urea further enhances manufacturers' pricing potential, supported by
90%
the government's focus on maintaining affordable fertilizer prices for food
80%
security.
70%

Jul-22

Jul-23
Sep-22
Jan-22

Nov-22
Jan-23

Sep-23
Nov-23
Mar-22

Mar-23
May-22

May-23
Sector’s resilience to gas price hikes and Economic shifts
Fertilizer sector has proven its ability to swiftly absorbing the consequences
of gas price hikes twice during the year, positioning itself well to manage Source: PSX, JS Research
potential future rises in input costs. Previously, when the industry
encountered elevated taxes and duties in the budget, companies had Urea and DAP prices (US$/ton)
adjusted their selling prices to various extents. Additionally, companies have
14,000 DAP Urea
transferred the effects of the recent increases in international DAP prices
and rupee devaluation to consumers as well. While regular gas price hikes 12,000

are anticipated from now, capacity of further urea price adjustments to 10,000
maintain existing margins remains intact given gap between international 8,000
and local prices.
6,000
Authorities notify Gas prices for MARI fertilizers 4,000
As anticipated, OGRA officially announced the pricing for MARI-based 2,000
fertilizers recently, aligning feed and fuel gas rates with those of SNGP gas
0
rates for fertilizer players. Feed gas rates have increased by 92%

Sep-22
Jun-21
Sep-21

Jun-22
Mar-21

Dec-21
Mar-22

Dec-22

Jun-23
Sep-23
Mar-23

Dec-23
(Rs278/mmbtu) to Rs580/mmbtu while for Fuel the increase is 54%
(Rs557/mmbtu) to Rs1,580/mmbtu. The new rates would be applicable w.e.f
Source: Bloomberg, JS Research
1 October, 2023. We are of the opinion that fertilizer companies have
already proactively reflected the impact of this tariff hike in their prices. We
anticipate that increases in gas prices will become a routine aspect of Urea closing inventory
business going forward, aligning with the IMF's push for higher gas and 400
electricity rates and the elimination of sector-specific subsidies as part of 350
('000 tons)

efforts to address circular debt. We highlight that any standalone gas price 300
increase (assuming no change in PP12 driven pricing) is seen as being 250
relatively beneficial for EFERT, compared to peers because of the 200
company’s diverse price arrangements. 150
100
Maintain an Overweight stance on the sector
50
Our long-term view on the sector remains positive with Overweight stance, 0
CY17

CY18

CY19

CY20

CY21

CY22

11MCY23

given its stable revenue stream and profit margins. We consider the
establishment of a uniform gas pricing system as a crucial step in reducing
anomalies, involving the implementation of a unified weighted average rate
across the sector. Out top picks, EFERT and FFC offer sustainable payouts
Source: NFDC, JS Research
making them attractive choices from a dividend yield perspective. We also
like FFBL, the sole DAP manufacturer attributing this preference to its higher
primary margins achieved by effectively passing on input cost increases
through pricing adjustments.

P A K I S T A N M A R K E T S T R A T E G Y 2 0 2 4 | 52
Engro Corporation Limited (ENGRO PA)
Value play with sustainable dividends
Engro Corporation (ENGRO) is classified as a defensive investment due to Target Price PKR 400
its wide-ranging portfolio that encompasses fertilizer, consumer,
Share Price PKR294.91
petrochemicals, logistics, trading, and energy sectors. With several of its
investments becoming highly profitable, ENGRO's potential dividend
income is projected to maintain a steady and sustainable trajectory.
Statistics
Company’s cash and short-term investments accumulate to Rs17bn, which
52w high / low (PKR) 325.10 / 240.14
is 11% of the stock’s market cap. We have an SoTP based TP of Rs400,
3m avg turnover (USDmn) 0.9
which does not include potential investment in the Petrochemicals space.
Free float (%) 50.0
Deployment of excess cash on balance sheet in profitable projects is a key
Issued shares (mn) 536.6
trigger for the company.
Market capitalisation PKR158.3B
USD0.6B
Engro Fertilizers – the group’s cash cow
ENGRO has a 56% stake in Engro Fertilizers Ltd (EFERT) which is the Price Performance
leading fertilizer manufacturing and marketing company. EFERT contributes ENGRO KSE100 Index
170%
significantly to Engro Corporation's overall performance. The subsidiary
maintains a consistent payout ratio (last 5 yr average payout of 101%), 150%
supported by its stable earnings derived from the fundamental strength of 130%
fertilizer business.
110%
Engro Connect continues to expand
90%
ENGRO is quite enthusiastic about its subsidiary Engro Connect
(EConnect) formed as a dedicated platform for telecom and connectivity 70%

Jul-22

Jul-23
Jan-23
Jan-22

Sep-22

Sep-23
Mar-22

Nov-22

Mar-23

Nov-23
May-22

May-23
ventures. Enfrashare operates under the umbrella of EConnect. ENGRO
aims for Enfrashare to host over 5,000 towers by the end of CY25, targeting
a tenancy ratio of 1.33x. The company anticipates that Enfrashare's EBITDA
will increase significantly as economies of scale come into play with more -1M -6M -12M
tenants joining at a marginal cost. Additionally, the company is working on Absolute (%) 1 16 33
solarization of sites and expects it to contribute to energy cost savings. Relative to index (%) (2) (35) (22)
Source: PSX
Work on Renewable Energy Park in progress
ENGRO’s subsidiary, Engro Energy in collaboration with Sindh ENGRO: Key statistics
Transmission and Dispatch Company and Directorate of Alternate Energy Rs mn CY23E CY24F CY25F
is working on the country’s 1st Hybrid Renewable Energy Park. Phase I of Sales 418,887 460,776 495,458
project will accommodate 400MW out of which 240MW would be attributable
YoY Growth 18% 10% 8%
to wind projects and 160MW to solar. In its second phase, the project is
Gross Margin 28% 28% 28%
expected to achieve a substantial scale of 1GW. Engro Energy has been
granted a land allocation of 6,764 acres, and it has already secured PAT 30,528 34,559 36,559
commitments from potential customers for a capacity of 670 MW. Project is YoY Growth 25% 13% 6%
expected to achieve CoD by 4QCY25. EPS (Rs) 56.89 64.40 68.13
DPS (Rs) 48.00 52.00 54.00
ENGRO's Board explores energy assets' restructuring
P/E (x) 5.18 4.58 4.33
ENGRO has entered into an agreement with Liberty Power Tech Limited,
DY 15% 17% 18%
the potential buyer, to explore the sale of its portfolio of thermal energy
Source: Company accounts, JS Research
assets currently owned by its wholly owned subsidiary, Engro Energy
Limited. This potential transaction would be structured as a scheme of
arrangement. The successful completion of this proposed transaction is
subject to a due diligence process and receipt of necessary approvals from
regulatory bodies and third parties. ENGRO’s BoD has already granted
approval for the restructuring and potential reorganization of its thermal
energy assets. The company's current portfolio of thermal assets comprises
Engro Powergen Qadirpur Ltd (EPQL), Engro Powergen Thar Ltd (EPTL),
and Sindh Engro Coal Mining Company (SECMC). The said transaction
would result in cash inflow for the company.

P A K I S T A N M A R K E T S T R A T E G Y 2 0 2 4 | 53
Key drivers Key risks
▪ Diversified stream of cashflows ▪ Unfavorable Urea sector dynamics
▪ Deployment of excess cash on balance sheet in ▪ A shrinkage in core delta for the polymer business
profitable projects ▪ Competition from Edotco or TPL in the tower business
▪ Polypropylene business stays shelved

About the Company

Engro Corporation Limited is a public listed company and a subsidiary of Dawood Hercules Corporation Limited.
Principal activity is to manage investments in subsidiary companies, associated companies and joint ventures,
engaged in Fertilizers, PVC resin manufacturing and marketing, FMCG, Energy, Development and operations of
Telecommunication infrastructure, LNG, chemical terminal and storage businesses.

EPS (Rs) D/Y (%)

70 20%

60 18%

16%
50
14%
40
12%
30
10%
20
8%
10
6%
CY19 CY20 CY21 CY22 CY23E CY24F CY25F
-
CY19 CY20 CY21 CY22 CY23E CY24F CY25F

Cash and Short term investments Engro’s holding structure

70,000
Econnect , EFERT ,
SECMC , 100% 56% EFOODS ,
60,000 12% 40%
EPCL ,
EPTL ,
50,000 56%
50%
40,000
ELENGY ,
30,000 56%
Eximp
20,000 Vopak , Agriproducts
50% , 100%
10,000 Engro Eximp
Qadirpur FZE ,
- (EPQL) , 100%
CY19 CY20 CY21 CY22 9MCY23 69%

Source: Company accounts, JS Research

P A K I S T A N M A R K E T S T R A T E G Y 2 0 2 4 | 54
Engro Fertilizers Limited (EFERT PA)
Highest dividend yield in the sector
Engro Fertilizers (EFERT) is the second largest Urea manufacturer in the Target Price PKR 134
country. The stock remains among our top defensive picks with dividend
Share Price PKR114.23
yield of ~20% based on CY24 numbers. Our base case assumption for
payout ratio stands at ~100% (inline with last 5-yr avg). Management has
also reiterated company’s long-term dividend policy to distribute most of its
Statistics
profits going forward, maintaining a higher payout ratio. We maintain our
52w high / low (PKR) 114.72 / 75.37
‘Buy’ stance on the company given its stable revenue stream and higher
3m avg turnover (USDmn) 1.0
yield offering.
Free float (%) 45.0
Issued shares (mn) 1,335.3
Continuous engagement with government on uniform
Market capitalisation PKR149.9B
pricing
USD0.5B
EFERT remains in discussion with the government to implement a uniform
gas pricing policy for the fertilizer sector. A positive outcome on this matter Price Performance
would benefit EFERT as it strives for uniform pricing for each gas molecule 220% EFERT KSE100 Index
it receives. To note, EFERT currently obtains 30% of its gas at Petroleum
Policy 2012 (PP12) rates, which, in comparison, is 2.67x higher than regular 190%

feed gas rates for other fertilizer manufacturers. 160%

130%
Hopeful of a favorable court decision on concessionary gas
EFERT currently accrues gas costs at regular Fertilizer policy rates on 100%

prudence basis as opposed to company’s view of receiving gas at 70%

Jul-22

Jul-23
Jan-23
Jan-22

Sep-22

Sep-23
Mar-22

Nov-22

Mar-23

Nov-23
May-22

May-23
concessionary rates of US$0.7/mmbtu for the Enven plant. EFERT is in
discussion with the GoP and SNGP on the matter and is confident of a
favorable decision in light of previous ECC decisions. To recall, Engro
Fertilizer’s Enven plant had a ten-year concessionary feed gas rate -1M -6M -12M
arrangement of US$0.7/mmbtu which expired on Jul-2021. Nonetheless, Absolute (%) 11 51 79
EFERT’s concessionary period remains under dispute as the company had Relative to index (%) 8 0 24
faced significant gas outages at the start of the ten-year arrangement. The Source: PSX
company has begun to accrue gas costs at regular rates on prudence basis
since 3QCY21. EFERT: Key statistics
Rs mn CY23E CY24E CY25E
EFERT, relative beneficiary in a rising gas price scenario
Sales 207,768 237,595 243,566
In an event of any gas price hike, as emphasized earlier, we believe fertilizer
manufacturers have enough room to pass it on in prices. We highlight that YoY Growth 32% 14% 3%

as a matter of principle, EFERT would always gain a higher benefit Gross Margin 32% 31% 31%
compared to other manufacturers, since ~30% of the Feed gas used by PAT 25,111 30,210 33,688
EFERT (i.e. ~70% of base plant) is charged at Petroleum Policy 2012 rates, YoY Growth 57% 20% 12%
hence a lower per bag price increase would be required compared to peers.
EPS (Rs) 18.80 22.60 25.20
Any standalone gas price increase (assuming no change in PP12 driven
DPS (Rs) 18.00 22.60 25.20
pricing) is hence seen beneficial for EFERT. On the flipside, it is essential
to acknowledge that EFERT’s price on the said portion is contingent on P/E (x) 6.22 4.96 4.45
global Oil prices and will continue to get impacted in a rising oil price DY 16% 20% 22%
situation or significant rupee depreciation. Source: Company accounts, JS Research

P A K I S T A N M A R K E T S T R A T E G Y 2 0 2 4 | 55
Key drivers Key risks
▪ A price increase over and above the impact from gas ▪ Pressure from government to not increase urea prices
price hike ▪ Negative ruling on concessionary gas pricing plea
▪ Persistent high global Urea prices

About the Company

The Company is a wholly owned subsidiary of ENGRO and is engaged in the manufacturing, purchasing and marketing
of fertilizers, seeds and pesticides and providing logistics services.

Gross Margin Payout ratio

35% 115%

30% 110%

25%
105%
20%
100%
15%
95%
10%

5% 90%

0% 85%
CY19 CY20 CY21 CY22 CY23E CY24F CY25F CY19 CY20 CY21 CY22 CY23E CY24F CY25F

Revenue Cash earnings per share

250,000 30.00

25.00
200,000

20.00
150,000
15.00
100,000
10.00

50,000
5.00

0 -
CY19 CY20 CY21 CY22 CY23E CY24F CY25F CY19 CY20 CY21 CY22 CY23E CY24F CY25F

Source: Company accounts, JS Research

P A K I S T A N M A R K E T S T R A T E G Y 2 0 2 4 | 56
Fauji Fertilizer Company (FFC PA)
Diversified investment portfolio with promising yield
Fauji Fertilizer Company has a diversified investment portfolio to reduce Target Price PKR 160
dependence on the core fertilizer business. The company has investments
Share Price PKR113.19
in renewable wind Energy, Food, Banking, Cement and Power. The SoTP
based TP of Rs160 computes with the majority of value coming in from core
business, portfolio contributes ~Rs60 to the company’s value estimate.
Statistics
FFC offers a dividend yield of ~19%, we believe the company would 52w high / low (PKR) 120.77 / 90.97
maintain its payout ratio in the years to come owing to significant pricing 3m avg turnover (USDmn) 0.5
power due to structurally constricted demand supply situation in Pakistan, a Free float (%) 55.0
cash rich balance sheet and focus on diversification to lessen reliance on Issued shares (mn) 1,272.2
core business. Market capitalisation PKR144B
USD0.5B
Fauji Group’s commanding presence in both Urea and DAP
Price Performance
Fauji Fertilizer along with its associate controls more than 50% of the Urea
160% FFC KSE100 Index
and DAP markets, it has a 49.9% stake in FFBL, which is the only DAP
manufacturer in the country and has the largest market share. The company
140%
is the largest Urea manufacturer in the country by volume with a production
of ~2.5 million tons/annum. Urea prices are sticky and somewhat inelastic; 120%
with better demand-supply situation urea pricing power would be better for
FFC. The discount of local to imported Urea stands at ~40%. In light of 100%
improved farm economics, better support prices and focus of government
80%
on the agriculture sector it is evident that the fertilizer sector will continue to

Jul-22

Jul-23
Jan-23
Jan-22

Sep-22
Mar-22

Nov-22

Sep-23
Mar-23

Nov-23
May-22

May-23
be of prime importance. Any increase in Urea prices from here would
contribute positively to the profitability of the company.

Solid balance sheet adds to confidence -1M -6M -12M

The company has a strong balance sheet (Cash and short-term Absolute (%) 1 23 32
investments: Rs61/share). We believe that the settlement of GIDC Relative to index (%) (2) (27) (22)

payables, if it gets triggered, would have limited impact on the company Source: PSX

given the comfortable period over which it will likely be spread. FFC is the
FFC: Key statistics
largest contributor towards GIDC despite having absorbed a very large
portion of it in the past. Supreme court in its verdict validated the levy of Rs mn CY23E CY24E CY25E
GIDC and ordered the companies to pay the outstanding liability but the Sales 155,798 175,918 179,912
industry has gotten a stay against the same. But since the company has YoY Growth 42% 13% 2%
already provided for the liability, it has more than enough room to bail itself
Gross Margin 44% 43% 43%
out from the situation (GIDC payable: Rs 49/share). Moreover, the liberation
PAT 29,898 38,129 41,984
of fixed income investments from the balance sheet could enhance its
appeal to Shariah investors. YoY Growth 50% 28% 10%
EPS (Rs) 23.50 29.97 33.00
DPS (Rs) 18.00 22.00 24.75
P/E (x) 4.82 3.78 3.43
DY 16% 19% 22%
Source: Company accounts, JS Research

P A K I S T A N M A R K E T S T R A T E G Y 2 0 2 4 | 57
Key drivers Key risks
▪ A price increase over and above the impact from gas ▪ Pressure from government to not increase urea prices
price hike ▪ Higher than expected hike in gas prices.
▪ Persistent high global Urea prices

About the Company

The principal activity of the Company is manufacturing, purchasing and marketing of fertilizers and chemicals. Company
has investments in fertilizer, chemical, cement, energy generation, food processing and banking operations.

EPS (Rs) D/Y versus Kibor

35.0 24%
D/Y
22%
30.0 KIBOR
20%
25.0 18%

20.0 16%
14%
15.0
12%
10.0 10%
8%
5.0
CY18

CY19

CY20

CY21

CY22

CY23E

CY24F

CY25F
-
CY19 CY20 CY21 CY22 CY23E CY24F CY25F

Payout ratio Production versus offtake

90% 2.60
80%
70% 2.50

60%
50% 2.40
Offtake
40%
Production
2.30
30%
20%
2.20
10%
CY22

CY23E

CY24F

CY25F
CY16

CY17

CY18

CY19

CY20

CY21

0%
CY19 CY20 CY21 CY22 CY23E CY24F CY25F

Source: Company accounts, JS Research

P A K I S T A N M A R K E T S T R A T E G Y 2 0 2 4 | 58
Other notable mentions
Fauji Fertilizer Bin Qasim Limited (FFBL PA)
Fauji Fertilizer Bin Qasim Limited (FFBL) is the only DAP manufacturer in Target Price PKR 35
Pakistan. With the arrival of recent Rabi season, demand for DAP has risen
Share Price PKR31.90
and most countries are facing serious shortage of the product. FFBL has
been able to increase its product’s price in-line with global rise in DAP prices
and has also been able to pass on the impact of rupee devaluation. The
Statistics
company has been able to enjoy better primary margins in recent times and
52w high / low (PKR) 32.08 / 11.11
has shown strong core business performance, where in light of the recent
3m avg turnover (USDmn) 0.7
regional developments we expect it to continue for the foreseeable future.
Free float (%) 35.0
Company’s consolidated performance has also improved of late. Its Issued shares (mn) 1,291.3
subsidiary FFL has a positive EBITDA now and has been showing profits Market capitalisation PKR41.2B
for the past few quarters, thanks to the new management. FFBL is now USD0.1B

focused on improving its group level performance and get rid of loss-making
businesses. Our SoTP based TP for the stock accumulates to Rs35.

FFBL: Key statistics

(Rs mn) CY22 CY23E CY24F CY25F
Sales 159,226 175,488 177,749 181,105
YoY Growth 44% 10% 1% 2%
Gross Margin 16% 16% 15% 12%
PAT 2,328 4,588 9,800 8,050
YoY Growth -64% 97% 114% -18%
EPS (Rs) 1.80 3.55 7.60 6.23
DPS (Rs) 0.00 0.00 0.80 1.18
P/E (x) 11.59 8.98 4.20 5.12
DY 0% 0% 3% 4%
Source: Company accounts, JS Research

P A K I S T A N M A R K E T S T R A T E G Y 2 0 2 4 | 59
Cements – Overweight
Hiccups in the near-term
Sector performance
The cement industry is vital to the economy as it contributes ~4.65 percent
Cement KSE100 Index
to large-scale manufacturing. The total installed annual capacity is 85mn
150%
tons. Divided into North and South zones, the Northern Zone holds 80
percent of the production capacity and sales. Cement industry also plays a 130%
crucial role in influencing growth in allied segments such as steel, chemicals, 110%
and wood. Despite challenges encountered over the year, the cement sector
skillfully navigated through them. 90%

70%
While a slowdown in construction activities posed hurdles due to economic
and political uncertainties, high inflation, and financing costs, the sector 50%

Jul-22

Jul-23
Sep-22
Jan-22

Nov-22
Jan-23

Sep-23
Nov-23
Mar-22

Mar-23
May-22

May-23
appears set to overcome these obstacles. The industry has also recently
passed on the impact of high transport costs owing to axle load limitations.
Going forward, the industry will have to adequately pass on any increases Source: PSX, JS Research
in Afghan and local coal costs, along with likely power and gas tariff
adjustments, in cement prices to sustain profit margins and ensure its
Cement retail prices (Rs/bag)
resilient outlook.
1,300
North
Cement expansions differ from previous cycles 1,200
South
The cement industry in Pakistan has undergone periods characterized by 1,100
fluctuating pricing and sales arrangements. It has been noted that during 1,000
times of surplus supply, companies with greater capacity often deviate from 900
the mutually agreed market arrangements, triggering price wars and 800
subsequently reducing profit margins for the entire sector. We anticipate a
700
more consistent trend in cement prices going forward, as capacity additions
600
during 2023 have been absorbed, and there is a diminished risk of price
500
wars or companies violating supply discipline due to the dispersion of future
Nov-20

Nov-21

Nov-22

Nov-23
Aug-20

May-23
Aug-23
Feb-21
May-21
Aug-21

Feb-22
May-22
Aug-22

Feb-23
expansions. Moreover, considering the current debt situation of these
companies, it is unlikely for them to attempt to breach supply discipline.
Source: PBS, JS Research
North players missing out on full benefit of coal decline
The cost trade-off between Afghan and international coal remains dynamic.
Richard bay Coal prices (US$/ton)
Afghan coal prices have increased of late and Northern region players are
encountering prices of around Rs53,000/ton for Afghan coal. Similarly, local 250
coal prices have experienced a notable surge, with the majority of northern
participants facing costs ranging between Rs40,000 to Rs42,000/ton for 200

domestic coal. In addition, with respect to imported coal, freight costs have
150
risen following the adjustment in axle load requirements, leading to
transportation expenses from Karachi port to northern regions exceeding
100
Rs10,000/ton.

On the other hand, due to dull global demand, South African Coal price is 50

down 50% CYTD. Prices have been on the lower side for the most past of
0
2023. The subdued demand outlook is a result of worries regarding a
Jul-23
Dec-22
Jan-23

Jun-23

Aug-23
Sep-23

Nov-23
Mar-23
Apr-23

Oct-23
Feb-23

May-23

prolonged global economic slowdown and the impending enforcement of

stricter carbon emission targets in countries that produce coal in the years
ahead. Landed cost of Richard Bay coal (RB3) is now lower than Afghan Source: Bloomberg, JS Research
coal prices but benefit of the same on costs and margin can be fully availed
if import restrictions remain eased on a sustained basis and freight costs do
not increase further. Southern players due to their closer proximity to the
sea port, hence, stand at an advantage.

P A K I S T A N M A R K E T S T R A T E G Y 2 0 2 4 | 60
Margin accretion keeps our stance Overweight
We maintain an Overweight stance on the sector amid margin accretion on A look at the recent expansion cycle
cost efficiencies and better volume forecast ahead. Factors such as (mn tons)
normalization of international coal prices and increase in capacity of cement
players to raise prices amid demand pickup expectations are anticipated to LUCK,
boost sector margins post FY24. We highlight MLCF and FCCL among our 3.2
top picks, given their respective timely expansions that have the potential to
BWCL, BWCL,
capture higher market shares. We also highlight PIOC for its cost 2.4
2.4
optimization focus and KOHC due to lower leveraged balance sheet among
FCCL,
preferred picks. 2.0
MLCF,
2.0
ACPL,
1.3

Dec-22

Jun-23

Jan-24
Aug-22

Oct-23

Apr-24
Mar-23
Source: Company filings, JS Research

P A K I S T A N M A R K E T S T R A T E G Y 2 0 2 4 | 61
Lucky Cement Company (LUCK PA)
Market edge in cement sector with strategic expansion
LUCK is the largest cement player in the country with presence in both, Target Price PKR 1,022
Northern and Southern region markets. Company’s market share has
Share Price PKR786.98
expanded post the new plant which commenced operations in CY22-end,
giving LUCK an edge over peers that delayed expansions due to rupee
depreciation and costly financing. We have a Buy stance on LUCK with an
Statistics
SoTP Target Price of Rs1,022, reflecting a potential upside of 30%. This
52w high / low (PKR) 818.48 / 383.90
includes LUCK’s diversified investment portfolio including 8 segments
3m avg turnover (USDmn) 1.5
combined with cash on the balance sheet contributes Rs750 to the
Free float (%) 32.0
company’s TP, while the core business contributes ~Rs272 to our
Issued shares (mn) 293.0
valuations.
Market capitalisation PKR230.6B
USD0.8B
Well-diversified portfolio adds to the appeal
LUCK has a diversified pool of investments ranging from Power, businesses Price Performance
in Chemical, Pharma and Automobile sector and its ability to reap benefits
150% LUCK KSE100 Index
from the international projects. LCI Pakistan provides exposure to
chemicals, life sciences, consumers and pharmaceutical industries. Going 130%
forward, LCI is expected to continue with its growth trajectory owing to 110%
demand prospects. LUCK’s subsidiary, Lucky Electric Power Company Ltd.
90%
(LEPCL)’s 660MW coal-based power plant, is up and running. For LUCK's
Auto and Mobile assembly divisions, import restrictions were a major 70%
impediment during FY23. Auto segment sales were down 55% whereas
50%
mobile division declined 60% YoY in FY23. But with ease in imports now,

Jul-22

Jul-23
Jan-23
Jan-22

Nov-22

Nov-23
Sep-22
Mar-22
May-22

Mar-23
May-23

Sep-23
sales would likely show some improvement in the next year. Management
remains focused on cost optimization to ensure sustainable operations.

Overseas ventures back on track -1M -6M -12M

Absolute (%) 0 56 82
The company's international cement ventures are regaining momentum and
Relative to index (%) (3) 5 28
are anticipated to have a positive impact on the bottom line going forward,
Source: PSX
as reflected from 1QFY24 results. LUCK has a 1.74mn tons grinding plant
at Basra, Iraq, a 1.2mn tons Cement plant in Congo and a 1.2mn tons
LUCK: Key statistics
cement plant in Samawah, Iraq. The combination of rupee depreciation and
Rs mn FY23 FY24E FY25F
company's presence in high-growth markets with a consistent flow of
dollarized cashflows, bodes well for overall profitability. Sales 95,832 124,584 140,503
YoY Growth 18% 30% 13%
Company completed two buy-backs during CY23 Gross Margin 27% 28% 27%
LUCK recently completed its second share buy-back of the year of 20.3mn PAT 13,726 23,779 26,298
shares (22% of outstanding free float). Company bought these shares back
YoY Growth -10% 73% 11%
at prevalent prices. LUCK bought 20.4mn shares costing Rs12.9bn at an
EPS (Rs) 46.84 81.16 89.75
average price of Rs632.6/share. To recall, LUCK completed its first buyback
transaction of 10mn shares earlier during CY23 costing Rs4.4bn. Company DPS (Rs) 18.00 10.00 15.00
also shared its plan to invest upto Rs3bn in Lucky Core Ventures Pvt Ltd EPS consol. (Rs) 166.41 197.05 244.90
(LCV), a wholly owned subsidiary of Lucky Core Industries Ltd (LCI). LCV P/E (x) 3.00 4.27 3.44
will be responsible for buying stake in Lotte Chemical Pakistan Ltd
DY 4% 1% 2%
(LOTCHEM). Moves like these signal a proactive approach to capital
Source: Company accounts, JS Research
management and capitalizing on favorable market conditions.

P A K I S T A N M A R K E T S T R A T E G Y 2 0 2 4 | 62
Key drivers Key risks
▪ Timely expansion of the cement business ▪ Higher than expected energy costs would impact LCI’s
▪ South plant to benefit from drop in coal prices profitability
▪ Launch of new business lines under Lucky Motors to ▪ Rebound in coal prices due to global political unrest
contribute positively

About the Company

Principal activity of the company is manufacturing and sales of Cement. The company has two production facilities at
Pezu in Khyber Pakhtunkhwa and one at Main Super highway, Karachi, Sindh. LUCK has a presence in chemicals,
consumer, power generation and automobiles sectors through its subsidiaries and associates.

EBITDA/share Gross Margins

160 40%
140 35%
120 30%
100 25%
80 20%
60 15%
40 10%
20 5%

0 0%
FY18

FY19

FY20

FY21

FY22

FY23

FY24E

FY25F
FY22
FY18

FY19

FY20

FY21

FY23

FY24E

FY25F

Retention price (Rs/bag) Contribution to SoTP valuation

Core
850 Business LCI
28% Yunus
14% Energy
750 0%

650

550 Iraq
LUCKY 8%
Motors
450 16% Congo
3%
350
Samawah
Iraq
250 6%
LEPCL
FY256
FY18

FY19

FY20

FY21

FY22

FY23

FY24E

FY25F

25%

Source: Company accounts, JS Research

P A K I S T A N M A R K E T S T R A T E G Y 2 0 2 4 | 63
Maple Leaf Cement (MLCF PA)
First mover on expansion to support market share
To preserve its market share in the northern region, MLCF has been among Target Price PKR 58
the first cement companies to expand its capacity in the ongoing cycle with
Share Price PKR38.92
a brownfield expansion of 2.1mn tons at existing site in Iskanderabad, taking
total capacity to ~8.2mn tons. MLCF has displayed the most rapid growth in
local market share among cement players with one of the largest dealer
Statistics
networks and retail footprint. MLCF also generally has higher overall
52w high / low (PKR) 42.71 / 19.34
retention margins compared to other cement companies with strong
3m avg turnover (USDmn) 1.3
presence in the White Cement category which is more expensive compared
Free float (%) 45.0
to Grey cement.
Issued shares (mn) 1,073.3
Market capitalisation PKR41.8B
Efficiencies among prime focus
USD0.1B
The company enjoys the most efficient fuel and power mix through its 40MW
captive coal-fired power plant. MLCF plants have the ability to use pet-coke Price Performance
as a substitute for coal and is generally cheaper than coal as it is linked with MLCF KSE100 Index
oil prices. MLCF also increased its WHR (Waste Heat Recovery) plant 150%
capacity over time to save on power costs. The company has added another
130%
WHR plant with the new line. Long term railway transport arrangements help
110%
the company save up on inland freight and provide a buffer in the event of
axle load implementations. 90%
70%
MLCF to diversify with entry in healthcare business
50%

Jul-22

Jul-23
Jan-23
To diversify the portfolio, MLCF has planned to enter the healthcare sector

Jan-22

Sep-22
Mar-22

Nov-22

Sep-23
Mar-23

Nov-23
May-22

May-23
and has acquired 50 Kanals of land in Islamabad for the construction of a
hospital. The hospital project will have 250 beds and is slated for completion
within three years. The total investment is estimated to be around Rs30bn,
-1M -6M -12M
with a balanced Debt: Equity ratio of 50:50. MLCF is set to contribute
Absolute (%) (2) 37 72
Rs10bn of the total Rs15bn project equity, securing a controlling interest of
Relative to index (%) (5) (13) 18
~67%. By entering the healthcare sector, MLCF has the opportunity to
Source: PSX
diversify its current portfolio through the creation of a new revenue stream.
MLCF: Key statistics
Valuations attractive at current levels
Rs mn FY23 FY24E FY25E
MLCF remains among our top picks with a Dec-2024 Target Price of Rs58/
Sales 62,074 70,352 78,143
share (a ~49% upside from its last closing of Rs 38.9/share). For valuation
purpose, we have used ‘Free Cash Flow to Firm’ methodology to compute YoY Growth 28% 13% 11%
the intrinsic value of the company. Our EPS estimate for next two years is Gross Margin 26% 30% 31%
Rs7.8/9.3 for FY24 and 25, respectively. PAT 5,771 8,379 9,984
YoY Growth 59% 45% 19%
EPS (Rs) 5.38 7.81 9.30
DPS (Rs) 0.00 0.00 2.60
P/E (x) 4.85 4.99 4.18
DY 0% 0% 7%
Source: Company accounts, JS Research

P A K I S T A N M A R K E T S T R A T E G Y 2 0 2 4 | 64
Key drivers Key risks
▪ Timely expansion of the cement business ▪ Sustained higher Local and Afghan coal prices
▪ Closer proximity to Darra coal mine ▪ Dull export numbers
▪ Lower freight costs compared to peers ▪ Drag from the hospital investment

About the Company

Maple Leaf Cement Factory Limited (MLCF) is part of the Kohinoor Maple Leaf Group, a reputable manufacturer of textile
and cement in Pakistan. MLCF is one of the largest and oldest cement production factories in Pakistan. Company markets
and sells its products all over Pakistan with market presence mainly in North and Central regions. MLCF also exports
cement to Afghanistan, Middle East and other African countries.

Debt to Asset Gross Margin (%)

40%

35% 50%

40%
30%
30%
25%
20%
20%
10%
15%
0%
10% -10%
FY25F
FY24E
FY18

FY19

FY20

FY21

FY22

FY23

FY18

FY19

FY20

FY21

FY22

FY23

FY24E

FY25F
Local Retention vs. Export price EBITDA (Rs/share)
30
900 Local retention (Rs/bag)

800 Export retention (Rs/bag) 25

700 20

600
15
500
10
400
5
300

200 0
FY18 FY19 FY20 FY21 FY22 FY23 FY24E FY25F FY18 FY19 FY20 FY21 FY22 FY23 FY24E FY25F

Source: Company accounts, JS Research

P A K I S T A N M A R K E T S T R A T E G Y 2 0 2 4 | 65
Pioneer Cement (PIOC PA)
Potential remains intact despite no expansion
We maintain our Buy stance on Pioneer Cement (PIOC) with attractive Target Price PKR 160
upside from current levels to Target Price of Rs160. The company has been
Share Price PKR114.94
able to consistently pull off a stable gross level performance due to better
cost management. We expect the company’s core business performance to
remain stable because of management’s cost efficiency prioritization.
Statistics
According to our forecast, the company would have a decent coverage ratio
52w high / low (PKR) 118.47 / 44.47
of ~3x for the next year depicting its ability to finance the debt obligations on
3m avg turnover (USDmn) 0.5
its balance sheet. At present, an expansion doesn’t seem viable to PIOC
Free float (%) 50.0
management from a return perspective given rising costs, an unstable
Issued shares (mn) 227.1
PKR/US$ and weak overall economics.
Market capitalisation PKR26.1B
USD0.1B
Cost efficiencies to help profit margins
The company has been reporting stable profit margins in recent quarters, Price Performance
which is expected to continue. PIOC has remained tilted toward the
160% PIOC KSE100 Index
relatively economical local coal and Afghan coal. The management recently
140%
shared that local coal constitutes 71% of the mix whereas Afghan coal is
around 29% of the mix. 120%
100%
PIOC's dependence on the grid for power needs is also minimal, ranging 80%
from 4-6% only, with the majority of its power needs fulfilled through in-
60%
house power generation. The average power cost stands at Rs20/KWh and
40%
the management targets to further reduce it to Rs18/KWh.

Jul-22

Jul-23
Jan-23
Jan-22

Nov-22

Nov-23
Sep-22

Sep-23
Mar-22
May-22

Mar-23
May-23
With its last expansion, PIOC added a 12MW WHR plant and a 24MW
captive coal power plant. Both these measures are helping the company to
lessen reliance on national grid while saving up considerably on power -1M -6M -12M
costs. The new capacity also has a lower coal requirement of ~120kg/ton Absolute (%) 7 33 123
compared to previous lines which had a requirement of ~138kg/ton. Relative to index (%) 4 (18) 69
Moreover, the new line’s power requirement is also lower at 90kWh/ton Source: PSX
compared to ~97kWh/ton for old lines. We believe these cost savings will
enable the company to create a substantial cushion to shield against PIOC: Key statistics
elevated finance costs. Rs mn FY23 FY24E FY25F
Sales 36,165 38,150 40,235
Tough to go for another expansion
YoY Growth 13% 5% 5%
PIOC is also considering an expansion like its peers in the region but isn’t
Gross Margin 26% 29% 27%
actively working on any plans. The company acknowledges its limitations
with regards to it’s leveraged balance sheet with total debt of Rs16.2bn as PAT 2,611 4,020 5,115
at the end of 1QFY24. PIOC has a Debt to Equity of 0.39x as per the latest YoY Growth 132% 54% 27%
available numbers. Going forward, company’s profitability would face a EPS (Rs) 11.49 17.70 22.52
breather in a monetary easing scenario. If demand improves from here,
DPS (Rs) 0.00 0.00 0.00
PIOC would be able to shield itself even with these finance costs as they will
P/E (x) 5.77 6.49 5.10
be offset by the expected earnings regain due to business’s better gross
level performance. The company is of the view that it will eventually take up DY 0% 0% 0%
an expansion but it seems unlikely in the near future. Source: Company accounts, JS Research

P A K I S T A N M A R K E T S T R A T E G Y 2 0 2 4 | 66
Key drivers Key risks
▪ Cost efficiencies to help lift gross margins ▪ Highly leveraged balance sheet
▪ A set clientele in nearby areas ▪ Higher than expected coal prices
▪ Demand improvement expected in the Northern region

About the Company

The principal activity of the Company is manufacturing and sale of cement. PIOC’s manufacturing facility is located at
Chenki-District Khushab. Its location in central Punjab allows easy and fast approach to market. The main markets of the
company are adjoining areas of Punjab and Khyber-Pakhtunkhwa. Pioneer operates with two production lines having a
combined annual cement capacity of ~5.2mn tons.

Revenue (Rs mn) D/A and D/E ratios

35,000
60% D/A D/E (RHS) 250%
30,000
50%
25,000 200%

40%
20,000 150%
30%
15,000
100%
10,000 20%

50%
5,000 10%

0 0% 0%
FY19 FY20 FY21 FY22 FY23 FY24E FY25F FY19 FY20 FY21 FY22 FY23 FY24E FY25F

Gross Margins ROE

35% 14%

30% 12%

10%
25%
8%
20%
6%
15% ROE
4%
10%
2%
5%
0%
FY24E

FY25F
FY19

FY20

FY21

FY22

FY23

0% -2%
FY19 FY20 FY21 FY22 FY23 FY24E FY25F
-5% -4%

Source: Company accounts, JS Research

P A K I S T A N M A R K E T S T R A T E G Y 2 0 2 4 | 67
Fauji Cement (FCCL PA)
Becomes third largest cement player with recent expansion
FCCL has become the third largest cement player in Pakistan (based on Target Price PKR 29
capacity). The company’s capacity increased from 3.6mn tons to 6.4mn tons
Share Price PKR18.92
post the merger executed in FY22, whereas the number of plant locations
rose from one to three. The addition of 2mn tons at Nizampur took capacity
to 8.4mn tons. Whereas the recent Greenfield capacity expansion at DG
Statistics
Khan has taken capacity to 10.3mn tons. The expansion at DG Khan will
52w high / low (PKR) 20.51 / 10.51
help the company expand FCCL’s reach to the Southern market as well
3m avg turnover (USDmn) 0.6
covering South Punjab, Balochistan and Sindh. A proactive approach
Free float (%) 35.0
regarding decisions on expansions to cater to growing demand, along with
Issued shares (mn) 2,452.8
a continual focus on cost efficiency places FCCL in an attractive position.
Market capitalisation PKR46.4B
The company has an EV/EBITDA of 2.3x vs 2.6x for our sample universe.
USD0.2B
Our Target Price for the stock comes at Rs29, depicting a lucrative capital
upside of 53%.
Price Performance
160% FCCL KSE100 Index
Continual focus on cost efficiencies
FCCL has increased its captive power generation ability over the years 140%
through the addition of solar plants. It has three captive solar plants at the 120%
Wah, Jang Bahtar and Nizampur sites with capacities of 8.6MW, 20MW and
100%
11MW, respectively. Waste Heat recovery units at all sites total to around
58.5MW. 80%

60%
To save up on fuel costs, company is focusing on maximum utilization of

Jul-22

Jul-23
Jan-23
Jan-22

Sep-22

Sep-23
Mar-22

Nov-22

Mar-23

Nov-23
May-22

May-23
Local and Afghan coal where the cheaper local coal is more than 50% in the
mix.

Debt reduction emphasis going forward -1M -6M -12M

FCCL has been focusing on reducing debt evident from the drop in Absolute (%) 8 61 57
outstanding debt on its 1QFY24 balance sheet where total debt declined by Relative to index (%) 5 10 3

Rs3.1bn primarily driven by decrease in Short-term debt. With the company Source: PSX

having completed its expansion timely and having proactively invested in

FCCL: Key statistics
cost efficiency projects. Any significant capital injection need in the near
future seems unlikely, indicating a focus shift towards retiring debt from the Rs mn FY23 FY24E FY25F
cash generation. Sales 68,069 92,687 107,315
YoY Growth 25% 36% 16%
With an optimal debt book, where 38% of loans are concessionary, our
Gross Margin 30% 30% 31%
projections indicate finance costs to average Rs1.7bn per quarter in the
upcoming quarters. Subsequently, it is expected to decrease to PAT 7,440 10,664 13,874
approximately Rs1bn by 1QFY26. To note, 500bp decrease in interest rates YoY Growth 5% 43% 30%
improves earnings by 10%. It is also pertinent to highlight that company has EPS (Rs) 3.03 4.35 5.66
a Rs7.4bn interest free convertible loan provided by the parent.
DPS (Rs) 0.00 0.00 1.25
P/E (x) 4.10 4.35 3.34
DY 0% 0% 7%
Source: Company accounts, JS Research

P A K I S T A N M A R K E T S T R A T E G Y 2 0 2 4 | 68
Key drivers Key risks
▪ Presence near KPK helps capture Afghan export ▪ Higher than expected Afghan and local coal prices
market ▪ Lower exports
▪ Ability to procure Local and Afghan coal at cheaper ▪ Delayed monetary tightening
rates compared to other Punjab based players
▪ Proactive with cost efficiency measures

About the Company

Fauji Cement Company Limited (FCCL), is a public listed company established in 1992. The company is listed on
Pakistan Stock Exchange (PSX). The Company has been set up with the primary objective of manufacturing, selling and
exporting of different types of Cement products. FCCL is majority owned by its sponsor Fauji Foundation and other group
companies (67%) while remaining is held by General public (17%) and Financial institutions (16%).

Gross Margin EBITDA/ton

35% 7,000.00

30% 6,000.00

25% 5,000.00

20% 4,000.00

15% 3,000.00

10% 2,000.00

5% 1,000.00

0% -
FY19 FY20 FY21 FY22 FY23 FY24E FY25F FY21 FY22 FY23 FY24E FY25F

Interest coverage ratio (x) D/E

6.00 100%
90%
5.00
80%
70%
4.00
60%
3.00 50%
40%
2.00
30%
20%
1.00
10%
0.00 0%
FY23 FY24E FY25F FY20 FY21 FY22 FY23 FY24E FY25F

Source: Company accounts, JS Research

P A K I S T A N M A R K E T S T R A T E G Y 2 0 2 4 | 69
Other notable mentions
D.G. Khan Cement Company (DGKC PA)
DGKC stands as a prominent cement company in Pakistan, having Target Price PKR 105
presence in both Northern and Southern markets. Positioned to capitalize
on the anticipated surge in demand over the next two years, the company Share Price PKR77.40

aligns with the long-term governmental emphasis on housing and

infrastructure development. The North region's dam construction demands
and the revival of paused private real estate projects are likely to contribute Statistics

to DGKC's outlook. With a well-diversified investment portfolio that includes 52w high / low (PKR) 82.43 / 39.44
3m avg turnover (USDmn) 1.4
Textiles, Banking, Auto, Insurance & Power segments, the company also
Free float (%) 50.0
gains substantial support from non-core income. We have an SoTP based
Issued shares (mn) 438.1
TP of Rs105 (a ~35% upside) for the scrip.
Market capitalisation PKR33.9B
USD0.1B
DGKC: Key statistics
(Rs mn) FY22 FY23 FY24E FY25E
Sales 58,044 64,984 70,203 78,048
YoY Growth 29% 12% 8% 11%
Gross Margin 18% 15% 20% 22%
PAT 2,972 -3,636 4,030 6857
YoY Growth -20% NM NM 70%
EPS (Rs) 6.78 -8.30 9.20 15.65
DPS (Rs) 1.00 0.00 1.00 1.50
P/E (x) 11.28 NM 8.41 4.95
DY 1% 0% 1% 1%
Source: Company accounts, JS Research

Kohat Cement Company (KOHC PA)

Buy stance on Kohat Cement Company Limited (KOHC), with potential Target Price PKR 345
capital upside of +47%. Our liking is premised on company’s strong earnings
profile, led by focus on cost optimization focus and low-leverage balance Share Price PKR234.23

sheet. Our base case earnings expand +40% YoY in FY24E, despite
incorporating flat volumes. KOHC intends to establish a 15MW solar power
facility, projected to meet 15% of the company’s power consumption Statistics
52w high / low (PKR) 234.23 / 115.77
requirements. This addition in solar generation capacity is expected to
3m avg turnover (USDmn) 0.1
provide further support to KOHC’s margins. Concurrently, the ongoing BMR
Free float (%) 30.0
of line-3 is anticipated to be completed by 2QFY24 end, aimed at enhancing
Issued shares (mn) 195.9
fuel efficiencies given volatile coal prices in recent times.
Market capitalisation PKR45.9B
USD0.2B
KOHC: Key statistics
(Rs mn) FY22 FY23 FY24E FY25E
Sales 32,877 38,922 39,938 44,541
YoY Growth 37% 18% 3% 12%
Gross Margin 30% 27% 28% 30%
PAT 5,024 5,821 8,491 9,493
YoY Growth 44% 16% 46% 12%
EPS (Rs) 25.65 29.72 43.35 48.47
DPS (Rs) 0.00 0.00 0.00 0.00
P/E (x) 7.07 5.14 5.40 4.83
DY 0% 0% 0% 0%
Source: Company accounts, JS Research

P A K I S T A N M A R K E T S T R A T E G Y 2 0 2 4 | 70
Engineering – Market weight
Pakistan steel market - yet to see full potential
Sector performance
Pakistan consumes approximately 9mn tons of steel annually where
160% Engineering KSE100 Index
demand for Long steel is around 6mn, mostly fulfilled through local sales.
The industry faces a significant threat from dumped steel imports, prompting 140%
the government to implement customs, regulatory, and anti-dumping duties
120%
to safeguard domestic producers.
100%
Rapid urbanization and the incoming Government’s focus on development 80%
projects with pending work on dam constructions and industrialization are
60%
some of the primary potential stimulants for steel demand in the country
going forward. Contingent on fiscal support, there is ample room for growth 40%

Jul-22

Jul-23
Sep-22
Jan-22

Nov-22
Jan-23

Sep-23
Nov-23
Mar-22

Mar-23
May-22

May-23
in the steel sector as also evident from the considerably lower national per
capita consumption of steel at around 48kgs versus global average of
222kgs. Source: PSX, JS Research

Graded vs. Ungraded dynamics

Rebar and Scrap prices (US$/ton)
The long steel market in Pakistan can be categorized into graded and
1000 Rebar Scrap
ungraded segments. Established entities such as MUGHAL, ASTL, AGHA,
900
and ITTEFAQ fall under the graded category. These companies have
800
traditionally encountered stiff competition from the ungraded sector,
700
comprising small rolling mills, responsible for about half of the country's
600
rebar production. Notably, in the past year, there has been a shift in favor of
500
graded steel in the market, driven by improved quality and a narrowing price
400
difference between the two segments.
300
Import dependency and Currency risks 200
100
Pakistan's long steel manufacturers heavily rely on imported steel scrap,
Jul-20

Jul-21

Jul-22

Jul-23
Nov-23
Nov-20

Nov-21

Nov-22
Mar-20

Mar-21

Mar-22

Mar-23
constituting about 60% of the cost of goods manufactured. A critical
challenge for these manufacturers has been navigating imports amid import
restrictions which were in place until some time back. Any escalation in costs Source: Bloomberg, JS Research
of international steel scrap is a key risk which is exacerbated by
considerable depreciation of the Pakistani rupee. Steel use per capita (kgs)
700
Performance review and outlook 2023 China,
Engineering sector, particularly long steel, showed significant 645.8
600 Global Avg
underperformance during CY23, trailing the KSE100 by 11%. Anticipated
surge in construction demand is anticipated to serve as a pivotal catalyst for
increased steel demand. We believe that major players in the Long steel 500

industry have already factored in a substantial portion of the prevailing

challenges into their respective stock prices. 400
USA,
279.4
300 Iran,
215.4

200 Avg. 222

India, Russia and
100 81.1 other CIS, Africa,
175.0 28.1
Pakistan,
0 48.0
Source: World Steel Association, JS Research

P A K I S T A N M A R K E T S T R A T E G Y 2 0 2 4 | 71
Mughal Iron & Steel (MUGHAL PA)
MUGHAL – the proactive player
MUGHAL is a significant graded steel player in the northern region. Our Target Price PKR 95
bullish stance on MUGHAL is driven by improved demand expectations for
Share Price PKR66.18
local rebars resulting in better utilization levels and continued contribution
from the Non- ferrous segment. Our TP of Rs95 offers an upside of 43%,
along with a dividend yield of 9%.
Statistics
Non-Ferrous segment continues to act as buffer 52w high / low (PKR) 73.97 / 41.46
3m avg turnover (USDmn) 0.3
MUGHAL’s focus remains on augmenting export volumes in the non-ferrous
Free float (%) 25.0
segment while sustaining volumes in the ferrous segment. Recent guidance Issued shares (mn) 335.6
by the company directs at export sales from the Non-Ferrous division Market capitalisation PKR22.2B
reaching Rs22-25bn by next year, with sales primarily targeted at customers USD0.1B
in China. Higher international copper prices are expected given the global
focus toward EV and hybrid vehicles and increased demand for Price Performance
semiconductors and plugs. MUGHAL hence foresees robust demand for its MUGHAL KSE100 Index
non-ferrous products in the international market. 150%
130%
Moreover, the company is set to benefit from recent CAPEX which has 110%
increased the capacity of its copper ingots segment, practically enabling the
90%
company to export at a quarterly run rate of 2.2k compared to current run-
70%
rate of 1.5-1.8k. Furthermore, there are strategic plans to explore
50%
opportunities in the export market for aluminum bars going forward. The
30%
recent introduction of copper granules has also enabled the company to

Jul-22

Jul-23
Jan-23
Jan-22

Sep-22

Sep-23
Mar-22

Nov-22

Mar-23

Nov-23
May-22

May-23
diversify its product portfolio while simultaneously eliminating costs
associated with heating and melting in the production process.

Initiatives to contain costs -1M -6M -12M

Company's financial performance is constrained by elevated scrap prices Absolute (%) (1) 44 45
being a key raw material. As per management disclosures, the company is Relative to index (%) (4) (6) (10)

strategically integrating scrap from the Non-ferrous business into its ferrous Source: PSX

segment where substantial portion, ranging from 50% to 65%, of the scrap
MUGHAL: Key statistics
generated in the Non-ferrous segment is expected to be efficiently utilized
in the Ferrous plant. Rs mn FY23 FY24E FY25F
Sales 67,390 74,981 96,326
Electricity curtailment and outages have also remained a key risk for
YoY Growth 2% 11% 28%
MUGHAL in achieving scale over the past many years. In terms of pricing,
Gross Margin 14% 12% 12%
average electricity tariff hovered around Rs30/KWh to Rs32/KWh during
FY23 where average grid tariff for ongoing fiscal year will clock in PAT 3,250 3,693 6,994
considerably higher. The company has 9 captive gas fired plants with a YoY Growth -40% 14% 89%
cumulative gross capacity of ~27MW. But MUGHAL finds utilization of gas EPS (Rs) 9.68 11.00 20.84
plants suboptimal given higher gas rates. The company is in the process of
DPS (Rs) 0.00 3.00 6.25
installing a 36.50MW coal power plant which will be catering to upto 40% of
P/E (x) 5.72 6.01 3.18
electricity needs of Mughal’s core business. The power plant is expected to
commence operations within 15 months from now. DY 0% 5% 9%
Source: Company accounts, JS Research

P A K I S T A N M A R K E T S T R A T E G Y 2 0 2 4 | 72
Key drivers Key risks
▪ Incremental contribution from Non-ferrous segment ▪ Higher than expected increase in scrap prices
▪ Uplift in demand due to construction activities ▪ Slower than expected economic recovery
▪ Improvement in utilization levels ▪ A cut in fiscal spending
▪ Expanding presence in the northern region ▪ Adverse actions by regulatory watchdogs

About the Company

MUGHAL is a prominent long steel manufacturer of Pakistan and has been operating in the industry since 1950s. Principal
activity of the company is the manufacturing and sale of mild steel products relating to ferrous segment. The ferrous
segment comprises of Billets, Rebars & Girders while non-ferrous segment comprises of Copper Ingot but the company
has shared plans to add further products to its portfolio in the non-ferrous space.

Capacity Utilization over the years Exports as a % of total sales

25%
Rebar Capacity ('000 tons) Capacity Utilization (%)
700,000 90%
20%
600,000 80%
70%
500,000 15%
60%
400,000 50%
300,000 40% 10%
30%
200,000
20%
100,000 5%
10%
0 0%
FY24E
FY19

FY20

FY21

FY22

FY23

0%
FY19 FY20 FY21 FY22 FY23 FY24E FY25E

Operating Margins (%) Gross Margins

16% 16%
14% 15%
14%
12%
13%
10% 12%
8% 11%
10%
6%
9%
4%
8%
2% 7%
6%
0%
FY19 FY20 FY21 FY22 FY23 FY24E
FY19 FY20 FY21 FY22 FY23 FY24E FY25E
Source: Company accounts, JS Research

P A K I S T A N M A R K E T S T R A T E G Y 2 0 2 4 | 73
Other notable top picks:
Pakistan Aluminium Beverage Can (PABC PA)
A Proxy to untapped Domestic & Regional demand for Can
PABC, the sole producer of aluminium beverage Cans in Pakistan provides Target Price PKR 95
us a proxy to untapped organic growth in sparkling soft drinks demand in
Share Price PKR75.57
Pakistan and the regional markets. PABC is optimally placed in terms of
capacity, positioning and market penetration to tap new markets and new
customers.
Statistics
We expect PABC to report earnings growth CAGR of 22% over CY22-27F 52w high / low (PKR) 79.12 / 35.96
fueled by 1) strong exports, 2) recovery in domestic sales post CY24, 3) 3m avg turnover (USDmn) 0.2
strong price power enabling the company to pass-on entire impact of input Free float (%) 25.0
cost hike to its customers, 4) declining financial charges and 5) income tax Issued shares (mn) 361.1
holiday given to the company till 2026 for being located in SEZ. Market capitalisation PKR27.3B
USD0.1B
Robust Exports offsetting near term soft domestic demand
Price Performance
PABC is making rigorous efforts to capitalize on its strength of proximity and
260% PABC KSE100 Index
capacity surplus to capture the demand in regional markets of Afghanistan,
Bangladesh and Central Asian states. This also enabled PABC to more than
210%
offset the impact of near-term softness in domestic demand. Afghanistan
remained the biggest export market for PABC, where due to lack of 160%
availability glass-bottle or Can locally, local beverage producers remain
dependent on PABC to supply the packaging material. We, hence, expect 110%
PABC exports to grow by 30%+ over CY22-27F.
60%

Jul-22

Jul-23
Jan-23
Jan-22

Sep-22
Nov-22

Sep-23
Nov-23
Mar-22

Mar-23
May-22

May-23
Organic growth outlook for domestic market intact
Targeting a population size of 240mn+ with 45% aged below 18-years,
increasing urbanization and consumer awareness about environmentally
friendly packaging material, we believe the demand for Canned beverages -1M -6M -12M

is set to grow from the current levels of less than 5% of the total sparkling Absolute (%) 4 79 109
drinks sold. Pakistan beverage user penetration is expected to grow from Relative to index (%) 1 29 54
3.9% currently (CY23E) to 4.9% in CY27 (vs. 14.8% and 21% for Asia). Source: PSX

Strong pricing power keeping margins intact PABC: Key statistics

Rs mn CY23E CY24F CY25F
PABC’s cost-plus, dollar-based pricing enables the company to maintain its
absolute margins. We, hence, don’t expect 1) recovery in Aluminium prices Sales 21,032 24,904 31,227
expected in CY24-25F from increasing global supply deficit (to 4mn tons per Sales Growth 49% 18% 25%
annum in CY25 from 0.7mn tons currently) and 2) depreciation of PKR/US$, GMs (Rs/Can) 10.01 10.22 10.45
to inversely impact PABC margins, instead improve local margins.
GP margin % 40% 37% 32%

Reiterate Buy with a TP of Rs95 PAT (Rs mn) 5,068 5,716 6,469
EPS (Rs) 14.03 15.83 17.91
With a TP of Rs95, the stock offers 26% from current levels. Despite high
growth and impressive margins, PABC trades at attractive P/E of 4.8x. Our EPS Growth 88% 13% 13%
forecast incorporates a 15% YoY decline in domestic sales for CY23E and DPS (Rs) 6.50 7.00 7.50
gradual recovery beyond that. Moreover, inking of any long-term sales P/E (x) 5.38 4.77 4.22
contract with potentially stronger and fast-growing markets of Bangladesh
D/Y 9% 9% 10%
provides upside risk to our estimates.
FCF Yield 10% 15% 16%
Source: Company accounts, JS Research

P A K I S T A N M A R K E T S T R A T E G Y 2 0 2 4 | 74
Key drivers Key risks
▪ Recovery in domestic sales in summers post Elections ▪ Prolonged border closure with Afghanistan
▪ Agreement with large Cola Cos in Bangladesh ▪ Delay in pick-up in domestic sales
▪ Unprecedent Pak Rupee depreciation

About the Company

Pakistan Aluminium Beverage Cans Ltd. (PABC) is the sole aluminium Can producing company of Pakistan. The
company began its commercial production in CY17 with a rated capacity of 700mn Cans pa, which is to be expanded to
1,200mn Cans by 1QCY24. As at CY22 end, Pakistan’s leading exporters Liberty group along, Soorty Enterprise,
cumulatively own 74% stake in PABC. PABC is a sole supplier of Can to Pepsi, Coca Cola Pakistan, Nestle Pakistan
(NESTLE), Muree Brewery (MUREB), Mehran Bottlers (Pakola). It also exports to regional markets like Afghanistan,
Uzbekistan, Tajikistan and Bangladesh. PABC enjoys a 10-year income tax holiday ending 2026 for being located in the
Special Economic Zone (SEZ) in Faisalabad.

PABC: Exports Breakup 2022 PABC: Exports leading the revenue growth

Bangladesh, Local Sales (Rs mn) Exports (Rs mn)

2.1%
50,000
Uzbekistan,
22.8% 40,000

30,000

Tajikistan, 20,000
0.3%
10,000

2025F
2023E

2024F

2026F

2027F
2019

2020

2021

2022

Afghanistan,
74.7%

PABC: CY24F EPS sensitivity to change in Local/Exports

PABC: Rising Absolute gross margins vol. assumptions (Rs)
Absolute gross margin (Rs/Can) 18 Sensitivity to Local Sales Sensitivity to Exports
Gross margin %
12.0 10.0 11.2 45% 17
10.7
10.2 10.5
17.31

40%
10.0
16.57

16
16.33

35%
16.08
15.83
15.58

8.0 6.9 30% 15

15.33

15.09

25%
6.0 5.1 14
14.35

4.4 20%
4.0 3.3 15% 13
10% 12
2.0
5%
11
0.0 0%
2019

2020

2021

2022

2023E

2024F

2025F

2026F

2027F

10
-10% -5% Base Case 5% 10%

Source: Company accounts, JS Research

P A K I S T A N M A R K E T S T R A T E G Y 2 0 2 4 | 75
Top dividend picks &
Valuation Sheet

P A K I S T A N M A R K E T S T R A T E G Y 2 0 2 4 | 76
Top D/Y picks
EPS DPS Payout ratio D/Y
Current Price FY23A/ FY24F/ FY23A/ FY24F/ FY23A/ FY24A/ FY24F/
CY23F CY24F CY23F CY24F CY23F CY24F CY24F
UBL 178 49.70 52.96 44.00 44.00 89% 83% 25%

POL 422 128.42 130.05 80.00 100.00 62% 77% 24%

BAHL 81 36.53 38.22 13.50 18.00 37% 47% 22%

MCB 173 57.15 59.64 30.00 36.00 52% 60% 21%

EFERT 112 18.04 22.62 18.04 22.62 100% 100% 20%

FFC 113 23.50 29.97 18.00 22.00 77% 73% 19%

FABL 33 13.84 18.26 4.00 6.00 29% 33% 18%

HMB 55 26.95 29.33 10.00 10.00 37% 34% 18%

ENGRO 295 56.89 64.40 48.00 52.00 84% 81% 18%

HUBC 117 44.37 57.92 30.00 20.00 68% 35% 17%

ABL 83 35.46 40.23 11.00 14.00 31% 35% 17%

P A K I S T A N M A R K E T S T R A T E G Y 2 0 2 4 | 77
Valuation Snapshot
Price EPS DPS Earnings Grow th
Target
Ticker FY23F / FY24F / FY25F / FY23F / FY24F / FY25F / FY23F / FY24F / FY25F /
29-Dec-23 Price
CY23F CY24F CY25F CY23F CY24F CY25F CY23F CY24F CY25F
JS Universe 46.6% 14.4% -1.5%
Banks 95.2% 14.6% -11.0%
1 Habib Bank HBL 110.84 115 43.4 48.2 42.1 8.2 12.0 16.0 86.7% 11.2% -12.7%
2 United Bank UBL 177.84 220 49.7 53.0 51.1 44.0 44.0 44.0 93.0% 6.6% -3.4%
3 MCB Bank MCB 172.55 210 57.1 59.6 51.6 30.0 36.0 36.0 97.1% 4.4% -13.4%
4 Allied Bank ABL 83.00 105 35.5 40.2 39.5 11.0 14.0 18.0 91.6% 13.4% -1.9%
5 Bank Al-Falah BAFL 48.51 65 24.3 25.8 25.1 6.0 6.0 6.0 110.9% 5.9% -2.6%
6 Bank Al-Habib BAHL 80.54 115 36.5 38.2 36.0 13.5 18.0 18.0 145.0% 4.6% -5.7%
7 Habib Metro HMB 55.32 70 27.0 29.3 25.2 10.0 10.0 10.0 98.0% 8.8% -14.2%
8 Askari Bank AKBL 24.72 34 14.9 21.7 22.6 0.0 3.2 4.5 53.7% 45.4% 4.2%
9 Faysal Bank FABL 32.58 40 13.8 18.3 14.3 4.0 6.0 6.0 86.9% 32.0% -21.5%
10 Meezan Bank MEBL 161.36 190 48.9 63.5 49.3 17.0 20.0 22.0 93.1% 29.9% -22.4%

Oil & Gas Exploration 67.7% -1.6% -1.2%

11 Oil & Gas Dev. Co OGDC 112.45 165 52.2 43.0 44.0 8.6 8.4 12.0 67.9% -17.7% 2.4%
12 Pakistan Oilfields POL 421.94 590 128.4 130.0 103.2 80.0 100.0 85.0 40.6% 1.3% -20.7%
13 Pakistan Petroelum PPL 115.03 145 35.7 41.9 41.1 2.5 5.8 8.0 78.9% 17.1% -1.8%
14 Mari Petroleum MARI 2,096.10 3,000 420.7 538.9 540.7 147.0 190.0 215.0 69.8% 28.1% 0.3%

Oil & Gas Marketing -82.7% 114.7% -5.5%

15 Pakistan State Oil PSO 176.71 260 12.1 57.0 60.0 7.5 17.0 18.0 -93.4% 372.4% 5.3%
16 Attock Petroleum APL 378.51 500 100.2 97.8 69.2 27.5 40.0 45.0 -32.8% -2.4% -29.3%

Pow er Generation 93.9% 30.2% 8.6%

17 Hub Pow er HUBC 117.09 170 44.4 57.9 63.7 30.0 20.0 29.0 102.1% 30.5% 10.0%
18 Nishat Pow er NPL 30.95 42 11.6 14.6 12.9 7.0 8.0 8.5 23.1% 25.9% -11.7%

Fertilizer 42.1% 26.5% 6.7%

19 Fauji Fertilizer FFC 113.19 160 23.5 30.0 33.0 18.0 22.0 24.8 49.1% 27.5% 10.1%
20 Engro Corporation ENGRO 294.91 400 56.9 64.4 68.1 48.0 52.0 54.0 25.5% 13.2% 5.8%
21 Fauji Fertilizer Bin Qasim FFBL 31.90 35 3.6 7.6 6.2 0.0 0.8 1.2 97.1% 113.6% -17.9%
22 Engro Fertilizers EFERT 112.23 134 18.0 22.6 25.2 18.0 22.6 25.2 50.5% 25.4% 11.5%

Cem ent 32.0% 38.9% 26.0%

23 Lucky Cement LUCK 786.98 1,022 166.4 197.1 244.9 18.0 10.0 15.0 65.3% 18.4% 24.3%
24 DG Khan Cement DGKC 77.40 105 -8.3 9.2 15.7 0.0 1.0 1.0 NM NM 70.1%
25 Fauji Cement FCCL 18.92 29 3.0 4.3 5.7 0.0 0.0 1.2 4.6% 43.4% 30.1%
26 Maple Leaf Cement MLCF 38.92 58 5.4 7.8 9.3 0.0 0.0 2.6 59.2% 45.2% 19.2%
27 Cherat Cement CHCC 162.98 235 22.7 23.1 31.2 4.5 3.0 3.0 -1.2% 2.0% 35.1%
28 Pioneer Cement PIOC 114.94 160 11.5 17.7 22.5 0.0 0.0 0.0 148.7% 54.0% 27.2%
29 Attock Cement ACPL 96.22 138 11.0 22.8 29.3 6.0 1.2 3.7 35.2% 106.3% 28.8%
30 Kohat Cement KOHC 234.23 345 29.7 43.4 48.5 0.0 0.0 0.0 15.9% 45.9% 11.8%

Iron & Steel -61.8% 70.2% 83.8%

31 Amreli Steels ASTL 23.06 24 -2.3 2.3 3.5 0.0 0.0 0.0 NM NM 53.5%
32 Mughal Iron & Steels MUGHAL 66.18 95 9.7 11.0 20.8 0.0 3.0 6.3 -39.9% 13.6% 89.4%

Textile -39.7% 49.4% 0.4%

33 Nishat Mills NML 76.72 120 34.6 39.4 41.4 5.0 4.0 4.0 18.0% 13.9% 5.0%
34 Nishat Chunian NCL 25.95 42 -4.2 6.8 7.1 4.0 4.0 4.0 NM NM 5.0%
35 Kohinoor Textile KTML 94.75 95 8.9 17.8 15.2 0.0 2.2 2.2 -49.2% 99.1% -14.6%

Miscellaneous -12.1% 27.0% 11.3%

36 Adamjee Insurance AICL 34.17 68 7.4 8.1 8.7 3.0 3.0 3.0 0.8% 8.6% 8.2%
37 AGP Limited AGP 70.31 105 6.9 9.1 11.5 2.8 3.8 4.5 22.6% 32.6% 26.4%
38 Pak Aluminium Bev. Can PABC 75.57 95 14.0 15.8 17.9 6.5 7.0 7.5 87.5% 12.8% 13.2%
39 Engro Polymer EPCL 46.59 60 7.4 10.6 11.3 5.0 6.5 7.0 -42.6% 43.3% 7.0%

P A K I S T A N M A R K E T S T R A T E G Y 2 0 2 4 | 78
 PE PBV DY ROE
Ticker FY23F / FY24F / FY25F / FY23F / FY24F / FY25F / FY23F / FY24F / FY25F / FY23F / FY24F / FY25F /
CY23F CY24F CY25F CY23F CY24F CY25F CY23F CY24F CY25F CY23F CY24F CY25F
JS Universe 3.7 3.3 3.3 0.8 0.7 0.6 12.5% 12.1% 13.8% 24.8% 24.1% 20.7%
Banks 2.7 2.4 2.7 0.7 0.6 0.6 14.5% 17.2% 18.4% 30.5% 28.8% 22.2%
1 Habib Bank HBL 2.6 2.3 2.6 0.5 0.4 0.4 7.4% 10.8% 14.4% 19.8% 18.4% 14.3%
2 United Bank UBL 3.6 3.4 3.5 0.9 0.8 0.8 24.7% 24.7% 24.7% 25.1% 24.8% 23.1%
3 MCB Bank MCB 3.0 2.9 3.3 0.9 0.8 0.7 17.4% 20.9% 20.9% 31.7% 28.7% 22.7%
4 Allied Bank ABL 2.3 2.1 2.1 0.6 0.5 0.4 13.3% 16.9% 21.7% 28.3% 26.4% 22.3%
5 Bank Al-Falah BAFL 2.0 1.9 1.9 0.6 0.5 0.4 12.4% 12.4% 12.4% 33.3% 27.8% 22.3%
6 Bank Al-Habib BAHL 2.2 2.1 2.2 0.7 0.6 0.5 16.8% 22.3% 22.3% 37.0% 31.4% 25.6%
7 Habib Metro HMB 2.1 1.9 2.2 0.6 0.5 0.4 18.1% 18.1% 18.1% 33.6% 29.6% 21.6%
8 Askari Bank AKBL 1.7 1.1 1.1 0.4 0.3 0.2 0.0% 13.1% 18.2% 26.2% 29.2% 23.9%
9 Faysal Bank FABL 2.4 1.8 2.3 0.6 0.5 0.4 12.3% 18.4% 18.4% 26.9% 29.2% 19.7%
10 Meezan Bank MEBL 3.3 2.5 3.3 1.6 1.1 0.9 10.5% 12.4% 13.6% 58.9% 52.3% 31.3%

Oil & Gas Exploration 2.0 2.9 3.0 0.5 0.6 0.5 10.1% 8.8% 10.6% 24.7% 20.2% 17.4%
11 Oil & Gas Dev. Co OGDC 1.5 2.6 2.6 0.4 0.4 0.4 10.6% 7.4% 10.7% 22.9% 15.9% 14.5%
12 Pakistan Oilfields POL 3.2 3.2 4.1 1.9 1.6 1.5 19.8% 23.7% 20.1% 61.4% 52.4% 38.6%
13 Pakistan Petroelum PPL 1.8 2.7 2.8 0.4 0.5 0.4 3.9% 5.0% 7.0% 19.9% 19.3% 16.3%
14 Mari Petroleum MARI 3.8 3.9 3.9 1.4 1.3 1.1 9.3% 9.1% 10.3% 37.5% 37.0% 29.8%

Oil & Gas Marketing 5.7 3.3 3.5 0.4 0.4 0.4 6.8% 10.0% 10.8% 7.0% 14.0% 12.0%
15 Pakistan State Oil PSO 11.7 3.1 2.9 0.3 0.3 0.3 5.3% 9.6% 10.2% 2.6% 11.7% 11.2%
16 Attock Petroleum APL 2.9 3.9 5.5 0.9 0.9 0.8 9.3% 10.6% 11.9% 30.2% 24.3% 15.1%

Pow er Generation 1.4 2.0 1.9 0.5 0.6 0.5 47.6% 17.7% 24.9% 36.1% 36.2% 30.2%
17 Hub Pow er HUBC 1.5 2.0 1.8 0.6 0.7 0.5 44.7% 17.1% 24.8% 40.6% 39.5% 32.6%
18 Nishat Pow er NPL 1.8 2.1 2.4 0.2 0.3 0.3 34.3% 25.8% 27.5% 14.1% 16.2% 13.1%

Fertilizer 5.5 4.4 4.1 1.3 1.2 1.1 14.7% 17.7% 19.4% 22.8% 27.3% 27.6%
19 Fauji Fertilizer FFC 4.8 3.8 3.4 2.7 2.3 2.0 15.9% 19.4% 21.9% 55.0% 63.3% 61.7%
20 Engro Corporation ENGRO 5.2 4.6 4.3 0.6 0.6 0.6 16.3% 17.6% 18.3% 12.5% 13.8% 14.1%
21 Fauji Fertilizer Bin Qasim FFBL 9.0 4.2 5.1 0.9 0.7 0.7 0.0% 2.5% 3.7% 10.0% 18.8% 13.5%
22 Engro Fertilizers EFERT 6.2 5.0 4.4 3.2 3.1 3.1 16.0% 20.1% 22.5% 51.4% 62.0% 69.1%

Cem ent 4.2 4.7 3.7 0.8 1.0 0.9 2.3% 0.9% 2.5% 18.9% 23.5% 25.8%
23 Lucky Cement LUCK 3.0 4.0 3.2 1.1 1.5 1.3 3.6% 1.3% 1.9% 37.6% 39.3% 43.0%
24 DG Khan Cement DGKC NM 8.4 4.9 0.3 0.5 0.5 0.0% 1.3% 1.3% -5.3% 6.2% 9.8%
25 Fauji Cement FCCL 4.1 4.4 3.3 0.5 0.6 0.5 0.0% 0.0% 6.6% 12.1% 15.1% 16.9%
26 Maple Leaf Cement MLCF 4.8 5.0 4.2 0.7 0.8 0.7 0.0% 0.0% 6.6% 14.2% 17.7% 18.4%
27 Cherat Cement CHCC 4.8 7.1 5.2 1.1 1.2 1.0 4.1% 1.8% 1.8% 23.1% 19.3% 21.2%
28 Pioneer Cement PIOC 5.8 6.5 5.1 0.9 1.3 1.0 0.0% 0.0% 0.0% 16.1% 21.4% 22.3%
29 Attock Cement ACPL 6.3 4.2 3.3 0.5 0.6 0.5 8.6% 1.3% 3.9% 8.1% 15.2% 16.9%
30 Kohat Cement KOHC 5.1 5.4 4.8 1.0 1.2 0.9 0.0% 0.0% 0.0% 19.4% 23.5% 21.4%

Iron & Steel 9.7 6.6 3.6 0.7 0.7 0.6 0.0% 3.5% 7.2% 6.9% 10.6% 17.1%
31 Amreli Steels ASTL NM 10.0 6.5 0.4 0.4 0.4 0.0% 0.0% 0.0% -4.4% 4.2% 5.9%
32 Mughal Iron & Steels MUGHAL 5.7 6.0 3.2 0.8 0.8 0.7 0.0% 4.5% 9.4% 14.7% 14.8% 23.8%

Textile 3.2 2.9 2.9 0.3 0.4 0.3 4.6% 5.0% 5.0% 10.0% 13.5% 12.2%
33 Nishat Mills NML 1.7 1.9 1.9 0.2 NM NM 6.5% 5.2% 5.2% 14.2% 14.1% 13.1%
34 Nishat Chunian NCL NM 3.8 3.6 0.3 0.3 0.3 15.4% 15.4% 15.4% -4.2% 6.9% 7.0%
35 Kohinoor Textile KTML 6.3 5.3 6.2 0.6 NM NM 0.0% 2.3% 2.3% 9.4% 17.0% 13.3%

Miscellaneous 6.2 4.9 4.4 1.3 1.1 1.0 8.6% 10.4% 11.2% 21.5% 24.3% 23.9%
36 Adamjee Insurance AICL 4.6 4.2 3.9 0.4 0.4 0.4 8.8% 8.8% 8.8% 9.4% 9.6% 9.8%
37 AGP Limited AGP 10.2 7.7 6.1 1.7 1.5 1.3 3.9% 5.3% 6.4% 17.3% 20.5% 22.7%
38 Pak Aluminium Bev. Can PABC 5.4 4.8 4.2 2.6 2.0 1.5 8.6% 9.3% 9.9% 57.7% 46.5% 40.8%
39 Engro Polymer EPCL 6.3 4.4 4.1 1.4 1.3 1.1 10.7% 14.0% 15.0% 23.8% 30.9% 29.4%

P A K I S T A N M A R K E T S T R A T E G Y 2 0 2 4 | 79
Disclosures
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Contact Us
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+92-21-3279 9558
[email protected]

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Khalil Usmani Syed Faran Rizvi Qasim Ali Shah Shahrique Khan
Country Head of Equities Head of Sales Head of Intl. Sales Head of HNWI
+92-21-3279 9511 +92-21-3279 9508 +92-21-3279 9512 +92-21-3279 9508
[email protected] [email protected] [email protected] [email protected]

Head Office:
The Centre
17th & 18th Floor | Plot No. 28, SB-5, Abdullah Haroon Road, Karachi, Pakistan.
UAN: +92-21-111-574-111 | Fax: +92-21-3280 0166 | URL:
www.jsglobalonline.com

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