Morning Call

February 7, 2013

Telecom Sector LDI (ICH) impact on operators earnings

Telecom
LDI earnings continue to drive Telecos bottomline! According to our industry checks, a total of LDI revenues are around USD 227mn (~PKR 22.2bn) from October to December12 on account of ICH settings, which is still being charged at length. Out of the total gross revenues, a total of USD 152mn (~PKR 14.9bn) is assumed as gross margin for the entire industry, adjustment for the interconnect as well as access promotion charges for the same time period while 15% of the gross has been taken as USF (Universal Service Fund). Earnings estimates for Oct-Dec12 quarter As far as market shares are concerned, PTCLs market share is robust at 50% while Wateen, TeleCard and Worldcalls are 5.5%, 3.3% and 3.5%, respectively. Therefore, our ballpark estimates of the increased LDI revenues on operators earnings (only LDI earnings) as per operators market shares, costs and margins, is provided as under;
Oct-Dec'12 EPS Operator PTCL Wateen* Worldcall* Telecard* Market Share 50% 5.5% 3.5% 3.3% Revenue USD mn 113 12 8 7 PKR mn 11,115 1,223 778 734 Net Margins (PKR mn) 4,803 449 286 269 LDI PKR EPS 0.94 0.73 0.33 0.90 Total PKR EPS 1.45 -

Buy
Target Price Last Closing Upside KSE Code Bloomberg Code 26.00 20.31 28.0% PTC PTC PA

Shares Market Cap (US$ m) 1,056.9 Market Cap (PKR m) 103,581 Outstanding Shares (m) 5,100 Free Float 45.0% 12M Avg. Daily Turnover 7.34mn 12M High/Low (PKR) 20.57/11.09 Major Shareholders President of Pakistan Eitisalat Financials FY12A FY13E* FY14F Total Equity (PKRbn) Total Assets (PKRbn) Net Profit (PKRbn) ROE (%) EPS (PKR) P/E (x) P/B (x) DPS (PKR) Div Yield (%) 119.1 226.6 11.44 9.6% 2.24 9.05 0.87 0.0% 120.3 228.1 8.22 6.8% 1.61 12.60 0.86 1.00 4.9% 128.0 242.8 19.21 15.0% 3.77 5.39 0.81 1.75 8.6%

Source Arif Habib Research

*After tax LDI impacts only

* Estimates to be converted to CY after company publishes its financial accounts Stock Performance
220% PTC 190% 160% 130% 100% 70%
Jan-12 Feb-12 Mar-12 Apr-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 May-12 Jan-13

Earnings forecast for Jan-Mar13 We expect higher incoming international call rates to prevail, as presumably an understanding between the LDI operators exists to great success. Likewise, the government (PTA) would also prefer rates to be collected on the higher side as it accounts for a significant inflow of USD as international calling rates are charged in USD terms by the LDI operators (PKR depreciation is an added advantage). We have run a sensitivity on expected Jan-Mar13 quarter earnings for PTC, WTL and TELE given that the Lahore High Courts hearing on the 18th Feb13 orders a decrease in call rates in the range of 10-50% (low probability, high probability for the case to be further dragged on). These forecasted earnings are based on the assumption that an average 750mn incoming international minutes is being terminated every month (against to date average of over 850mn minutes/month).

KSE100

Sensitivity LDI Rates on EPS for the Quarter Jan-Mar'13 Companies USD 0.088 -10% -20% -30% -40% -50% PTC* 1.21 1.14 1.07 1.00 0.93 0.86 PTC** 0.70 0.63 0.56 0.49 0.42 0.35 WTL** 0.31 0.28 0.25 0.22 0.19 0.16 TELE** 0.79 0.71 0.63 0.55 0.47 0.40 Source:Arif Habib Research * Total earnings **Only LDI earnings
Recommendation We iterate our BUY stance on PTC with a Price Target of PKR 26 (Jun-13) and expect PKR 1.00 DPS for CY12, as it has a diversified portfolio range of telecom product ranging cellular service (Ufone) to broadband and is not fully dependant on its LDI earnings as its primarily earnings growth factor.

Source: KSE Analyst Numair Ahmad numair.ahmad@arifhabibltd.com 021-32461106

www.arifhabibltd.com

Disclaimer: The information contained herein is compiled from sources AHL believes to be reliable, but we do not accept responsibility for its accuracy or completeness. It is not intended to be an offer or a solicitation to buy or sell any securities. AHL and its officers or employees may or may not have a position in or with respect to the securities mentioned herein and they do not accept any liability whatsoever for any direct or consequential loss arising from the use of this publication and its contents. AHL may, from time to time, have a consulting relationship with a company being reported upon. All opinions and estimates contained herein constitute our judgment as of the date mentioned in the report and are subject to change without notice.

Morning Call
February 7, 2013
Market Review All share KSE - Closing 12,263.70 Points Change 52.35 % Change 0.43% MoM Change 48.92 YTD Change 363.98 Turnover (m) 251.75 Source: KSE Volume Leaders Volume(m) WTL 53.42 TRG 33.86 WTCL 24.51 PTC 22.91 TELE 20.28 Major Gainers Change ULEVER 75.00 RMPL 50.00 BATA 45.00 WYETH 45.00 UPFL 20.00 Major Losers Change NESTLE -210.50 IDYM -29.87 GATI -9.62 SUTM -7.00 EXIDE -6.14 Source: KSE Settlement Data Volume WTL 25.6 TRG 14.6 PTC 10.3 WTCL 7.8 LOTPTA 7.5 * data of February 06, 2013 Future Open Int Shares(m) ENGRO-FEB 6.9 DGKC-FEB 5.9 ATRL-FEB 1.3 EFOODS-FE 1.9 NBP-FEB 3.4 Total 35.1 Source: KSE Fixed Income (06-Feb-2013) 6M KIBOR (%) T-Bill 12M (%) PIB 10Yrs (%) Source:SBP Currency Rates (06-Feb-2013) USD EUR GBP Source: SBP Commodity Prices (06-Feb-2013) Gold ($/oz) WTI ($/bbl) Source: Bloomberg KSE-100 17,408.52 120.45 0.70% 142.29 613.65 148.03 Close 3.49 8.28 3.34 20.31 4.56 Close 10,075.00 3,600.00 1,445.00 945.00 4,100.00 Close 4,701.00 567.63 182.88 155.00 342.01

Todays News The Economic Coordination Committee (ECC) of the Cabinet has approved marginal gas fields' gas pricing criteria, according to which additional premium of $0.25 per mmbtu will be given for the three zones. According to official documents, the ECC was informed on January 29, 2013 that at present 85 percent demand of the country for oil is met through imports, while local supplies of gas amounting to 6.0 billion cubic feet (bcf) are sufficient to meet only 50 percent of the demand. (BR) The Pakistan State Oil (PSO) has to retire over Rs 55 billion on account of international Letter of Credit (LC) payments during the current month, and the government has expressed its inability to arrange the amount. (BR) Prime Minister Raja Pervez Ashraf has approved Investment Policy 2013 prepared by the Board of Investment (BOI), envisaging $5.5 billion annual investment target. Talking to Business Recorder, Minister of State for Finance and BOI Chairman Saleem Mandviwala stated that the policy would now be submitted to the Cabinet for approval. (BR) Byco Oil Refining Complex received the largest-ever consignment of crude oil in Pakistans history that discharged 79,000 tons of the oil in the refinery complex through the companys own deep sea facility set up in the Arabian Sea, according to a statement on Wednesday. (THE NEWS)
February 6, 2012 Op. Vol (mn) 11.2% 11.6% 11.5% 11.9% 11.3% 11.4% PSO ENGRO DGKC FFC PTC Total 2.11 3.90 4.15 1.22 6.53 37.37 Op. Value (PKR mn) 403.46 301.75 188.89 122.43 108.64 1765.65 23% 17% 11% 7% 6% % open

Margin Trading System Day Vol Day Value Wght Avg (mn) ENGRO PTC ATRL PSO 0.90 3.10 0.22 0.15 (PKR mn) 73.38 53.52 32.63 29.03 20.41 271.61

% Settled 46.5% FFC 0.20 39.8% Total 6.60 37.7% Source: NCCPL 31.8% 35.9% Values(m) 639.3 320.8 232.5 206.4 173.7 2484.5
FIPI (USDm ) 6-Feb-13 MTD FYTD CYTD Source: NCCPL

Net Buy/(Se ll) 3.92 -0.29 172.60 15.13

MSCI Index Pakistan Frontier Mkt Emerging Mkt EM Asia Source: MSCI

Las t 102.7 530.4 1063.7 449.2

Day 0.7% 0.4% -0.4% 0.0%

YTD 2.4% 8.3% 0.8% 0.4%

Board Meetings

Date

Time

Location

Engro Fertilizers Limited 9.34% 9.22% Ferozsons Laboratories Ltd 11.58% Karachi Electric Supply Co Ltd Fauji Cement Company Limited Pakistan Telecommunication Co Ltd 97.88 Pakistan Refinery Ltd 132.39 Allied Bank Limited 153.33 Source: KSE

4Q 2Q 2Q 2Q 2Q 2Q 4Q

8-Feb-13
8-Feb-13 11-Feb-13 13-Feb-13 13-Feb-13 14-Feb-13 14-Feb-13

9:30 AM 1:30 PM 3:00 PM 1:00 PM 1:00 PM 10:00 AM 11:00 AM

Karachi Lahore Karachi Rawalpindi Lahore Karachi Lahore

1,677.57 96.62