ims coverage initiation-nishat ipps-...

InterMarket Perspective

To find our Research on Bloomberg, please type - IMKP <GO> www.jamapunji.pk

Research Entity Number – REP-085

21 November 2016

Yusra Beg

[email protected]

Tanveer Ahmad

[email protected]

+92-21-37131600

• We initiate coverage on Nishat IPPs (Target Price: NCPL: PkR51/sh, NPL: PkR48) with a Neutral rating. While Operations and Maintenance savings (O&M) may sustain high D/Y for the next few years (FY17-20F: 13%), we expect dividends to drop post FY20 as both companies retire their senior debt. NPL/NCPL offer an IRR of +8% for other IPPs.

• Inability to sustain O&M savings coupled with normalized fuel savings amid weak furnace oil prices are likely to limit LT dividend growth given ROE contribution to total distributable dividends stands at ~47%. Moreover, with limited options available for expansion, potential for alpha generation remains minimal.

• NPL and NCPL have historically traded at a discount to the market (FY17F: 6.4x vs. the IPP space: 8x) however due to lack of triggers ahead, coupled with questionable sustainability of recurring dividends (PkR7/sh) this discount to peers appears misleading, Neutral.

Nishat IPPs- Initiate with Neutral We initiate coverage on Nishat IPPs with a Neutral recommendation, where we anticipate dividend yield (FY17F: 13%) to hold up in the near term. That said, with O&M savings to decline as the plant ages, D/Y may lose attraction; magnified more so owing to anticipated reversal of interest rate cycle from CY17. Moreover, with no immediate projects in the pipeline, while most IPPs move towards coal/LNG based generation, lack of triggers would likely keep the stock prices in check.

D/Y may sustain till FY20… When it comes to dividend yield (D/Y), Nishat IPPs (Nishat Power & Nishat Chunian Power) have been the blue eyed boys of investors over the last few years. With D/Y averaging ~13% vs. IPP universe 11%, the stocks remain a dividend play of choice. We expect dividends to sustain for the next few years where we base our view on healthy cashflow generation as O&M expense should remain in check over the next few years. Although, reversing interest rate cycle poses a key downside risk we anticipate rise in penal income (PI) to provide support (to the tune of ~PkR160-190mn) to the bottomline in the medium term however, LT sustainability remains unlikely as circular debt normalizes in tandem with availability of new energy projects.

…as organic growth in earnings supersedes O&M/Fuel savings With Nishat IPPs on the verge of major overhaul, post 36,000 hours, we expect operations and maintenance expense to remain elevated. Currently contribution of O&M savings to the bottomline stands at PkR1-1.3bn/annum (PkR2.5-3/sh). Therefore with plant aging ahead, we build in gradual erosion of O&M savings going forward. That said, we have largely maintained plant efficiency (46-47%) over the next few years with minor degradation to occur onwards as plant ages. Dramatic increase in furnace oil prices (currently PkR45k/ton, up 27%YoY) seems unlikely, therefore we factor in nominal rise in FO (LT oil outlook: US$65/bbl) to maintain absolute fuel savings ahead. We anticipate the companies’ organic return structure (ROE) to take the lead once savings normalize.

Big picture un-favorable with demand for FO plants expected to decline Nishat IPPs have historically displayed utilization levels of +85%. In recent times, Pakistan’s energy landscape has seen a shift with rise in LNG imports in order to bridge the demand/supply gap. With CPEC projects expected to start kicking-in by 2018-19, we anticipate reliance on expensive furnace oil based generation may begin to shrink putting Nishat IPPs at risk of lower utilization. We incorporate 60-65% load factor FY20 onwards.

Nishat IPPs – Not to be taken at face value Although seemingly attractive on P/E, trading at a FY17F: 6.4x, vs. the broader IPP space (8x), likelihood of recurring dividends (~PkR7/sh) beyond FY20 is limited while lack of triggers inhibit growth. Therefore existing discount to peers appears misleading. Moreover, with core valuations (discounted ROE/sh) contributing PkR28-29/sh to the total (PkR48-51), we flag the remaining half (non-core: O&M/fuel savings and PI) exposed to risk, maintain, Neutral. Analyst certification and required disclosures begin on page 15&16

Dividend story lacks excitement, initiate with Neutral

Nishat IPPs – Initiating Coverage

Nishat Power Limited Price (PkR/sh) 54.00

TP (PkR/sh) 48.09

Stance Neutral

Bloomberg / Reuters NPL PA / NISH.KA

Mkt Cap (US$mn) 182.4

Nishat Chunian Power Limited

Price (PkR/sh) 55.00

TP (PkR/sh) 50.56

Stance Neutral

Bloomberg / Reuters NCPL PA / NCPL.KA


Nishat Chunian Power Limited Key Ratios FY15 FY16 FY17F FY18F

EPS (PkR) 8.41 7.50 8.35 8.93

PER (x) 6.54 7.33 6.59 6.16

PBV (x) 2.74 2.77 2.63 2.40

DPS (PkR) 7.50 7.25 7.00 7.00

DY (%) 13.6% 13.2% 12.7% 12.7%

ROE (%) 41.9% 37.8% 39.8% 39.0%

Nishat Power Limited Key Ratios FY15 FY16 FY17F FY18F

EPS (PkR) 8.80 8.05 8.84 9.53

PER (x) 6.1 6.7 6.1 5.7

PBV (x) 1.6 1.6 1.4 1.4

DPS (PkR) 5.3 6.0 7.0 6.0

DY (%) 9.7% 11.1% 13.0% 11.1%

ROE (%) 26.8% 23.3% 23.6% 23.8%

Power Sector vs. KSE100 Index

-20%

-10%

0%

10%

20%

30%

Nov-15 Feb-16 May-16 Jul-16 Oct-16

KSE100 index Power Sector

Source: IMS Research

2 | P a g e

Perspective

Nishat IPPs Investment theme

O&M Savings coupled with fuel efficiency gains to sustain D/Y (FY17/18F: 13%/12%) for the next few years. Natural decline in O&M savings and drop

in fuel savings on lower utilization (as a result of influx of coal/LNG/hydel based projects) could drag NCPL/NPL lower in the merit order. Moreover

we expect earnings to drop post debt retirement (FY20-21). NEUTRAL

Power sector utilities valuation snapshot - 2016-17 Companies LDCP Mkt Cap (US$mn) TP (PkR/sh) +/(-) P/E (x) D/Y (%) IRR (US$) Nishat Power Limited 54.00 182.38 48.09 -10.94% 6.11 13.0% 5.6%

Nishat Chunian Power Ltd 55.00 192.71 50.56 -8.08% 6.59 12.7% 6.1%

Hub Power Co. Ltd 103.15 1,138.49 119.07 15.5% 9.55 9.7% 6.6%

Kot Addu Power Co. Ltd 75.94 637.60 79.00 4.03% 7.14 11.9% 4.9%

Pak Gen Power 25.03 88.83 37.00 47.80% 7.75 8.0% N/A

Lalpir Power Co. Ltd 21.98 79.63 35.00 59.23% 7.28 9.1% N/A

Kohinoor Energy Ltd 46.00 74.35 43.00 -6.51% 10.57 12.0% N/A

Source: IMS Research & Bloomberg consensus

NCPL stands at a steep discount to the sector

0%

2%

4%

6%

8%

10%

12%

14%

-

2.00

4.00

6.00

8.00

10.00

NPL NCPL Pakistan IPPs

PER (x) EV/EBITDA (x) D/Y (%) - Rhs

Cheapest on

multiples


Investment Thesis

� We initiate coverage on Nishat Chunian Power Limited (NCPL) and Nishat Power Limited (NPL) with a Neutral rating. In our view both IPPs offer limited upside at current levels (Target Price: NCPL: PkR51/sh and NPL: PkR48/sh), as we incorporate dilution of O&M savings in the long run and resultant normalizing of dividends amid lack of triggers, going forward.

� With near term dividend yield the only saving grace, NCPL/NPL offer an FY17F D/Y of 13% respectively which is still higher than IMS IPP Universe avg D/Y of 10.6% (vs. PSX: 5.3%) and 445bps higher than 10-year PIBs (8.05%). High D/Y may yet extend over the next few years as the O&M expense remains on the lower side however, plant aging should contribute to dilution in the long run.

� Lack of new projects are expected to limit capital gains upside for the Nishat IPPs while other players embark on coal/LNG projects. Moreover, with the possibility of excess generation a tangible risk, possibility of new Nishat power projects remain slim. NCPL and NPL stock prices have remained in check (-0.1%/+0.6% CYTD), Neutral.

Nishat IPPs FY16 Generation contribution (Gwh) vs. other IPPs

HUBC

38%

KAPCO

31%

NPL

7%

NCPL

6%

PKGP

4%

LPL

9%

KOHE

5%


Dividends to sustain a few more years (DPS - FY12-FY20F)

-

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

FY12 FY13 FY14 FY15 FY16 FY17F FY18F FY19F FY20F

NCPL NPL


Recent retraction in FO prices to ease fuel savings in the medium term

-

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

Jan

-09

May

-09

Oct

-09

Feb

-10

Jul-

10

De

c-1

0

Ap

r-1

1

Sep

-11

Feb

-12

Jun

-12

Oct

-12

Feb

-13

Jul-

13

De

c-1

3

Ap

r-1

4

Oct

-14

Feb

-15

Jun

-15

No

v-1

5

Mar

-16

Au

g-1

6

Circular debt peak


3 | P a g e

Perspective

So far the dividend star of Pakistan’s IPP cluster The IPP dividend plays of choice for investors over the last 3 years, NCPL and NPL are expected to continue to contribute superior dividends for the next few years. The yield of the Pakistan power sector space has averaged at 10.6% vs. 13% for NCPL and NPL respectively over the last three years since the incumbent government came to power and resolved the circular debt crisis in Jun’13. That said, we see this dream run losing momentum. Management guidance suggests O&M savings should continue for another year or two where we build in gradual absorption of rising O&M expenses as the plants age. With lack of exciting projects in the pipeline (coal, LNG), room for upside gains remains limited for both IPPs.

Dividend climate gradually changing…

Having achieved commercial operations (COD) in 2009-10, Nishat IPPs are now nearing their scheduled major maintenance post 36,000 working hours. The prime reason for stellar dividend track record has been owing to the relative low age of the plants vs. other IPPs which have been around for several years (HUBC: COD: 1994, KAPCO: COD: 1992) and require higher repairs and maintenance expenditure. Although maintenance should preserve thermal efficiency levels, we build in 0.2% degradation of fuel savings and O&M savings over the next five years. Moreover with maintenance plan under way, we anticipate generation levels to remain on the lower side. Our dividend yield expectation for FY17-20F lies in the range of ~12-13% for both IPPs respectively. That said, post FY20 we anticipate dividend reliability of NCL (51% shareholder in NCPL) to come off as NCPL’s senior debt retires.

… while likelihood of investment in new projects remains slim Having submitted Pre-Qualification documents for setting up R-LNG fired power plants in Faisalabad, Nishat IPPs were unable to obtain approval, with PPIB deeming the project technically non-qualified in Jun’16. Nishat IPPs have not announced expansion into any new project thus far. This limits the chances of a valuation re-rating for the stock while similar IPPs have opted (PKGP/LPL) for setting up a raw site 220MW coal fired power projects in Punjab. Moreover, with both companies set to retire their senior debt by FY21, we expect earnings to drop significantly there onwards.

Dividend per share to drop going forward as O&M savings normalize

-

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

FY12

FY13

FY14

FY15

FY16

FY17

F

FY18

F

FY19

F

FY20

F

NCPL NPL


Nishat IPPs: Historical generation levels

-100%

-50%

0%

50%

100%

150%

200%

250%

-

50.0

100.0

150.0

200.0

250.0

300.0

Jul-12 Jul-13 Jul-14 Jul-15 Jul-16NPL NCPL Growth (%)-Rhs Growth (%)-Rhs

Source: NEPRA & IMS Research

Nishat IPPs - Superior yields vs. the IPPs space

NCPL, 12.7%

NPL, 13.0%

HUBC, 9.7%

KAPCO, 12.5%

LPL, 9.1%

PKGP, 8.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%


Our dividend yield expectation for

FY17-20F lies in the range of 13%for

both IPPs respectively. However with

senior debt retiring in FY21, we

anticipate drop in dividends thereon.

4 | P a g e

Perspective

Nishat IPPs and the curious case of O&M savings

NPL and NCPL’s 5-year maintenance contracts expired with Finnish EPC contractor

Wartsila expired in Jan’16. Maintenance of the plants has been assumed internally

through placement of Wartsila officials which has led to significant drop in expenditure. In

addition to forgoing the service fee, Wartsila Pakistan charged from the IPPs, both NPL

and NCPL are in early stages of their purchase contracts, where cheaper procurement of

stores and spares, synergies and lower maintenance requirement has led to marginally

lower O&M expenses while they continue to receive O&M payments from the customer

through their tariff. This has historically resulted in massive O&M savings, presently

doubling the ROE component thus stupendous dividends (~PkR1bn/anum savings).

Future strategy: Eradicating the energy crisis

Phase-III: Restructuring & Deregulation Focus on lifting projects, picking idle energy

on take & pay basis in order to limit

generation generation by providing

attractive ROEs for Coal based gap (4-5kMW)

Phase-II: Reducing costs Gradual transition from integrated,

state-owned utilities to a decentralized

system with separate generation,

transmission and distribution entities,

having pvt ownership and management.

Phase-I: Cost Plus approach

Essentially similar to 1994 Power

Policy however proposing setting

tariff through competitive process to

offer the lowest tariff

Attracted 3000MW worth of pvt.

investment in the power sector while

forgoing competitive framework for

acquisition of new capacity

2015 onwards

2002-2015

1998-2002

1994-1998

Return structure in stark contrast to incumbents Having achieved commercial operations in 2009-10, Nishat IPPs fall under the Power

Policy 2002 which guarantees a flat ROE structure subject to currency headwinds while (i)

HUBC boasts a U-shaped tariff structure. The Nishat plants, on the hand, were structured

in a way so as to ensure efficient supply of energy and limit accumulation of expenses.

Therefore the companies not only gain from the tariff based ROE but (i) primarily from

hefty O&M savings, (ii) fuel savings subject to oil price fluctuations and (iii) lastly penal

income markup on outstanding receivables from NTDC. We estimate ~PkR1-1.2bn/annum

savings for FY17-18, with gradual decline FY18-onwards in tandem with rising

maintenance costs.

We feel these may ensure superior yield over the medium term (FY17-19F D/Y: ~12-13%),

however, although both IPPs have maintained plant efficiency till now, we have

incorporated marginal degradation (0.2% per annum) going forward. Moreover, with

circular debt stable no w and expected so in the near term, penal income will be modest

from here on. Hence the return structure of these IPPs may not sustain a LT view as

downside risks emerge.

Nishat IPPs not only gain from its tariff

based ROE but (i) primarily from O&M

savings, (ii) fuel savings and (iii) lastly

penal income markup.

Distributable dividends to normalize going forward

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

FY12 FY13 FY14 FY15 FY16 FY17F FY18F FY19F FY20F FY21F

Fuel savings Dist. DPS ROE Penal Income O&M savings


Pakistan Power Policies – from indulgent to realistic

5 | P a g e

Perspective

Thermal efficiency levels sustainable, lower fuel prices may limit upside Benchmark efficiency for Nishat IPPs stands at 45% while the companies have on avg.

operated at 46-47% efficiency since commercial operations. This was owing to contractual guarantees by the EPC contractor, Wartsila, for reliable thermal efficiency between 7780-

7740kj/kwh during the 5-year tenure. With in-house team handling O&M post expiry of

contract in 2015, the efficiency h as continued to sustain these levels. That said, with

despite nominal retraction in furnace oil prices (FO prices PkR45k up 27%YoY), it seems

unlikely that any major reversal may occur which could stretch fuel savings substantially,

while oil prices expected to be stable at US$ 45-50/bbl as per Bloomberg consensus. We estimates ~PkR300-340mn/annum savings with incorporation of gradual degradation.

Dividend dependence of holding companies to drop in tandem with dividends The last few years have seen superior dividend payouts by Nishat IPPs (payout ratio

averaging: 70-80%). However with earnings growth limited and O&M/fuel savings to come

off as plants age, we expect key holding company’s reliability for dividends to also

decrease substantially (especially post FY20). We anticipate Nishat Chunian may see a

rebound in their textile profits this lowering dependence on NCPL dividends. As per Nishat

Mills Limited (NML), robust textile operations, greater dividend from MCB and DGKC

(both expected flat to stable) dependence on NPL’s dividend will remain low. That said

medium term outlook remains intact.

Excessive issuance of LoIs limits possibility of expansion NPL and NCPL had previously signed LOIs for construction of 660MW coal power in Punjab

however the projects were discontinued owing to coal transportation issues. We do not

foresee any immediate plan to increase capacity as available projects (CPEC) in the

pipeline are anticipated to exceed demand in the long run. Moreover, GoP stopped

issuing LoIs to anymore coal based power plants because of seemingly excessive issuance.

The GoP removed 660MWx1 unit of HUBC out of priority projects and requires Lucky,

Siddiqsons and others to set up plants on local coal.

Historical efficiency factors vs. benchmark (NPL/NCPL)

39%

44%

45%

45%

35%

35%

46%

44%

HUBC

KAPCO

NPL

NCPL

LPL

PKGP

EPQL

KOHE

Benchmark Efficiency

Source: NEPRA & IMS Research

Fuel savings sensitivity vs. FO/Ton rates & Efficiency

FO/Ton 46.0% 46.5% 47.0%

40,000 0.33 0.66 0.97

45,000 0.37 0.74 1.10

50,000 0.41 0.82 1.22

55,000 0.46 0.90 1.34

60,000 0.50 0.98 1.46

Source: PSO & IMS Research

Major shareholdings in NPL & NCPL

51%

8%

16%

6%

18%Nishat Mills Ltd

Allied Bank

Financial institutions

Insurance companies

Others

51%

8%

8%

22%

11%Nishat Chunian Ltd.

Allied Bank Ltd.

United Bank Ltd.

Others

General Public

Source: Company Accounts & IMS Research

NPL - Share holding NCPL - Share holding

6 | P a g e

Perspective

Penal income and LDs to normalize as energy profile rises

Given Pakistan’s rising energy demand, the GoP has taken several steps to enhance the

energy profile of the country by 2018-19 particularly through the China Pakistan Economic

Corridor (CPEC). However resurgent circular debt stands as an immediate issue. Clearance

of PkR460bn arrears in 2013 was deemed a short term solution with the debt cycle re-

emerging to the tune of ~PkR280-300bn. Although approx. 800MW were added to the

national grid in 2016 through evacuation of energy from R-LNG plants, take or pay plants,

idle and captive power plants, the debt cycle has been only nominally reduced. Most IPPs

tend to face cashflow constraints during this period when receivables and payables begin

to cause working capital problems, Nishat IPPs however, benefit from a positive 2.5%

spread on their receivables in the form of penal income markup. We estimate penal

income to range between PkR160-190mn till FY18-19. We expect both to normalize in the

medium term.

Penal income to taper off as debt crisis smoothens… Penal income dropped significantly in 2013 when the government eliminated the circular

debt stock, since then interest rates have reached an all-time low. This has consequently

restricted growth in the Nishat IPPs penal income (dropped from ~PkR1.3 to PkR0.6/sh).

That said, with interest rate cycle likely to reverse in 2017, discounting for periodic cash

injections, we opine penal income to remain within the range of PkR0.5-0.7/sh over the

next few years. However with new capacities to come online by 2018-19 we expect

quantum of penal return to normalize onwards.

…while recovery of capacity payments seems a likely possibility

Inability to maintain required availability during FY12-13 owing to pending receipts from

the NTDC led to unfair liquidated damages (withholding capacity payments) which have

since been in doldrums. The IPPs showed availability during the period however, lack of

sufficient funds for procurement of fuel kept generation below benchmark. The

companies, including Nishat IPPs, decided to resolve the issue under dispute resolution

mechanism in the PPA. Existing LDs stand to the tune of PkR816mn/PkR958mn on both

NPL and NCPL’s balance sheet through deductions from capacity payments. With the

matter now pending in the London Court of Arbitration, we expect the matter to be

resolved in favor of the IPPs.

Receivables (PkRbn) in the IPP space FY16

68.05

65.30

10.00

4.12

0.96

0.82

0 20 40 60 80

KAPCO

HUBC

PKGP

LPL

NCPL

NPL


Receivables/ payables cycle smoothening over time

-1,500

500

2,500

4,500

6,500

8,500

10,500

12,500

FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18

NCPL-Rec NPL -Rec NCPL -Pay NPL -Pay


Nishat IPPs Penal income vs. interest rates

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

-

100

200

300

400

500

600

700

FY14 FY15 FY16 FY17F

NCPL NPL Discount Rate (Avg %)

Source: SBP & IMS Research

Existing LDs stand to the tune of

PkR816mn/PkR958mn on both NPL

and NCPL’s balance sheet

7 | P a g e

Perspective

Unexciting valuations warrant Neutral, D/Y still holds charm Nishat IPPs have traded at a significant discount (FY12-16 P/E: 6x) to the broader IPP

space (FY12-16 P/E: 8x), however with no major triggers in sight, valuations at existing

levels seem stretched at best. That said, dividend yield (NCPL/NPL FY17F 13%) still

remains attractive for the next few years as we cater in O&M savings to the tune of

~PkR800mn-1bn/annum for the next few years while maintenance expense remains

manageable. FY20 onwards we expect earnings to drop as both companies retire their

senior debt. That said, being relatively efficient and high in NTDC’s merit order list we

expect it to continue to procure electricity from the Nishat IPPs, which beyond 2020

seems uncertain.

Nishat IPPs derive over 50% of their value from non-core operations where the stocks

trade at a 1.08x premium to their core IPP value based on its Discounted ROE: ~PkR24/sh,

assuming a US$/PkR depreciation of 4% per annum. This leaves the remaining non-core

value at risk to (i) plant issues, (ii) perennial low oil orices and (iii) low utilization levels

owing to availability of cheaper electricty.

Nishat Chunian Power Limited (NCPL)

NCPL has shed 0.1%CY16TD similar to the larger IPP space on limited investor interest. We

see limited room for valuation expansion unless FO prices begin to climb which could result in

higher fuel savings. Risk stems from higher O&M expenses and low thermal efficiency which

could trim earnings growth ahead where any announcement of expansion could help boost

valuations. NCPL trades at an FY17F P/E of 6.6x and offers a D/Y of 12.7% vs. IPP Universe avg.

yield of 11% where our FY17F Target Price of PkR50.6/sh indicates Neutral.

Nishat Power Limited (NPL)

NPL has gained 0.6%CY16TD similar to NCPL where we feel current market price seems

stretched where our FY17F Target Price of PkR48/sh. We expect O&M savings and fuel

savings may extend earnings growth for another few years however, long term sustainability

of O&M savings seems unlikely. NPL trades at an FY17F P/E of 6.1x and offers a D/Y of 13% vs.

IPP Universe avg. yield of 11% where our FY17F Target Price of PkR48.1/sh indicates Neutral.

Regional Comparison for IPP Companies

Target Price Price to Earnings (x) D/Y (%) Target Price (PkR)

NCPL 6.59 12.70% 50.56

NPL 6.11 13.00% 48.09


Risk Free Rate 6.0%

Beta 0.727

Risk Premium 6.0%

Cost of Equity 12.4%

Power Sector- Dividend Yield (%)

0%

5%

10%

15%

20%

Jul-

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Power Sector- Price to Earnings (x)

4.0

6.0

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Jan

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-12

Au

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r-1

6

Oct

-16


BMG. Ticker Country Company Name Mkt P/E (x) Mkt DY (%) P/E (x) P/B (x) D/Y (%) EV/

Ebitda (x) ROE (%)

Prem./Disc.

(Mkt)

Prem./Disc.

(EM)

NPL PA Pakistan Nishat Power Co 9.70 5.30 6.10 1.40 13.0% 4.68 23.6% -37% -54%

NCPL PA Pakistan Nishat Chunian Power Co 9.70 5.30 6.60 2.60 12.7% 4.80 39.8% -32% -50%

HUBC PA Pakistan Hub Power Co 9.70 5.30 9.50 3.15 9.6% 6.05 33.2% -2% -28%

KAPCO PA Pakistan Kot Addu Power Co 9.70 5.30 7.11 2.10 12.7% 3.42 29.6% -27% -46%

600795 CH China GD Power Development Co Ltd 15.06 1.87 9.71 1.05 5.0% 7.02 9.8% -36% -26%

600886 CH China SDIC Power Holdings Co Ltd 15.06 1.87 8.83 1.33 4.1% 8.82 15.3% -41% -33%

600027 CH China Huadian Power Int'l Corp Ltd 15.06 1.87 10.57 1.00 3.4% 6.46 10.1% -30% -20%

1816 HK Hong Kong CGN Power Co Ltd 12.41 3.56 11.42 1.32 2.7% 12.30 11.9% -8% -13%

RPWR IN India Reliance Power Ltd 17.61 1.69 8.08 0.52 1.9% 8.12 6.6% -54% -39%

PTCIN IN India PTC India Ltd 17.61 1.69 5.31 0.58 3.8% 14.47 9.5% -70% -60%

POWR IJ Indonesia Cikarang Listrindo Tbk PT 16.83 1.69 10.66 2.18 5.2% 6.62 19.6% -37% -19%

MER PM Phillipines Manila Electric Co 17.96 1.94 17.81 4.08 5.7% 10.24 22.4% -1% 35%

EDC PM Phillipines Energy Development Corp 17.96 1.94 10.04 1.67 4.0% 7.57 17.7% -44% -24%

RATCH TB Thailand Ratchaburi Elec. Gen.Holding PCL 15.26 3.13 10.40 1.08 5.0% 12.21 10.5% -32% -21%

GLOW TB Thailand Glow Energy PCL 15.26 3.13 12.98 2.24 7.0% 8.93 17.4% -15% -1%

EGCO TB Thailand Electricity Generating PCL 15.26 3.13 10.48 1.16 3.7% 19.22 11.5% -31% -21%

8 | P a g e

Perspective Risks to our investment thesis

Risk factors include (i) drop in international furnace oil prices; (ii) higher than expected

maintenance expense; (iii) swift rise in circular debt cycle and (iv) un-resolved liquidated

damages.

Appreciation of the Yen vs. the Rupee

With Nishat IPP’s ROE denominated in dollar terms, any appreciation of the rupee would

prove detrimental to investor return. This seems unlikely in the near term, however, as

trade deficit may remain negative given Pakistan’s lower oil import is offset by falling

exports. Also, with interest rates expected to rise from Dec'16, the currency may

continue to weaken against the US dollar.

Circular debt build-up

Despite transition from high levels of RFO prices to their multi-year low (PkR45k/MT), we

expect HSFO prices to remain low. That said, structural weaknesses and inefficiencies in

the system remain: (i) weak transmission distribution recoveries; (ii) higher system losses;

and (iii) sharp increase in oil prices which could kick start circular debt accumulation.

Working capital constraints

Owing to non-payment by NTDC, Nishat IPPs are forced to underutilize capacity on fuel

supply constraints owing to limited funds available for procurement of fuel from the

supplier. Currently PkR816mn and PkR957mn for NPL and NCPL respectively are pending

from NTDC owing to non-payment of CPP. However, although the companies remain

hopeful towards the receipt of the amount, further accumulation remains a key

downside risk.

Monetary tightening will wane interest in IPPs

With interest rate cycle expected to reverse form CY17, interest in IPPs may come off.

Known for their defensive nature sustaining D/Y of +12% any rise in PIB yields puts Nishat

IPPs at risk of losing charm.

9 | P a g e

Perspective

NCPL – Dividend yield to last a while longer • We initiate coverage on NCPL with a Jun’17 Target Price of PkR51/share which

offers a Total Shareholder Return of 4.3%. While on the face of it valuations appear

cheap with NCPL trading at a FY17F P/E of 6.6x vs. the IPPs space 8x (and PSX: 9.7x),

inability to sustain recurring windfall dividends (PkR7/sh) prompt us to flag Neutral.

• Being the dividend play of choice among IPPs, NCPL offers an FY17 D/Y of 12.7% and

US$ IRR of 8.5%, superior to Eurobond yield of 6.9% & Pakistan IPPs yield 11%.

Although we expect D/Y to sustain FY17-FY20, (i) natural ageing of the plant may

dilute O&M savings while (ii) incoming big ticket projects may reduce reliance on

furnace oil based plants resulting in lower utilization.

• Lack of expansion projects limit growth in the stock where other IPPs have

embarked on coal/LNG/hydel projects. However further acceptance by GoP of LOIs

for coal expansion remains slim with possibility of surplus electricity ahead.

Dividend yield a medium term selling point… Benefitting from O&M savings, NCPL has remained a dividend play of choice and

offers an FY17F D/Y of 12.7% vs. the IPP space: 11%. We opine O&M savings

(PkR0.8mn-1bn) to last a few more years where natural decline in plant life and rise in

maintenance costs, should lead to recurring dividends of PkR5.5-6.0/sh in the long

run.

…while valuation discount appears misleading We value NCPL using DDM based model based on distributable dividends (ROE, O&M

savings, fuel savings and penal income). That said with ROE accounting 47% of total

distributable dividend and over half the value coming from non-core cashflows,

valuation in our view appears at risk. With rise in O&M expenses we expect NCPL to

observe a normalization in dividend payout with ROE contribution (FY17F: PkR~2.36)

expected to rise. Moreover, although we incorporate minor degradation of plant efficiency (benchmark: 45%) we expect fuel savings to remain elevated in the medium

term (PkR0.8-1/sh). That said, decline in furnace oil prices has trimmed the absolute

amount despite operating at +46% efficiency factor. With sustained recurring savings

an unlikely scenario we deem valuation discount (P/E: 6.6x) appears misleading with

value being derived from first few years of the dividend discount model.

With no new projects in the pipeline… Having submitted Pre-Qualification documents for setting up R-LNG fired power

plants in Faisalabad, NCPL was unable to obtain approval, with PPIB deeming the

project technically non-qualified in Jun’16. NCPL has not announced expansion into

any new project thus far. This limits the chances of a valuation re-rating for the stock

while similar IPPs have opted (PKGP/LPL) for setting up a raw site 220MW coal fired

power projects in Punjab. Moreover, with both companies set to retire their senior debt by FY21, we expect earnings to drop significantly there onwards.

…we rate Neutral: NCPL has shed 0.1%CYTD to trade at a FY17F P/E of 6.6x; poor

price performance is a function of valuation constraints owing to lack of triggers. That

said, we flag NCPL’s D/Y (~13%) to last a few more years by far one of the best among

IPPs. NCPL’s Jun’17 TP of PkR51/share offers 4.3% TSR. Neutral.

Risks: i) Sudden rise in O&M expense causing O&M savings to shrink rapidly, (ii) drop

in furnace oil prices limiting/diluting the growth in fuel savings, (iii) appreciation of

the PkR vs. the US$ casing decline in dollar denominated ROE.

Nishat Chunian Power Limited


TP (PkR/sh) 50.56

Stance Neutral

Upside -8.1%

Fwd D/Y 12.7%

Total Return 4.6%

Bloomberg / Reuters NCPL PA / NCPL.KA


52wk Hi-Low (PkR/sh) 58-49.14

3m Avg. Daily Vol ('000 shrs) 220

3m Avg. Traded Val (US$mn) 0.116

NCPL – Valuation Snapshot Key Ratios FY15 FY16 FY17F FY18F

EPS (PkR) 8.41 7.50 8.35 8.93

EPS Growth (%) 6.5% -10.8% 11.3% 7.0%

PER (x) 6.5 7.3 6.6 6.2

PBV (x) 2.7 2.8 2.6 2.4

DPS (PkR) 7.5 7.3 7.0 7.0

DY (%) 13.6% 13.2% 12.7% 12.7%

ROE (%) 41.9% 37.8% 39.8% 39.0%

EV/EBITDA (x) 4.9 5.7 4.8 4.5

NCPL vs. KSE100 Index

-20%

-10%

0%

10%

20%

30%

No

v-1

5

Jan

-16

Mar

-16

May

-16

Jul-

16

Sep

-16

No

v-1

6

KSE100 Index NCPL


About the Company

NCPL is a public limited company incorporated in

Pakistan. The company is a subsidiary of Nishat

Chunian Limited with principal activity to build, own,

operate and maintain a fuel fired power station

having gross capacity of 200MW (net capacity

195MW) at Jamber Kalan, District Kasur, Punjab. The

company has a power purchase agreement with its

sole customer, NTDCL for 25 years (COD: Jul10).

10 | P a g e

Perspective

PAT (PkRmn) vs. EPS Growth (%)

-60%

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

-

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

FY14 FY15 FY16 FY17F FY18F FY19F FY20F FY21F

NPAT (PkRmn)-Lhs Growth (% YoY)


Distributable trim as earnings normalize for O&M expense

-

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

FY

11

FY

12

FY

13

FY

14

FY

15

FY

16

FY

17

F

FY

18

F

FY

19

F

FY

20

F

FY

21

F

Dist. DPS Penal Income Fuel Savings O&M Savings ROE

Source: Company accounts, Company Accounts & IMS Research

ROE vs. currency devaluation

80

90

100

110

120

130

-

200

400

600

800

1,000

1,200


ROE (PkRmn) US$/PkR-Rhs

Source: Bloomberg & IMS Research

Share holding pattern (Pie chart)

51%

8%

8%

22%

11%Nishat Chunian Limited

Allied Bank Limited

United Bank Limited

Others

General Public

Source: PSO & IMS Research

Generation vs. FO prices

-10,000

20,000

30,000 40,000

50,000

60,000 70,000

80,000 90,000

-

20.000

40.000

60.000

80.000

100.000

120.000

140.000

160.000

Jul-

11

Oct

-11

Jan

-12

Ap

r-1

2

Jul-

12

Oct

-12

Jan

-13

Ap

r-1

3

Jul-

13

No

v-1

3

Feb

-14

May

-14

Au

g-1

4

No

v-1

4

Feb

-15

May

-15

Au

g-1

5

De

c-1

5

Ma

r-1

6

Jun

-16

Generation in GWH FO - Rhs


ST borrowings, Payables and Overdue Receivables Trend

(10,000)

(5,000)

-

5,000

10,000

15,000

FY11 FY12 FY13 FY14 FY15 FY16 FY17F FY18F FY19F

(PkRmn)

ST borrowings Payables Receivables


11 | P a g e

Perspective

NCPL Valuation Summary

Profit & Loss Account

(PkRmn) FY15 FY16F FY17 FY18 FY19

Net Revenue 22,575 13,854 13,720 13,865 14,014

Cost of sales 16,317 8,504 7,809 7,970 8,128

Gross profit 6,257 5,350 5,911 5,895 5,886

Admin & Selling Exp. 121 154 282 283 285

EBITDA 6,136 5,196 5,629 5,612 5,601

Dep & Amortization 1,132 1,156 1,157 1,166 1,172

EBIT 5,004 4,040 4,472 4,446 4,429

Financial Charges 1,884 1,219 1,531 1,273 966

Other income 29 28 65 64 64

Other charges 58 92 75 68 61

Profit before Tax (Owners) 3,090 2,756 3,066 3,279 3,559

Net Profit after Tax. 3,090 2,756 3,066 3,279 3,559

Balance Sheet

(PkRmn) FY15 FY16 FY17 FY18 FY19

Non-Current Assets 13,398 12,824 11,611 10,704 9,766

Total Current Assets 10,849 8,857 8,516 7,847 7,703

Total Assets 24,247 21,681 20,127 18,551 17,469

Share capital 3,673 3,673 3,673 3,673 3,673

Total Equity 7,383 7,293 7,696 8,404 9,391

Long Term Debt 9,172 7,507 5,043 2,710 -

Total Non-current Liabilities 9,172 7,507 5,043 2,710 -

Short term Debt 5,342 4,101 4,061 3,830 4,056

Total Current Liabilities 7,692 6,881 7,388 7,437 8,078

Total Liabilities 24,247 21,681 20,127 18,551 17,469

Cash Flow Statement

(PkRmn) FY15 FY16F FY17F FY18F FY19F

Cashflow from Operating Activities 3,719 6,103 4,799 5,079 5,185

Cashflow from investing Activities (403) (584) 56 (260) (233)

Cashflow from Financing Activities (3,610) (5,429) (4,824) (4,811) (4,678)

Net decrease/increase in cash (294) 90 31 8 273

cash and cash equivalents at beginning 2,699 2,405 2 33 41

Cash & Cash equivalents at end of year 2,405 2,495 33 41 315

Key Ratios FY15 FY16 FY17F FY18F FY19F

EPS (PkR) 8.41 7.50 8.35 8.93 9.69

EPS Growth (%) 6.5% -10.8% 11.3% 7.0% 8.5%

PER (x) 6.54 7.33 6.59 6.16 5.68

BVPS (PkR) 20.10 19.85 20.95 22.88 25.56

PBV (x) 2.74 2.77 2.63 2.40 2.15

DPS (PkR) 7.50 7.25 7.00 7.00 6.00

DY (%) 13.6% 13.2% 12.7% 12.7% 10.9%

ROE (%) 41.9% 37.8% 39.8% 39.0% 37.9%

Debt to EQT. (%) 3.28 2.97 2.62 2.21 1.86

EV/EBITDA (x) 4.88 5.65 4.84 4.49 4.03

EBITDA Margin 27.2% 37.5% 41.0% 40.5% 40.0%

Gross Margin 27.7% 38.6% 43.1% 42.5% 42.0%

NCPL - DY Trend FY12-FY17F

0%

10%

20%

30%

40%

50%

Jul-

11

Oct

-11

Jan

-12

Ap

r-1

2Ju

l-1

2O

ct-1

2Ja

n-1

3M

ay-1

3A

ug-

13

No

v-1

3Fe

b-1

4M

ay-1

4A

ug-

14

No

v-1

4M

ar-1

5Ju

n-1

5Se

p-1

5D

ec

-15

Mar

-16

Jun

-16

Oct

-16

NCPL - DY


NCPL - PER Band (x) 2017F

-

20

40

60

80

Jul-

10

Jan

-11

Jul-

11

Jan

-12

Au

g-1

2

Feb

-13

Sep

-13

Mar

-14

Sep

-14

Ap

r-1

5

Oc

t-1

5

Ap

r-1

6

No

v-1

6

(x)8.0

6.0

4.0

2.0


12 | P a g e

Perspective

NPL – Lucrative div. yield but limited growth, Neutral

• We initiate coverage on NPL with a Jun’17 Target Price of PkR48/share which offers a

Total Shareholder Return of 2%. While D/Y remains lucrative (FY17F: 13%),

sustainability remains questionable where natural ageing of the plant is likely to trim

O&M savings in the long run. NPL trades at a FY17F P/E of 6.1x vs. the IPPs space 8x

(and PSX: 9.7x), Neutral.

• NPL offers an FY17 D/Y of 13% and US$ IRR of 8%, superior to Eurobond yield of 6.9%

& Pakistan IPPs yield 11%. That said, lack of new expansion projects limit growth in

the stock where other IPPs have embarked on coal/LNG/hydel projects while

acceptance by GoP of LOIs for expansion remains slim with possibility.

• NPL has gained 0.6%CY16TD similar to the larger IPP space on limited investor

interest. We see limited room for valuation expansion unless FO prices begin to

climb which could result in higher fuel savings. Risk stems from higher O&M

expenses and low thermal efficiency which could trim earnings growth ahead where

any announcement of expansion could help boost valuations, Neutral.

Dividend yield remains lucrative vs. peers Benefitting from O&M savings, NPL remains a dividend play of choice and offers an FY17F D/Y of 13.1% vs. the IPP space: 11%. We opine O&M savings (PkR0.8mn-1bn) to last a few more years where natural decline in plant life and rise in maintenance costs, should lead to recurring dividends of PkR5.5-6/sh in the long run.

Similar to NCPL, non-core vals remain at risk NPL derives approximately 37% of its value from O&M savings which although being a relatively young plant, puts dividends at risk of increase in maintenance expenditure going forward. That said, gradual rise in furnace oil prices may increase quantum of fuel savings going forward where we anticipate the plant to operate at 0.75%-1.25% above benchmark efficiency catering in 0.2% annual degradation. With dollar denominated ROE accounting for PkR24-25/sh, likelihood of recurring windfall dividends remains a slim possibility which forms the thesis for our rating on the stock.

Risk of surplus energy may limit expansion projects NPL along with NCPL submitted Pre-Qualification documents for setting up R-LNG fired power plants in Faisalabad and was unable to obtain approval, with PPIB deeming the project technically non-qualified in Jun’16. NPL has not announced expansion into any new project since. This limits the chances of a valuation re-rating for the stock while similar IPPs have opted for setting up a raw site 220MW coal fired power projects in Punjab. Moreover, NPL and NCPL had previously signed LOIs for construction of 660MW coal power in Punjab however the projects were discontinued owing to coal transportation issues. We do not foresee any immediate plan to increase capacity as available projects (CPEC) in the pipeline are anticipated to exceed demand in the long run.

Intermarket perspective: NPL has gained0.6%CYTD to trade at a FY17F P/E of 6.1x; with range bound performance being a function of valuation constraints owing to lack of

triggers. That said, we flag NPL’s D/Y (~13%) to last a few more years by far one of the best

among IPPs. NCPL’s Jun’17 TP of PkR48/share offers 2% TSR. Neutral.

Risks: i) Sudden rise in O&M expense causing O&M savings to shrink rapidly, (ii) drop in

furnace oil prices limiting/diluting the growth in fuel savings, (iii) appreciation of the PkR vs.

the US$ casing decline in dollar denominated ROE.

Nishat Power Limited


TP (PkR/sh) 48.09

Stance Neutral

Upside -10.9%

Fwd D/Y 13.0%

Total Return 2.0%

Bloomberg / Reuters NPL PA / NISH.KA


52wk Hi-Low (PkR/sh) 58.02-48.19

3m Avg. Daily Vol ('000 shrs) 87

3m Avg. Traded Val (US$mn) 0.046

NPL– Valuation Snapshot

Key Ratios FY15 FY16 FY17F FY18F

EPS (PkR) 8.80 8.05 8.84 9.53

EPS Growth (%) 6.8% -8.5% 9.8% 7.7%

PER (x) 6.1 6.7 6.1 5.7

PBV (x) 1.6 1.6 1.4 1.4

DPS (PkR) 5.3 6.0 7.0 6.0

DY (%) 9.7% 11.1% 13.0% 11.1%

ROE (%) 26.8% 23.3% 23.6% 23.8%

EV/EBITDA (x) 5.80 5.74 4.68 4.39

NPL vs. KSE100 index

-20%

-10%

0%

10%

20%

30%

No

v-1

5

Jan

-16

Mar

-16

Ma

y-1

6

Jul-

16

Sep

-16

No

v-1

6

KSE100 Index NPL


About the company Nishat Power Limited (NPL) has been set up as a

public limited company for the purposes of

electricity generation. Commissioned under the

Power Policy 2002 the project envisages the

erection of a 200MW thermal power plant, based on

the Build Operate and Own (BOO) model. It is

located at Jambar Kalan, in Kasur District.

13 | P a g e

Perspective

Earnings (PkR) vs. EPS Growth (%)

-60%

-40%

-20%

0%

20%

40%

-

2.0

4.0

6.0

8.0

10.0

12.0


EPS (PkR)-Lhs Growth (%)


Distributable dividend to trim as O&M savings normalize

-

1.0

2.0

3.0

4.0

5.0

6.0

7.0

FY12 FY13 FY14 FY15 FY16 FY17F FY18F FY19F FY20F FY21F

Fuel savings Dist. DPS ROE Penal Income O&M savings

Source: PAMA, Company Accounts & IMS Research

ROE vs. currency devaluation (ROE Bar vs. PkR/US$ line)

80

90

100

110

120

130

-

200

400

600

800

1,000

1,200


ROE (PkRmn) US$/PkR-Rhs


Share holding pattern (Pie chart)

Nishat Mills Limited

Allied Bank

Financial institutions

Insurance companies

Mutual funds

Others


Generation vs. FO prices

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

-

20.0000

40.0000

60.0000

80.0000

100.0000

120.0000

140.0000

160.0000

Jul-

12

Oc

t-1

2

Jan

-13

Ap

r-1

3

Jul-

13

Oc

t-1

3

Jan

-14

Ma

y-1

4

Au

g-1

4

No

v-1

4

Feb

-15

Ma

y-1

5

Au

g-1

5

De

c-1

5

Mar

-16

Jun

-16

Generation in GWH FO-Rhs


ST borrowings, Payables and Overdue Receivables Trend

(10,000)

(5,000)

-

5,000

10,000

15,000

FY11 FY12 FY13 FY14 FY15 FY16 FY17F FY18F FY19F

ST borrowings Payables Receivables

Source: Bloomberg & IMS Research

14 | P a g e

Perspective

NPL - Valuation Summary

Profit & Loss Account

(PkRmn) FY15 FY16 FY17F FY18F FY19F

Net Revenue 22,313 13,896 14,504 14,798 15,113

Cost of sales 17,189 9,022 9,121 9,427 9,745

Gross profit 5,124 4,874 5,383 5,371 5,368

Admin & Selling Exp. 178 202 314 314 321

EBITDA 4,946 4,673 5,069 5,056 5,047

Dep & Amortization 1,002 987 1,019 1,023 1,027

EBIT 4,946 4,673 5,069 5,056 5,047

Financial Charges 1,430 867 1,210 957 662

Other income 34 34 43 43 42

Other charges 1 0 - - -

Profit before Tax (Owners) 3,116 2,851 3,131 3,373 3,636

Net Profit after Tax. 3,116 2,851 3,131 3,373 3,636

Balance Sheet

(PkRmn) FY15 FY16 FY17 FY18 FY19

Non-Current Assets 12,319 11,655 10,379 9,424 8,464

Total Current Assets 10,709 9,415 10,618 10,631 10,989

Total Assets 23,030 21,075 21,001 20,059 19,458

Share capital 3,541 3,541 3,541 3,541 3,541

Reserves - - - - -

Surplus on revaluaton - - - - -

Total Equity 11,613 12,251 13,258 14,152 15,664

Long Term Debt 8,376 6,858 4,633 2,490 0

Total Non current Liabilities 8,376 6,858 4,633 2,490 0

Short term Debt 932 - 606 618 631

Total Current Liabilities 3,040 1,966 3,111 3,416 3,794

Total Liabilities 23,030 21,075 21,001 20,059 19,458

Cash Flow Statement

(PkRmn) FY15 FY16 FY17F FY18F FY19F

Cashflow from Operating Activities 4,220 5,348 4,380 4,030 4,356

Cashflow from investing Activities (62) (323) 257 (68) (68)

Cashflow from Financing Activities (3,234) (2,239) (1,295) (1,831) (2,129)

Net decrease/increase in cash 925 2,786 3,342 2,132 2,159

cash and cash equivalents at beginning 3,546 3,052 674 1,892 1,545

Cash & Cash equivalents at end of year 3,052 3,712 1,892 1,545 1,580

Key Ratios FY15 FY16 FY17F FY18F FY19F

EPS (PkR) 8.80 8.05 8.84 9.53 10.27

EPS Growth (%) 6.8% -8.5% 9.8% 7.7% 7.8%

PER (x) 6.14 6.71 6.11 5.67 5.26

BVPS (PkR) 32.80 34.60 37.44 39.97 44.24

PBV (x) 1.65 1.56 1.44 1.35 1.22

DPS (PkR) 5.25 6.00 7.00 6.00 6.00

DY (%) 9.7% 11.1% 13.0% 11.1% 11.1%

ROE (%) 26.8% 23.3% 23.6% 23.8% 23.2%

Debt to Equity (%) 1.98 1.72 1.58 1.42 1.24

EV/EBITDA (x) 5.80 5.74 4.68 4.39 3.97

EBITDA Margin 22.2% 33.6% 34.9% 34.2% 33.4%

Gross Margin 23.0% 35.1% 37.1% 36.3% 35.5%

NPL - DY Trend FY12-FY17F

0%

5%

10%

15%

20%

25%

Jul-

11

Oc

t-1

1Ja

n-1

2A

pr-

12

Jul-

12

Oc

t-1

2Ja

n-1

3M

ay-1

3A

ug

-13

No

v-1

3F

eb

-14

May

-14

Au

g-1

4N

ov-

14

Mar

-15

Jun

-15

Se

p-1

5D

ec-

15

Mar

-16

Jun

-16

Oc

t-1

6

NPL - DY


NPL - PER Band (x) 2017F

-

20

40

60

80

Jul-

10

Jan

-11

Jul-

11

Jan

-12

Au

g-1

2

Fe

b-1

3

Se

p-1

3

Mar

-14

Se

p-1

4

Ap

r-1

5

Oc

t-1

5

Ap

r-1

6

No

v-1

6

(x)

8.0

6.0

4.0

2.0


15 | P a g e

Perspective

I, Yusra Beg, certify that the views expressed in the report reflect my personal views about the subject securities. I also certify that no

part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations made in this report. I

further certify that I do not have any beneficial holding of the specific securities that I have recommendations on in this report.

Ratings Guide* Total Return

Buy More than 15%

Neutral Between 0% - 15%

Sell Below 0%

*Based on 12 month horizon unless stated otherwise in the report. Total Return is sum of any Upside/Downside

(percentage difference between the Target Price and Market Price) and Dividend Yield.

Valuation Methodology: We use multiple valuation methodologies in arriving at a Target Price including, but not limited to, Discounted

Cash Flow (DCF), Dividend Discount Model (DDM) and relative multiples based valuations.

Risks: Please refer to page 8.

Disclaimer: Intermarket Securities Limited has produced this report for private circulation only. The information, opinions and estimates

herein are not direct at, or intended for distribution to or use by, any person or entity in any jurisdiction where doing so would be

contrary to law or regulation or which would subject Intermarket Securities Limited to any additional registration or licensing

requirement within such jurisdiction. The information and statistical data herein have been obtained from sources we believe to be

reliable where such information has not been independently verified and we make no representation or warranty as to its accuracy,

completeness and correctness. This report makes use of forward looking statements that are based on assumptions made and

information currently available to us and those are subject to certain risks and uncertainties that could cause the actual results to differ

materially. No part of the compensation of the author(s) of this report is related to the specific recommendations or views contained in

this report.

This report is not a solicitation or any offer to buy or sell any of the securities mentioned herein. It is meant for information purposes

only and does not take into account the particular investment objectives, financial situation or needs of individual recipients. Before

acting on any information in this report, you should consider whether it is suitable for your particular circumstances and, if appropriate,

seek professional advice. Neither Intermarket Securities Limited nor any of its affiliates or any other person associated with the company

directly or indirectly accepts any liability whatsoever for any direct or consequential loss arising from any use of this report or the

information contained herein.

Subject to any applicable law and regulations, Intermarket Securities Limited, its affiliates or group companies or individuals connected

with Intermarket Securities Limited directly or indirectly may have used the information contained herein before publication and may

have positions in, or may from time to time purchase or sell or have a material interest in any of the securities mentioned or may

currently or in future have or have had a relationship with, or may provide investment banking, capital markets and/or other services to,

the entities mentioned herein, their advisors and/or any other connected parties.

16 | P a g e

Perspective

NOTICE TO US INVESTORS

This report was prepared, approved, published and distributed by Intermarket Securities Limited (IMS) located outside of

the United States (a “non-US Group Company”). This report is distributed in the U.S. by LXM LLP USA, a U.S. registered

broker dealer, on behalf of IMS only to major U.S. institutional investors (as defined in Rule 15a-6 under the U.S.

Securities Exchange Act of 1934 (the “Exchange Act”)) pursuant to the exemption in Rule 15a-6 and any transaction

effected by a U.S. customer in the securities described in this report must be effected through LXM LLP USA.

Neither the report nor any analyst who prepared or approved the report is subject to U.S. legal requirements or the

Financial Industry Regulatory Authority, Inc. (“FINRA”) or other regulatory requirements pertaining to research reports or

research analysts. No non-US Group Company is registered as a broker-dealer under the Exchange Act or is a member of

the Financial Industry Regulatory Authority, Inc. or any other U.S. self-regulatory organization.

Analyst Certification. Each of the analysts identified in this report certifies, with respect to the companies or securities

that the individual analyses, that (1) the views expressed in this report reflect his or her personal views about all of the

subject companies and securities and (2) no part of his or her compensation was, is or will be directly or indirectly

dependent on the specific recommendations or views expressed in this report. Please bear in mind that (i) IMS is the

employer of the research analyst(s) responsible for the content of this report and (ii) research analysts preparing this

report are resident outside the United States and are not associated persons of any US regulated broker-dealer and that

therefore the analyst(s) is/are not subject to supervision by a US broker-dealer, and are not required to satisfy the

regulatory licensing requirements of FINRA or required to otherwise comply with US rules or regulations regarding,

among other things, communications with a subject company, public appearances and trading securities held by a

research analyst account.

Important US Regulatory Disclosures on Subject Companies. This material was produced by Analysis of IMS solely for

information purposes and for the use of the recipient. It is not to be reproduced under any circumstances and is not to

be copied or made available to any person other than the recipient. It is distributed in the United States of America by

LXM LLP USA and elsewhere in the world by IMS or an authorized affiliate of IMS. This document does not constitute an

offer of, or an invitation by or on behalf of IMS or its affiliates or any other company to any person, to buy or sell any

security. The information contained herein has been obtained from published information and other sources, which IMS

or its Affiliates consider to be reliable. None of IMS accepts any liability or responsibility whatsoever for the accuracy or

completeness of any such information. All estimates, expressions of opinion and other subjective judgments contained

herein are made as of the date of this document. Emerging securities markets may be subject to risks significantly higher

than more established markets. In particular, the political and economic environment, company practices and market

prices and volumes may be subject to significant variations. The ability to assess such risks may also be limited due to

significantly lower information quantity and quality. By accepting this document, you agree to be bound by all the

foregoing provisions.

LXM LLP USA assumes responsibility for the research reports content in regards to research distributed in the U.S. LXM

LLP USA or its affiliates has not managed or co-managed a public offering of securities for the subject company in the

past 12 months, has not received compensation for investment banking services from the subject company in the past 12

months, does not expect to receive and does not intend to seek compensation for investment banking services from the

subject company in the next 3 months. LXM LLP USA has never owned any class of equity securities of the subject

company. There are not any other actual, material conflicts of interest of LXM LLP USA at the time of the publication of

this research report. As of the publication of this report LXM LLP USA, does not make a market in the subject securities.

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