BMA Capital Management Ltd. 801 Unitower, I.I.Chundrigar Road, Karachi, 74000, Pakistan For further queries, please contact: bmaresearch@bmacapital.com or call UAN: 111-262-111

Pakistan | Equities

Cable and Electric Goods | Initiation

REP-005

www.jamapunji.pk

WAVES-Valuation snapshot

CY17A CY18E CY19E CY20E

Gross Rev. 4,773 9,879 11,520 12,370

% change 197% 107% 17% 7%

Revenue 3,686 8,171 9,503 10,204

% change 163% 122% 16% 9%

PAT 328 398 529 831

% change 244% 22% 33% 57%

EPS 2.01 2.44 3.24 5.09

P/E (x) 15.1 12.5 9.4 6.0

P/B (x) 0.6 0.6 0.5 0.5

ROE (%) 4% 5% 6% 8%

EV/EBITDA 21.1 6.8 5.2 3.8

Big turnaround underway; initiate with BUY (TP: PKR44)

28 November 2018

We initiate coverage on Waves Singer Pakistan Limited (WAVES) with “Buy” rating and a

DCF-based TP of PKR43.6/sh (43% total return). WAVES is the only listed pure white goods

play. WAVES is positioned to benefit from Pakistan’s growing consumerism, urbanization

and government push on low-cost housing, in our view. Recent merger is expected to

deliver distribution and production synergies, allowing WAVES to improve market share

and deliver impressive earnings growth (3-Yr CAGR: 25%) over CY18-CY21E.

Our thesis is premised on:

#1-Stage set for an impressive sales growth…: We contend WAVES is set to deliver strong sales growth via optimization of distribution channel coupled with the merger synergies. We conservatively project 3-yr sales CAGR of 11% over CY19-CY21E. Major upside may come from expansion of Waves Singer’s product portfolio, particularly in deep freezer and refrigerator segment. Deep freezers and refrigerators account for 93% of company’s top-line in 9M18 (vs 59% for Pak Elektron’s consumer segment).

#2-…as recovery in market share sets in: Management targets to revive market share of company’s two flagship brands, Waves (acquired via merger) and Singer (“Singer Pakistan” portfolio inherited in CY15). Both brands have suffered in the recent past due to lack of interest of previous sponsor and working capital issues. We expect M/S to improve from existing 4% and 25% in CY17 to 6% and 29% in core product category of refrigerator and deep freezers by CY20, respectively.

#3-Synergies and operational efficiencies to compliment earnings: Distribution synergies for both Waves & Singer brands remain critical to growth. WAVES primarily relied on dealer network (2,000 dealers) for product distribution while Singer historically sold via company-controlled outlets (140 in CY18) with hire-purchase constituting a major portion. Both brands stand to benefit via cross adaptation of distribution model. Production synergies are likely via centralization of manufacturing of all products under one roof. To this end, management has already covered significant ground and the process is likely to be completed by end of CY18.

#4-Favorable industry dynamics: Penetration level of appliances is one of the lowest in Pakistan (42%), both regionally (55%) and globally (+75%). Improving electricity availability coupled with rise in urbanization and changing lifestyle are major drivers of industry growth. Demand for white goods has increased at a 5-yr CAGR of 9%. We expect sales momentum to sustain ahead.

#5-Valuations remains undemanding: WAVES enjoys strong medium-term sales/earnings

momentum and has exhibited the capacity to sustain its superior growth and higher margins

vs peers. 9M18 earnings lend support to our thesis whereby the company was able to

sustain margin at current levels of 29% despite significant cost pressure. WAVES trades at

P/E & P/S of 9.3/0.5x CY19E, which is at 16/3% discount to its close listed peer, PAEL. Given

its size and unique distribution model, we believe WAVES stands to enjoy stronger growth

prospect and hence warrant valuation premium.

How WAVES is different from PAEL: Four areas where WAVES is different from PAEL are; (i) pure white-good play, (ii) unique distribution model with hire-purchase, (iii) low-leverage on balance sheet (23% in 9MCY18 vs 40% for PAEL), and (iv) undemanding valuations.

Key risks to our investment thesis: (i) Rapid bouts of devaluation hinder the ability of the

company to increase product prices, (ii) economic slowdown and diminished income growth

can alter the investment thesis, (iii) rise in the intensity of industry competition could lead to

margin attrition, and (iv) volatility in raw material prices and/or increase in import duty.

Source: BMA Research

Asad Ali asad.ali@bmacapital.com +9221-111-262-111 Ext: 2062

Target Price: PKR 43.56

Current Price: PKR 30.40

Price (PKR/Share) 30.40

Reuters Bloomberg Website

WAVE.KA WAVES PA www.singer.com.pk

52-weeks High/Low (PKR) 48.96 /21.91

Market Cap (PKR bn) 5.0

Market Cap (USD mn) 37.3

Avg Daily Turnover (PKR mn) 14.6

Avg Daily Turnover (USD mn) 0.1

Shares Outstanding (mn) 163

KSE-100 Index Weightage (%) 0.6

Free Float 40%

Waves Singer Pakistan Limited

2

28 November 2018

Pakistan | Equities

Cable and Electric Goods | Initiation

Waves Singer Pakistan Limited; Big turnaround underway; initiate with Buy

We initiate coverage on Waves Singer Pakistan Limited (WAVES), Pakistan’s leading name

in cooling appliances with “Buy” stance and a DCF-based TP of PKR43.6/sh (43% upside).

We believe WAVES can maintain solid top-line growth aided by recent acquisition of Cool

Industries that brings an established player on board with robust footprint in the major

appliances market. We also believe WAVES’ rejuvenated balance sheet can support its

growth strategy and without the need for any asset/capital injection. The synergy is

expected to churn positive gross margin trajectory, given its convergence of hire

purchase business and brand equity, while the presence of established outlet footprint

should support sales growth. WAVES trades at FY19E attractive forward PE and

EV/EBITDA of 9.3x and 5.2x, respectively.

What underpins our liking?

#1-Stage set for an impressive sales growth: We contend WAVES is set to deliver gross

sales level of over PKR9.8bn in CY18, up 2x YoY, as optimization of distribution channel

coupled with the merger synergies unfolds. We conservatively project 3-yr CAGR sales of

11% over CY19-CY21E. Major upside may come from expansion of WAVES’ product

portfolio, particularly in deep freezer and refrigerator segment. Deep freezers and

refrigerators account for ~90% of company’s top-line in 9M18 (vs 59% for Pak Elektron’s

consumer segment).

Developing the product suite: Management targets to revive market share of company’s

two flagship brands, WAVES (acquired via merger) and Singer (“Singer Pakistan portfolio

inherited in CY15). Both brands have suffered in the recent past due to lack of interest of

previous sponsors and working capital issues. We expect M/S to improve from existing

4% and 25% in CY17 to 6% and 29% in core product category of freezers and deep

freezers by CY20, respectively, via revival of M/S supported by distribution network

optimization.

WAVES embarked on reviving its sales from CY15 through introduction of aesthetic

upgrades and better product technology compared to its historical lineup. Since the

competitors were already ahead of the curve on new product design and technology, the

then Singer Pakistan was required to catch up and it did deliver. CY16 sales rose 2.5x YoY.

Volumetric sales elevated to 29k units for refrigerators alone in CY16 from 19k units in

CY15.

Sales Mix CY19E

Valuation Snapshot

CY19E P/E (x)

EV/EBITDA (x)

P/B (x)

ROE (%)

WAVES 9.4 5.2 0.5 5.9

Source: BMA Research

Others, 2% Refrigerators,

50%

Deep Freezer, 43%

ACs, 5%

Source: BMA Research

3

28 November 2018

Pakistan | Equities

Cable and Electric Goods | Initiation

Post amalgamation of Cool Industries Ltd (brand name of Waves) in CY16 with Singer

Pakistan Ltd, the management targets similar turnaround in product range of WAVES. To

this end, recovering the past market share & sales appears first realistic target, in our

view. Our confidence on the company recovering higher M/S for both Singer and WAVES

brands stems from the market dynamics that have historically exhibited favourable

trends for small market players that adopt entirely different strategy (in-terms of product

design, distribution, durability, after sales service), compared to leading appliance

manufacturers. It is pertinent to note that while larger players grasp for market share

with elevated discounts, small players have refrained from following the same strategy.

Big changes in product aesthetics brought about

Source: BMA Research

#2 Synergies and operational efficiencies to compliment earnings: Distribution synergies

for both WAVES & Singer brands remain major area. WAVES primarily relied on dealer

network for product distribution while Singer historically sold via company-controlled

outlets (140 in CY18) with hire-purchase constituting a major portion. Both brands stand

to benefit via cross adaptation of distribution model.

Distribution channel enhanced: The distribution channel has been enhanced from company operated outlets to now include dealers that grant access to over 2,000 markets spread across Pakistan. To this end, the network has already expanded engaging 1,400 dealers by way of organic and inorganic growth with the target of over 2,000 dealers. This shall allow better outreach to consumers while ensuring volumetric targets are met. To recall, WAVES sold 98k deep freezers and 27k refrigerators in CY17.

Retail outlet- A big advance: 20% of WAVES sales are through company-controlled retail outlets. The retail network was inherited from former Singer Pakistan, which hosted a dedicated retail outlet network of 136 outlets. The new management expanded the network by 4 outlets in CY17 with management targeting to add another 10 outlets this year. Initial target has been set to take outlets to 180 that shall enhance the hire purchase outreach to pocket the dealer margin and earn markup.

Closer look at the business model reveals stark resemblance to the model of a microfinance bank that attracts customers looking for installment based purchases and is prepared to pay markup ranging up to 24% built into the prices. The double benefit of margin parked on their books and markup income on retail outlet sales presents a lucrative ROE ranging from 26% to 32%. The bad loans on the balance sheet are largely contained and ranges between 2-3% of total sales. The tenure of leasing is kept for maximum twelve months. The incentive structure for sales force i.e. largely commission based with payment of commission to sales force tied to repayment of installment that helps the company in keeping bad loans in check.

4

28 November 2018

Pakistan | Equities

Cable and Electric Goods | Initiation

Sales vs. Margins

As second step, the management has extended the hire-purchase model to third party products as well, besides allowing normal distribution of third-party products. The conversion of retail outlet from exclusive WAVES product to other major brands will likely deliver better operation efficiency of the retail network besides attracting a constant stream of customers seeking variety via hire purchase.

Production synergies: Production synergies are likely via centralization of manufacturing of all products under one roof. To this end, management has already covered significant ground in terms of shifting the plant/machinery and selling of existing factory land (converted into rental lease with the new owner). Overall the process is likely to be completed by end of CY18 with termination of lease/rental agreement on previous production facility.

Capacity and Production

#3-Attractive industry dynamics: We believe Pakistan’s home appliances sector is poised

for growth amid host of factors that are now shaping up to deliver accented demand

trajectory. In the past five years, growth in appliance sales has been impressive. Sales of

two major product segments, deep freezers and refrigerators, have grown at a CAGR of

8%/9% over 2012-17. We expect sales momentum to sustain as major factors supporting

sales remain favorable. We see appliances sector growing at a 3-Yr CAGR of 7%

underpinned by (i) increasing urbanization levels, (ii) sustained rise in income over the

past three years, (iii) improved electrification, (iv) thriving housing market, and (v) change

in lifestyle leading to increased adoption of appliances. The thriving housing market

remains the key indicator of appliances sales since an average household caters to

0%

10%

20%

30%

40%

0

2,000

4,000

6,000

8,000

10,000

12,000

20

13

20

14

20

15

20

16

20

17

20

18

E

20

19

E

20

20

E

Sales Gross Margins

Source: BMA Research

60%

109%

27%

3%

15% 22%

0%

20%

40%

60%

80%

100%

120%

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

Ref

riga

tors

Dee

p F

reez

er

Gas

ap

plia

nce

s

Mic

ro W

ave

Ove

n

Air

con

dit

ion

ers

Wat

er D

isp

ense

r

Units (Single Shift) Capacity Production Utilization

Source: BMA Research

5

28 November 2018

Pakistan | Equities

Cable and Electric Goods | Initiation

lighting, heating, communication and cooling needs in that order according to a study by

World Bank.

Furthermore, adaptability of appliances has increased with the advent of new

technologies that bring in higher efficiencies that makes affordability and maintenance of

appliances light on the pocket leading to higher consumption of discretionary goods. As

more urban and peri-urban centers spring up, demand for housing is likely to lead to

demand for appliances, in our view. Along with urbanization, increased incomes and

availability of electricity remain the main stimulant for demand outlook of appliances. It

is pertinent to note here that countries with high consumption to GDP feature a

squeezed expenditure on appliances as spend on appliances could reach as high as 20%

of incomes. However, as income levels rise, spending on appliances increases per

household from higher incomes available for discretionary expenditure.

Consumption to GDP vs Appliances spend/household

Source: IMF, WB, BMA Research

#4-Valuations remains undemanding: We believe WAVES is an ideally positioned

consumer company in the fast-growing consumer space. The company has strong

medium-term earnings momentum and can sustain its superior growth and higher

margins vs peers. 9M18 earnings lend support to our thesis whereby the company was

able to sustain margins at current levels of 29% despite cost pressures from devaluation

and increased duties. WAVES trades at P/E & P/S of 9.3/0.5x CY19, which is 16/3%

discount to its closest listed peer, PAEL.

Peer Valuation Snapshot

Key risks to our investment thesis: (i) Rapid bouts of devaluations hinder the ability of

the company to increase product prices, (ii) economic slowdown and diminished income

growth can alter the investment thesis, (iii) rise in intensity of industry competition could

lead to margin attrition, (iv) volatility in raw material prices and/or increase in import

duty on the same.

China*

Turkey

South Africa

India

Nigeria

Morocco

Pakistan

Indonesia

Egypt

Nepal

Bangladesh

Kenya

50

55

60

65

70

75

80

85

90

95

100

- 500 1,000 1,500 2,000 2,500 3,000

C/FY19E Segment PE DY EV/EBIDTA ROE

Pak Elektron Power and appliances

11.0x 4% 8.3x 7%

Waves Singer Appliances 9.3x 0% 5.2x 6%

Bajaj Electricals Major and small

appliances 45.3x 1% 22.0x 9.3%

Whirpool of India Major and small

appliances 55.0x 0% 32.3x 21.4%

Source: Bloomberg, BMA Research

Potential rise in incomes per capita to increase appliances spend

Appliances spend boomed with increased incomes for discretionary spending

*scaled for representation

6

28 November 2018

Pakistan | Equities

Cable and Electric Goods | Initiation

Understanding the appliances market

The appliances market is made up of small and major appliances where each has its own

dynamics at play. Small appliances refer to portable or semi-portable machines generally

used as aids that can range from coffee makers to toasters, mixers, blenders, etc. In

Pakistan, the small appliances segment is highly competitive with presence of local

manufacturers and imported competition originating from China, Turkey, etc. and

purchases usually make up a small portion of household expenses.

Major appliances (referred to as white goods) segment refer to machines that aid in

routine housekeeping, are not portable, and usually form a large part of household

expenditure when incurred. In Pakistan, the local manufacturers dominate the market

with some penetration by imported competition stemming from China and Korea that

offer technologically advanced solutions and are often pricier.

Refrigerators

The refrigerator market is reported at sizeable 1.6mn units annually that has grown at a

5-yr CAGR of 9%. The market continues to grow at 7-9% annually that is set to enhance

with the advent of new technologies and innovation in the offerings. A holistic picture of

the market represents that the market is dominated by domestic manufacturers largely

catering to the low price segment. Current domestic manufacturers are: (i) Pak Elektron

Ltd., (ii) Waves Singer Pakistan Ltd, (iii) Orient Pvt. Ltd, (iv) Dawlance Pvt. Ltd, (v) R&I

Electric Appliances Pvt. Ltd., and (vi) Haier & Ruba Pvt. Ltd.

Competition is high as products are sold within a narrow price range that garners high

influence on purchase decision, often leading to purchases based on previous association

with brands on like products. In order to understand the electronics purchase trends, the

average consumer requires a frost refrigerator preferably from a brand already in use

previously, in a renewed design. Frost refrigerators are preferred due to frequent

electricity outages, making up to 80% of all refrigerator sales. The remaining 20% opts for

the expensive non-frost refrigerator priced at par with imported counterparts. Glass-door

is becoming popular due to trendy and renewed designs where offerings also introduce

glass shelves.

Increased electricity availability resonates with increased refrigerator purchases

Source: BMA Research

In terms of market dominance, Dawlance leads the refrigerator market while PEL, Orient,

Haier and WAVES follow the leader. The leader, Dawlance, further commands a pricing

premium over other appliance manufacturers over same product offering that is largely

pegged to prime quality. Dawlance has recently partnered with Arçelik that has led to the

Higher incomes, better availability of

electricity and changing lifestyle to

dictate increased appliances penetration

0.5

0.7

0.9

1.1

1.3

1.5

1.7

1.9

34,000

36,000

38,000

40,000

42,000

44,000

46,000

FY1

1

FY1

2

FY1

3

FY1

4

FY1

5

FY1

6

mn units '000 TOE

Paksitan Electricity Consumption Refrigerator sales

7

28 November 2018

Pakistan | Equities

Cable and Electric Goods | Initiation

introduction of inverter series priced around PKR2-3k higher than the base model where

the response is mixed.

Refrigerator Market Share

Source: BMA Research

Deep Freezers

The deep freezer market is concentrated between local manufacturers marked by slight

penetration by Chinese player Changhong Ruba. However, notable presence of varied

imported brands exist that offer sophisticated products at a price delta that reaches up to

PKR4,000 over the local offerings. The total market size of deep freezers has reached

350k units by end of FY18.

The market is led by WAVES, which is the most popular brand followed, by PEL, Orient,

Dawlance, Haier, and Kenwood. The chest door freezers are common purchase for

freezing requirements bought even by customers who pre-own refrigeration units with

some deep refrigeration. The deep freezer market currently hovers at 350k units per

annum growing at a 5-year CAGR of 8%.

WAVES commands a handsome market share of 28% followed by Varioline, Haier, and

PEL. This is explained by reasonable price point at entry level models for WAVES followed

by Haier and Dawlance that charge a premium and even catering to higher income.

Deep Freezer Market Share

Air Conditioners

Air conditioning requirements have grown with the temperature patterns of the country

paving way for easier adaptability. The air conditioning market has grown to 1 million

units per annum with intensified competition between domestic manufacturers and

imported units. Since air conditioners have deletion levels below 10%, the price

Dawlance, 32%

Haier, 16% Orient, 18%

Other, 3%

PAEL, 30%

Singer, 2% Waves, 2%

Waves 28%

Varioline 26%

PAEL 11%

Haier 21%

Dawlance 10%

Others 4%

The cooling products market features

competitive landscape with major

concentration of the market among a

few.

Source: BMA Research

8

28 November 2018

Pakistan | Equities

Cable and Electric Goods | Initiation

competitiveness emanates from Chinese equivalents ranging from the low-end price tier

up to the high-end tiers.

The market is led by Gree, marketed by Digital World, with a sizeable 21% market share.

Gree is a Chinese brand that is priced in line with the high-end air conditioners and

popular for reliability compared to domestic and imported alternates. Haier and Orient

garner a 19% market share each splitting 60% of the market between three players.

Dawlance retains a market share of 13%, a notch up from Kenwood that amasses a share

of 12%. WAVES air conditioners make up less than 1% of the total industry and remain a

market with potential to become a rising growth segment for the company.

Air Conditioners Market Share

Gree (Digital World), 21%

Haier, 19%

Orient, 19%

Dawlance, 13%

Kenwood, 12%

PAEL, 10%

Changong Ruba, 4%

Others, 2%

Source: BMA Research

9

28 November 2018

Pakistan | Equities

Cable and Electric Goods | Initiation

Consumer borrowing (durables) steadfast despite rate hikes Appliance penetration rate lowest in Pakistan

Source: SBP, BMA Research Source: BMA Research

42%

55%

80%

80%

98%

98%

98%

0% 20% 40% 60% 80% 100%

Pak

SEA & China

MENA

Latin America

Europe (West)

North America

Aus & Japan

987 1,052

1,210 1,301

1,463 1,479

1,622

1,434

-

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2011 2012 2013 2014 2015 2016 2017 2018

'000

230 237

297 278

308 303

350

400

-

50

100

150

200

250

300

350

400

450

2011 2012 2013 2014 2015 2016 2017 2018

'000

5%

7%

9%

11%

13%

15%

17%

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

Jun

-06

Mar

-07

Dec

-07

Sep

-08

Jun

-09

Mar

-10

Dec

-10

Sep

-11

Jun

-12

Mar

-13

Dec

-13

Sep

-14

Jun

-15

Mar

-16

Dec

-16

Sep

-17

Jun

-18

Consumers durable DR

5-yr CAGR of 8% 5-yr CAGR of 9%

0%

2%

4%

6%

8%

10%

12%

14%

Nig

eria

Pak

ista

n

Egyp

t

Nep

al

Ken

ya

Turk

ey

Sou

th A

fric

a

Ind

ia

Mo

rocc

o

Ind

on

esia

Ban

glad

esh

Ch

ina

10yr Historical Growth 7yr Forward Growth

0%

20%

40%

60%

80%

100%

Pak

ista

n

Ind

ia

Ch

ina

Sri L

anka

Ban

glad

esh

Vie

tnam

Turk

ey

Consumption to GDP (2017)

Deep freezers demand remains upbeat Refrigerator production to make a comeback after a dip

Source: BMA Research Source: PBS, BMA Research

Consumption to GDP highest in the region Incomes/capita to grow strongly in underpenetrated markets

Source: BMA Research Source: IMF, BMA Research

10

28 November 2018

Pakistan | Equities

Cable and Electric Goods | Initiation

Company Profile

Waves Singer Pakistan Limited (formerly Singer Pakistan Limited) is the resulting entity of

a merger of Singer Pakistan Ltd. with Cool Industries Pvt. Ltd. after its acquisition in CY17.

Singer Pakistan is a renowned name in appliances domestically and internationally that is

engaged in the production of variety of consumer appliances. Cool Industries (Pvt)

Limited, the owner of WAVES brand, is based in Lahore and a pioneer in appliances

manufacturing. The company was acquired by the sponsors of Singer Pakistan Limited.

Unheard Singer story

In order to understand the potential at play, it is imperative to look at the history of the

company. Up to CY15, Singer Pakistan Limited was held by Singer BV Netherlands and

operated via owned outlets with business model focused towards small appliances and

retail through hire purchase. The strategy started to fall out as lack of product innovation

and concentration in small appliances drove the company out of the fast growing white

goods market. Moreover, the recoveries on hire purchase were left unchecked leaving

the company with negligible recoveries.

The management sought no remedial efforts and ultimately decided to exit the company.

After the exit of Singer BV Netherlands in CY15, the new management introduced cost

efficiencies, clampdown on past recoveries, mechanism to counteract nonperformance

of hire purchases as well as redesigning products to match market needs. All in all, the

strategy paid off and Singer Pakistan churned positive bottom-line in CY16 and CY17.

Furthermore, Singer Pakistan found itself in a position to acquire ailing Cool Industries,

the once leader in cooling appliances category. Confluence of the two appliance

manufacturers is expected to create ripples in the appliances space as both restore to

former glory where the strategy in place dictates the profitability outlook to remain

upbeat with higher market share.

-40%

-25%

-10%

5%

20%

35%

50%

No

v-1

7

Dec

-17

Jan

-18

Feb

-18

Mar

-18

Ap

r-1

8

May

-18

Jun

-18

Jul-

18

Au

g-1

8

Sep

-18

Oct

-18

No

v-1

8

WAVES KSE100 Index

Shareholding Pattern Waves vs. KSE100 Relative Chart

Source: BMA Research Source: BMA Research

Directors & Spouses 27.0%

Associated Companies

18.7%

FIs, 1.7%

Public Cos. 7.1%

Mutual Funds 4.8%

Individuals - 40.6%

Others 0.1%

11

28 November 2018

Pakistan | Equities

Cable and Electric Goods | Initiation

WAVES Financial Highlights (PKRmn)

Income Statement CY16A CY17A CY18F CY19F CY20F Cashflow Statement CY16A CY17A CY18F CY19F CY20F

Net Sales 1,400 3,686 8,171 9,503 10,204 PAT 95 328 398 529 831

Cost of Sales (910) (2,588) (5,825) (6,817) (6,982) Non Cash charges 68 116 171 184 194

Gross Profit 489 1,097 2,346 2,686 3,222 Change in NWC (69) (2,631) (323) 107 215

S&D Exp (436) (713) (1,145) (1,217) (1,261) Oper. Cashflows 94 (2,188) 247 821 1,240

Admin Exp (68) (192) (354) (377) (400) CAPEX (416) (3,139) (2) (258) (258)

Operating Profit 155 568 764 999 1,465 Investing Cashflows (689) (5,802) 2 (255) (255)

Earned Charges 111 79 165 238 242 Debt Payment 475 67 (81) (162) (162)

Finance Cost (142) (296) (427) (507) (568) Financing Cashflows 668 8,132 (81) (162) (162)

PBT 124 351 517 745 1,154 Opening Cash 76 150 292 459 863

Tax Expense (29) (23) (119) (216) (323) Net Change in Cash 74 142 168 404 823

PAT 95 328 398 529 831 Closing Cash 150 292 459 863 1,685

Balance Sheet CY16A CY17A CY18F CY19F CY20F Key Ratios CY16A CY17A CY18F CY19F CY20F

PPE 1,658 4,681 4,511 4,585 4,650 EPS (PKR) 0.58 2.01 2.44 3.24 5.09

LT Assets 358 3,021 3,017 3,014 3,010 DPS (PKR) 0.00 0.00 0.00 0.00 0.00

Current Assets 1,918 5,516 6,012 6,958 8,183 BVPS (PKR) 9 50 53 56 61

Total Assets 3,933 13,218 13,540 14,557 15,844 EBITDA 165 387 1,183 1,515 1,997

Equity 309 8,064 8,462 8,991 9,822 Gross Margins 35% 30% 29% 28% 32%

ST Borrowing 1,177 2,749 2,749 2,749 2,749 Net Profit Margin 7% 9% 5% 6% 8%

Current Portion 27 102 200 595 1,186 P/E ratio 25.3 10.6 12.5 9.3 6.0

Current Liabilities 1,719 4,117 4,121 4,771 5,390 P/B Ratio 1.5 0.6 0.6 0.5 0.5

LT Loans 528 568 487 325 162 EV/EBITDA 22.52 21.05 6.77 5.17 3.73

LT Liabilities 810 920 839 676 514 ROE 31% 4% 5% 6% 8%

Equity & Liabilities 3,933 13,218 13,540 14,557 15,844 ROA 2% 2% 3% 4% 5%

Source: Company Accounts, BMA Research

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28 November 2018

Pakistan | Equities

Cable and Electric Goods | Initiation

BMA Capital Management Limited | Pakistan

Analyst Certification

All research is based under the regulatory oversight of BMA Capital Management Limited, a Corporate Member of the Karachi Stock Exchange (KSE) and regulated by the Securities and Exchange Commission of Pakistan (SECP).

Each Analyst of BMA Capital Management Limited whose name appears as the Author of this Investment Research hereby certifies that the recommendation and opinions expressed in the Investment Research accurately reflect the Investment Analyst’s personal, independent and objective views about any and all of the Designated Investments or Relevant Issuers discussed herein that are within such Investment Analyst’s coverage Universe.

Disclaimer

BMA Capital Management Limited and / or any of its affiliates, which operate outside Pakistan, do and seek to do business with the company (s)

covered in this research document. BMA Capital Management Limited also expects to receive or intends to seek compensation for Corporate Finance

services from the company covered herein in the next 6 months, excluding acting as a corporate broker, on a retained basis, for the relevant issuer.

As such, investors should be aware that BMA Capital Management Limited may have a conflict of interest that could affect the objectivity of this

research report. Investors should consider this research report as only a single factor in making their investment decision.

This research report is for information purposes only and does not constitute nor is it intended as an offer or solicitation for the purchase or sale of

securities or other financial instruments. Neither the information contained in this research report nor any future information made available with

the subject matter contained herein will form the basis of any contract Information and opinions contained herein have been complied or arrived at

by BMA Capital Management Limited from publicly available information and sources that BMA Capital Management Limited believed to be reliable.

Whilst every care has been taken in preparing this research report, no research analyst, director, officer, employee, agent or adviser of any member

of BMA Capital Management Limited gives or makes any representation, warranty or undertaking, whether express or implied, and accepts no

responsibility or liability as to the reliability, accuracy or completeness of the information set out in this research report. Any responsibility or liability

for any information contained herein is expressly disclaimed. All information contained herein is subject to change at any time without notice. No

member of BMA Capital Management Limited has an obligation to update, modify or amend this research report or to otherwise notify a reader

thereof in the event that any matter stated herein, or any opinion, projection, forecast or estimate set forth herein, changes or subsequently

becomes inaccurate, or if research on the subject company is withdrawn. Furthermore, past performance is not indicative of future results.

The investments and strategies discussed herein may not be suitable for all investors or any particular class of investor. Investors should make their

own investment decisions using their own independent advisors as they believe necessary and based upon their specific financial situations and

investment objectives when investing. Investors should consult their independent advisors if they have any doubts as to the applicability to their

business or investment objectives of the information and the strategies discussed herein. This research report is being furnished to certain persons as

permitted by applicable law, and accordingly may not be reproduced or circulated to any other person without the prior written consent of a

member of BMA Capital Management Limited. This research report may not be relied upon by any retail customers or person to whom this research

report may not be provided by law. Unauthorized use or disclosure of this research report is strictly prohibited. Members of BMA Capital

Management and/or their respective principals, directors, officers and employees may own, have positions or effect transactions in the securities or

financial instruments referred herein or in the investments of any issuers discussed herein, may engage in securities transactions in a manner

inconsistent with the research contained in this research report and with respect to securities or financial instruments covered by this research

report, may sell to or buy from customers on a principal basis and may serve or act as director, placement agent, advisor or lender, or make a market

in, or may have been a manager or a co-manager of the most recent public offering in respect of any investments or issuers of such securities or

financial instruments referenced in this research report or may perform any other investment banking or other services for, or solicit investment

banking or other business from any company mentioned in this research report. Members of BMA Capital Management Limited may have acted upon

or used the information or conclusions contained in this research report, or the research or analysis on which they are based, before publication of

this research report. Investing in Pakistan involves a high degree of risk and many persons, physical and legal, may be restricted from dealing in the

securities market of Pakistan. Investors should perform their own due diligence before investing. No part of the compensation of the authors of this

research report was, is or will be directly or indirectly related to the specific recommendations or views contained in the research report. By

accepting this research report, you agree to be bound by the foregoing limitations.

Rating

Investors should carefully read the definitions of all rating used within every research reports. In addition, research reports carry an analyst’s independent view and investors should ensure careful reading of the entire research reports and not infer its contents from the rating ascribed by the analyst. Ratings should not be used or relied upon as investment advice. An investor’s decision to buy, hold or sell a stock should depend on said individual’s circumstances and other considerations. BMA Capital Limited uses a three tier rating system: i) Buy, ii) Neutral and iii) Underperform (new rating system effective Jan 1’18) with our rating being based on total stock returns versus BMA’s index target return for the year. A table presenting BMA’s rating definitions is given below:

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28 November 2018

Pakistan | Equities

Cable and Electric Goods | Initiation

Old rating system

Valuation Methodology

To arrive at our period end target prices, BMA Capital uses different valuation methodologies including • Discounted cash flow (DCF, DDM) • Relative Valuation (P/E, P/B, P/S etc.) • Equity & Asset return based methodologies (EVA, Residual Income etc.)

Buy >20% expected total return

Neutral 0%-20% expected total return

Underperform <0% expected total return

*Total stock return = capital gain + dividend yield

Overweight Total stock return > expected market return + 2%

Marketweight Expected market return ± 2%

Underweight Total stock return < expected market return - 2%