Model Citizen Essay

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Morning Shout Pakistan Daily Notes Kapco: FY11E EPS/DPS raised as 1H beats estimates Kapco announced above‐expected 2QFY11 results; up 31% YoY to PRs2.06/sh led by lower operating costs and a rising net interest income spread. This has led 1HFY11 earnings up 42% YoY to PRs4.37/sh. With maintenance cost remaining well‐lower than FY10 levels and continued positive net interest income, we increase FY11E EPS estimates by 10% to PRs7.93/sh (+37% YoY) and tweak up dividends by 3% to PRs6.50/sh. Note we target a relatively conservative 82% payout vs. 86% payout in FY10 and Kapco’s historical 5‐year payout of 97%. We await more clarity on government plans to retire intercorporate debt before we turn more bullish on payout. We maintain our PO of PRs52/sh and our Buy rating on Kapco, where we believe the market is not yet pricing in strong FY11E earnings growth and 14.8% D/Y. 1HFY11 benefits to continue in 2H – upgrade EPS/DPS estimates Kapco reported above‐expected 1HFY11 earnings and dividend on Friday, up 42% and 33% YoY respectively to PRs4.37/sh and PRs3.00/sh. With benefits of (1) lower maintenance cost; (2) better plant efficiency on account of gas supply; and (3) net positive interest earned on overdue payments unlikely to reverse in the near term, we increase FY11E earnings by 10% and dividend by 3%. We maintain our PO and Buy rating on Kapco, where we believe the market is not yet pricing in strong 37% FY11E earnings growth and 14.8% D/Y. 21 February 2011 Farrah Marwat Farrah.marwat@kasb.com KASB Securities Limited +92 21 111 222 000 Current Price PRs43.98 Price Objective PRs52.00 KATS KAPCO Reuters KAPCO.KA Bloomberg KAPCO PA Shares Outstanding 880.25mn Market Cap PRs38,714mn (USD453.53mn) 3m

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