Pak. Inter. Container Terminal investment appraisal in PIBT

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					Standard Capital Securities (Pvt) Ltd




                                                                    KSE100 Closing 10,905.3 (-37 points)                                           Nov 12, 2010
                                                                                                                                                Pakistan Research
 Pak. Inter. Container Terminal investment appraisal in PIBT                                                                                    Transport| update

 PICT marching towards acquiring another milestone in cargo handling
 business, strengthening its pioneer status…                                                                                              Analyst: Faisal Masood
                                                                                                                                         research@scstrade.com
 We wish to inform our valued clients that Implementation Agreement (IA) for the
                                                                                                                                       Contact: +92-21-37010908
 development of Pakistan’s first mechanized and fully environmental friendly Coal,
 Cement and Clinker Terminal at Port Qasim on a 30 year Build, Operate and Transfer
 (BOT) basis has been signed on November 06, 2010 between Port Qasim Authority
 (PQA) and Pakistan International Bulk Terminal (Private) Limited (PIBT), a wholly                                                    PICT price update
 owned subsidiary of Pakistan International Container Terminal Limited (PICT),
                                                                                                                                      Market Cap Rs. 9,266 mn
 incorporated on March 26, 2010.
                                                                                                                                      Market Cap USD 107.75mn
 PICT’s investment appraisal in PIBT
                                                                                                                                      FY11E P/E                 8.4x
 PICT has been selected by PQA for this project amongst six foreign and national
 bidders. As per requirement of PQA, a separate Terminal Operating Company named                                                      P/ BV                    2.52x
 PIBT has been incorporated to carry on the project which is wholly owned subsidiary
 of PICT.                                                                                                                             FY10 EPS Rs/sh           7.14
 PICT intends to invest in PIBT up to Rs. 4,000,000,000 (Rupees Four Billion only) for                                                52 Week hi            120.00
 subscribing, at par, fully paid-up 400,000,000 ordinary shares of Rs. 10/- each of
 PIBT from time to time. Currently, PIBT’s equity is negative which stands at                                                         52 Week Low             60.05
 approximately 10.2 mn owing to the fact of recent incorporation which is not a
 serious issue at all, since it is a newly stalled company.                                                                           PICT closing            72.86

 Nature of PIBT’s business                                                                                                            Closing                  -1.06

 PIBT’s main business activities will include developing, managing and operating coal,
 clinker / cement ports and terminals worldwide, to handle and deal with all kinds and
 description of bulk cargo, transshipment bonded warehousing, anchorage services to
 non containerized cargo and general cargo.
                                                                                                                                      P/E Range
 PIBT shall pdevelop Pakistan’s first fully mechanized dedicated dirty bulk cargo
 handling facility which will be constructed with a total estimated cost of                                                           5-year                   13.6x
 approximately USD 173 million over the period of 30 years. The project is expected
                                                                                                                                      3-year                   11.4x
 to come into operations in 3 years with an initial project cost of USD 140 million.
                                                                                                                                      3-year avg. g. margin 43%
 PIBT would be capable of handling 8 mn tons per annum of Coal, Cement and
 Clinker which is enhance able up to 12 million tons per annum. The terminal is                                                       3-year avg. n.margin 18%
 planned to have a dedicated storage and handling facilities for each type of cargo.

 Valuations to remain sketchy

 We shall revisit valuations after going through PIBT dynamics and come back to you
 shortly. PICT yields FY11E PE of 8.5 - 9x (our last model call on PICT was published                                                 Source: SCS Trade website
 in Nov 2009).




Disclaimer: This report has been prepared by Standard Capital Securities (Pvt) Ltd and is provided for information purposes only. The information and data on which this
report is based are obtained from sources which we believe to be reliable but we do not guarantee that it is accurate or complete. Standard Capital Securities (Pvt) Ltd
accepts no responsibility whatsoever for any direct or indirect consequential loss arising from any use of this report or its contents. Investors are advised to take
professional advice before making investments and Standard Capital Securities (Pvt) Ltd does not take any responsibility and shall not be held liable for undue reliance on
this report. This report may not be reproduced, distributed or published by any recipient for any purpose.
Standard Capital Securities (Pvt) Ltd



Future Outlook                                                                                                                      See accounting treatment
                                                                                                                                    of PIBT ……….
We expect PIBT to make reasonable profits in future, eventually enhancing wealth of PICT’s
shareholders. Presently, PICT recognizes investment in PIBT as long term investments at
cost. PICT may experience some initial impairment losses in its long term investment due to
the fact of newly installed business of PIBT. Depreciation, amortization, incorporation and
fixed expenses of PIBT without any sales (turnover) during its development phase will
generate losses which will ultimately impair PICT’s long term investment. These initial losses
are normal at development phase of any company. After commercial start of PIBT’s
operations, PICT’s shareholders will witness enhancement in their wealth via dividend
announced by PIBT and increase in fair value / net worth of PIBT’s share.

PICT’s growth has been commendable ever since the starting of their commercial operations
in 2002. Despite the tough economic and trade conditions within the country and
internationally, PICT has showed 17% growth in annual container handling and 29% growth
in profits before tax in FY2010. In recent scenario of growing demands of cargo handling in
the country, PIBT’s future looks GREEN.


      Recognition policy of PICT               Case               Treatment in standalone accounts                      Treatment in consolidated accounts


  Long term investment- at cost           Loss at PIBT      Losses during development phase of PIBT will           There will be no long term investment in
                                                            decrease its Net Asset Value which will impair         consolidated accounts. Upon consolidation,
                                                            PICT's long term investment. Consequently,             standalone profit of PICT and standalone loss
                                                            PICT will have to recognize impairment losses          of PIBT will shrunk the overall profitability of
                                                            on its long term investment through profit             PICT.
                                                            and loss, which will decrease PICT profits,
                                                            eventually leading to some reduction in EPS.



  Long term investment - at cost          Profit at         Net Asset Value of PIBT will increase but their        There will be no long term investment in
                                          PIBT              will be no effect on long term investment as           consolidated accounts. Upon consolidation,
                                                            PICT recognize investments at cost. If PIBT            standalone profit of PICT and standalone
                                                            declares dividend, the standalone accounts             profit of PIBT will enhance the overall
                                                            will experience dividend income from                   profitability of PICT.
                                                            investment, leading to enhanced EPS.



Issues of the initial phase

PIBT, shall incur losses at its initial stage of development of project as mentioned earlier.
  Note: Market PICT will have to charge impairment unless it its long term investment as per decrease
Consequently, price of shares of PIBT won't be availablelosses onconverts into a public limited from private limited and lists itself at stock
   Net Assets Net Asset Value is the losses will of PIBT's total worth.
inexchange. So,Value of PIBT. Theseonly measurebe charged through profit and loss statement of PICT,
thus directly hitting PICT’s profitability.

In view of the above scenario, PICT won’t be able to generate EPS up to the expectation of its
shareholders till PIBT commences its commercial operations.

The dividend paying capacity of company will also be hit given shortage of finances as company has
to invest an initial amount of Rs 4 bn in shares of PIBT. It is still not clear about the sources of finance
from which PICT will make such a gigantic investment. They will have both the options open, whether
to go for equity financing or debt financing.


 Standard Capital Securities, 7th Floor, Business Plaza, Mumtaz Hasan Road, off I.I Chundrigar Road, Karachi– Pakistan


Disclaimer: This report has been prepared by Standard Capital Securities (Pvt) Ltd and is provided for information purposes only. The information and data on which this
report is based are obtained from sources which we believe to be reliable but we do not guarantee that it is accurate or complete. Standard Capital Securities (Pvt) Ltd
accepts no responsibility whatsoever for any direct or indirect consequential loss arising from any use of this report or its contents. Investors are advised to take
professional advice before making investments and Standard Capital Securities (Pvt) Ltd does not take any responsibility and shall not be held liable for undue reliance on
this report. This report may not be reproduced, distributed or published by any recipient for any purpose.
Standard Capital Securities (Pvt) Ltd




                Short term investments

                The BOD of the company is seeking approval of Rs 89 mn to be invested in Certificate of Investment (COIs) of
                Saudi Pak Leasing Company which is a related party. As at June 30, 2010, company has already investment in
                COIs of the said company amounting to Rs 71 mn on which the company has charged impairment of 25%
                amounting to Rs 17.8 mn on account of default in repayment against COIs due to liquidity crunch faced by Saudi
                Pak Leasing Company.

                PICT also holds investment at fair value through profit or loss in JS Cash Fund, Crosby Phoenix Fund, Atlas
                Money Market Fund, JS – UTP and UTP Large Cap Fund along with unrealized gain on revaluation of investments
                amounting to total of Rs 539 mn.

                We shall revisit valuations after going through PIBT dynamics and come back to you shortly. PICT yields FY11E
                PE of 8.5 - 9x …..Nuetral




Disclaimer: This report has been prepared by Standard Capital Securities (Pvt) Ltd and is provided for information purposes only. The information and data on which this
report is based are obtained from sources which we believe to be reliable but we do not guarantee that it is accurate or complete. Standard Capital Securities (Pvt) Ltd
accepts no responsibility whatsoever for any direct or indirect consequential loss arising from any use of this report or its contents. Investors are advised to take
professional advice before making investments and Standard Capital Securities (Pvt) Ltd does not take any responsibility and shall not be held liable for undue reliance on
this report. This report may not be reproduced, distributed or published by any recipient for any purpose.

				
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