Analyst:

Asif Khan, CFA

asif@bracepl.com

Earnings recovery anticipated after three down years

Macroeconomic and Strategy Report January 15, 2014
We see 2014 to be very important in deciding the future of the country and politics could play a major role in that. Economic activity in terms of investment, credit growth, import etc is likely to be subdued at least till the first half of the year. On the bright side, the strong foreign exchange reserve minimizes the risk of a currency crisis, while relatively benign inflation will allow space for monetary stimulus. Furthermore recent developments in the political arena indicate that the worst case scenario is a low possibility as the opposition has called off strikes till further notice.

Index Data Current Index DSEX 52 w eek High 52 w eek Low 2013 Return* Market Cap (BDT mn) Market Cap (USD mn) ADTV in 2013 (USD) 4,494 4,494 3,439 5.20% 2,754,034

34,861 Despite a relatively mixed outlook in terms of economy, we do expect total 51 corporate earnings of the listed universe to show growth after three consecutive

Market and Turnover

5000 14000

4500 4000 3500 3000 2500 2000

1500

12000 10000 8000 6000 4000 2000 0

down years (primarily due to financial sector earnings drop). However, the 12M trailing P/E multiple of 18.2x indicates that some of this growth has already been discounted in the market. A quicker resolution to the political stalemate will be an upside risk in our view. Things to observe carefully would be the 1. Political developments 2. Health of the banking sector and also the 3. RMG sector which came under increased scrutiny in 2013.

1000
500

17-Nov-13

30-Jun-13

3-Nov-13

19-May-13

10-Feb-13

24-Feb-13

10-Mar-13

24-Mar-13

15-Dec-13

Turnover (BDTmn) (RHS)

DSEX (LHS)

29-Dec-13

25-Aug-13

11-Aug-13

22-Sep-13

12-Jan-14

27-Jan-13

16-Jun-13

2-Jun-13

14-Jul-13

5-May-13

28-Jul-13

20-Oct-13

21-Apr-13

7-Apr-13

6-Oct-13

1-Dec-13

8-Sep-13

Introduction
2014 was supposed to be the year of opportunity where the stock market would finally get out of the 3 year long bearish run which saw the market fall by around 5060%. It was supposed to start with election related festivities which usually bring a lot of hope and excitement. Unfortunately for us, the lack of progress on negotiations between the major parties has put in a dampener right at the beginning of the year. The 10th general election faced a credibility problem as the main opposition BNP decided to boycott it. Now everybody is looking towards how the political situation evolves as it is the deciding factor for the long term growth trajectory of the country. As politics is the centerpiece of this report we will first give an update on the political scenarios and their implications. Then we will take a quick look at the 2013 macroeconomic performance and provide an outlook for 2014 along with the implications for the market.

A positive shift in politics observed

The recent developments in the political arena have some clear positives and we feel that the worst case scenario has been averted. Businesses and the economy will see a breathing space as the opposition has changed their strategy of continuous strikes and blockades. Meanwhile the ruling party also has strong incentives to win back the people through good governance before another election.

Macro and Strategy Report

Political Scenario Analysis

Scenario Bull

Description

Economic implication

Company Implication Banks could lead the rapid recovery but nonbanks will also benefit.

Probability Moderate

Both parties will negotiate and come to a Rapid recovery in settlement. Peaceful elections will economic activity and happen with smooth transition of power. investment as well. Opposition will stop blockades and strikes and instead try other avenues to push the government for another election. Government will meanwhile try to focus on good governance to try to increase their popularity. Government will hold on to power while opposition will continue to hold strikes and blockades Business activities will resume normalcy but real sector investors might go for wait and see policy.

Base

Bear

Banks would see earnings revive from lower base but loan growth might remain low. Non-banks will do business as usual. Almost all companies Broader macroeconomy impacted negatively. will suffer with financials Gas utility will be taking the worst hit. relatively defensive.

High

Low

Opposition has shifted away from aggressive stance We feel that the opposition has realized that the continuous strikes will not lead to any benefit for them and this leg has been won by the ruling party. The opposition has already stopped strikes and blockades for the time being. They have announced programs for 30th January with one solitary strike on 29th in stark contrast to the last few weeks. On January 15th the opposition Chairperson Khaleda Zia in a speech also urged the government to hold another elections as soon as possible. Furthermore we have also seen that the effectiveness of the continuous strikes has been declining over time. People in the metropolitan cities were ignoring the strikes and companies were adopting strategies to work despite the problems. The political strength and organization structure of the opposition BNP has also been weakened considerably. As such, even if they wanted to it would be very difficult for them organize massive unrest across the country. They will continue to try to get diplomatic backing of the international community namely USA and the EU which have asked the government to hold another election. Ruling party has incentive for winning back popularity Recent opinion polls suggested that opposition alliance had higher popularity than the ruling party. So, ruling party has a clear incentive to take time and work as hard as possible and win the people back. Some signs are quite clear like the selection of the new ministers. Some of the more controversial names have been replaced by new names. We are thus cautiously optimistic on the governments activities. Furthermore while many nations have asked the government to hold another election there are no binding time lines since they are in conformation with the constitution. The probability of international sanctions being imposed is almost zero and the US government has already announced that they will work with the current government (while insisting 2

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that a new election is also required). We feel that government will try to linger its tenure but will still try to deliver results so that, if anytime they need to hold elections, they have a fair chance of winning. Chances of election looks slim in 2014 There are significant bottlenecks that have to be addressed before election can take place. We really cant put in a timeline but we are of the opinion that the probability is low in 2014 because 1. The two parties are yet to agree on the model of poll-time government. Neither party have moved from their initial stance. 2. Even if poll time governments model is agreed the opposition will surely demand a revamp of the Election Commission which it alleges was completely biased. Restructuring of election commission will be a leading indicator. Macro outlook based on base case As we feel that the base case has the highest probability for 2014 we have formulated our forward looking views based on that. The next segment contains our analysis of 2013 and views about 2014.

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The good...
Unprecedented growth in FX Reserves
In terms of FX reserves, 2013 was a year of setting new records. Helped by declining imports, resilient exports and remittance there was an expansion in the current account surplus which helped the FX reserve rise from USD 12.7 bn to USD 18.04 bn. BDT also appreciated against the dollar by 3.5% and would have gained more if the central bank had not pursued open market policy of buying dollars from the commercial banks. In order to help exports retain competitiveness, the central bank has been actively buying dollars from the market. We feel that this policy will continue in 2014 as well.
FX reserves rose rapidly

Pakistan grabbed larger share of manpower exports to KSA

Source: Bangladesh Bank

However manpower exports (RHS) slowed down

Core inflation is within reasonable levels

Source: Bangladesh Bank

The current account surplus will continue in 2014 as imports will remain weak. However, we must highlight one risk to remittance growth. Starting from late 2012 manpower exports came down sharply and has stabilized at that level. The Economist (Revenge of the migrants employer?) clearly showed that manpower exports to Saudi Arabia declined for Bangladesh while it grew for Pakistan. Thus we fear that remittance growth will not be as strong as it had been in the past.

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Relatively benign inflation (YoY)

Source: Bangladesh Bank

Interest rate decline to continue in 2014 Interest rates will come down but at a gradual pace

Source: Bangladesh Bank

Relatively benign inflation and declining interest rates

Another positive development in 2013 was relatively low inflation. Helped mainly by the declining non-food prices, inflation was kept relatively under control. The food segment however saw some uptick towards the end of the year due to continuous strikes by the opposition party that affected the supply chain. However, irrespective of these supply side issues underlying inflation (usually signaled by non-food inflation) we feel that inflation is not much of a risk because currency has become stronger and demand side is not as strong as before.

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Despite multiple pressures RMG industry should sustain
RMG plays a vital role in the economy
The EU RMG market is very important for Bangladesh accounting for 58% of total RMG exports

The RMG sector is around 80% of our export basket and is thus a key driver of the economy. It came under increased scrutiny in the global media due to a number of high profile factory accidents, namely Tazreen garments and Rana Plaza. Following the Rana Plaza accident that killed more than 1,100 people the USA removed the GSP status for Bangladesh. That did not really affect the RMG industry because USA never gave duty free access to Bangladesh RMG in any case. Nevertheless, Bangladesh has agreed to improve its factory and labor safety standards as the EU GSP (which accounts for 58.1% of the RMG exports) is critically important for Bangladesh might be withdrawn if enough progress is not made. We are of the opinion that RMG factory owners and the government have both taken this issue quite seriously. We will be coming up on a special note on GSP and its impacts on Bangladesh soon which should have more details on this issue. Strikes impact margins but expected to slow down The other worrying factor for RMG was the continuous strikes that affected the supply chain both in terms of backward linkage and also distribution to customers. In Q4 2013 many factory owners had to airlift finished products while the cost of road transport went up by 2 to 4 times. Surprisingly export numbers have been quite robust so far 17% in the first 6 months of the fiscal year (July-Dec 2013). This indicates that despite the supply chain issues companies have been generally able to dispatch the products. They were probably hit on the margins to some extent but this should turn around once strikes stop. Pakistans GSP Plus status is not a significant barrier Another factor that could affect the Bangladesh RMG industry is the GSP Plus status awarded to Pakistan by the EU which is effective from 1 st Jan 2014. Pakistan would probably be a direct competitor to Bangladesh. However, we think that the replacement of capacity from China to other countries will continue and as long as there is no issues with lead time both the countries can take a share of the pie.
Minimum wage still low despite wage hike

Long term wage increases can be offset through efficiency improvements as productivity in Bangladesh is very low

Source: ILO (2013)

Minimum wage hike The final issue to be discussed about RMG is the hike in minimum wage by around 77%. Despite this large hike Bangladesh still remains the cheapest in labor wage.

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Furthermore it takes time to build replacement capacity of such volume so quickly and some alternate countries like Cambodia are having labor unrests of their own. The government of Bangladesh has also given some incentives to the RMG players including lowering of tax at source from 0.8% of revenue to 0.3% of revenue and offering 5% cash incentive against exports.

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The bad..
Slower GDP growth
GDP growth will be below 10 year average of 6.1%

GDP growth in 2013-14 was hurt by a number of factors including politics, low credit off-take etc which prompted a number of international agencies like IMF, World Bank and ADB to downgrade their growth estimates. At present they are forecasting GDP growth of around 5.5-5.8% for FY2014. Even Bangladesh Bank has downgraded their estimates as well. As we dont get quarterly numbers it is hard to have a lot of conviction on the numbers but at present 5.5%-5.8% remains our base case as well. The fact that the economic activity has slowed down is also evident from some indicators as well which we have highlighted below. Falling imports
Choppy import figures indicate slowdown in economy

Source: Bangladesh Bank

While exports fared relatively better, weak investor confidence was clearly evident in the import numbers which were choppy throughout 2013. In particular import of capital machinery (+2.9% YoY in 4MFY14) has been slow indicating weak investor confidence. Going forward exports should see modest growth in 2014 as we feel that opposition would slow down strikes but imports will remain on the lower side. Real estate sector slowdown According to REHAB (Real Estate and Housing Association of Bangladesh) apartment sales declined 60% in 2013. Even though real estate price data is not available we do have anecdotal evidence to believe that prices are coming down in real terms, albeit at a slow pace. Tax revenue collection Political turmoil and some structural issues (conversion to e-TIN from normal TIN) related to tax payment led to a drop in tax revenue collection. The tax collection in the first 5 months of the fiscal year was around 30.7% of the annual target according to National Board of Revenue data.

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Slower growth in election year is quite normal Past data suggests to us that growth has always been a bit slower in election years. Thus a slower than average growth rate of GDP is nothing to be alarmed about. However, the decline in credit growth is clearly slower than usual election years.
GDP growth comes down in election years

5.9 5.0 4.6 4.1 4.9 5.4 5.2 4.6 4.9

5.9 5.3 4.4 5.3

6.3

6.6
6.0

6.4

6.7 6.2 5.7 6.1 6.2

3.3

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1995

1997

1998

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2002

2003

2005

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2007

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1991

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Source: World Bank

Banking sector affected by growing non-performing loans

The private commercial banks (PCB) have reported very dismal numbers with 9M profit down 49.6% YoY. The primary reason of this was growing NPLs leading to high provision charges. Gross NPL ratios for the entire sector grew from 8.7% in September 2012 to 12.8% in September 2013 (for PCBs the respective numbers are 4.9% and 7.3%). This growth in NPL was driven primarily by changing NPL recognition rules which called for recognition in 90 days rather than the previous 180 days. However, a couple of loan scams at the state owned banks as well as some NPL formation in a few specific industries such as shipbuilding, ship breaking and commodity trading also led to the increase. Given the political turbulence in 4Q13 we had earlier predicted that there was no reason to be optimistic about the profit figures. However towards the end of the December 2013, the central bank came out with a slightly relaxed rescheduling guideline which will allow banks to reschedule loans without relevant customers putting in the down payments for the next 6 months. Therefore, banks will have a lot of discretion to decide on the earnings numbers for 4Q13 and the two quarters in 2014. Nevertheless we stick with our view that the better managed banks should see earnings recovery in 2014 vs 2013 as the latter was affected adversely by one off events.

2012

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The Ugly
Political violence and lack of consensus on election modality
Increased political activity and violence observed in 2013
507 people were killed in political violence in 2013

The highlight of 2013 was definitely the increased political noise. After the negotiations between the two major parties Awami League (AL) and Bangladesh Nationalist Party (BNP) failed, the ruling AL decided to organize the election with the existing ministers in power. The opposition led by BNP and its ally Jamaat tried its best to thwart the elections by continuous strikes mostly towards the end of the year as the elections were scheduled for Jan 5. Opposition failed to stop the elections that were held on Jan 5th

AL won more than 50% of the seats due to boycott by opposition

Despite the oppositions best efforts the ruling party was successful in holding the general elections on Jan 5 but with extremely low voter turnout of around 10-20% (Usual turnout is around 70-80%) depending on various sources. Meanwhile, 153 out of the 300 seats were won uncontested without a single vote cast before the election. Change in oppositions strategy would give a breather to the economy

Meanwhile on Jan 11, Saturday the main opposition BNP announced that they would stop observing strikes and blockades from Jan 13, Monday. We believe that this signifies a change in the oppositions strategy which was crippling the economy We are hopeful that opposition would and they would try to get the help of the international community to pressure the look at alternative to strikes and blockades in their attempt to put pres- government for another election.
sure on the government

We have already covered the political implications in details at the beginning of this report. While the stopping of strikes and blockades is a definite positive for the economy with far reaching consequences we believe that the long term direction of the economy would not be very clear unless an election with wide participation of people is organized. Hence we may not see the resumption in private sector investments until a political resolution is reached. Implications include slower growth.

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Market looks fairly valued but bottom up opportunities exist

12M trailing P/E of 18.2x does not reflect complete story As per our calculation the market is trading at a 12M trailing P/E of 18.2x which looks quite expensive when compared to the markets history as well as peer countries. However, we must point that the banking sector (20% of market cap) was hit negatively by some one-off items. Similarly the two largest companies as per market capitalization, Grameenphone and British American tobacco were hit by increased tax rates which caused them to adjust taxes for the last 18 months. So in normalized terms market P/E is lower. According to our coverage universe, the forward multiple for 2014 would be 12.4x. Despite decreasing interest rates hard to expect a re-rating without strong earnings growth
Non-financials outperformed financials on 9M13 earnings (YoY)

Source: DSE

Despite decreasing interest rates we feel that it would be hard to predict an upward re-rating for the entire market without strong earnings growth, particularly from banks or other catalysts especially on the political side. We thus advise our clients to look at the market from a more bottom up perspective and focus particularly our top picks which we have named below. Both financial sector and non-financial sector should see earnings growth in 2014. Financials would grow from the low base in 2013 but will not reach normalized levels before 2015. Meanwhile non-financials should continue growing but growth could be slightly slower depending on political situation.

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Economic Indicators Growth

F Y ( J ul- J un) Unit s 2005-06 2006-07 2007-08 2008-09 2 0 0 9 - 10 2 0 10 - 11 2 0 11- 12 2 0 12 - 13 ( p)

T o t a l O ut put , Inc o m e , S pe nding, S a v ings a nd E xt e rna l S e c t o r No minal GDP No minal GDP , USD (bn) P o pulatio n GDP per Capita, USD GNI P er Capita, USD Real GDP (Co nstant M arket P rices) Real GDP (Co nstant P ro ducer P rices) Real GDP Gro wth Rate No minal GDP Gro wth Rate GDP Deflato r S e c t o ra l S ha re o f G D P A griculture Industry Service A griculture Industry Service C o ns um pt io n P ublic P rivate To tal Co nsumptio n Inv e s t m e nt P ublic P rivate To tal Investment S a v ings Do mestic Natio nal E xt e rna l S e c t o r Expo rt Impo rt Remittances % o f GDP % o f GDP % o f GDP 1 7% 21 % 8% 20% 28% 9% 1 8% 24% 1 0% 1 7% 23% 1 1 % 1 6% 21 % 1 1 % 20% 27% 1 0% 21 % 28% 1 1 % 20% 25% 1 1 % % o f GDP % o f GDP 20% 28% 20% 29% 20% 30% 20% 30% 20% 30% 1 9% 29% 1 9% 29% 1 9% 30% % o f GDP % o f GDP % o f GDP 6% 1 9% 25% 5% 1 9% 24% 5% 1 9% 24% 5% 20% 24% 5% 1 9% 24% 6% 20% 25% 6% 20% 27% 8% 1 9% 27% % o f GDP % o f GDP % o f GDP 6% 74% 80% 6% 74% 80% 5% 74% 80% 5% 75% 80% 5% 75% 80% 6% 75% 81 % 6% 75% 81 % 5% 75% 81 % % o f GDP % o f GDP % o f GDP % cng % cng % cng 22% 29% 49% 5% 1 0% 6% 21 % 29% 49% 5% 8% 7% 21 % 30% 50% 3% 7% 7% 21 % 30% 50% 4% 7% 6% 20% 30% 50% 5% 6% 6% 1 9% 30% 52% 5% 7% 6% 1 8% 30% 52% 3% 9% 6% B DT bn USD bn mn USD USD B DT bn B DT bn % % % 4,1 57 62 1 39 435 500 435 2,741 7% 1 2% 5% 4,725 68 1 41 475 520 3,030 2,928 6% 1 4% 7% 5,458 80 1 42 547 747 3,21 7 3,1 00 6% 1 6% 9% 6,1 48 89 1 44 691 829 3,402 3,283 6% 1 3% 7% 6,943 1 00 1 46 766 91 2 3,608 3,487 6% 1 3% 6% 7,967 1 1 1 1 50 844 943 3,851 3,71 7 7% 1 5% 6% 9,1 81 1 1 6 1 52 868 1 ,044 4,091 3,71 7 6% 1 5% 8% 1 0,380 1 33 1 54 960 923 4,337 3,71 7 6% 1 4% 7%

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Economic Indicators Fiscal

F Y ( J ul- J un) Unit s 2005-06 2006-07 2007-08 2008-09 2 0 0 9 - 10 2 0 10 - 11 2 0 11- 12 2 0 12 - 13 ( p) G o v t R e v e nue , E xpe ndit ure , a nd F ina nc ing B udget Size B udget Size B udge t S ize To tal Revenue Tax Revenue - NB R Tax Revenue - No n-NB R Tax Revenue No n-Tax Revenue T o t a l E xpe ndit ure Revenue Expenditure A nnual Develo pment P ro gram (A DP ) Other Expenditure B udget Deficit (except grants) B udget Deficit (including grants) F ina nc ing Net Fo reign Finance Grants Lo an Repayment Do mestic Financing B ank Lo an No n-bank bo rro wings G o v t . D e bt O ut s t a nding Go vernment debt o utstanding Do mestic debt External debt (excluding IM F lo an) % o f GDP % o f GDP % o f GDP 46.90% 1 6.40% 30.50% 46.70% 1 6.60% 30.1 0% 44.80% 1 6.60% 28.20% 42.70% 1 7.20% 25.50% 41 .00% 1 7.70% 23.30% 37.20% 1 6.90% 20.30% 37.1 0% 1 7.70% 1 9.40% B DT bn USD bn % o f GD P % o f GDP % o f GDP % o f GDP % o f GDP % o f GDP % o f GD P % o f GDP % o f GDP % o f GDP % o f GDP % o f GDP % o f GD P % o f GDP % o f GDP % o f GDP % o f GDP % o f GDP % o f GDP % o f GDP 61 1 9 14 .6 9 % 1 0.79% 8.70% 8.29% 0.41 % 2.09% 14 .6 9 % 8.81 % 5.1 7% 0.70% 3.89% 3.30% 3 .9 4 % 1 .74% 0.88% 1 .65% 0.79% 2.20% 1 .45% 0.75% 668 1 0 14 .15 % 1 0.47% 8.31 % 7.93% 0.37% 2.1 6% 14 .15 % 9.61 % 3.79% 0.74% 3.67% 3.22% 3 .5 3 % 1 .61 % 0.86% 1 .52% 0.77% 1 .93% 0.94% 0.99% 936 1 4 17 .15 % 1 1 .09% 8.80% 8.42% 0.37% 2.30% 17 .15 % 1 0.52% 4.1 2% 2.51 % 6.06% 5.25% 4 .4 2 % 1 .84% 0.88% 1 .68% 0.73% 2.58% 2.01 % 0.58% 941 1 4 15 .3 1% 1 1 .25% 9.03% 8.62% 0.41 % 2.22% 15 .3 1% 1 0.92% 3.74% 0.65% 4.06% 3.26% 4 .0 6 % 1 .75% 0.80% 1 .66% 0.71 % 2.31 % 1 .74% 0.57% 1 ,1 05 1 6 15 .9 2 % 1 1 .45% 9.21 % 8.79% 0.43% 2.24% 15 .9 2 % 9.90% 4.1 0% 1 .92% 4.47% 3.93% 4 .4 7 % 1 .97% 0.54% 2.09% 0.65% 2.49% 1 .25% 1 .25% 1 ,300 1 8 16 .3 2 % 1 1 .95% 9.92% 9.49% 0.43% 2.02% 16 .3 2 % 9.68% 4.50% 2.1 4% 4.37% 3.84% 4 .3 7 % 1 .26% 0.53% 1 .37% 0.65% 3.1 2% 2.31 % 0.81 % 1 ,61 2 20 17 .5 6 % 1 2.51 % 1 0.49% 1 0.06% 0.43% 2.03% 17 .5 6 % 1 0.00% 4.47% 3.08% 5.05% 4.56% 5 .0 5 % 1 .29% 0.49% 1 .53% 0.72% 3.75% 3.1 7% 0.58% 1 ,893 24 18 .2 4 % 1 3.46% 1 1 .25% 1 0.82% 0.44% 2.20% 18 .2 4 % 9.91 % 5.04% 3.28% 4.78% 4.28% 4 .2 7 % 1 .1 5% 0.64% 3.1 3% 2.75% 0.38%

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Economic Indicators External

F Y ( J ul- J un) E xt e rna l S e c t o r & O t he rs FDI, net inflo ws Internatio nal Reserves Exchange Rate (A vg.) Exchange Rate (FY end) B DT Depreciated (A ppreciated) Expo rts Impo rts Trade B alance Current A cco unt Remittance Expo rts Impo rts Remittance Expo rts Impo rts Trade B alance Remittance M a jo r E xpo rt s RM G Knitwear Other RM G & Knitwear M a jo r Im po rt s Crude P etro leum and P etro leum P ro ducts Raw Co tto n and Yarn Capital M achinery Fo o d Grains Fertilizer Clinker Others % o f Impo rts % o f Impo rts % o f Impo rts % o f Impo rts % o f Impo rts % o f Impo rts % o f Impo rts 1 3.59% 8.43% 9.89% 6.65% 2.32% 1 .42% 57.70% 1 3.02% 8.39% 1 1 .24% 7.40% 2.08% 1 .40% 56.46% 1 2.73% 8.80% 7.69% 1 1 .80% 2.92% 1 .60% 54.45% 1 1 .47% 9.25% 6.31 % 8.47% 4.24% 1 .40% 58.86% 1 0.77% 9.09% 6.72% 8.49% 3.02% 1 .40% 60.51 % 1 2.21 % 1 2.1 2% 6.91 % 9.1 5% 3.69% 1 .33% 54.60% 1 3.82% 9.76% 5.65% 7.66% 3.89% 1 .42% 57.80% % o f Expo rts % o f Expo rts % o f Expo rts % o f Expo rts 38.80% 36.26% 24.94% 75.06% 38.25% 37.40% 24.36% 75.64% 36.62% 39.21 % 24.1 7% 75.83% 38.03% 41 .30% 20.67% 79.33% 37.1 1 % 40.01 % 22.89% 77.1 1 % 36.78% 41 .36% 21 .87% 78.1 3% 39.54% 39.06% 21 .41 % 78.59% USD bn USD bn B DT/USD B DT/USD % USD bn USD bn USD bn USD bn USD bn % Change % Change % Change % o f GDP % o f GDP % o f GDP % o f GDP 0.7 3.5 67.2 69.7 9.29% 1 0.5 1 4.7 (4.2) 0.57 4.8 21 .62% 1 2.1 6% 24.79% 1 6.80% 21 .46% -4.66% 7.75% 0.7 5.1 69.1 68.8 2.83% 1 2.2 1 7.2 (5.0) 0.94 6.0 1 5.69% 1 6.35% 24.49% 20.38% 28.47% -8.09% 8.74% 1 .0 6.1 68.6 68.5 -0.65% 1 4.1 21 .6 (7.5) 0.70 7.9 1 5.87% 26.07% 32.40% 1 7.79% 24.49% -6.70% 9.95% 0.7 7.5 68.8 69.1 0.28% 1 5.6 22.5 (6.9) 2.42 9.7 1 0.30% 4.06% 22.41 % 1 7.44% 22.71 % -5.27% 1 0.85% 0.9 1 0.8 69.2 69.4 0.55% 1 6.2 23.7 (7.5) 3.72 1 1 .0 4.1 1 % 5.47% 1 3.40% 1 6.1 8% 21 .31 % -5.1 3% 1 0.95% 0.8 1 0.9 71 .2 74.1 2.94% 22.9 33.7 (1 0.7) 0.89 1 1 .7 41 .49% 41 .79% 6.03% 20.1 8% 27.1 0% -6.92% 1 0.42% 1 .0 1 0.4 79.2 81 .8 1 1 .22% 24.3 35.5 (1 1 .2) 1 .63 1 2.8 5.93% 5.52% 1 0.24% 20.67% 27.56% -6.89% 1 1 .1 0% 1 1 .7 77.8 81 .1 -1 .84% 27.0 34.0 (6.9) 2.53 1 4.5 1 1 .28% -4.36% 1 2.60% 20.24% 25.44% -5.20% 1 0.83% Unit s 2005-06 2006-07 2007-08 2008-09 2 0 0 9 - 10 2 0 10 - 11 2 0 11- 12 2 0 12 - 13 ( p)

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Economic Indicators Monetary and Market

F Y ( J ul- J un) Unit s 2005-06 2006-07 2007-08 2008-09 2 0 0 9 - 10 2 0 10 - 11 2 0 11- 12 2 0 12 - 13 ( p) M o ne t a ry & F ina nc ia l M a rk e t Indic a t o rs Inflatio n (New B ase: 2005-2006) CP I (po int to po int) CP I Fo o d inflatio n Fo o d inflatio n No n-Fo o d Inflatio n No n-Fo o d Inflatio n Inflatio n (Old B ase: 1 995-1 996) CP I (po int to po int) CP I Fo o d inflatio n Fo o d inflatio n No n-Fo o d Inflatio n No n-Fo o d Inflatio n Fo reign Exchange Reserves Call M o ney Rate (A verage) 364 -days T-bill Rate (A verage) Real interest rate Risk premium o n lending (prime rate minus treasury bill rate) Lending interest rate Depo sit interest rate Interest Rate Spread B ro ad mo ney B ro ad mo ney, M 2 B ro ad mo ney, M 2 B ro ad mo ney, M 2 C a pit a l M a rk e t ( D S E ) DGEN (DSE General Index) % Change in DGEN Issued Capital Issued Capital Issued Capital M arket Capitalizatio n (Equity) M arket Capitalizatio n (Equity) M arket Capitalizatio n (Equity) Turno ver Turno ver To tal Number o f Co mpanies (Equity) A ctual % B DT bn USD bn % o f GDP B DT bn USD bn % o f GDP B DT bn USD bn A ctual 1 ,340 -21 .81 % 64.55 0.96 1 .55% 203.50 3.03 4.90% 45.99 0.68 269 2,1 49 60.45% 83.59 1 .21 1 .77% 41 1 .55 5.96 8.71 % 1 64.67 2.38 273 3,001 39.60% 1 08.84 1 .59 1 .99% 788.82 1 1 .50 1 4.45% 543.24 7.92 286 3,01 0 0.33% 1 47.04 2.1 4 2.39% 1 ,001 .43 1 4.56 1 6.29% 893.79 1 2.99 300 6,1 54 1 04.42% 21 7.45 3.1 4 3.1 3% 2,276.41 32.90 32.79% 2,563.54 37.05 273 6,1 1 7 -0.59% 301 .05 4.23 3.78% 2,327.02 32.68 29.21 % 3,258.80 45.76 267 4,573 -25.25% 384.1 1 4.85 4.1 8% 1 ,932.44 24.40 21 .05% 1 ,1 71 .45 1 4.79 279 1 ,933.1 4 24.86 1 8.62% 857.09 1 1 .02 255 4,386 -4.09% Yo Y' % 1 2 mnth avg, % Yo Y 1 2 mnth avg, % Yo Y 1 2 mnth avg, % USD (bn) % % % % % % % % o f GDP % Change B DT bn USD bn 7.54% 7.1 6% 8.80% 7.80% 5.70% 6.40% 3.5 1 1 .1 1 % 0.00% 4.57% 0.00% 1 2.06% 6.68% 5.38% 43.46% 1 9.30% 1 ,806.7 26.9 9.20% 7.20% 9.80% 8.1 0% 8.30% 5.90% 5.1 7.37% 8.46% 5.21 % 4.32% 1 2.78% 6.85% 5.93% 44.77% 1 7.06% 2,1 1 5.0 30.6 1 0.04% 9.94% 1 4.1 0% 1 2.30% 3.50% 6.30% 6.1 1 0.24% 8.47% 2.1 4% 3.82% 1 2.29% 6.95% 5.34% 45.58% 1 7.63% 2,487.9 36.3 2.25% 6.66% 0.30% 7.20% 5.90% 5.90% 7.5 4.39% 8.1 0% 4.88% 3.77% 1 1 .87% 7.01 % 4.86% 48.23% 1 9.1 7% 2,965.0 43.1 8.70% 7.31 % 1 0.90% 8.50% 5.20% 5.50% 1 0.8 8.06% 4.65% 3.73% 6.66% 1 1 .31 % 6.01 % 5.30% 52.29% 22.44% 3,630.3 52.5 1 0.1 7% 8.80% 1 2.51 % 1 1 .34% 5.73% 4.1 5% 1 0.9 1 1 .1 6% 5.56% 3.33% 6.86% 1 2.42% 7.27% 5.1 5% 55.29% 21 .34% 4,405.2 61 .9 8.03% 1 0.37% 7.08% 1 0.47% 1 1 .72% 1 1 .1 5% 1 0.4 1 4.56% 9.92% 3.06% 3.83% 1 3.75% 8.1 5% 5.60% 56.32% 1 7.39% 5,1 71 .1 65.3 7.97% 7.70% 8.53% 7.35% 6.99% 8.43% 1 1 .7 1 1 .38% 1 1 .38% 5.31 % 2.04% 1 3.42% 8.47% 4.95% 58.1 4% 1 6.71 % 6,035.1 77.6 Yo Y' % 1 2 mnth avg, % Yo Y 1 2 mnth avg, % Yo Y 1 2 mnth avg, % 5.54% 8.69% 2.56% 7.72% 1 0.20% 1 0.21 % 8.05% 6.78% 8.26% 5.22% 7.75% 9.1 7%

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Macro and Strategy Report

IMPORTANT DISCLOSURES
Analyst Certification: Each research analyst and research associate who authored this document and whose name appears herein certifies that the recommendations and opinions expressed in the research report accurately reflect their personal views about any and all of the securities or issuers discussed therein that are within the coverage universe. Disclaimer: Estimates and projections herein are our own and are based on assumptions that we believe to be reasonable. Information presented herein, while obtained from sources we believe to be reliable, is not guaranteed either as to accuracy or completeness. Neither the information nor any opinion expressed herein constitutes a solicitation of the purchase or sale of any security. As it acts for public companies from time to time, BRAC-EPL may have a relationship with the above mentioned company(s). This report is intended for distribution in only those jurisdictions in which BRAC-EPL is registered and any distribution outside those jurisdictions is strictly prohibited. Compensation of Analysts: The compensation of research analysts is intended to reflect the value of the services they provide to the clients of BRAC-EPL. As with most other employees, the compensation of research analysts is impacted by the overall profitability of the firm, which may include revenues from corporate finance activities of the firm's Corporate Finance department. However, Research analysts' compensation is not directly related to specific corporate finance transaction. General Risk Factors: BRAC-EPL will conduct a comprehensive risk assessment for each company under coverage at the time of initiating research coverage and also revisit this assessment when subsequent update reports are published or material company events occur. Following are some general risks that can impact future operational and financial performance: (1) Industry fundamentals with respect to customer demand or product / service pricing could change expected revenues and earnings; (2) Issues relating to major competitors or market shares or new product expectations could change investor attitudes; (3) Unforeseen developments with respect to the management, financial condition or accounting policies alter the prospective valuation; or (4) Interest rates, currency or major segments of the economy could alter investor confidence and investment prospects.

BRAC EPL Stock Brokerage Limited Research

Ali Imam, CFA Khandakar Safwan Saad Asif Khan, CFA Mehedee Hasan Qazi Musaddeq Ahmed Shaikh Malik Al-Razi Farah Tasnim Huque Head of Research Deputy Head of Research Deputy Head of Research Research Analyst Research Analyst Research Associate Research Associate imam@bracepl.com safwan@bracepl.com asif@bracepl.com mehedee.hasan@bracepl.com musaddeq.ahmed@bracepl.com malik.razi@bracepl.com farah.tasnim@bracepl.com 01730 357 153 01730 357 779 01730 357 158 01730 727 941 01730 727 943 01755 658 980 01730 727 913

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Ashraf Saleheen Head of International Trade & Sales ashraf.saleheen@bracepl.com 01755 541 252

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