Asia Frontier Capital Identifies The 2 Sectors Leading Corporate Governance in Pakistan 1

Thomas Hugger: corporate governance in Pakistan is better

Thomas Hugger, chief executive officer and founder of Hong Kong-based Asia Frontier Capital (AFC), had positive views to share about corporate governance in Pakistan (PAK). “We think that corporate governance in Pakistan is better when compared with other frontier markets in Asia (AAXJ) (VPL),” Hugger told Frontera. Over a previous conversation, Hugger had identified Pakistan as the frontier market holding the most potential for 2017.

From the perspective of corporate governance, Hugger identified two leading sectors in Pakistan. These are a) the bigger banks, and b) the cement sector. Particular names that Hugger believes hold the greatest potential in this regard, are as follows:


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Pakistan’s financial sector is now contributing more towards real economic growth in the country. The outgoing fiscal year of 2016/17 saw an increase in business volumes and bank profits, backed by the rapid expansion of deposit formation and demand for loans. The banking sector’s profitability grew by 18.9% in 1Q17.

Bank stocks, on average, are currently trading at an attractive P/E of 9.99, as part of the Karachi All Share Index (as of June 7). Dividend yield for these stocks averaged close to 5.88%. For Hugger, Pakistani banks such United Bank Limited (PSX: UBL), Habib Bank Limited (PSX: HBL), and MCB Bank (MCBBI) (PSX: MCB) score well on the corporate governance front. These companies currently trade at attractive price multiples of 10.45, 11.27, and 11.10 times earnings, respectively.

Cement companies

Material sector companies have had a good run so far this year. Stocks in the sector that are part of the Karachi All Share Index have returned 7.33% on average so far this year (as of June 7). While steel, paper, and chemical companies have delivered exceptional price returns, many of these are already priced high enough. Cement companies aren’t far behind.

Companies including Lucky Cement (LUCKY) and DG Khan Cement are Hugger’s top picks from the cement sector in Pakistan as seen through a corporate governance lens. Lucky Cement is currently expensive, trading at 18.16 times earnings, while DG Khan Cement is relatively cheaper at an 11.58 P/E. As of June 7, Lucky Cement (PSX: LUCK) was down 0.5% for the year, while DG Khan Cement (PSX: DGKC) was up 4.35% on the Pakistan Stock Exchange.

While Hugger did point to stocks that would pass through the corporate governance filter in Pakistan, he also identified stocks that investors, who give due importance to ESG metrics of a company when investing, should remain cautious of.

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