Habib Bank Limited - BMA Capital Management

 Habib Bank Limited Funded + non funded income supporting profitability
HBL ‐ BUY Target Price: PKR 243 Current Price: PKR 203 HBL Performance 1M 3M 12M Absolute % 9%
‐1.9%
16%
Relative to KSE % 2%
1%
‐1%
Bloomberg HBL.PA
Reuters HBL.KA
MCAP (USD mn) 2,926
12M ADT (USD mn) 0.9
Shares Outstanding (mn) 1,467
HBL: Earning Estimates EPS CY14A CY15F CY16F 21.7 24.4 26.32 DPS 12.0 13.0 14.25 Source: BMA Research HBL vs. KSE100 Relative Chart HBL
30%
KSE100 Index
10%
0%
Apr‐15
May‐15
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Feb‐15
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Dec‐14
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Source: BMA Research Iqbal Dinani iqbal.dinani@bmacapital.com +92 111 262 111 Ext: 2059 Robust fundamentals enabled the bank to post strong financial results in 1QCY15 where NPAT jumped by 63%YoY to PKR9.9bn (EPS: PKR6.8) due to 31%YoY increase in Net Interest Income after provision (NII) and 44%YoY growth in Non‐Funded Income (NFI). Going forward, we believe NII will potentially come under stress owing to complete re‐
pricing of asset book in the backdrop of monetary easing and another expected reduction in benchmark policy rate by 50bps in upcoming MPS (May’15). That said, healthy organic growth due to widespread branch network and strong product portfolio is likely to generate higher NFI garnering profitability. Consequently, we believe earnings CAGR of 11%‐12% over the next five years, bringing average ROE to 21% vs. 19% in last five years. At current levels, the scrip offers an upside of 20% from our Dec’15 TP of PKR243/sh along with a DY of 6%. The stock is currently trading at forward P/B and P/E multiples of 1.7x and 8.3x, respectively. Earnings registered a momentous growth: Habib Bank Limited (HBL), largest custodian of customer deposits, has reported an outstanding 1QCY15 financial results, beating consensus estimates, wherein PAT of the bank clocked in at PKR9.9bn (EPS: PKR6.8), depicting a magnificent growth of 63%YoY compared to PKR6.1bn (EPS: PKR4.2) in 1QCY14. The robust growth in net earnings can be attributed to 31%YoY expansion in funded income to PKR18.6 due to healthy organic growth and margin expansion on the back of higher PIBs and delayed asset re‐pricing. Non‐funded Income also showed a strong growth of 44%YoY to PKR7.8bn primarily due to i) 25%YoY increase in fee income on the back of strong performance from Bancassurance (up 110%YoY) and Investment Banking commissions (up 166%YoY), ii) 61%YoY higher dividend income and iii) 3.1xYoY jump in capital gains. Quant easing to compress NIMs… We believe the bank’s NIMs in the upcoming quarters are likely to come under pressure owing to delayed asset re‐pricing post change in DR as against immediate revision in MDR. In addition, lower inflation expectation has already buildup hopes of further reduction in DR (BMA expects a 50bps cut in May’15 MPS). That said, strong organic growth driven by nationwide presence and stringent focus towards accumulating low cost deposits are likely to support NII, going forward. …but diversified avenues for NFI to supplement bottom line: HBL is aggressively working towards expanding product portfolio in order to garner fee based income which was prominent in 1QCY15 results. Fee income expanded by 25%YoY due to growing cross selling activities coupled with penetrating branchless banking. Furthermore, efficient trading in Fx, equity and GoP securities will also supplement earnings, going forward. Thus, we reckon a 30%YoY increase in NFI to PKR30.6bn in CY15 driven by fee income (up 17%YoY), capital gains (up 158%YoY) and Fx income (up 10%YoY). 20%
Tuesday May 05, 2015
Ideally positioned to benefit from economic revival: HBL, given pan Pakistan operations (1590+ branches) and biggest clientele, is well positioned to cater to incremental demand for banking services in the wake of expected increase in economic activity. Furthermore, the bank’s current CAR stands at 16.7% which is considerably higher than regulatory limit of 10.25% amidst lower ADR of 37.5% (industry average of 52%), thus the bank’s loan book is likely to witness a notable CAGR of 17% over the next five years. Investment Perspective: Within BMA Banking Universe, we reiterate our liking for HBL as a preferred play due to i) pan Pakistan presence, ii) strong equity base with CAR of 16.7%, iii) conservative lending policies and iv) growing NFI. At current levels, the scrip offers an upside of 20% from our Dec’15 TP of PKR243/sh along with a DY of 6%. The stock is currently trading at forward P/B and P/E multiples of 1.7x and 8.3x, respectively. 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 This memorandum is produced by BMA Capital Management Limited and is only for the use of their clients. While the information contained herein is from sources believed reliable, we do not represent that it is accurate or complete and should not be relied upon as such. Opinions expressed may be revised at any time. This memorandum is for information only and is not an offer to buy or sell, or solicitation of any offer to buy or sell the securities mentioned.11
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