AKD Quotidian about — AKBL: The ‘Bad’ is already priced in

Karachi: Following poor 1HCY11 results (flat profits), AKD Securities cuts its earnings estimates across CY11F-CY15F by 20% on average, increase beta to 1.27 (3yr) and reduce our target price for AKBL to PkR11.50/share from PkRI4.Solshare previously.

According to AKD Securities, downward revision in estimates is primarily due to incorporation of higher credit costs where AKD Securities conservatively assumes that 50% of the availed FSV benefit (PkR4.4bn on pre-tax basis) will expire going forward. At the same time, capital constraints lead us to project both a PkR3bn rights issue going forward as well as a PkR3bn TFC rollover in CY13F. Understandably, cash payouts over the medium-term are likely to be sporadic at best. Despite these drawbacks, AKD Securities believes earnings for AKBL have troughed out where AKD Securities projects a 16% NPAT CAGR across CY11F-CY15F. Considering that the scrip has already shed 43%CYTD (37% underperformance vs. the Index) coupled with attractive valuations (CY11F P/B of 0.38x and PER of 4.65x), AKD Securities believes further downside in AKBL is limited. AKD Securities’ revised target price of PkR11.50/share offers an upside of 24.4% and implies a Buy stance.

Flat 1HCY11: Consolidated 1HCY11 NPAT registered at PkR731mn (EPS: PkR1.03), up just 3%YoY. Adjusted for the FSV benefit however, normalized 1HCY11 NPAT registered at PkR571mn (EPS: PkR0.81), down 13%YoY. Result highlights included 1) poor 4%YoY Nil growth, 2) 19%YoY increase in LLPs, 3) flat non-interest income and 4) contained 7%YoY increase in admin costs. 2QCY11 NPAT was recorded at PkR201mn (EPS: PkR0.28), down 62%QoQ. Although FSV-adjusted 2QCY11 NPAT arrives at PkR33Omn (EPS: PkRO.47), up 37%QoQ, the 30%QoQ decline in NII is alarming, in AKD Securities’ view. This was largely due to revenue suspensions against non- performing assets which shouldn’t recur going forward, according to management.

Weak capital base: CAR stood at 10.2% implying little room to expand the balance sheet on the present capital base. While free reserves should be just about sufficient to allow a 15% bonus issue for meeting CY12F MCR requirements, AKD Securities believes AKBL will have to announce a PKR3bn rights issue (not later than CY12F results) and will have to rollover PkR3bnin maturing TFCs in CY13F While this should ensure CAR remains above the 10% watermark going forward, providing the requisite room for asset expansion, cash payouts over the medium-term are likely to be sporadic at best.

The ‘Bad’ already priced in? AKD Securities cuts its earnings estimates across CY11F-CY15F by 20% on average primarily due to higher credit costs. So far AKBL has availed an FSV benefit of PkR4.4bn (pre-tax) where AKD Securities assumes that 50% of the benefit will gradually expire i.e. underlying collateral will not be disposed in time. Even so, AKD Securities believes earnings for AKBL have troughed where AKD Securities projects a CY11F-CY15F NPAT CAGR of 16%. Considering that AKBL has shed 43%CYTD and that valuations are near historical lows, AKD Securities believes risk-reward parameters are attractive. Accordingly, AKD Securities’ revised target price of PkR11.50/share offers upside of 24.4% and implies a Buy stance.

 

AKBL – Valuation Multiples

 

Year end Dec 31 CYO9A  CY10A CY11F CY12F CY13F
EPS (PkR) 1.51 1.30 1.99  2.41 2.05
EPS Growth 158% -14%  53% 21% -15%
Tier I BVS (PkR) 18.62 20.96  22.81  25.22 26.27
P/BVS Tier I (X) 0.50 0.44 0.41  0.37  0.35
BVS (PkR) (Tier I+Tier I) 21.20 22.68 24.46 26.93 28.05
P/BVS (x) (Tier I+Tier II) 0.44 0.41  0.38 0.34 0.33
PER (x) 6.11 7.11 4.65 3.84 4.50
Loan to Deposit 66% 60% 54% 54% 53%
Yield on earning assets 11.65% 11.58% 11.75% 11.33% 10.96%
Cost of Funds 6.41%  6.84% 7.27% 7.04% 6.74%
NIMs 5.24% 4.74% 4.49% 4.28% 4.21%
Growth in Loan Book 5% 13%  4% 12% 12%
Growth in Deposits 23% 24% 15% 12% 12%
Cost/Income  61% 65% 65% 66% 65%
ROE (Tier- I) (average) 8.5%  6.6% 9.1% 10.0%  8.0%
ROE (average) 7.6% 5.9% 8.4% 9.4% 7.5%
ROA (average) 0.46% 0.32% 0.42%  0.45%  0.35%

 

 

Source: Company Reports & AKD Research