AKD Quotidian about — HBL: Picking momentum but rallied already

Karachi, March 07, 2013 (PPI-OT): AKD Securities raise AKD Securities target price for HOL by 6.5% to PKR165/ share following an average 5% increase in AKD Securities EPS estimates across the next 5yrs after better than expected CVI3 results +ve surprises in fee and fx income).

According to AKD Securities, going forward, AKD Securities see double-digit growth in both CYI4F as well AKD Securities forecast horizon! driven by higher NIl on the back of 70%+ CASA, lower credit costs with coverage already in excess of 80%. strong fee income growth potential and likelihood of a contained Increase In admin expenses after swift 18%VoY increase in CY13.

This is underpinned by HBL’s consistent pickup in momentum across CV13, with sequential growth in each of the last 4qtrs expected to spill over Into CYI4F and beyond. That said, while AKD Securities like the bank’s medium-term growth trajectory, AKD Securities believes the sharp run up in share price over the last year (gains of 73%) adequately captures the positives. AKD Securities revised target price implies a Reduce stance.

CV13 result review: HBL posted consolidated NPAT of PKR22.9bn EPS: PKR1 715) in CY13, up by 1%YoY. Result highlights included: 1) 5%YoY reduction in NIl on lighter NIMs, 2) impressive 79%YoY reduction in total provisions, 3) strong 21%YoY non-interest income growth and 4) relatively high 17%VoY increase in non-interest expenses. Alongside the result, a final dividend of PKR2lshare brought the full-year payout to PKR8/share (payout ratio: 47%) while a 10% bonus was also announced.

HBL picking momentum: In contrast to the broader banking sector, HBL’s profitability has consistently picked momentum across the last year, with sequential growth in each of the last 4qtrs driven by higher NIl as the bank’s CASA increased by 6ppt to 72%. AKD Securities see this top line thrust spilling over into GYI4F which, coupled with anticipated lower credit costs going forward, should drive 12%YoY growth this year, laying the platform for double-digit growth across the medium-term. At the same time, HBL’s comfortable CAR cushion (154%) should allow for consistent payouts going forward without compromising on grDv4h prospects.

Growth drivers: Other than the jump in CASA (AKD Securities expects it to sustain at 70%+ going forward), AKD Securities point to the banks improved asset quality (NPL ratio at 5yr low of 8.0%: coverage: 83%) and strong fee income growth prospects as key positives. At the same time, ample liquidity ADR: 40%) allows the bank to push through private sector credit quickly should it feel the need. Finally, while non-interest expenses grew by a swift 18%VoY in CY43, this is partly due to one-offs e.g. extraordinarily high consultancy charges where AKD Securities see Cost/income coming off from 50% in CY13 to 47% by CY18F.

Investment perspective: HBL has gained 73% over the last 12m to trade at a CYI4F P/B of l.6x and P/E of 9.9x where AKD Securities revised target price of PKRI65/share implies a Reduce stance. In this regard, while AKD Securities like the banks medium-term outlook, AKD Securities believes The sharp run up in share price over the last year adequately captures the positives.

HBL: Valuations
Year End Dec 31                       CY12A          CY13A        CY14F        CY15F      CY16F
EPS (PKR)                             17.0          17.1         19.1         21.1       23.8
EPS Growth                             2.3%          0.8%        11.5%        10.2%      12.8%
BVS Total SHEQ (PKR)                  99.5         106.8        115.8        129.2      144.1
Total Equity PB (x)                    1.81          1.69         1.56         1.39       1.25
PER (x)                               10.58         10.51         9.42         8.55       7.57
Loan to Deposit                       41.1%         40.2%        39.3%        40.7%      42.3%
NIMs                                   5.1%          4.0%         4.1%         4.0%       3.9%
Market Cap to Deposits                19.8%         17.1%        15.5%        14.0%      12.6%
Cost/Income                           46.9%         50.5%        51.2%        50.6%      49.3%
ROE                                   18.7%         16.6%        17.2%        17.2%      17.4%
ROA                                    1.7%          1.4%         1.4%        1.4%        1.5%
AKD Daily
DPS (PKR)                              7.5           8.0          9.0         10.0       12.0
Dividend yield                         4.2%          4.4%         5.0%         5.6%       6.7%
Payout Ratio                          44.1%         46.7%        47.1%        47.4%      50.5%

Source: Co. Reports and AKD Research

HBL: Income Statement (PKR mn)
Year end Dec 31                      CY12A          CY13A       CY14F       CY15F      CY16F
Interest Income                     116,773       120,223      135,433     147,345    161,625
Interest Expense                     59,012        65,207       75,043      82,407     89,919
Net interest income                  57,760        55,016       60,390      64,938     71,707
Total Provisions                      6,767         1,400        2,495       2,298      2,222
Post Provisioning NII                50,993        53,616       57,895      62,640     69,485
Total noninterest expenses           31,392        36,806       39,729      42,709     45,913
NPBT                                 35,562        36,133       37,852      41,728     47,156
NPAT                                 22,692        22,863       25,493      28,106     31,709

Source: Co. Reports and AKD Research
HBL: Balance Sheet (PKR mn)
Year end Dec 31                    CY12A           CY13A        CY14F         CY15F      CY16F
Investments                        797,095          826,062     910,113       995,190  1,075,397
Loans and advances                 499,818          563,701     609,256       700,645    805,741
Total Assets                     1,610,474        1,715,271   1,848,946     2,046,710  2,259,439
Deposits  and  Other Accounts    1,214,964        1,401,230   1,549,431     1,720,058  1,903,059
Total Liabilities                1,477,745        1,572,837   1,694,494     1,874,397  2,067,290
Net Assets                         132,730          142,434     154,452       172,314    192,149
Total Tier I Equity                118,717          130,634     143,633       160,476    179,792
Total Tier II Equity                14,012           11,800      10,819        11,838     12,357
Total SHEQ                         132,730          142,434     154,452       172,314    192,149
Total SHEQ and Liabilities       1,610,474        1,715,271   1,848,946     2,046,710  2,259,439

Source: Co. Reports and AKD Research

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