Morning Call about Bank Alfalah Limited – Arif Habib Limited

Karachi, July 26, 2012 (PPI-OT): Profitability is expected grow by 22% YoY

Bank Alfalah Limited is expected to post net income of PKR 2,334 million (EPS: PKR 1.73) in 1HCY12 as compared to PKR 1,908 million (EPS: PKR 1.41) in 1HCY11, a growth of 22% YoY.

According to Arif Habib Limited, in 2QCY12 alone, the bank is expected to post net income of PKR 1,132 million (EPS: PKR 0.84) a decline of 6% QoQ. The major factors expected to contribute to the bottom-line growth during 1HCY12 are:

Lower provisions to drive earnings

The total provisioning is expected to drop by 21% YoY to PKR 1,318 million in 1HCY12. Last year in 2QCY11; the bank had realized a reversal of PKR 333 million which consequently is diluting the impact of 60% decline in provision against investments. The bank since last year has re-categorized its investments in Warid in Wateen from held from trading to Available from Sale

Non-Interest Income to augment significantly

Non-interest income is likely to increase by 7% YoY to PKR 2,935 million in 1HCY12 from PKR 2,749 million last year’s corresponding period mainly on account of improvement in dealing in foreign currencies and dividend income

Higher interest expenses to result in muted growth: The bank’s Net interest income (NII) is expected to augment by 3% YoY. The reason for this muted growth bows down to 200bps decline in average KIBOR rate, from 13.73% in 1HCY11 to 11.96% in 1HCY12. Moreover, a raise in minimum rate on PLS by 5% to 6% effective from May-12 is likely to have further contract the bank’s NIMS.

Financial Highlights (PKR million)
 2QCY121QCY12QoQ1HCY121HCY11YoY
Interest income

11,196

11,145

0.5%

22,341

21,377

4.5%

Interest expense

6,757

6,500

4.0%

13,257

12,540

5.7%

Net Interest income

4,439

4,645

-4.4%

9,084

8,837

2.8%

Total provisioning

600

718

-16.4%

1,318

1,664

-20.8%

Non Interest income

1,472

1,463

0.6%

2,935

2,749

6.8%

Administrative expenses

3,568

3,532

1.0%

7,100

6,772

4.8%

Profit before tax

1,698

1,824

-6.9%

3,522

3,074

14.6%

Net income

1,132

1,202

-5.8%

2,334

1,908

22.3%

EPS

0.84

0.89

-5.8%

1.73

1.41

22.3%

Source: Company Accounts and AHL Research

Recommendation

At yesterday’s closing price of PKR 18/share, the scrip is offering an upside potential of 10% to Arif Habib Limited’s Dec-12 target price of PKR 19.9/share and is trading at CY12E P/BV and P/E of 0.88x and 5.6x, respectively.