Morning call about – Bank Alfalah Limited – Arif Habib Limited

Karachi, March 01, 2013 (PPI-OT): Earnings to mark 27% YoY jump in CY12 Among Arif Habib Limited banking sector sample, Arif Habib Limited are presenting Arif Habib Limited expectations for Bank Alfalah Limited (BAFL) where the bank is expected to post net profit of PKR 1,048mn (EPS: PKR 0.78) for 4QCY12, exhibiting a marginal decline of 2% QoQ (3QCY12 EPS: PKR 0.79).

According to Arif Habib Limited this will take the overall bottom-line of the bank to PKR 4,447mn (EPS: PKR 3.30) in CY12, up 27% YoY, as compared to PKR 3,503mn (EPS: PKR 2.60) recorded last year. Lower provisioning and marked growth in non-interest income are expected to be the main reasons behind the bank’s better results in CY12. Expected improvement in the non-interest income (+20%) was among the positives during the year. However, these are expected to have been partially offset by higher operating expenses (+5%).

Financial Highlights(PKR mn)CY12ECY11AYoY4QCY12E3QCY12AQoQ
Mark-up/ return/ Interest earned

44,818

44,298

1%

10,042

12,032

-17%

Mark-up/ return/ Interest expensed

26,850

25,687

5%

5,954

7,272

-18%

Net mark-up/ Interest Income

17,968

18,611

-3%

4,089

4,760

-14%

Interest Income after provisions

15,369

14,281

8%

3,422

3,808

-10%

Total Non Mark-up/ Interest Income

6,433

5,368

20%

1,386

1,968

-30%

Total non mark-up/ Interest expenses

14,973

14,215

5%

3,197

4,136

-23%

Profit Before Tax

6,830

5,434

26%

1,611

1,640

-2%

Profit after Taxation

4,447

3,503

27%

1,048

1,072

-2%

EPS

3.30

2.60

27%

0.78

0.79

-2%

DPS

2.00

1.75

2.00

1.75

Source: Company Accounts and Arif Habib Research

An insight!

Bank’s net revenue for CY12 is expected to show a meagre 1% YoY growth to PKR 44,818mn (CY11: PKR 44,298mn). However, the net interest income is expected to have declined marginally by 3% YoY to PKR 17,968mn, owing to policy rate cuts. In 4Q alone, the net interest income is forecasted to be PKR 10,042mn, down 17% QoQ. With this decline, bank’s net interest margin is expected to remain at 4.6%. Moreover, rising interest expense (5% YoY) subdues bank’s spreads amid 15% YoY hike in average paying liabilities, which is more than the growth expected in bank’s average earning assets.

Bank’s non-interest revenues of PKR 6,433mn are expected to have grown 20% YoY.

This is expected owing to expectedly massive gains booked on fixed income securities (6.3x YoY) due to declining interest rates, followed by 18% YoY jump in fees and commissions. Bank’s expenses are also expected to increase 13% YoY to PKR 14,973mn, mainly due to 13% rise in administrative expenses, inching up core cost-to-income ratio to 30% against 29% last year. BAFL’s total deposits are expected to jump 8% YoY to PKR 435bn in CY12 while total net advances are expected to escalate 10% YoY to PKR 218bn. The investment side is expected to clock in at PKR 212bn, up 28% YoY. Moreover, provisions against NPLs are expected to have risen 7% YoY to PKR 2,001mn.

Recommendation

BAFL offers an upside potential of 21% with Arif Habib Limited Jun-13 TP of PKR 22. The scrip is trading at a CY12E PBV of 0.86x. A cash dividend of PKR 2-2.25 is also expected from the bank with CY12 results. Arif Habib Limited recommends a ‘Buy’ on BAFL.

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