The Bell about Banks – Elixir Securities Limited

Karachi, November 13, 2012 (PPI-OT): BAFL: Attractive even after incorporating another rate cut

NIMs lower by 29bps YoY

NIM dropped to 4.9% during 3QCY12 from 5.2% in the same period last year and 8 bps lower than the preceding quarter. However, a growth of 15% in the average earning assets of the bank over 9MCY12 helped increase the net interest income (NII) by 11% YoY and 6% QoQ. Balance sheet growth was primarily derived by 24% growth in the bank’s investment portfolio while advances growth was limited to 6.6% during the period.

BAFL      
PKR million9MCY11A9MCY12AYoY3QCY11A3QCY12AYoY
Net Interest income

13,127

13,879

6%

4,290

4,760

11%

Provisions

2,092

2,181

4%

353

1,077

205%

NII excl. provisions

11,035

11,698

6%

3,937

3,683

-6%

Other income

3,949

5,047

28%

1,200

1,968

64%

Non interest exp.

10,195

11,526

13%

3,423

4,011

17%

Profit after tax

3,002

3,399

13%

1,093

1,072

-2%

EPS (PKR)

2.22

2.52

13%

0.81

0.79

-2%

Source: Elixir Research, Company Accounts

Provisioning to be 33% lower in CY13

An improvement in the asset quality led infection ratio to drop to 8.8% in Sep-12 from 9.6% in Mar-12 and 9.1% in Jun-12. The stock of NPLs witnessed a decline of PKR 1 billion over the quarter which indicates towards bank’s efforts made for recoveries. Improvement in asset quality paralleled spike in NPL provisioning expense during 3Q which led NPL coverage to improve to 68% from 62% in the preceding quarter. Therefore, a declining stock of NPLs, improving coverage, and limited growth in advances will likely reduce provisioning expenses by 33% YoY in CY13.

Attractive even after incorporating another rate cut

Elixir Securities Limited eyes a 50bps rate cut in the upcoming monetary policy on the back of stronger remittance flows and reduction in inflationary pressures. Elixir Securities Limited believes this will reduce NIMs by 18bps for CY13 while trimming Elixir Securities Limited’s CY13 EPS to PKR 2.6 and DPS to PKR 2.0. At last closing price of PKR 16.1, BAFL seems attractively valued, at a PER of 6.2x and dividend yield of 12.4%, even after accounting for another 50bps cut in discount rate. BUY

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