AKD Quotidian about — ABL: TP Revision

Karachi, April 02, 2014 (PPI-OT): AKD Securities revisits AKD Securities Limited’s earnings case for ABL post CYI3 results and raise AKD Securities Limited’s earnings estimates by 5% on average across the investment horizon. Together with slightly higher payout projections, this raises AKD Securities Limited’s revised target price for ABL to PkRI00/share.

While there is limited upside on offer at current levels, AKD Securities would take any dip in share price as an opportunity to build positions in this quality name where AKD Securities Limited’s positive outlook is premised upon a forecasted double-digit NPAT CAGR alongside a strong balance sheet (95% provisioning coverage, CAR: 17%+).

A sizeable capital gains backlog of more than PkR9.9bn (18% of Tier-I equity) on listed equity instruments also points towards potential +ve earnings surprises going forward. Having gained 17.3%CYTD, ABL trades at a CYI4F P/B of 1.5x and P/E of 9.lx where AKD Securities Limited’s revised target price implies a Neutral stance.

CY13 result review: On a consolidated basis, ABL posted NPAT of PkR14,78bn (diluted EPS: PkR12.91) in CY13, up by 25%YoY. This increase was largely due to hefty tax reversals where pre-tax CYI3 profits are owned by 7%YoY.

Key highlights of the CY13 result included: 1) 18%YoY Nil growth with the bank shiffing to direct investment n GoP securities,2) 13%YoY decline in total provisions, 3) sharp 30%YoY decline n non-interest income on lower dividends, 4) contained 6%YoY increase in admin expenses and 4) an effective tax rate of just 1% vs. an effective tax rate of 26% in CY12. In 4QCY13 alone, ABL posted NPAT of PkR635bn (diluted EPS: PkR5.54). up by 184%YoY/123%QoQ. On a pre-tax basis, 4QCYI3 NPAT was lower by 20%QoQ as Nil fell sharply by 11%QoQ on tighter NIMs.

Double-digit NPAT CAGR: while reported CY14F earnings for ABL are projected to clock in lower by 18%YoY to PkR12l4bn (EPS: PkRIO.60) in CY14F, this masks an impressive 15%+YoY increase in pro-tax profits. Over the medium- term, AKD Securities sees ABL having the capacity to deliver a 12% NPAT CAGR driven by strong balance sheet growth (13% pa), stable NIMs (-3.7%) and limited provisioning charges. Regarding the latter, ABLs provision coverage is close to 95% where AKD Securities sees net provisioning reversals In CY14F to be followed up by credit costs of -0.2% across the medium-term.

Capital gains backlog: At the end-Dec’13, ABL had an unrealized capital gains backlog of PkR9.92bn on its listed equity investments (18% of Tier-I Equity) which AKD Securities believes the bank will likely look to monetize over the medium-term, potentially Leading to +ve earnings surprises. In this regard, even the backlog of capital gains on non-strategic holdings is estimated in excess of PkR3bn.

This should allow non-interest income to continue depicting growth even as dividend income may now be subdued with the bank shifting towards direct investment in GoP securities as opposed to routing funds through the money market earlier.

Investment perspective: ABL has managed to deliver a 29% NPAT CAGR over the last 5yrs, testament to the ability of the management to navigate effectively through tough times. The outlook for the next Syrs remains relatively strong where uptick to base-case Tier-r ROE of close to 21% can arise if ABL pushes its dividend payout higher (40% on average) where 17%+ CAR certainly provides the space. After trades at a CYI4F P/B at 1.5x and PIE of 9.lx where AKD Securities Limited’s revised target price of PKR100/share implies a Neutral stance.


ABL: Valuations
Yearend Dec3l CYI2A CVI3A CV14F CY15F CVIGF

EPS (PkR) 10.35 12.91 10.60 11.81 13.07
EPS Growth 15.5% 24.8% -17.9% 11.4% 10.7%
Tier I BVS (PkR) 38.77 47.33 53.04 60.26 67.09
P/B Tier 1(x) 2.48 2.03 1.81 1.59 1.43
Total BvS (PkR) 45.75 58.24 63.52 71.39 78.44
P/B Total BVS (x) 2.10 1.65 1.51 1.34 1.22
PER (x) 9.28 7.43 9.05 8.12 7.34
Loan to Deposits 52.7% 43.9% 43.5% 44.5% 45.5%
Yield on earning assets 10.0% 9.1% 9.4% 9.4% 9.3%
Cost of Funds 6.1% 5.4% 5.6% 5.6% 5.5%
NIMs 3.9% 3.7% 3.8% 3.8% 3.7%
Cost/Income 46.2% 50.5% 49.5% 47.8% 47.2%
ROE Total SHEQ (average) 24.7% 24.8% 17.4% 17.5% 17.5%
RoA (average) 2.1% 2.2% 1.5% 1.5% 1.5%
ROE/PB Total SHEQ (x) 11.76 I5.07 11.52 13.03 14.26
Dividend yield 5.6% 5.2% 5.2% 6.3% 6.8%
Source Co. Reports and AKO Research
ABL: Income Statement

(PkRmn) CY12A CY13A CY14F CY15F CY16F
interest earned 49,512 54,223 64,345 73,357 81,768
Interest expense 31,181 32,562 39,054 44,641 49,856
Net interest income 18,331 21,661 25,291 28,716 31,912
Total provisions 651 565 (141) 683 802
Post provisioning Nll 17,680 21,096 25,432 28,033 31, 110
Total non-interest income 14,245 9,950 9,530 10,433 11, 116
Total non-internet income 15,814 16,115 17,434 18,907 20, 504
NPBT 16,112 14931 17,527 19,559 21, 722
NPAT 11.848 14783 12,138 13,528 14, 971
ABL: Balance Sheet
(PKRmn) CY12A CY13A CY14f CY15F CY16F

Investments 267,683 363,811 416,826 464,419 514.226
Loans and Advances 271,116 267,036 304,355 353,385 410.105
Total Assets 634,092 734,762 833,586 942,052 1,062,771
Deposits 514,702 608,407 699,668 794,123 901,329
Total Liabilities 581,706 668,076 760,857 860,302 972,956
Net Assets 52,386 66,686 72,729 81,750 89.814
Total SHEt2 32,336 66,686 72,726 81,750 89,814
Total SHEA and Liabilities 634,092 734,762 833,586 942,052 1,062,771

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