AKD Quotidian about — BAFL: Fulfilling its potential!

Karachi, March 21, 2013 (PPI-OT): Post a solid set of results in CYI2, AKD Securities raises EPS estimates across AKD Securities forecasts horizon by 7% on average and also rollover AKD Securities financial model to CYI3F.

According to AKD Securities however, assign a higher discounting factor (to account for a stricter regulatory stance) due to which AKD Securities targets price remains at PkR2O/share. Nevertheless, this represents potential upside of 29% where AKD Securities believes the bank’s attractive valuations (CYISF P/B: O.66x, PIE: 4.4x, D/Y: 12.9%) have substantial room to witness a positive rerating given a projected ROE (total equity) of 17% across the next 5yrs coupled with likely continuation of annual cash payouts. AKD Securities eyes a 5yr NPAT CAGR of 12% with earnings potential to be supplemented by 1) near-completion of Wand impairment and 2) entry into the branchless banking segment. The pieces appear to be falling into place – Buy!

A more consistent earnings trajectory: In CY12 (unconsolidated since Wand and Wateen are no longer classified as associates), BAFL posted NPAT of PkR4.56bn (EPS: PkR3.38), up a strong 30%YoY on the back of lower impairment and 36%YoY non-interest income growth led by higher fees and capital gains (largely on GoP debt securities). Although AKD Securities expect s CY13F EPS growth to be modest, AKD Securities sees a swift rebound from CY14F onwards which should deliver 5yr NPAT CAGR of 12%.

Lower impairment to counter LLPs: With the NPL stock increasing by 16%YoY in CY12 and provisioning coverage stuck in the mid-6O%s, AKD Securities expects BAFLs credit costs to remain elevated over the next 2-3 years particularly as FSV benefit (net of tax: PkR2.Obn) gradually expires. That said, BAFL is now largely free of Wand impairment (cumulative impairment of PkR4.Obn vs. cost of PkR4.4bn) which is a significant possible.

Strong non-funded franchise: BAFL has finally jumped onto the branchless banking bandwagon by leveraging group synergies with Wand. This should add to an already strong fee income franchise that posted strong 17%YoY growth in CY12 after staying range-bound across CYO8-CY11 . As a result, BAFL should be able to effectively counter the prevalent phenomenon of tighter spreads (e.g. recent changes to interest calculation on savings deposits).

Stronger capital base: BAFL announced a cash dividend of PkR2/share alongside CY12 results, breaking away from precedence of biennial dividends. In this regard, following the successful recent TFC issuance (PkRSbn priced at Gm KIBOR + 125%) AKD Securities believes BAFL is now well placed to continue with annual cash payouts, at least over the next few years. This could dovetail with resumption in bonus issues as Basel Ill eyes an increase in the paid-up capital/RWA ratio over the medium-term.

Investment perspective: With ROE (total equity) projected to average 17% across the next 5yrs coupled with likely continuation of annual cash payouts, AKD Securities believes BAFL deserves a valuation multiple rerating. BAFL trades at a CY13F P/B of O.66x, PIE of 4.4x and DIY of 12.9% where AKD Securities tarciet price of PkR2O/share offers 29% upside. Buy!

BAFL: Valuations

Year End Dec31 CY12A CY13F CY14F CY15F
EPS (PkR)

3.38

3.50

4.15

4.68

EPS Growth

30%

4%

18%

13%

BVS (PkR)

2242

23.43

2581

28.42

P/B (Tier I + Tier II) (x)

0.69

0.66

0.60

0.54

PER (x)

4.58

4.41

3.73

330

Loan to Deposit

51%

51%

51%

52%

NIMs

501%

4.36%

4.90%

4.64%

Market Cap to Deposits

4.6%

4.1%

3.6%

3.3%

Cost income

60%

65%

62%

61%

ROE (average)

163%

153%

168%

173%

ROA (average)

0.91%

0.83%

0.88%

0.89%

UPS (PkR)

2.0

2.0

2.3

2.5

Dividend yield

129%

12.9%

145%

162%

Payout Ratio

59%

57%

54%

53%

Source: Co. Reports and AKD Research

BAFL: Income Statement

(PkRmn) CYI2A CVI3F CYI4F CVI5F
Mark-up/return/interest earned

46,080

48,551

59,011

62947

Mark-up/return/interest expensed

27,500

30,154

35,518

38183

Net Mark-up / interest income

18,580

18,397

23,493

24,765

Total Provisions

3,559

2,255

3,524

2,794

Post Provisioning Nil

15,021

16,142

19,970

21,971

Total non mark-up income

7,281

7,346

6,758

7,204

Total non mark-up expenses

15,519

16,668

18,310

19,667

NPBT

6783

6,821

8,418

9,507

NPAT

4,556

4,727

5,597

6,319

Source: Co. Reports and AKD Research

BAFI: Balance Sheet

(PkRmn) CY12A CYI3F CY14F CYI5F
Investments

189,487

215,921

244,026

261,069

Loans and advances

233,933

260,940

292,413

334,850

Total Assets

536,467

599,944

673,569

745,228

Deposits and Other Accounts

457,119

510,591

575,997

638,585

Total Liabilities

506,219

568,331

638,743

706,885

Net Assets

30,247

31,612

34,826

38,342

Total Tier I Equity

25,690

27,738

30,661

33,970

Total Tier II Equity

4,558

3,874

4,165

4,373

Total SHEQ

30,247

31,612

34,826

38,342

Total SHEQ and Liabilities

536,467

599,944

673,569

745,228

Source: Co. Reports and AKD Research

Leave a Reply