AKD Quotidian about — BAFL: Poised for strong growth

Karachi, March 19, 2014 (PPI-OT): Following better than expected results in CY13 (EPS: PkR3.47, +3%YoY) where a sharp reduction in NPL stock was a key highlight, AKD Securities lifts AKD Securities’ Dec14 target price for BAFL to PkR32/share from PkR27/share.

According to AKD Securities, AKD Securities’ bullish stance is premised on a projected 5yr NPAT CAGR of 17%, among the best in the AKD Banking Universe, coupled with consistent payouts (cash + bonus) over the medium-term. Earnings growth is expected to emanate from both higher NII and lower credit costs. At the same time, while the rapid branch network expansion in 4QCY13 (+73 branches to 574) may impinge on CY14F costs, AKD Securities believes economies of scale will emerge over the medium-term as core staff strength has remained largely stable. BAFL trades at a CY14F P/B of 1.1x and P/E of 7.5x where AKD Securities’ revised TP (which does not attach any value to Warid stake) offers an upside of 12% (ex-dividend: 21%).

Sharp NPL reduction: Among the key positives for BAFL has been the 19%YoY reduction in NPLs to PkR17.9bn (NPL ratio: 6.6%, coverage: 73%) with recoveries from the Individuals (incl. consumer financing), Textile Spinning, Real Estate, Food and Sugar sectors. While provisioning coverage remains on the lower side, BAFLs continued focus on recoveries should ensure that credit costs clock in below 0.5% while impairment should also be on the lower side since Warid has been written down to zero.

Emerging cost efficiencies: Although admin expenses rose by 14%YoY in CY13 and Cost/Income slipped by 9ppt to 69%, AKD Securities believes economies of scale will gradually emerge. In this regard, the newest leg of BAFL’s branch network expansion (73 branches added in 4QCY13 to 574 branches at end-Dec13) has been managed through relocation of existing staff. As a result, the staff/branch ratio has come off to an all-time low of 18. While the full-year impact of recent branch additions may impinge on CY14F costs, AKD Securities sees Cost/Income coming off to ~60% across the medium-term.

Payouts to continue: Following a PkR2 DPS in CY13, BAFL has now paid dividends in each of the last 3yrs. Although CAR has come off by 54bps to 12.06%, AKD Securities believes BAFL has enough capital strength to continue with annual dividends over the next 3-4 years, where bonus issues may also accompany cash payouts. This should help BAFLs Tier-I ROE to expand from 17% at present to 20%+ by CY17F. Warid stake disposal would add comfort to BAFLs CAR and payout sustainability, in AKD Securities’ view.

Investment perspective: BAFL trades at a CY14F P/B of 1.1x and P/E of 7.5x. AKD Securities believes this is an attractive valuation set particularly as BAFLs ROE is projected to rise over the medium-term. At current levels, AKD Securities’ revised target price of PkR32/share offers 12% upside (ex-dividend: 21%). In this regard, incorporation of Warid sale (at an assumed price of US$250mn for equity shareholders) would increase AKD Securities’ target price to PkR33.8/share.


BAFL: Valuations
Year End Dec 31 CY12A CY13A CY14F CY15F CY16F
EPS (PkR) 3.38 3.47 3.80 4.57 5.30
EPS Growth 30% 2.6% 10% 20% 16%
Tier I BVS (PkR) 18.90 20.95 22.86 25.94 29.51
P/B Tier I (x) 1.51 1.36 1.25 1.10 0.97
BVS (PkR) 22.28 23.65 25.15 28.46 32.22
P/B (Tier I + Tier II) (x) 1.28 1.21 1.14 1.00 0.89
PER (x) 8.45 8.24 7.52 6.25 5.39
Loan to Deposit 51% 50% 49% 51% 53%
Yield on earning assets 10.96% 9.07% 9.53% 9.55% 9.53%
Cost of Funds 5.95% 5.10% 5.49% 5.47% 5.40%
NIMs 5.01% 3.97% 4.03% 4.07% 4.13%
Cost/Income 60% 69% 70% 68% 67%
ROE (average) 16.3% 15.1% 15.6% 17.0% 17.5%
ROA (average) 0.91% 0.82% 0.79% 0.85% 0.88%
DPS (PKR) 2.0 2.0 1.5 1.8 2.0
Dividend yield 7.0% 7.0% 5.3% 6.1% 7.0%
Source: Co. Reports and AKD Research
BAFL: Income Statement
(PKR mn) CY12A CY13A CY14F CY15F CY16F
Interest Income 46,080 43,961 52,969 59,802 66,831
Interest Expense 27,500 27,066 33,168 37,033 40,921
Net Interest Income 18,580 16,895 19,802 22,769 25,910
Total Provisions 3,559 1,054 1,068 1,159 1,327
Post Provisioning NII 15,021 15,841 18,734 21,611 24,583
Fee Income 2,537 2,800 3,221 3,543 3,897
Total noninterest expenses 15,519 17,313 19,759 21,712 23,859
NPBT 6,783 6,807 7,317 8,866 10,338
NPAT 4,556 4,676 5,125 6,162 7,144
Source: Co. Reports and AKD Research
BAFL: Balance Sheet
(PKR mn) CY12A CY13A CY14F CY15F CY16F
Investments 189,487 219,690 263,358 278,244 303,536
Loans and advances 233,933 260,780 292,636 338,825 392,497
Total Assets 536,568 610,614 684,776 765,870 857,265
Deposits 457,044 525,526 592,751 663,914 745,826
Total Liabilities 506,509 578,713 650,845 727,467 813,799
Net Assets 30,059 31,902 33,931 38,403 43,466
Total SHEQ 30,059 31,902 33,931 38,403 43,466
Total SHEQ and Liabilities 536,568 610,614 684,776 765,870 857,265
Source: Co. Reports and AKD Research

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