AKD Quotidian about — Banks: TP Revisions post DR cut

Karachi, June 27, 2013 (PPI-OT): Channel checks suggest that Pakistani banks, particularly the larger ones, are not unduly concerned about the latest 50bps cut in the DR to 9% where continued decline in NIMs is expected to be neutralized by balance sheet growth, lower credit costs and opportunistic realization of capital gains.

According to AKD Securities while are compelled to trim the AKD Banking Universe CY13F/CY14F EPS estimates by -5% on average, AKD Securities keeps target prices largely intact in view of a lower discounting rate (ABL and HBL see higher TPs with model rollover).

At the same time, AKD Securities maintains dividend estimates. As a result, while banking shares have taken a hit this week, AKD Securities advocates a buy on dips stance as valuations remain un-stretched. In this regard, AKD Securities retains faith with the larger banks where AKD Securities reiterates that UBL and BAFL are preferred plays. Moreover, AKD Securities believes hitherto underperforming NBP and ABL are now overdue for catch-up price performance.


Revised Earning Estimates and TP

CYI3(PkR)       MCB     UBL   BAFL  NBP     ABL   HBL

 New EPS       21.50   14.22  2.70  8.16   9.69  15.80
 Old EPS       22.89   14.94  2.97  8.16  10.30   6.40
 % chg           -6%     -5%   -9%    0%    -6%    -4%
New Target price 225     120    20    51     81    130

 Source: AKD Research

Strong EA growth: As per data updated till Jun 1413, sector earnings assets have increased by 15%YoY, primarily led by continued funds flow to GoP securities (investments up 23%YoY/ADR down to 51%).

As per banks managements, despite spreads at an Syr low (6.2%) and further monetary easing taking place, investing in GoP securities will likely continue to remain in vogue. Private sector credit olitake continues to be affected by low demand as well, which remains impeded by the energy crisis.

Lower credit costs: With NPL stocks stabilizing, banks are witnessing a sharp reduction in credit costs (CY12: 0.9%, CY13F: 03%) with superior asset quality plays such as MCB and ABL recording net provisioning in 2QCY13 results.

AKD Securities retains faith with the larger banks where AKD Securities reiterates that UBL and BAFL are preferred plays. At the same time, AKD Securities believes hitherto underperforming NBP and ABL are now overdue for catch-up price performance.

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