AKD Quotidian about — UBL: Favoured banking play in Pakistan

Karachi, February 28, 2013 (PPI-OT): Following strong 29%VoY growth in CY12, AKD Securities increases Elixir Securities Limited EPS estimates for UBL by -4% on average across Elixir Securities Limited forecasts horizon and rollover Elixir Securities Limited models for a revised target price of PKRI12.5lshare, up from PKR100/share previously.

According to AKD Securities while reported earnings are projected to post a decline of 1O%YoY in CVI3F to PkRI7.2bn (EPS: PkRI4.07), normalized earnings, adjusted for one-off derivative gains, are flattish. Beyond CYI3F, despite expected continuation of relatively high credit costs as FSV benefit expires, AKD Securities see UBL posting a strong Syr NPAT CAGR of 14% on the back of expected Nil rebound and a buoyant non-funded income franchise. In this regard, even if the domestic economy remains on the sluggish side, extension of the rebound in IJAE operations should provide growth impetus. Despite 229% gain in share price over the last 12m, IJBL trades at a CY13F P/B of lix and PIE of 6.6x (CY14F P/B: lox; PIE: 5.8x) where AKD Securities Limited revises target price offers 21% upside. Buy!

Result Review and Estimates Revision: Led by a 46%YoY decline in LLPs and 30%YoY non-interest income growth, UBL posted NPAT of PkR192bn (EPS: PkR1571) in CY12. Full-year DPS of PkRB.5 represented a payout of 54%. Going forward, AKD Securities see UBL posting NPAT of PkR17.2bn (EPS: PkR14.07) in CY13F, lower by 1O%YoY on reported earnings basis but flattish if CY12 is normalized for one-off derivative gains. AKD Security’s then see UBL posting a 3yr (CY13F-CY16F) NPAT CAGR of 14% with higher NIl on an expected uptick in interest rates and continued fee income growth driven by higher remittances and branchless offerings.

Asset quality can be better: While AKD Securities raises AKD Security’s TP, it could have been even higher if not for relatively weak asset quality where the NPL ratio remains sticky at 14% and coverage has surprisingly dipped to 68%. As a result, AKD Securities see credit costs remaining relatively elevated across the next few years, particularly as FSV benefit (CY12 balance: PkR3.2bn) comes in for expiry. That said, AKD Securities takes growth focus in the GCC markets as a positive (overseas loan stock up 28%YoY in CY12) where UAE is depicting a rebound, as evidenced by a 19.5%CYI3TD run-up in the DFM on real estate stocks. Notwithstanding exposure in the riskier Bahrain and Yemen markets, AKD Securities believes the overseas book can allow UBL to outstrip peers’ growth if the domestic economy remains sluggish.

Investment Perspective: While forward DIV comes to 8.6%, iridium – term high payout sustainability may be dependent on a further TFC issuance ala BAFL. Barring this risk, UBL trades at an attractive valuation set that should limit any downside. In this regard, despite having gained 29% over the last l2uri, UBL still trades at a CY13F P/B of lix and PIE of 6.6x (CY14F P/B: lox; PIE: 5.8x) where AKD Security’s revises target price offers 21% upside. Buy!

UBL: Valuations

Year End Dec31 CYI2A CYI3F CYI4F CYI5F
EPS (PkR)

15.71

14.07

16.03

18.56

EPS Growth

29%

-10%

14%

16%

Total BVS (PkR)

82.4

86.3

93.3

103.8

P/B (Total SHEQ) (x)

1.13

1.08

1.00

0.89

PER (x)

5.9

6.6

5.8

5.0

Loan to Deposit

51%

50%

51%

53%

Yield on earning assets

10.17%

9.35%

10.20%

10.07%

Cost of Funds

4.64%

4.58%

4.91%

4.76%

NIMs

5.53%

4.78%

5.29%

5.31%

Post Prov Spread

4.8%

4.2%

4.6%

4.7%

Market Cap to Deposits

15%

14%

12%

11%

Cost/Income

44.9%

49.9%

47.9%

46.8%

ROE (average)

20.6%

16.7%

17.9%

18.8%

ROA(average)

2.2%

1.7%

1.8%

1.9%

Source: Co. Reports and AKD Research

UBL: Income Statement

(PkRmn) CYI2A CYI3F CYI4F CYI5F
Interest Income

75,380

80,085

96,294

104,607

Interest Expense

35,737

40,353

47,894

51,247

Net Interest Income

39,643

39,732

48,401

53,360

Post Provisioning Nil

35,396

35,914

42,977

48,497

Fee income

9,450

10,395

11,434

12,292

Non-interest income

19,592

18,235

18,277

19,698

Total non-interest expenses

26,578

28,934

31,918

34,187

NPBT

28,410

25,214

29,336

34,007

NPAT

19,228

17,224

19,626

22,715

Source: Co. Reports and AKO Research

UBL: Balance Sheet

(PkRmn) CYI2A CYI3F CYI4F CYI5F
Investments

381,246

430,448

470,033

501,230

Loans and advances

385,834

422,474

473,176

540,143

Total Assets

960,210

1,051,068

1,161,914

1,277,333

Deposits and Other Accounts

755,264

837,931

929,449

1,024,404

Total Liabilities

859,356

945,367

1,047,730

1,150,215

Net Assets

100,854

105,702

114,183

127,118

Total Tier I Equity

82,772

90,092

99,545

111,950

Total Tier II Equity

18,082

15,610

14,639

15,168

Total SHEQ

100,854

105,702

114,183

127,118

Total SHEQ and Liabilities

960,210

1,051,068

1,161,914

1,277,333

Source: Co. Reports and AKD Research

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