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January 15, 2014
MORNING BRIEFING
Pakistan Banking Sector
BAHL: Rerating due on strong return
generation – Buy with TP of Rs62
+ 9221 111-574-111
KSE100 Index: Closing 33,585.75 ↑ (214.46)
Target Price: Rs62
We forecast BAHL’s sustainable ROE at 22.7% (2015-19F) incorporating
replacement of maturing PIBs with relatively lower yielding assets from
2017 onwards.
Market Cap: Rs56bn, US$553bn
We flag one of the highest PIBs investments (Rs126bn) by BAHL
amongst mid-tier banks, where PIBs amount to 29% of its total deposits.
Also, it’s PIB/Equity (4.34x) is the highest in JS Banking Universe.
1-yr High / Low: Rs50.52 / 34.63
Going forward (1) reversals in provisioned expenses and (2) gains
realized from PIBs redemptions would be an addition to our base case
future earnings growth.
For further details, please refer to our detailed report released earlier.
Investment case
1-yr Avg. Daily Volume:
0.6mn shares, Rs29mn, US$0.3mn
Estimated free float: 667mn shares (60%)
BAHL performance vs KSE-100
BAHL
140%
KSE-100
130%
We initiate our coverage on Bank Al-Habib Limited (BAHL) with a ‘Buy’ rating. Our
December 2015 Target Price of Rs62 offers an upside of 24%, with a forward 12month D/Y of 11% (2015F: 6%). Our Target Price has been derived from the
Justified P/B methodology, where the bank’s expected sustainable ROE is
computed at 22.7%. BAHL trades at 2015F P/B of 1.58x vs. industry’s average of
1.83x. We believe these discounted valuations are unjustified given (1) low risk
compared to peers and (2) higher than industry’s average earnings growth. Our
2015F earnings growth expectation for the bank stands at 18% YoY, driven by (1)
improving NIMs and (2) lower infected books. We believe BAHL trades at a
discount to its justified P/B offering attractive valuations against peers trading on a
higher P/B.
Muted asset risk
BAHL has prudently maintained its ADR at around 40%, well below industry’s ADR
of 53%. The bank’s balance sheet reflects preference of asset deployment in
investments (IDR of 64% vs. industry’s IDR of 55%), with dominance of risk free
government papers. We flag one of the highest PIBs investments (Rs126bn) by
BAHL amongst mid-tier banks, where PIBs amount to 29% of its total deposits.
Also, it’s PIB/Equity (4.34x) is the highest in JS Banking Universe. However with
major portion of its investments in PIBs classified under Held-to-maturity, we do not
expect any gains to be reflected in the bank’s equity or income statement.
Soft Infection ratio with high coverage
120%
110%
100%
90%
Source: KSE, * based on adjusted prices
Key Valuations
2014E
Net Markup Income
18,758 21,665 23,581
2015F
2016F
NIMs
3.7%
3.9%
3.9%
Non Markup Income
3,794
4,136
4,591
5.51
6.52
7.36
18.8%
18.4%
12.8%
2.50
3.00
3.50
BVPS
27.69
31.72
36.07
P/BV
1.81
1.58
1.39
EPS
EPS growth
DPS
Dividend Yield
Core ROE
BAHL’s conservative approach has led to constant decline in its ADR over the
years. The bank has replaced corporate lending with investments, with ADR
Dec-14

Market Price: Rs50.07
Oct-14

Reuters Code: BKEQ.KA
Aug-14

Bloomberg Code: BAHL PA
Apr-14

Our Target Price has been derived from the Justified P/B methodology,
where the bank’s expected sustainable ROE is computed at 22.7%. BAHL
trades at 2015F P/B of 1.58x vs. industry’s average of 1.83x.
KATS Code: BAHL
Feb-14

We initiate our coverage on Bank Al-Habib Limited (BAHL) with a ‘Buy’
rating. Our December 2015 Target Price of Rs62 offers an upside of 24%,
with a forward 12-month D/Y of 11% (2015F: 6%).
Dec-13

Ext: 3099
Jun-14

Amreen Soorani
[email protected]
5.0%
6.0%
7.0%
24.2%
24.6%
23.9%
Source: JS Research
JS Research is available on Bloomberg, Thomson Reuters, CapitalIQ and www.jsgcl.com
Please refer to the important disclaimer on the last page
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January 15, 2015
MORNING BRIEFING
coming down to 39.6% as at September 2014 from 56% in December 2009. 40% of
BAHL’s corporate loan book is directed towards the Textile sector, while 70% of its
extremely low Infection ratio is fueled by the said. The bank has already covered its
NPLs to the extent of taking its Coverage ratio to 150% as at Sep-14, where BAHL
is yet to witness any reversals despite this aggressive provisioning strategy. We
would like to highlight possibilities of reversals from the textile sector have
improved given improving sector outlook on (1) increase in gas supply, (2) soft
cotton prices and (3) declining interest rates. Any reversals would be an addition to
our base case earnings.
Also in Focus
Pipeline construction for RLNG supply approved
The Economic Co-ordination Committee (ECC) of the Cabinet has approved, in
principle, the construction of a 1,100 km North South Gas Pipeline from Karachi to
Lahore for supply of RLNG to the proposed gas fired power plants in Northern
Pakistan. The ECC was informed that this project is critical for supply of RLNG to
the proposed gas fired power plants in Northern Pakistan.
Pakistan market statistics (Jan 14, 15)
KSE-100 Index
33,585.75
Previous KSE-100 Index
33,371.29
Change from last closing
214.46
0.64%
Change from last closing (%)
7,686.15
KSE Market Cap. (Rs. bn)
KSE Market Cap. (US$ bn)
76.41
Total Volume (Shares mn)
383.56
17.75
Traded Value (Rs. bn)
176.44
Traded Value (US$ mn)
21,703.90
KSE-30 Index
Change from last closing
116.76
Change from last closing (%)
0.54%
KSE Futures Volume (Shares mn)
32.54
3,165.31
KSE Futures Value (Rs. mn)
11.77%
KSE Futures Spread
Source: KSE
KSE valuations
2013A 2014A/E 2015F
P/E (x)
11.0
9.3
8.6
P/BV (x)
2.2
2.0
1.9
Div. Yield (%)
4%
5%
5%
10%
18%
8%
Earnings growth
Source: JS Research
JS Global Capital Limited
6th Floor, Faysal House, Shahrah-e-Faisal, Karachi
Research:
Equity Sales:
Tel: +92 (21) 32799005
Tel: +92 (21) 32799513
Fax: +92 (21) 32800163
Fax: +92 (21) 32800166
[email protected]
[email protected]
This report has been prepared for information purposes by the Research Department of JS Global Capital Ltd. The information and data on which this report is based are obtained from sources which
we believe to be reliable but we do not guarantee that it is accurate or complete. In particular, the report takes no account of the investment objectives, financial situation and particular needs of
investors who should seek further professional advice or rely upon their own judgment and acumen before making any investment. This report should also not be considered as a reflection on the
concerned company’s management and its performances or ability, or appreciation or criticism, as to the affairs or operations of such company or institution. Warning: This report may not be
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