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Karachi: While ABL has posted strong 39%YoY growth in 1HCY11 and AKD Securities leaves AKD Securities’ CY11F-CY15F largely unchanged, AKD Securities trims AKD Securities’ target price to PkR7O/share from PkR75/share previously.
According to AKD Securities, This is largely due to a higher equity risk premium (6%) to account for relative lack of liquidity in the scrip. That said, AKD Securities reiterates AKD Securities’ positive bias on ABL where AKD Securities expects that ABL will close CY11F with a growth of 20%YoY and will post a 5yr NPAT CAGR of 13%. Growth should be led by sustained high NIMs (-5.9% on average across the next 5yrs) and lower credit costs where NPL accretion is showing steady deceleration. Impetus to earnings may arise from capital gains where, on Jun 3011, ABL retained unrealized gains of PkR3.4bn pertaining to its equity portfolio. At current levels, ABL trades at a CY11F P/B of 1.07x and PER of 5.25x where AKD Securities’ revised target price of PkR70/share offers an upside of 16% alongside a 12m rolling dividend yield of 8.3%. Accumulate!
| Earnings Revision Table | |||||
| (PKR) | CY10A | CY11F | CY12F | CY13F | TP |
| New EPS | 9.63 | 11.52 | 12.91 | 14.22 | 70 |
| Old EPS | 9.63 | 11.75 | 12.99 | 14.26 | 75 |
| Change | 0% | -1.9% | -0.7% | -0.3% | -7% |
39%YoY growth in 1HCY11: On a consolidated basis, ABL posted NPAT of PkR5.07bn (EPS: PkR5.90) up a strong 39%YoY. Alongside, ABL announced an interim dividend of PkR2.5/share (payout ratio: 42%). Key highlights included 1) strong 17%YoY Nil growth (est. 1HCY11 NIMs: 6.3%), 2) 53%YoY decline in total provisions, 3) 16%YoY growth in non-interest income and 4) high 23%YoY increase in non-interest expenses. On a sequential basis, 2QCY11 NPAT remained flat at PkR2.54bn (EPS: PkR2.95) as higher provisions were offset by non-interest income (despite the bank realizing lower capital gains on a QoQ basis).
Slower NPL formation: NPL stock increased to PkR2O.5bn on Jun 30’ 11, up 19%YoY and 6%QoQ. While recent floods may lead to some slippage in the near-term and ageing may lead to higher provisions in 2HCY11, AKD Securities remains confident that overall asset quality remains in control. In this regard, the NPL ratio remains less than 8% while provisioning coverage remains adequate at 80% (particularly as the bank has not availed any FSV benefit). Going forward, AKD Securities estimates that credit costs should ease from 1% in CY11 F (1.4% in CY1O) to less than 0.5% by CY15F.
Investment Perspective: ABL has shed 5%CYTD, outperforming the KSE- 100 Index by 1% in the process. Going forward, AKD Securities projects a 5yr NPAT CAGR of 13%, driven by sustained high NIMs and declining credit costs. This should enable ABL to post an average Tier-I CAR of 22.2% across the next 5yrs. ABL trades at a CY11F P/B of 1.07x, PER of 5.25x and 12m rolling dividend yield of 8.3%. The scrip offers an upside of 16% to AKD Securities’ revised target price of PkR7O/share. Accumulate!