AKD Quotidian about — Banks: 1QCY14 Result Previews

Karachi, April 09, 2014 (PPI-OT): The listed banking sector has gained 12.4%CYTD with valuation rerating in the ongoing macro uptick dovetailing with impetus to earnings following the recent shift into PIBs.

According to AKD Securities, some of these positives should manifest in upcoming 1QCY14 results where AKD Securities expects earnings growth to be led by higher NII (asset re-pricing) and continued strong fx income. Capital gains have the potential to add gloss to AKD Securities’ base-case 7%YoY earnings growth for AKD Universe Banks, with 1QCY14 results expected to lay the platform to what should turn out to be a strong growth year.

At current levels, AKD Securities flags catch-up themes as potential outperformers where preferred plays include BAFL (TP: PkR32/share) and NBP (TP: PkR60/share). Furthermore, while not among AKD Securities’ formal coverage cluster, FABL (deep discount to book value) and BAHL (potential inclusion in MSCI FM 100 Index) may also continue their price run-up.

EPS (PkR)                  1QCY14F   1QCY13  YoY    4QCY13     QoQ     DPS (PkR)

MCB                          4.90     5.29   -7%      3.83     28%         3.00

ABL                          2.62     2.49    5%      5.54    -53%         1.25

NBP                          1.90     1.79    6%     (0.91)    n.m.           -

HBL                          4.15     3.42   21%      4.29     -3%         2.00

BAFL                         0.90     0.75   20%      1.01    -10%            -

UBL                          4.16     3.82    9%      4.60    -10%         2.00

Universe result previews: As a group, AKD Securities expects the Big-6 banks to post combined NPAT of PkR24.9bn in 1QCY14F vs. combined NPAT of PkR23.3bn in 1QCY13, translating into modest growth of 7%YoY.

In this regard, AKD Securities expects upcoming 1QCY14 to lay the platform to what should turn out to be a strong growth year for banks particularly if the recent shift in favour of PIBs continues. Impetus to 1QCY14 results should broadly arise from higher NII as the impact of the 4QCY13 rate hikes (+100bps) builds into asset re-pricing.

At the same time, loan provisions are expected to stay benign while fee/fx income should turn in a strong performance. Positive surprises can emerge due to potential realization of capital gains, where already high backlogs will likely have been augmented by the KSE-100s 7.5% return in 1QCY14. Individually speaking, watch out for HBL and BAFL, each expected to post growth of 20%YoY. Furthermore, after a very poor showing in CY13, NBPs 1QCY14 result can potentially ease the bank’s asset quality concerns and thereby unlock price performance.

Investment perspective: The AKD Banking Universe has gained 13.4%CYTD to trade at a CY14F P/B of 1.4x and P/E of 9.6x. While valuation rerating is clearly underway, and makes us reiterate AKD Securities’ liking for the larger banks within the backdrop of sustainable macro improvement, AKD Securities likes catch-up themes in the near-term.

With names such as UBL and ABL rallying sharply of late, AKD Securities flags BAFL (TP: PkR32/share) and NBP (TP: PkR60/share) as scraps that can outperform in 2QCY14. Furthermore, while not among AKD Securities’ formal coverage cluster, FABL (deep discount to book value) and BAHL (potential inclusion in MSCI FM 100 Index) may also continue their price run-up.