Karachi: Latest SBP data suggests that Banks have booked aggregate provisions of PkR12bn in 1QCY12, higher on a QoQ basis (FSV benefit enhanced on Oct 21’ll) but lower YoY.
According to AKD Securities, while eventual provisions could tag in higher, 1QCY12 banks’ results will likely continue the trend established in CY11 (listed sector profits up 27%YoY – only profitable banks), however at a more moderate pace of 10%YoY-15%YoY growth. In this regard, while NIMs will likely come off due to lower interest rates, sector Net Interest Income should still post -5%YoY growth in 1QCY12 due to growth in earning assets (40%Y0Y increase in investments). Positive earnings surprises may also be witnessed on potential for capital gains realization (KSE-100 up 21% in 10CY12 with Banks recording net sell of PkR1.8bn in the previous quarter). While a 38%CYTD gain in Banks suggests room for profit taking, AKD Securities believes upcoming 1QCY12 results could provide reason for further upside. At current levels, AKD Securities’ top picks are UBL, ABL and BAFL while NBP could potentially also outperform in the near-term on likely strong 1QCY12 results.
Banks to continue double-digit growth: Although individual banks results will vary, the sector at large is projected to post 1O%YoY-15%YoY NPAT growth in 1QCY12. This should be driven by 1)-5%YoY NIL growth with growth in earning assets (primarily fixed income instruments) to compensate for likely tighter NIMs, 2) a reduction in loan provisions/impairment, 3) prospects for strong non-interest income primarily due to higher capital gains and 4) lower price pressures vs. last year which should contain growth in admin expenses. In AKD Securities’ view, banks with the potential to deliver positive earnings surprises in 1QCYI2 are those with strong growth in earning assets and high potential for capital gains realization (primarily the larger banks).
Investment Perspective: While a 38%CYTD gain in Banks (outperformance of 17% vs. the Index) suggests room for profit taking, AKD Securities believes upcoming 1QCY12 results could provide reason for further upside particularly as the AKD Banking Universe still trades at attractive valuations (CY12F P/B: 1.0x, P/E: 6.1x). At current levels, AKD Securities’ top picks are UBL (TU: PkR87/share), APL (TP: PkR73/share) and BAFL (TP: PkR21.50/share) while NBP could potentially also outperform in the near-term as likely strong 1QCY12 results.