AKD Quotidian about — HMB: CY11 Result Preview

Karachi: Habib Metropolitan Bank Ltd (HMB) is scheduled to announce its full- year CY11 result on Monday, Feb 27’12. On a consolidated basis, AKD Securities expects HMB to post NPAT of PkR3.17bn (EPS: PkR3.03) in CY11 against NPAT of PkR2.80bn (EPS: PkR2.68) in CY10, translating into growth of 13%YoY.

According to AKD Securities, Alongside the result, AKD Securities expects HMB to announce a cash dividend of PkR0.50 PkR0.75/share, while the possibility of a 10% bonus issue cannot be ruled out. Sequentially AKD Securities believes 4QCY11 would likely have been the best quarter of CY11 with projected NPAT up 33%QoQ to PkR990mn (EPS: PkR0.94) due to decrease in loan provisions (enhanced FSV benefit) and higher fx income. Key highlights for CY11E are expected to be 1) 11%YoY Nit growth, 2) 2%YoY decrease in loan provisions, 3) 12%YoY increase in non-interest income on higher investment and fee income, and 4) relatively high admin expense growth of 20%YoY due to branch network expansion. Having gained 8.3%CYTD, HMB trades at a CY12F P/B of 0.7x and PER of 5.2x where AKD Securities’ target price of PkR20/share offers upside of 9.4% and implies an Accumulate stance. That said, AKD Securities will took to revisit AKD Securities’ investment case post release of CY11 accounts.

Engro Reduces DAP price by PkR310/bag

Engro has reportedly decreased DAP prices by PkR3IO/bag, bringing it down to PkR3,750/bag (ex-GST PKR 3,233/bag). The decision has been taken on the back of steep decline in int’l DAP prices. FFBL, the sole DAP manufacturer in the country, is likely to follow suit. Regarding FFBL, AKD Securities has already accounted for lower DAP prices in CY12F and in this regard AKD Securities has assumed average DAP phosacid primary margins of US$200/ton compared with an average of -US$288/ton in CY11.

Near-term outlook for FFBL is negative given i) very weak 1QCY12 earnings (EPS; -PkR0.4-PkR0.5) due to plant shutdown and lower DAP-phosacid margins (higher priced carryover phosacid inventory) and ii) seasonal dip in DAP sales (1H accounts for just 24% of annual DAP sales), which should in AKD Securities’ view result in relatively weak price performance. However, long term fundamentals of FFBL remain positive as lower DAP prices should stimulate sales going forward, while input phosacid prices are also expected to fall in line with global DAP prices. Furthermore, FFBL enjoys production flexibility, giving it the option to allocate more gas towards the higher margin product (urea or DAP). At current levels AKD Securities has an Accumulate stance on FFBL (CY12F dividend yield of 15.1%) based on AKD Securities’ target price of PkR49/share.