Morning Call about -Lower non/Interest income to dent 3/qtr earnings – Arif Habib Limited : AsiaNet-Pakistan

Morning Call about -Lower non/Interest income to dent 3/qtr earnings – Arif Habib Limited

October 23, 2013 | Brokerage | Share:

Karachi, October 23, 2013 (PPI-OT): MCB: 3QCY13 earnings PKR 5.2/share down by 14% QoQ On a standalone basis, for the 3QCY13, Arif Habib Limited estimates MCB to post in earnings of PKR 5.2/share versus PKR 6.0/share in the prior period last year.

According to Arif Habib Limited This brings the 9MCY13 cumulative EPS to PKR 16.9 versus PKR 16.4 up by 4% YoY.

MCB - Financial Highlights
PKR mn                   3QCY13   2QCY13    QoQ   9MCY13   9MCY12    YoY
Interest Income          8,944    9,087    -2%   27,754   31,241   -11%
Non-Interest Income      2,325    3,492   -33%    8,168    6,933    18%
Total Income            11,270   12,579   -10%   35,921   38,174    -6%
Operating Expense        3,775    4,030    -6%   12,042   12,847    -6%
Provisions               (210)    (474)          (1,525)     54 
Pre-tax Profits          7,704    9,023   -15%   25,404   25,274     1%
Tax                      2,449    2,903           8,262    8,721 
Post-tax Profits         5,255    6,119   -14%   17,143   16,553     4%
EPS (PKR) - entity         5.2      6.0            16.9     16.4 

Source: Company accounts and AHL Research

3Q earnings to take hit on falling non/interest income
Following the NIM compression – higher cost of deposit combined with policy rate cut – banks’ interest income should remain rather flattish, Arif Habib Limited estimates. However, relative to interest income banks’ non-interest income can see a sharper decline QoQ – one-off proceeds of PKR 800mn from Unilever buyback early in 2QCY13.

Cutting down aggressively on operating expenses
Nevertheless, with nearly all banks, adjusting to low interest income environment have started to seek in additional earnings from cutting overall operating expenses. For MCB, Arif Habib Limited estimates operating expenses are likely to trim down further to a PKR 3,775mn a decline of 6% QoQ.

Aggressive deleveraging of funding book
So forth, the bank in 1HCY13 has booked in a provisioning reversal of PKR 1,135mn. In addition Arif Habib Limited estimates banks infection ratio to remain little changed at ~10%, but coverage ratio will likely increase to 88% from 86% last quarter.

NBP: 3QCY13 earnings PKR 1.6/share up by 16% QoQ
For National Bank of Pakistan (NBP) Arif Habib Limited sees 3QCY13 earnings slightly notching up by 8% QoQ to PKR 1.6/share versus PKR 1.4/share, bringing the 9MCY13 cumulative EPS to PKR 4.5 compared to PKR 5.8 in 9MCY12.

NBP - Financial Highlights
PKR mn                     3QCY13    2QCY13      QoQ    9MCY13   9MCY12    YoY
Interest Income            11,052    11,194     -1%    31,077   30,913     1%
Non-Interest Income         7,135     7,408     -4%    20,130   15,879    27%
Total Income               18,187    18,602     -2%    51,207   46,792     9%
Operating Expense          11,858     8,687     37%    29,438   24,281    21%
Provisions                  2,394     6,228    -62%     9,832    4,926   100%
Pre-tax Profits             3,935     3,687      7%    11,937   17,584   -32%
Tax                           469       698             2,451    5,266 
Post-tax Profits            3,466     2,989     16%     9,486   12,319   -23%
EPS (PKR) - entity            1.6       1.4               4.5      5.8 

Interest income to stay relatively unchanged
As of 2HCY13 the bank’s interest income has shielded off relatively well, considering the NIM squeeze. Overall Interest income declined by 5% YoY compared to an industry average of 8% YoY. For 3QCY13, Arif Habib Limited estimates a similar story going forward. Total interest income is likely to taper off by 1% to PKR 11,052mn.

Provisioning to square out overall interest gains
However, this came at a cost of higher provisioning expense, charging PKR 7.4bn in 2HCY13 provisioning expense compared to PKR 3.3bn in corresponding period last year. In 3QCY13, Arif Habib Limited estimates a provisioning charge of PKR 2.8bn, assuming an increased coverage ratio of 86% and slightly higher infection ratio of 13.1% during the quarter. In addition Arif Habib Limited estimates higher operating cost to further drag the bank’s profitability.

MCB at current levels Arif Habib Limited Arif Habib Limited maintain ‘HOLD’ stance with a target price of PKR 247/share and CY13E PER and P/B of 12.7x and 2.3x respectively. In addition the bank has paid a dividend of PKR 7.00/share in 1HCY13. Arif Habib Limited expects the bank to pay another PKR 3.5/share in 3QCY13. For CY13E this brings total dividend payout to PKR 13.5/share, thus offering a dividend yield of 5%.

For NBP Arif Habib Limited are currently in process of reviewing Arif Habib Limited full’s year earnings and valuation.


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