Morning Call about – 1) April CPI to be 5.4% 2) MEBL to post 7% YoY decline in earnings – Arif Habib Limited

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Karachi, April 30, 2013 (PPI-OT): CPI expected to be as low as 5.39% in Apr’13

Apr’13 CPI inflation is expected to clock in at 5.39% YoY (compared to 6.57% YoY last month), marking a new low since Jul’07.

According to Arif Habib Limited on monthly basis, the headline is projected to post a 0.7% rise. The average CPI for 10MFY13 would now stand at 7.74% YoY, way low from what gov’t targets at 9.5% YoY for FY13.

The MoM inflation is primarily driven by rise in a few commodity prices, clothing and footwear category and the house rent category. However, no pass-on of energy prices’ backlog, decline in petroleum prices and no major appreciation in prices under all categories are expected to keep the CPI low this time round too.

2) MEBL expected to post 7% YoY decline in earnings
Meezan Bank’s (MEBL) board meeting is scheduled to be held on 30th April, 2013. Arif Habib Limited expects the bank to report net income of PKR 837mn (EPS: PKR 0.84) in 1QCY13 compared to PKR 903mn (EPS: PKR 0.90) in the same period last year.

This marks a 7% YoY decline in the overall earnings of the bank in 1QCY13. An increase in return on deposit and other due expenses is expected to pull net interest income down to 3% YoY, clocking in at PKR 2.6bn. During the period, bank’s other income is expected to witness a decline of 7% YoY to PKR 744mn compared to PKR 799mn in 1QCY12. A rise of 8% YoY in other expenses is expected to reach PKR 1.9bn in 1QCY13. Moreover, the total provisioning is estimated to be PKR 128mn compared to PKR 194mn in 1QCY12.

The scrip is trading at a CY13E P/BV and P/E of 1.2x and 7.1x, respectively. At current level, MEBL has an upside potential of 23% to Arif Habib Limited Dec’13 target price of PKR 31. Thus, Arif Habib Limited recommends BUY!

Financial Highlights(PKR mn)     1QCY13E    1QCY12A   YoY
Profit earned on F.I.P             5,194      5,002   4%
Return on deposits and others      2,632      2,516   5%
Net Spread earned                  2,562      2,486   3%
Net Spread after provisions        2,434      2,292   6%
Total other income                   744        799  -7%
Total other expenses               1,879      1,743   8%
Profit after tax                     837        903  -7%
EPS (PKR)                           0.84       0.90  -7%

Source: Company Accounts, AHL Research