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Karachi: Strong earnings growth leading to outperformance by 10.6%
According the Arif Habib Limited, Bank Alfalah Limited (BAFL) during the last 2 weeks has outperformed the benchmark index (KSE100) by 10.6%. The bank has remained under performed in CY11 before that by 5.6%. This was mainly due to realization of impairment against subsidiaries which subsequently resulted in muted growth for the bank. However as the bank depicted earnings growth of 80% YoY in 1HCY11, the stock price led to the recent outperformance. Arif Habib Limited expects BAFL CY11 to stand at PKR 3,104mn (EPS: PKR 2.30), depicting a growth of 3.2times from last year. At last closing price of PKR 11.30/share, the scrip is offering an upside potential of 20% to Alfalah’s June 2012 target price of PKR 11.6/share. The scrip is trading at CY11F P/BV and P/E of 0.6 and 4.9x, respectively.
Lower Provisions led to earnings growth
The bank’s provision against NPLs dropped by 60% to PKR 346mn as reversal of PKR 605mn was recognized, as the bank made an investment to the tune of PKR 750mn through right issue in the subsidiary (Alfalah Securities). The bank’s NPLs witnessed a decline of PKR 1.6bn to stand at PKR 16.7bn resulting in NPL ratio by 1HCY11 to decline to 8% from 8.4% in CY10 while coverage improved to 68.9% from 61.6%.
Subsidiary Impairment to continue to hurt the bank
The provision against investments stood at PKR 1.3bn as the bank continues to realize Warid impairment. The bank by 1HCY11 has impaired 53% of its investment in Warid while PKR 2.3bn remains unimpaired. Going forward, Arif Habib Limited believes the bank will continue to provision against Warid investment considering the subsidiaries performance and sector’s competitive nature. Moreover, from 3QCY11 the bank will realize provisioning against loans to Agritech as the prior relaxation granted in this regard by SBP’s has expired on August 31, 2011. The bank is expected to book provision against these advances to the tune of PKR 439mn and an impairment of PKR 233mn.
1HCY11 Review
• The bank’s net earnings stood at PKR 1,908mn (EPS: PKR 1.41) compared to PKR 1,079mn (EPS: PKR 0.80) in the corresponding period last year. In 2QCY11 alone, the bank posted net income of PKR 979mn (EPS: PKR0.73), a rise of 5% QoQ (100% YoY)
• The bank’s net interest income has augmented by 40% to PKR 8,837mn as the bank’s average earnings assets have increased by 12% YoY mainly due to 47% YoY rise in interest earning investments. This subsequently pushed interest income higher by 15% YoY while interest expense grew by mere 3% YoY. The bank’s NIMs during the period improved by 0.9%.
• The bank’s deposit grew by 17% to PKR 369bn by 1HC11 compared to PKR 315bn in the corresponding period last year. Advances during the period rose by mere 0.6% resulting in ADR to drop to 56.9% compared to 66.3% in 1HCY10.
• BAFL’s non-interest income witnessed a rise of 23% YoY to stand at PKR 2,749mn. This growth was primarily due to 38% YoY jump in other income and 20% YoY higher fee and commission income.
| BAFL Financial Highlights | ||||||
| PKRmn | 2QCY11 | 1QCY11 | QoQ | 1HCY11 | 1HCY10 | YoY |
| Interest income | 10,682 | 10,694 | -0.1% | 21,377 | 18,497 | 15.6% |
| Interest expense | 6,292 | 6,247 | 0.7% | 12,540 | 12,176 | 3.0% |
| Net Interest Income | 4,390 | 4,447 | -1.3% | 8,837 | 6,322 | 39.8% |
| Total Provisions | 758 | 906 | -16.4% | 1,664 | 963 | 72.7% |
| Total Non Interest income | 1,501 | 1,247 | 20.3% | 2,749 | 2,238 | 22.8% |
| Operating Expenses | 3,453 | 3,319 | 4.0% | 6,772 | 5,950 | 13.8% |
| Profit before tax | 3,498 | 3,349 | 4.4% | 6,847 | 6,000 | 14.1% |
| Net income | 979 | 930 | 5.3% | 1,908 | 1,079 | 76.9% |
| Earnings per share (PKR) | 0.73 | 0.69 | 5.3% | 1.41 | 0.80 | 76.9% |
| Source: Company Accounts & AHL Research | ||||||