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Karachi, April 04, 2013 (PPI-OT): CY12 a strong year for BAFL: Bank AlFalah (BAFL) recorded 30% growth in earnings (EPS: PKR3.38) in CY12 which came about on the back of 36% higher non-fund based income and 18% lower provisioning expenses.
According to Elixir Securities Limited meanwhile, net interest income (NII) remained flattish YoY.
CY14E NIM to rise by 62bps YoY: CY12 NIM clocked in at 5.04% which will decline by 110bps to 3.9% in CY13E. The same will lead to a drop of 29% YoY in CY13E earnings. However, an expected 100bps hike in interest rate in mid-2013 will push up NIMs again by 62bps to 4.6% in CY14E.
Aiming for lower deposit cost: Deposits increased by 14% YoY in CY12 and CASA increased to 77.5% in CY12 from 74.5% in the previous year. Elixir Securities Limited believes the bank will focus on deposit cost reduction as management has indicated their intention to enhance CASA by introducing newer products. Therefore, deposit growth will likely average at 10% going forward and CASA will increase to 79% by the end of CY13.
Lower provisioning on investments to offset higher NPL provisioning: Loss coverage at 65% and further ageing is expected to increase provisioning expenses by 31% in CY13E. However, significant provisioning of Warid Telecom last year has left only PKR650mn of value in BAFL’s books at present which will result in a 67% decline in investment provisioning in CY13.
Wateen sell-off to yield 18 paisas: Warid has announced to buy back Wateen at PKR4.5/share. Wateen’s value stands at PKR130mn, equivalent to PKR1.56/share in BAFL’s books. This deal will likely result in a net impact of PKR0.18 on CY13 EPS for the bank.
Strong CY14 to follow a difficult CY13: BAFL’s CY14 EPS would rise 70% YoY after tumbling 29% in CY13, driven by lower provisioning and rising NIMs. The stock is currently trading at CY13E PBV of 0.65x and offers an attractive average ROE of 17.7% over CY14-16E. Elixir Securities Limited Dec-13 PT of PKR20 offers a potential upside of 27% in addition to dividend yield of 9.3%. BUY
CY12 a strong year for BAFL Bank AlFalah (BAFL) recorded 30% growth in earnings (EPS: PKR3.38) in CY12 which came about on the back of 36% higher non-fund based income and 18% lower provisioning expenses. Meanwhile, net interest income (NII) remained flattish during the year. Growth in average earning assets of 15% was offset with a 74bps decline in net interest margin (NIM) during CY12.
CY14E NIM to rise by 62bps YoY CY12 NIM clocked in at 5.04% which will decline by 110bps to 3.9% in CY13E. Lower interest rates (down by 200bps in CY12) and a higher cost on savings deposits will lead to this decline.
Therefore, net interest income (NII) will bear the brunt and drop by 9.5% YoY to PKR16.8bn in CY13. The same will lead to a drop of 34% YoY in CY13E earnings. However, a 100bps hike in interest rates in the latter half of 2013 will likely push up NIMs by 62bps to 4.6% in CY14.
Aiming for lower deposit cost Deposits increased by 14% YoY in CY12 and CASA increased to 77.5% in Dec-12 from 74.5% in Dec-11. Share of savings account increased to 34% from 31% last year while the share of current account remained unchanged. Cost of funds dropped from 6.6% to 6.1% due to downward re- pricing of deposits as well as a lower share of fixed deposits in the portfolio.
Lower interest rates will continue to reduce the cost of funds in CY13E, however, the increase in the savings rate with profit being calculated on average balances (instead of minimum) will limit the decline in cost of funds to 69bps only.
Elixir Securities Limited believes the bank will focus on deposit cost reduction and the management also indicated their intention to enhance CASA by introducing new products. Therefore, deposit growth will likely average at 10% going forward and CASA will increase to 79% by the end of CY13.
BAFL
| PKR mn | 4QCY11A | 4QCY12A | YoY | CY11A | CY12A | YoY |
| Net Interest Income |
5,484 |
4,701 |
-14% |
18,611 |
18,580 |
0% |
| Non-Interest Income |
1,419 |
2,234 |
57% |
5,368 |
7,281 |
36% |
| Fee and commission |
465 |
695 |
49% |
2,148 |
2,537 |
18% |
| Dividend |
59 |
128 |
118% |
192 |
349 |
82% |
| FX Income |
314 |
255 |
-19% |
1,115 |
1,310 |
17% |
| Capital Gains |
21 |
741 |
3455% |
129 |
1,330 |
930% |
| Other Income |
560 |
414 |
-26% |
1,783 |
1,756 |
-2% |
| Total Revenues |
6,902 |
6,935 |
0% |
23,978 |
25,861 |
8% |
| Total Provisions |
2,238 |
1,377 |
-38% |
4,330 |
3,559 |
-18% |
| Operating expenses |
4,020 |
3,993 |
-1% |
14,215 |
15,519 |
9% |
| Profit Before Tax |
645 |
1,564 |
143% |
5,434 |
6,783 |
25% |
| Taxation |
143 |
407 |
184% |
1,931 |
2,227 |
15% |
| Profit After Tax |
501 |
1,157 |
131% |
3,503 |
4,556 |
30% |
| EPS |
0.37 |
0.86 |
131% |
2.6 |
3.38 |
30% |
| DPS |
1.75 |
2.00 |
14% |
1.75 |
2.00 |
14% |
Source: Company Accounts, Elixir Research
NPL provisioning to be offset against lower provisioning on investments ahead
Advances growth during CY12 was highest in 6 years at 17.5% where the share of power sector loans increased significantly. Bulk of the incremental lending was likely directed towards public sector enterprises as share of public sector loans in total advances increased from 11.2% in CY11 to 18.4% in CY12.
Simultaneously, fresh NPLs of PKR3bn were recorded during the year which increased the substandard portion to 20% of all infected loans from 15% last year. Loss coverage at 65% and further ageing is expected to increase provisioning expenses by 31% in CY13E. However, significant provisioning of Warid Telecom has left only PKR650mn of investment value in BAFL’s books as of Dec-12 which will result in a 67% decline in investment provisioning in
CY13, and offset higher NPL provisioning.
Wateen sell-off to yield 18 paisas The bank booked a massive increase of 35% in the non-interest income in CY12 primarily on the back of capital gains worth PKR1.3bn. The same will decline by 8% in CY13E as the interest rate hike during the year will limit gains on fixed income instruments. Some gains will likely come from Warid’s purchase of Wateen at PKR4.5/share. Wateen’s value on BAFL’s books stands at PKR130mn, equivalent to PKR1.56/share. Wateen’s purchase by Warid will likely augment CY13 earnings by PKR0.18/share for the bank.
Strong CY14 to follow a difficult CY13
After likely falling 29% YoY in CY13, earnings will jump by a tremendous 70% YoY to PKR4.08 in CY14 on the back of higher NIMs, lower NPL provisioning and nominal provisioning on investments and an expanded base of non-funded income. The stock is currently trading at CY13E PBV of 0.65x and offers an attractive average ROE of 17.7% over CY14-16E. Elixir Securities Limited Dec-13 PT of PKR20 offers a potential upside of 27% in addition to dividend yield of 9.3%. BUY.