BAHL: Benefitting from ‘Old School’ approach,(AKD Daily, Mar 29, 2019) - Coverage Initiation
- We initiate coverage on Bank AL-Habib Limited (BAHL) with a ‘Buy’ stance and a Dec’19TP of PkR97.6/sh. The stock is currently trading at a CY19F P/B of 1.7x, at a 66% premium to our conventional banking universe. We believe premium valuations are justified considering bank’s higher avg. ROE of 21.8% (CY19-21F) vs. our conventional banks’ ROE of 16.0% and safe-play features (infection ratio: 1.1%/ coverage ratio: 147.6%).
- Highest interest rate sensitivity amongst our universe of 1.3x, primarily at the back of exceptional loan growth of 40.0% (industry: 20.8%) in CY18 along with potential for balance sheet expansion (117 branches added in the past 2y) perfectly places the bank for strong earnings performance (3y fwd. avg. earning growth: 26.7%).
- We expect higher fund deployment in fixed income securities going forward (IDR to inch-up to 57.8% by CY21 vs. 52.1% in CY18) given attractive risk free returns (3y PIB yield spread: 190bps over KIBOR) and limited good lending opportunities (CY19-21F advances growth: 8.3%, ADR to fall down to 54.3% by CY21 vs. 60.0% in CY18).
- We believe BAHL would fare better than peers in containing its provisioning costs (CY19-21F avg. at 0.25% vs. our universe’s 1.0%) considering, i) one of the lowest yield spread amongst our conventional banks (CY18: -0.5% over 3M KIBOR) indicating lending to relatively low risk segments, and ii) coverage standing at 147.6%.
Bank AL Habib Limited is a banking company. The Bank operates through Retail banking, Commercial banking, Retail brokerage and geographical segments. Its Retail banking consists of retail lending, deposits and banking services to private individuals and small businesses. The retail banking activities include provision of banking and other financial services, such as current and savings accounts, and credit cards to individual customers, and small and medium enterprises (SMEs). Its Commercial banking represents provision of banking services, including treasury and international trade-related activities to corporate customers, multinational companies, and government and semi government departments and institutions. Its Retail brokerage activities include the business of equity, money market and foreign exchange brokerage, equity research, and corporate financial advisory and consultancy services. It operates in four geographic regions: Pakistan, the Middle East, Asia Pacific and Africa.
AKD Securities Ltd. is one of the leading securities firm in Pakistan, providing a comprehensive range of investor focused services, including equity brokerage, economic and securities research, investment banking and financial advisory services. AKD Securities accounts for more than 6% of the average daily value of the Karachi Stock Exchange. AKD Securities was the first brokerage house to launch an online trading platform in Pakistan in November 2002 and now has the largest market share with over 6000 customers. This has helped diversify and expand the retail investor base in the country and ushered in a whole new universe of investors to the stock market.
AKD Securities Ltd. caters to a diversified group of domestic and international institutional investors, high net worth individuals and upscale retail clients, including expatriate Pakistanis. With high quality research, unparalleled execution and distribution capability for both regular and large block trades, AKD Securities Ltd. has earned an outstanding reputation in the Pakistani securities industry.Outside of commercial banks, AKD Securities Ltd. is one of the biggest capital market firms in the country. AKD Securities is the leader in raising and providing risk capital in underwriting, market making and mergers and acquisitions in Pakistan. Good corporate governance and professionalism are emphasized throughout the firm and AKD Securities Ltd. is amongst the very few companies to have introduced a firm-wide comprehensive CODE of ETHICS, overseen by an independent compliance manager.Ultimately, our success is based on the quality of service we provide to our customers and the trust and confidence reposed in us by them. Our focus, therefore, remains on customer satisfaction at all levels in the company.
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