BAHL: Trading at unjustified valuations (AKD Daily, Apr 08, 2021)
AKD Daily
BAHL: Trading at unjustified valuations
- We maintain our buy rating on Bank Alhabib limited (BAHL) with a Dec’21TP of PkR96.4/sh offering an upside of 56.2% from last close. The stock is currently trading at a CY21F P/B of 0.8x, at a discount of 17.1% vis-à-vis universe’s multiples based on ROE to PB compared to a premium of 16.8% in the past 3 years.
- Cheap valuations compensate for bank’s static earnings growth profile in the medium run (CY21-23F CAGR of 0.5%) following, i) high base effect of CY20, ii) lagged impact of potential interest rates hikes and branch expansion (95 branches added in CY20 or 11% of total branch network), and iii) ~50% of total fixed PIB maturing in CY22. However, earnings growth remains robust in the long term.
- The bank has added 95 branches in CY20 taking c. branch network to 854 branches where assuming 2y gestation period, bank’s market share in deposits is expected to increase by a ppt to 7.4% by CY23 with potential improvement in CASA mix as seen in CY20 (fixed deposit share declined by 2ppt to 20%). Fee income is also likely to gain traction given 17.7/15.4% contribution by branch banking fees
- Previewing 1QCY21 results, we expect BAHL to post an earnings of PkR3.8bn (EPS: PkR3.4) compared to PkR2.8bn (EPS: PkR2.56) in the same period last year. On a sequential basis, earnings is forecast to decline by 20.0%QoQ on account of potentially higher administrative expenses as seen historically at the start of the year.
AKD Research
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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