Pakistan Banks_HBL Potential re-rating in the offing! (AKD Daily, Jan 06, 2022)
AKD Daily
Pakistan Banks: HBL Potential re-rating in the offing!
- Habib Bank Limited (HBL) is currently trading at a decade low CY22F P/B of 0.54x. Consequently, implied risk premium stands at 11.8% - at similar scale to that witnessed towards the end of CY08 and continued till CY10.
- Improvement in macros in CY11 reduced risk premium level to close to 4.2% (avg.) and we are setting the aforementioned performance as a precedent to drive HBL valuations forward with worst already behind us on macro front. Hence, we see current levels perfect for accumulation with our Dec’22TP standing at PkR145.1/sh.
- We expect HBL’s ROE to stand at avg. 13.7% over CY22-24F — at similar levels to CY21, implying a target P/B of 0.63x. For ROE to materialize, earnings growth is expected at a 3y CAGR of 9.5% with steepening of earnings likely in CY23 as full impact of interest rate hikes comes into play. The expected ROE is likely to buttress bank’s CAR in our view, opening up possibility of stronger payouts going forward.
- Key risk to performance is UAE being potentially put under the ‘grey-list’ by FATF. To highlight, UAE occupies 22.2% share in total advances of the bank while generating auxiliary income through fees on trade and remittances for domestic ops.
AKD Research
Habib Bank Limited is engaged in commercial banking and asset management related services in Pakistan and overseas. The Bank's segments include Branch Banking, which consists of loans, deposits and other banking services to agriculture, consumer, small and medium-sized enterprise (SME), and commercial customers; Corporate Banking, which consists of lending for project finance, trade finance and working capital to corporate customers and it also provides investment banking services, including services provided in connection with mergers and acquisitions; Treasury, which consists of trading, fixed income, equity, derivatives and foreign exchange businesses, and it also includes credit, lending and funding activities with professional market counterparties; International Banking, which is engaged in monitoring and reporting purposes and consists of its operations outside of Pakistan, and Head Office/Others. It operates in Pakistan; Europe, Middle East and America, and Asia 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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