HMB_Payout a limiting factor!
- We initiate coverage on Habib Metropolitan Bank (HMB) with a ‘Neutral’ stance and a Dec’19TP of PkR43.8/sh. We believe lower dividend payout (CY18: 34.0% vs. CY17: 55.0%) due to pressure on CAR from unrealized losses on PIB holdings to overshadow otherwise strong fundamentals of the bank (avg. CY19-21F ROE of 17.1%) in the medium run.
- NIMs are likely to avg. at 3.4% (CY19-21F) vs. 2.8% (CY16-18) driven by, i) accumulation of higher yielding PIBs (3y CAGR assumed at 22.0%), and ii) advances growth of 19.3% (avg. CY16-18) enhancing interest rate sensitivity of the bank.
- We expect cost of provisioning to avg. at 0.8% (CY19-21F), significantly lower than compared to avg. 2.1% (CY09-13). Our expectation is based upon better industry dynamics for the textile sector (38.0% of advances in CY18 but significantly lower than 53.3% in CY09) and overall coverage ratio comfortable at 93.7% vs. 72.1% (CY09-13).
- The bank carries higher load of fixed deposits (41.3% of deposits as of Dec’18) however, viewed with highest deposits/branch (PkR1.6bn per branch), HMB stands at a better position to peers with total expense of deposits (total cost + administration expense) standing at 6.1% vs. avg. 6.5% of other mid-tiers.
Habib Metropolitan Bank Limited is a Pakistan-based company, which is engaged in providing commercial banking, brokerage services and modaraba management services. The Company's segments include Trading and sales, Retail banking and Commercial banking. The Trading and sales segment undertakes the Company's treasury, money market and capital market activities. The Retail banking segment provides services to small borrowers, such as consumers, and small and medium enterprises (SMEs) and borrower's agriculture sector. It includes loans, deposits and other transactions with retail customers. The Commercial banking segment includes loans, deposits and other transactions with corporate customers, and SME customers other than those included in the Retail banking segment. The Company operates approximately 240 branches, including approximately 20 Islamic banking branches and approximately 40 sub branches in Pakistan. The Company is a subsidiary of Habib Bank AG Zurich.
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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