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HBL_Higher taxation results in earning miss, (AKD Off the Analyst's Desk Jul 28, 2022)

AKD, Off the Analyst's Desk

HBL: Higher taxation results in earning miss

Habib Bank Limited (HBL) announced its 1HCY22 result today, where it posted consolidated earnings of PkR8.1/sh, down 33%YoY. Along with the result, the bank also announced a payout of PkR1.5/sh, which took the cumulative payout during the period to PkR3.75/sh. The result was below our expectations, owing to higher effective tax rate which clocked in at 83%. Here are the key takeaways from the result.

• HBL’s Net-Interest Income (NII) grew by 14%YoY during 1HCY22 on the back of robust book growth, favorable asset pricing and extremely aggressive leveraging of the book. 
• Non-funded income grew by 34%YoY to PkR23.7bn on the back of 28%YoY growth in fee and commission income, whereas, FX income also grew 5.3xYoY during 1HCY22 to PkR7.8bn. On the other hand, the derivative-trading desk reported a loss of PkR1.1bn which capped further growth in NFI. The disappointing performance of derivatives desk during the quarter was the key reason for the earnings miss during the quarter.
• Admin expenses reportedly jumped by 26.5%YoY during the period under review on the back of rising inflation in the country which took the cost-to-income ratio to 64%.
• Provisioning expenses clocked in at PkR1.6bn, which took the total provisioning expenses during 1HCY22 to PkR2.8bn.
• Other expenses for 2QCY22 clocked in at PkR2.9bn, vs PkR0.94bn in 1QCY22. The significant jump in other charges is due to exchange loss on account of trade payables.
• Effective tax rate for the quarter clocked in at ~82.5%, attributed to the imposition of super tax and poverty alleviation tax announced in federal budget. The effective tax rate was higher than our anticipation and contributed to the earnings miss

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