Pakistan Banks: Adjusting for higher rates
SBP has increased interest rates by a 100bps in Jul’18 MPS resulting in a cumulative bump of 175bps in CY18 so far, citing the following reasons: 1) NFNE core inflation at 7.0%YoY in Jun’18, 2) rising fiscal deficit (FY18E: 6.8% vs. GoP’s target of 5.5%), and 3) escalating external imbalance as key determinants. The swift pace of increments has come as a surprise, where we have accordingly revised upwards our average DR assumption to 7.50 % in CY18F (previously at 7.0%).This remains particularly positive for banks, with net interest margins likely improving on the back of higher asset yields. Accordingly, our earnings estimates for the Big-6 banks have increased by an avg. 3.5-7.0% for CY18F. While banks will continue to struggle in CY18F (earnings to decelerate on the back of one-off exogenous charges during the year), recovery thereon should be swift (CY19F earnings growth of average 24%) making a strong long-term investment case. In addition to, the attractive forward valuation set at hand (CY19F PB/PER at 1.1/7.4x) post a sharp reduction in prices (AKD Banking Universe lost 7% CYTD) furthers our investment thesis. We advise building position in We advice building position in undervalued names like HBL, UBL, MCB and BAFL. .
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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