Habib Bank Limited: CY17 Account; Positive takeaways on important issues
- We believe Habib Bank Ltd’s (HBL) CY17 detailed accounts should serve to address investors’ concerns on three areas: (i) bank’s capital adequacy (CY17 CAR at 16%, Tier-I at 11.99%), (ii) pension cost (nominal impact on earnings), and (iii) investigation in other regulatory regimes post supervisory action in the US.
- Overall, the bank appears to be coping well post the supervisory action though near-term impact on earnings, particularly in non-fund head, is quite visible in 4Q.
- Earlier than expected resumption of cash dividend in 4Q17 point towards comfortable capital position, however we believe, complete normalization of cash payout may happen in 2H18.
- We believe HBL has its work cut out for CY18 which may include: (i) continued consolidation, (ii) fixing the issues in correspondent banking which has been a drag on non-fund income, (iii) beefing up capital given the bank’s balance sheet position (RWA dropped in CY17), and (iv) international operations.
- HBL posted CY17 earnings of PKR5.34/sh, below our estimate of PKR5.75/sh. The 22% QoQ jump in admin cost and 25% QoQ drop in non-fun income explains the surprise. We, for now, maintain our estimates and rating (Buy with TP of PKR221). We will revert with more details after the briefing of on CY17 result.
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.
BMA is amongst the leading financial groups in Pakistan. BMA Capital’s core areas of business include Capital Markets, Corporate Finance & Advisory, Asset Management, and Financial Products Distribution. BMA Capital is the leader in privatisation advisory in Pakistan, having successfully advised on over 50% of all privatisations in Pakistan, by value, in transactions valued in excess of US$4 billion. Recent transactions include joint lead managing the $813 million GDR Offering of 10% of OGDCL on the London Stock Exchange in 2006-07, and advising Etisalat on their successful acquisition of a 26% strategic stake in Pakistan Telecommunications Company Limited (PTCL) for US$2.6 billion, the largest M&A transaction and foreign direct investment in Pakistan’s history. The firm is among the top brokers in the Pakistan equity and treasury markets, and is among a handful of firms that comprehensively cover all segments of the capital markets. This is supported by a very strong and independent research capability, which is quoted regularly in both local and international media. BMA Capital’s retail brokerage brand, BMA Trade, has launched a nationwide network of branches as well as a comprehensive online trading platform, enabling investors across Pakistan to take part in the capital markets.
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