Habib Bank Limited: Four major areas of focus in CY18
- CY18 is clearly turning out to be a consolidation period for Habib Bank Ltd (HBL) where the bank is likely to be focused on repairing company’s balance sheet and easing pressure on non-fund income post supervisory action in 3Q17.
- Four key areas, in our view include, (i) beefing up capital from combination of discipline on payout and issuance of additional tier I capital, (ii) cost cutting (via early retirement, layoffs etc), (iii) recovery in non-fund income, and (iv) balance sheet management (investment book, loan classification).
- We have revised our earnings estimates for Habib Bank Ltd by -9/-8/+4% over CY18/19/20E (pension cost & additional legal cost incorporated) following release of CY17 accounts and management discussion. We have lifted our PO to PKR239/sh. Reiterate Buy.
- While clarity on three key issues (inspection in other regulatory regimes, capital adequacy in CY17 and pension cost) has served to ease market concerns, we believe progress on cost cutting and capital build-up remain crucial and may drive up future returns.
- Key risks to our call include; (i) further penalty on the New York operation, (ii) delays in recovery in non-fund income, and (iii) above-expected legal cost.
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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