BAFL: Strong case for valuation catch-up; upgrade to Buy
- ​​We upgrade our stance on BAFL from Neutral to Buy with a revised Dec’17 TP of PkR37/sh (from previous PkR30.5/sh), which captures the potential rerating element of the sector. Our revised CY16/17F EPS estimates of PkR5.03/5.06 reflect the recent turnaround in asset quality and improved CASA.
- Though 3QCY16 profitability was down 7%YoY, BAFL managed to post earnings growth of 8%YoY during 9M on the back of (i) improved asset quality with flattish NPLs, (ii) higher CASA (75%; up 6ppt from CY15), and (iii) consistently impressive loan growth.
- BAFL trades at a CY17F P/B of 0.8x, which is an unjustifiable discount of 47% to Big-5 (ex. NBP). With (i) convergence of ROEs, (ii) CASA and coverage rising to top-tier levels, and (iii) unique market penetration to cater both big ticket projects and the lower strata (SMEs), BAFL supports a strong case for valuation catch up, in our view.
Bank Alfalah Limited is a holding company. The Company's segments include Retail banking, including loans, deposits, trading activity, wealth management and other banking transactions with its retail and middle market customers; Corporate banking, which includes loans, deposits, project financing, trade financing, investment banking and other banking activities with its corporate and public sector customers; Treasury, including liquidity management activities carried out through borrowing, lending and money market operations; Consumer banking, including constitutes consumer financing activities with individual customers; Islamic banking, pertaining to its full scale Islamic Banking operations; International operations, which includes amounts related to its overseas operations, namely, commercial banking activities in Bangladesh and Afghanistan, and wholesale banking activities in the Kingdom of Bahrain, and Others, including merchant banking related activities.
Intermarket Securities Limited (IMS) is a full service corporate brokerage firm based in Karachi, Pakistan. We service both domestic and international clients. IMS was ranked #2 Best Local Brokerage and #3 Best for Overall Country Research for 2016 by AsiaMoney.
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