Intermarket Pulse: HBL: Valuations should converge to MCB’s over medium-term
- Following below expected CY17 result (EPS: PRs5.34; -77%YoY), we lower our CY18-22F EPS estimates for HBL by 6% on average. However, due to a shift to P/B valuation vs. a blended approach earlier, our Dec'18 TP rises to PRs220/sh from PRs206/sh. We think this valuation method smoothens earnings one-offs and captures medium-term prospects, such as strong loan growth and rising NIMs, in a better way.
- 4QCY17 saw a spillover impact of the NY fine, with fees and admin expenses both disappointing. While a more normalized run rate is expected on both fronts in CY18F, one-off pension fund cost (PRs1bn-4.5bn) will again depress earnings this year. On a positive note however, significant improvement in capital management (lower RWA density) leads us to remove a PRs15bn ADT-1 issuance from our model.
- HBL trades at a CY18/19F PB of 1.5x/1.4x and PE of 11.1x/8.3x where our revised TP of PRs220/sh implies a Neutral stance. While we like the bank’s strong domestic franchise, which should take ROE to 18%+ post CY20F (similar to MCB), risks pertaining to ongoing look-back period in NY may keep HBL trading at a discount to MCB for now.
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.
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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