EUR 3.48 For Business Accounts Only

Intermarket Intel - BAFL: Several one-offs drag CY17 results; DPS of PRs1.5 surprises

• BAFL has posted consolidated NPAT of PRs8.51bn (EPS: PRs5.30) in CY17 vs. NPAT of PRs7.89bn (EPS: PRs4.91) in CY16, up 8%YoY. The result is significantly below our projected NPAT of PRs9.61bn (EPS: PRs5.98) due to higher than projected admin expenses and loss on disposal of securities in 4QCY17; both of these appear to have elements of one-offs associated with them. Alongside the result, BAFL announced a full and final dividend of PRs1.50/sh (payout: 28%) which we think is sustainable going forward, with potential to increase. The bank is also exploring disposing its Afghanistan operations and has received an offer for the same; we think the impact is likely to be small. 
• CY17 highlights include: (i) flat NII inline with a lower interest rate environment, (ii) loan provisioning reversal of PRs434mn which is the first time BAFL has depicted reversals since we have data (CY02 onwards), (iii) healthy 11%YoY growth in non-interest income on impressive 20%YoY growth in fee and 74%YoY increase in fx income and (iv) contained 6%YoY increase in admin expenses (C/I: 64%; +2ppt).
• In 4QCY17 alone: BAFL recorded NPAT of PRs1.22bn (EPS: PRs0.76), down 18%YoY/48%QoQ. While NII has been robust, the bank has experienced (i) loan provisioning of PRs211mn which is modest and likely attributable to year-end prudence, (ii) 27%YoY jump in fee which is impressive but may contain some reclassification from ‘other income’ items in our view, (iii) loss on disposal of securities of PRs513mn and (iv) a sharp 23%YoY increase in admin expenses which took C/I to a very high 76% for the quarter. Regarding the latter, other than the usual year-end jump in costs, we flag an element of one-off restructuring costs associated with workforce realignment.
• The CY17 result is significantly below expectations but we flag this is due to the 4QCY17 jump in admin costs and capital loss on securities’ disposal. Both are not expected to recur going forward, while we flag that BAFL’s outlook remains strong on anticipated NII growth (most leveraged to interest rate up-cycle), sustained asset quality and strong fee growth. BAFL trades at a CY18F P/B of 0.95x and P/E of 7.6x. Our TP for BAFL is PRs50/sh which implies a Neutral stance, where we await detailed CY17 financials and management call before revisiting our investment case.