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Bank Alfalah (BAFL): 1Q2019 EPS Rs1.8, down 3% YoY (+55% QoQ) (Above expectations)

 

• Bank Al-Falah Limited (BAFL) announced its 1Q2019 earnings today, wherein it reported EPS of Rs1.8, down 3% YoY (+55% QoQ), though fared slightly better than our estimates.
• This was mainly on the back of higher than anticipated Net Interest Income (NII) growth, +48% YoY (+34% QoQ) thanks to the impact of 475bps increase in interest rates since Jan 2018 to date to 10.75%.
• Non-interest income fell by 17% YoY in 1Q2019 despite 8% higher fee & commission income. This was on the back of absence of gain on securities (loss of Rs25mn in 1Q2019 vs. gain of Rs750mn in 1Q2018).
• Non mark-up expenses of the bank grew by 16% YoY in 1QFY19, led by 15% higher operating expenses.
• The bank booked provision charge of Rs446mn during the outgoing quarter vs. reversal of Rs600mn during similar period last year.
• While pretax earnings of BAFL were increased by 22% YoY in 1Q2019, net earnings fell 3% on account of higher effective tax rate, +13ppts YoY to 49%.
• To note, the govt. in its last economic reforms package imposed super tax on banks for the year 2017 to 2020, due to which banks are now recording additional super tax (2017 annual earnings) in their 1Q2019 accounts.
• Key risks for the company include 1) lower than expected hike in interest rate, 2) lower than expected advances and deposit growth, and 3) deterioration in Pakistan macros.