Habib Bank Limited (HBL): 2Q2018 EPS of Rs2.3, -48% YoY (-27 QoQ); DPS Rs 1/share (Below expectations)
- Habib Bank Limited (HBL) reported earnings of Rs2.3/share, which is down 48% YoY and significantly lower than market consensus. The fall in profitability was primarily led by 26.5% YoY increase in Administrative expenses. The sharp increase in administrative expenses can be attributed to pension charge, in our view.
- Net interest income of the Bank fell by 4% YoY and was below our expectation.
- The Bank also reported significantly lower non-interest income, down by 31% YoY, mainly due to 13% decline in fee and commission income as well as loss from dealing in foreign currencies of Rs385mn compared to an income from dealing in foreign currencies of Rs646mn in 2Q2017.
- In our view, loss from dealing in foreign currency can be attributed to the foreign loan that HBL availed in order to pay off the NYDFS penalty (US$225mn) in 2017.
- Total provisioning for the quarter stood at Rs226mn, down by 73% YoY as the bank booked NPL provision reversal of Rs87mn compared to a charge of Rs420mn in the same period last year.
- On sequential basis, the Bank reported a 27% decline in profits mainly due to 24% increase in taxes as the Bank booked super-tax during the quarter, in our view. Similarly, for the 1H2018, the Bank reported EPS of Rs5.4, down by 49% YoY. The decline can be attributed to the cumulative pension charge, in our opinion.
- Key risks for the stock includes: 1) delay in expected hike in interest rates, 2) lower than expected advances growth, 3) deterioration of Pakistan macros, and 4) exchange rate movement.
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.
Topline Securities is one of the fastest-growing brokerage houses in Pakistan. It has strong Equity Brokerage, Economic/ Equity Research, Commodity Trading and Corporate Finance & Advisory functions.
Topline Securities has been endowed with numerous awards by renowned international financial organizations. The highlights of which consists of the award for ‘Best Local Brokerage House of Pakistan’ by Asiamoney Brokers Poll (the largest Asia-focused equity services provider poll) in 2016 and ‘Best Equity Brokerage House’ by CFA Society Pakistan in 2015.
Previously, Topline Securities held the title for ‘Best Brokerage House’ for 4 consecutive years (2011-2014) by Asiamoney Brokers Poll. Other awards include the ‘Best Salesperson’ award by Asiamoney for 6 consecutive years (2011-2016), the ‘Arabia Fast Growth 500’ award and ‘Pakistan Fast Growth 100’ award in 2012 and 2013 by AllWorld Network.
JCR-VIS, a credit rating agency providing independent rating services in Pakistan has assigned initial rating of “A-2” for short term and “A” for long term to Topline Securities. Topline Securities is registered as Underwriter, Book Runner and Research Entity with Securities & Exchange Commission of Pakistan (SECP).
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