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Packages Limited (PKGS): 2Q2018 EPS Rs8.3, -51% YoY (+372% QoQ); (In-line with expectations)

• Bank Al-Falah Limited (BAFL) announced its 2Q2018 earnings today, wherein it reported diluted EPS of Rs 1.80, 41% higher YoY, better than market consensus and our expectations. The increase in earnings is attributable to higher provisioning reversal, greater non-interest income and decline in administrative expenses. The Bank also announced interim cash dividend of Rs1.0/share which is contrary to historical trend, and also announced a bonus of 10%.
• Despite a rising interest rate environment, the bank booked 1% lower Net Interest Income (NII) due to decrease in Investments, in our view, as indicated by 28% decline in investments in Mar 2018 compared to Dec 2017.
• The bank booked provision reversals of Rs295mn in 2Q2018 compared to a reversal of Rs188mn in the same quarter last year.
• Despite 16% YoY decline in fee, commission & brokerage income, Non-interest income improved 11% YoY primarily due Rs382mn (4.3x higher) increase in income from dealing with foreign currencies.
• On the other hand, non-markup expense fell by 8% YoY as the Bank continues to focus on expense reduction. More importantly, administrative expenses contracted by 11% YoY and cost-to-income fell to 56% (compared to 62% in same period last year).
• On a half year basis, earnings were up 25% YoY primarily due 1) higher provisioning reversal, 2) greater non-interest income and 3) lower non-interest expense.
• 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.