Karachi: BAFL: Buy on dips with an eye on CY12F
According to AKD Securities, following strong 1F1CY11 results (profits up 77%YoY), AKD Securities increases his earnings estimates for BAFL by 9% on average across CY11F-CY15F. However, AKD Securities’ target price rises by a more contained 2% to PkR12/share as AKD Securities incorporates a higher beta (3yr: 1.18). AKD Securities reiterates that core banking performance has turned the corner (Nll up a very strong 40%YoY in 1HCY11) where, while credit costs/impairment will likely continue to be relatively high across 2HCY11 and beyond, anticipated strong top line growth should lead to a 17% NPAT CAGR across the next 5 years. At the same time, BAFL now has a much stronger capital position (projected CAR> 10.5%) which opens up the possibility of more consistent cash payouts going forward (last payout in CY09). BAFL trades at a CY11F P/B of O.52x and PER of 4.76x where AKD Securities’ revised target price of PkR12/share offers upside of 26% and implies a Buy stance. Note that~ AKD Securities’ financial model incorporates continued impairment for Wand across the next 3 years and no value is attached to associates/subsidiaries.
Impressive 1HCY11: NPAT of PkR1 1.91bn (EPS: PkR1.41) in 1F1CY11 is up 77%YoY. Nil is up a very strong 40%YoY largely due to higher NIMs (est. 5.6% in 1F1CY11 vs. 4.6% in 1F1CY10). While LLPs are down 60%YoY, impairment is up 16.2xYoY. In this regard, while the bank has reversed provisioning pertaining to its brokerage subsidiary, impairment of PkR75Omn has been booked on the same (BAFL injected PkR75Omn through rights). Lower down the P&L, non-interest income is up 23%YoY led by strong fee and FX income while admin expenses are up 14%YoY, in line with inflation.
Asset quality-not yet out of the woods: Although NPLs are down 9%QoQ in 2QCY11, AKD Securities see high credit costs in 2F1CY1 1 where BAFL may take a hit of PkR67Omn on its Agritech exposure as SBP deadline for restructuring expires on Aug 3111. Wand impairment should also continue until CY13F/1 HCY14F when remaining investment value – PkR2.3bn – will likely drop to zero (impairment of PkR35Omn in 1RCY11). In view of the above and potential FSV benefit expiry (cumulative benefit: PkR3bn), AKD Securities builds in relatively high credit costs (incl. impairment) of 1.4% across the next 5 years.
But still a 5yr profit CAGR of 17%: Despite asset quality drag, AKD Securities believes strong NIM-led Nll growth across CY11F-CY15F will drive a 17% NPAT CAGR. AKD Securities expects NIMs to average 5.1% across the next 5 years vs. an average of 41% over the previous 5 years. Together with anticipated double- digit asset growth, this should drive a Nll CAGR of 12%. Impetus to earnings momentum should arise from fee income (up 1 9%YoY in 1HCY11) and from economies of scale where AKD Securities expects the Cost/Income ratio to depict stability.
Buy on dips: 2HCY11 earnings may show sequential deceleration on higher credit costs and NIM compression (DR recently reduced by 50bps). That said, AKD Securities recommends exposure in BAFL on dips as we eye 1) very strong 28%YoY growth in CY12F, much higher than sector growth, and 2) potential resumption of dividend payouts over the medium-term. Regarding the latter, AKD Securities projects CAR to easily stay> 10.5% which may facilitate payout consistency (last payout in CYO9) even as availed FSV benefit cannot be used for payouts.