Morning Briefing for August 19, 2011 – Standard Capital

Karachi: According to Standard Capital,

National Bank of Pakistan (NBP) announced its 1HCY11 results, reporting strong net earnings of Rs 8.09bn (Diluted EPS: Rs 4.81/sh) as against Rs 7.82bn (Diluted EPS: Rs 4.65/sh) in the same period last year, thus showing y-o-y growth of 3.5%. No payout was recommended.

NBP witnessed y-o-y growth of 7.4% in after tax profits, which amounted to Rs 3.8bn in 2QCY11 comparing with Rs 3.6bn in the corresponding period last year.

Some of the noticeable highlights are as follows;

•             Pumped up net interest earned of Rs 46.9bn exhibiting y-o-y increase of 7.4%. This growth is ostensibly due to lofty lending rates which persisted in the 1HCY11 on account of high discount rate which lately stood at 14% (SBP’s decision to hold the policy rate at 14% in Mar-2011)

•             Net Interest Income (NII) mounted to Rs 22.7bn, showing y-o-y jump of 9.4% in 1HCY11. In 2QCY11, NII is reporting Rs 11.7bn which is highest in the last five quarters announcements.

•             Net Interest Margins remained in the territory of 5.9% – 6.1%.

•             Provisions on NPL remained a “pain in the head” for NBP which swell by 60.6% to Rs 4.6bn.

•             Noncore income recorded a strong increase of 18.4% y-o-y basis likewise to other big banks on account of gains on investment particularly in equity market.

NII impressively increased

NBP’s NII maintained its strong pace; climbing to Rs 22.7bn in 1HCY11 as against Rs 20.74bn in the same period last year showing y-o-y increase of 9.4%.

This growth is achieved by high net interest margins (NIMs) which remained in the territory of 5.9% – 6.1% in the first half. NBP’s NIMs stood at 5.55% in CY10. In the 2HCY11 NIMs can be expected to decline on account of Monetary Policy Decision by SBP to dial back policy rate to 13.5%, after which KIBOR lost its growing strength (6monthly KIBOR reduced to 13.37% in August from 13.81 in July).

NBP’s witnessed an increase in advances by 1.5% in 1QCY11. Investments fell by 10% demonstrating an odd situation, as banks like MCB, BAFL and ABL reported an increase in investment in 1QCY11 indicating these to prefer government papers as a safe way of using deposits.

Escalating provisions – remained a headache

NBP’s total provisions augmented by 37.6% y-o-y in 1HCY11 to Rs 6.14bn from Rs 4.46bn threatening earning by Rs 3.65/sh.

This enlarge figure is largely contributed by provisions against non performing loans which escalated to Rs 4.62bn depicting y-o-y growth of 60.6%. Provisions against value of investment declined to Rs 1.51bn; shrinking by 4%.

Valuations – P/BV – 0.4x

NBP is expected to yield CY11 PE of 4.5x (CY10 PE: 4.7x) with PBV multiple of 0.4x (CY10: 0.34x). Standard Capital signals ‘BUY’.

Standard Capital also expects NBP to be a final dividend play at the end of CY11. This translates into dividend yield of 17% till June 2012. Even though, this length in dividend payment is a dampener for investors.

Risk to valuations includes extent of burgeoning NPLs vis-a-vis total equity.