FOCUS Equity Commercial Banks Habib Bank (HBL) October 21, 2015 Topline Securities (Private) Limited 508, Continental Trade Centre, 5 th Floor Block-8, Clifton, Karachi, Pakistan Tel: +9221-35303330-32 Fax: +9221-35303349 3Q2015 EPS Rs6.9 (Above expect tations) HBL Bank (HBL) announced 3Q2015 consolidatedd earnings of Rs10.0bn (EPS Rs6.9) as against Rs7.3bn (EPS Rs5.0) in the corresponding period last year. The bank also announced third interim cash dividend of Rs3.5/share (Rs 2.25/share last year), in addition to Rs7/share announced in 1H2015. The result was well above market expectations. Key takeaways Earnings of HBL registered an increase of 38% YoY in 3Q2015, thanks to 107% YoY growth in non-interest income to Rs11.3bn mainly led by higher capital gains. The bank booked an above average capital gain of Rs5.6bn (after tax EPS impact of Rs 2.5/share) in 3Q2015 as against our estimatee of Rs2.2bn (Rs1/share) and last year 3Q2014 capital gain of Rs93mn. Capital gains booked are mainly on the sale of Pakistan Investment Bonds (PIBs), we believe. Net Interest Income (NII) of HBL increased by 10% YoY in 3Q2015 to Rs19.2bn and remained slightly lower than our estimate of Rs19.5bn. On the expense side, provisioning expense increased by 17% YoY to Rs1.1bn whereas non-interest expense were up 17% YoY to Rs12..7bn. On QoQ basis, earnings increased by 49% mainly due to lower effective tax rate in 3Q2015. Govt. had imposed a one-time super tax of 4% on bank s income for the tax year 2015, which led to an effective tax rate of 55% in 2Q2015 (38% in 3Q2015). Pre-tax profits were up 5% due to a 9% QoQ increase in non-interest income. NII declined by 5% QoQ. We flag 1) deterioration in Pakistan macros, 2) PIB to deposit ratio compared to peers which scenario, as key risks for HBL. HBL: Key Numbers 2014A soft credit growth numbers and 3) lower could hurt NII in declining interest rate 2015E 2016F 2017F 2018F EPS 21.6 24.44 22.2 24.9 29.1 Earnings Growth 36% 13% -9% 12% 17% PE at Rs205.0 9.5 8.4 9.2 8.2 7.0 Dividend Yield 5% 6% 6% 6% 7% ROE 21% 20% 16% 18% 18% PBV 1.9 1.7 1.6 1.5 1.4 KATS Code Bloomberg Code Reuters Code Market Price Market Cap Free float Market Cap 1-Yr Avg. Daily Vol. (mn) 0.7 1-Yr Avg. Daily Val. (mn) 1-Yr High/ / Low Rs235.5/169.4 Estimated free float 50% Share outstanding (mn) 1,466.85 Index weight 7.99% HBL vs KSE-100 Index 20% 10% 0% -10% -20% Oct-14 Dec-14 HBL Feb-15 Apr-15 Source: KSE, Topline Research HBL HBL PA HBL.KA Rs204.97 Rs3007bn /US$2.9bn Rs150.3bn /US$1.4bn Rs137.0 /US$1.3 KSE-100 Jun-15 Aug-15 Umair Naseer AC umair.naseer@topline.com.pk Tel: +9221-35303330 Ext: 140 Best Local Brokerage House 2011-14 Oct-15 1 P a g e Topline Research is also available on Bloomberg, Thomson Reuters & Capital IQ
HBL Quarterly NPL Provisioning HBL Quarterly NII and NII Growth 1,099 908 716 525 333 142 (50) 21,000 19,000 17,000 15,000 13,000 NII NII Growth 25% 18% 11% 4% -3% -10% HBL Quarterly Non-Interest Income 12,000 10,250 4,500 8,500 3,000 6,750 5,000 HBL Quarterly Non-Interest Expense & Cost to income Ratio 14,000 Non Interest Expense Cost to income ratio 13,000 12,000 11,000 10,000 9,000 HBL Quarterly Capital Gains 6,000 1,500 - HBL Quarterly Non-Interest Income to Total Income 55% 40% 50% 35% 45% 40% 35% 25% 20% 2 P a g e
HBL: Financial Highlights 3Q2015 3Q2014 Markup interest earned 35,644 34,964 2% -3% 109,165 101,183 8% Markup interest expensed 16,482 17,495-6% 0% 50,709 51,749-2% Net Interest Income 19,162 17,469 10% -5% 58,456 49,434 18% NPL provisioning 1,030 930 11% -3% 2,578 1,328 94% Total provisioning expense 1,090 930 17% 2% 2,718 1,049 159% Non Interest Income 11,270 5,433 107% 9% 29,397 16,853 74% Non Interest Expense 12,655 10,848 Profit before Tax 16,686 11,116 Taxation 6,336 3,809 Profit after Tax 10,049 7,301 EPS 6.9 5.0 Source: KSE, Topline Research YoY QoQ 9M2015 9M2014 YoY 17% -6% 37,264 31,873 17% 50% 5% 47,871 33,262 44% 66% -27% 20,365 11,365 79% 38% 49% 26,680 21,787 22% 18.2 14.9 3 P a g e
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