Karachi: Following exceptional 9MCYII performance (NPAT doubled to PKR3bn, EPS: PKR2.22), AKD raises its target price for BAFL to PKR13.75/share from PKR12/share previously, with the TP revision driven in part by rollover to Dec’12.
According to AKD Securities, while profit growth could decelerate in 4QCY11 (AKD believes Agritech charge will be booked), BAFL appears well placed to depict double-digit growth across the next 5 years (CAGR: 13%). In doing so, BAFL should start to post ROE levels of ~15% that would be more representative of the 6th largest bank in Pakistan. This improvement should be driven by continued NII growth, declining credit costs and a resurge in fee income. BAFL trades at a CYI2F of O.52x and PER of 3.96x where AKD’s revised target price of PKR13.75/share offers upside of 26%. Anticipated announcement of a PKR1/share cash payout (DPI: 9%) alongside CY11 results sweetens the deal.
Strong 9M – window to the future: BAFL pasted NPAT of PKR3.0bn (EPS: PKR2.22) in 9MCY11 which is equal to combined profitability across CYO8- CY1O. Strong 9MCY11 performance was driven by 1) 32%YoY NH growth. 2) 58%YaY decline in loan provisions and 3) a 16%YoY rebound in fee income. AKD Securities believes these trends will entrench across the next 5 yrs where they projects 12% NII CAGR (even in a lower interest rate environment), a sharp drop in average credit costs to 0.85% and double-digit fee income growth. This should enable BAFL to post NPAT CAGR of 13% and average ROE (total equity) of 14.5% across CY12F-CY16F.
NIMs to expand: In contrast to the Big-5, AKD Securities expects BAFLs NIMs to expand over the next 5yrs and average -4.9% despite AKD’s modelled lower interest rate environment. This should be due to continued shedding of high cast term deposits and a gradual filling out of the ADR (53% at present) where AKD believes BAFL may even attempt a cautious re-entry into the consumer segment if interest rates continue to head downwards. AKD Securities believes the capital base is sufficient to support balance sheet expansion and biennial cash payouts although, as a precautionary measure, the bank may choose to rollover PKR2.Sbn of maturing subordinated debt in CY13F.
Core asset quality is improving: NFLs reduced by 11%YoY on Sep 3011. NFL ratio dropped to 8.2% from 91% a year back and coverage increased by l4ppt to 69%. While AKD Securities see Agritech charge of PKR672mn in 4QCY11. they believes BAFL’s asset quality should depict improvement going forward where AKD see credit costs averaging 0.85% across the next 5yrs (vs. 125% over the last 5yrs). While BAFL has so far availed FSV benefit (pre-tax) of PKR3bn, AKD believes it is now in a position to wean this benefit off which should further improve balance sheet quality.
Exciting prospects: BAJL has appointed Mr. Atif Bajwa as President. Going by Mr. Bajwas profile and earlier tenure with MCD, AKD believe BAFL could refocus on fee income, cross-sell and consumer banking through technological up-gradation and development of alternative delivery channels (e.g. mobile banking). While AKD Securities conservatively attaches no value to the telecom associates (Warid + Wateen), BAFL has a significant edge over peers looking for tie-ups with cellular ops.