Karachi, May 02, 2011 (PPI): AKD Securities rollovers AKD Securities’ financial model for NBP to Dec 31’12 and trim our target price to PkR48/share from PkR54/share previously.
According to AKD Securities, in contrast to peers, NBP has posted flat NPAT of PkR11.52bn (EPS: PkR6.85) in 9MCY11 with 1) the bank failing to expand NIMs in a higher interest rate environment, 2) loan provisions remaining high, 3) deceleration in core fee income and 4) continuing rapid increase in admin expenses. While valuations (CY12F P/B: 0.45x, PER: 4.10x, D/Y: 15.2%) remain attractive and a strong capital base (est. CAR – 20%) provides comfort on near-term payouts, AKD Securities believes NBP will only be able to post NPAT CAGR of 7% across the next 5yrs with risks emanating from asset quality and deterioration in operating efficiency (Cost/Income to cross 50% from 31% in CY07). As in prior years, AKD Securities expects NBP to rally in the run-up to full-year result announcement (exp. Feb’12) but would take this as an opportunity to exit the stock.
Below-line results: NBP posted NPAT of PkR11.52bn (EPS: PkR6.85) in 9MCY11 against NPAT of PkR11.4lbn (EPS: PkR6.79) in 9MY10, up just 1%YoY. Key highlights included 1) constricted 5%YoY NII growth, 2) 18%YoY increase in loan provisions, 3) 18%YoY increase in non-interest income primarily due to a jump in compensation for delayed tax refund and 4) 15%YoY increase in non-interest expenses, much above average CPI. Fee income in 3QCY11 was down 14%YoY where AKD Securities understands the GoP has downward negotiated the commission rate it pays to NBP in lieu of various treasury transactions.
NPL ratio >20%: NPL stock for NBP crossed PkR118bn on Sep 30’11, up 57%YoY/9%QoQ. As such, the NPL ratio stands at 20.4% while provisioning coverage has slipped to 62.5%. While a portion of NPLs are attributable to public sector energy exposure, and should be declassified following the Nov 4’11 conversion of circular debt exposure into GoP securities, NBP faces significant asset quality stress which is likely to keep credit costs elevated going forward.
Efficiency loss: NBP has struggled to contain operating costs over the last few years with the Cost/Income ratio rising from 31% in CYO7 to 44% in CY10. AKD Securities expects C/Ito exceed 50% in the next few years. Coupled with a tough operating environment, AKD Securities projects that NBP will post confined NPAT CAGR of 7% across the next 5yrs.
Investment Perspective: AKD Securities rollovers AKD Securities’ financial model to Dec 31’12 and trim AKD Securities’ target price by 11% to PkR48/share (75% weight to Justified P/B, 25% weight to DDM; discounting factor of 19.9%). While AKD Securities’ revised target price still offers upside of 16.5%, AKD Securities would advise investors to take advantage of an anticipated result rally across the next few months to exit the stock before full-year CY11 result announcement.