Friday, 13 March 2015

HBL: Ends Well in CY14

MARKET REVIEW: 

Market witnessed volatile day, witnessing a low of 32,199 before closing near yesterday day closure. The benchmark KSE-100 index closed down by 26.98 point to close at 32,539.61 points. Weak law & order state as a result of MQM s 90 raid being carried out by rangers ignited market decline. Some Positivity was seen in fertilizer sector on anticipation that gas fares increase would hit only EFERT. Cement and other leveraged sector also ended high on chances of discount rate cut. Stocks led the bearish rally at KSE despite strong Economic outlook on expected approval of IMF $522 tranche this month on improving economic performance. 
Volume was 132m shares as compared to last 3 months average daily volume of 250m shares. Likewise, value traded also stood low at Rs7.5b/US$76mn versus last 3 month average of Rs14b/$140mn.

HBL: Ends well in CY14

Habib Bank Limited announced their result which was mind-boggling as company record highest ever profit with astonishing dividend payout. Earning of bank shows gigantic growth of 42% to Rs 31.11 billion against Rs 21.91 billion in CY13 which translates into earning per share of Rs 21.21 against Rs 14.94 during the same period last year. Remarkable performance mainly driven by 25% higher net interest income, 30% lower provisions and 33% rise in non-interest income. In 4QCY14 alone, bank reported after tax profit of Rs 10.61 billion (EPS: Rs 7.24) in 4QCY14 against Rs 6.95 billion (EPS: Rs 4.74) in 3QCY14, up by 15% YoY. Better earnings were witnessed due to 41% QoQ rise in non interest income, decline in provisions by 66% QoQ and 12% swell in net interest income. Moreover, company also announced cash payout of Rs 5.5/share, taking the total cash dividend of Rs 12/share for CY14.

Net Interest Income climbs 25%:

Net interest income surge by 25% to Rs 67.43 billion against Rs 53.81 billion in CY13 due to growth in the loan book, improvement in CASA ratio and repositioned towards longer tenors i.e. PIBs. Interest income surge by 15% to Rs 135.92 compared to Rs 118.56 billion in CY13 mainly due to investments in PIBs. However, Interest expense relatively tad up by 6% to Rs 68.49 billion in CY14 against Rs 64.74 billion in CY13 owing to increase in saving rate.

Good Support by Non-Interest Income:

Non-funded income increase by 33% to Rs 19.67 billion against Rs 14.74 billion in CY13 mainly driven by higher fees & commissions which surge by 20% to Rs 12.11 billion. Dividend Income rises by 49% to Rs 1,132 million in CY14 versus Rs 759 million in CY13 primarily due to better equity portfolio holdings. Provisions drop by 30% to Rs 734 million in CY14 against Rs 1,044 million in CY13. Net NPLs remained relatively stable at around Rs 13 billion while the coverage was maintained at over 83%.

Balance Sheet Strengthening:

The bank's total deposits increased by 8.8% to Rs 1,525 billion in Y14 against Rs 1,401 billion witnessed at year ended December 31, 2013 due to increasing  Domestic deposits by 6.6% to Rs 1.26 trillion. This was underpinned by a strong growth of 25% in current accounts which now stand at 31.5% of the domestic deposit mix, compared to 27% as at December 2013. Similarly, investments surge by 12% to Rs 924 billion versus Rs 826 billion witnessed December 31, 2013. Advances registered a growth of 6% to Rs. 595 billion due to more focus on investments. The Capital Adequacy Ratio (CAR) improved from 15.4% to 16.2% as at December 31, 2014. 

Recommendations:

We have a neutral stance on the scrip at present as it is trading at Rs 197.69/share providing upside potential of 13.3% from Dec'15 target price of Rs 224/share owing to expectation of lower spread and earnings in CY15.
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