May 30, 2013

Pakistan Banking Sector

MORNING BRIEFING
Bilal Qamar + 9221 111-574-111 Ext: 3099 KATS Code: BAFL Bloomberg Code: BAFL PA Reuters Code: BAFL.KA Market Price: Rs17.80 Target Price: Rs19 Market Cap: Rs24bn, US$244mn 1-yr Avg. Daily Volume: 2.4mn shares, Rs41mn, US$0.4mn 1-yr High / Low: Rs18.89 / 14.77 Estimated free float: 375mn shares (50%) bilal.qamar@js.com

BAFL: Lower provisions a key factor maintain Hold

KSE100 Index: Closing 21,441.12 (60.60)

Bank Alfalah Limited (BAFL) has been amongst the pick of investors recently, as the stock has managed to clock a return of 3% in last 2 trading sessions. We take this opportunity to revisit our model where we revise up our 2013E-14F earnings estimates by 3-9% and target price by 12% to Rs19. To recall, in 1Q2013 BAFL posted earnings of Rs0.75 per share (down 16%YoY) due to lower Net Interest Income (NII). However, reversals in loan provisions provided a buffer to depleting core income. The stock is currently trading at 2013 PBV and PE of 0.76x and 5.9x respectively. We continue to maintain our Hold call on the stock.

Earnings and TP revised maintain Hold

Post 1Q2013 result, we revisit our valuations for BAFL where we have revised our 2013E-14F earnings estimates by 3-9%. In line with recent trend in banking sector of lower/reversal in provisions (given high vigilance on bad loans) BAFL reported reversals of Rs66mn (vs provisions of Rs374mn in 1Q2012) in bad loan category. Incorporating these reversals we now anticipate BAFLs 2013 earnings to clock in at Rs3.00 per share compared to Rs2.90 expected earlier. We have also revised our target price to Rs19 from 17 earlier which offers a potential upside of 7% at current levels. The stock is currently trading at 2013 PBV and PE of 0.76x and 5.9x respectively and we continue to maintain our Hold stance on the stock.

BAFL: Revised estimates (Rs) 2013E 2014F Target Price Source: JS Research New 3.00 3.36 19 Old 2.90 3.09 17 % 3% 9% 12%

1Q2013 result review

With earning assets growing at a slower pace (2% in 1Q2013) and shrinking spreads, BAFLs NII declined by 18%YoY to Rs3.8bn in 1Q2013. Respite came in from lower cumulative provisions of Rs132mn (down 82%YoY) where bank registered reversals of Rs66mn against bad loans.
Financial highlights (Rs mn) Mark-up int earned Mark-up int paid Net Interest Income Prov/write offs Non interest income Operating exp Profit Before Tax Taxation Profit After Tax Earning Per Share Source: Company accounts 1Q2013 10,572 6,748 3,824 132 3,692 1,864 4,028 1,527 516 1,011 0.75 1Q2012 11,145 6,500 4,645 718 3,927 1,463 3,566 1,824 622 1,202 0.89 YoY% -5% 4% -18% -82% -6% 27% 13% -16% -17% -16% -16%

BAFL relative to KSE-100 Index

240% 215% 190% 165% 140% 115%

BAFL KSE-100 Index

Feb-12 Apr-12 May-12

Oct-12 Dec-12 Jan-13

Source: KSE

JS Research is available on Bloomberg, Thomson Reuters, CapitalIQ and www.jsgcl.com Please refer to the important disclaimer on the last page

Mar-13 May-13

Jan-12

Jul-12 Sep-12

90%

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May 30, 2013

MORNING BRIEFING

Meanwhile, the banks non interest income also grew by 27%YoY owing to 1) 18%YoY growth in commission and fee income and 2) higher capital gains booked (Rs319mn vs Rs56mn in 1Q2012) as the KSE-100 has outperformed tremendously. Nonetheless, bank reported a decline of 16%YoY in the bottom line during 1Q2013 reporting earnings of Rs0.75 per share.

Pakistan market statistics (May 29, 13) KSE-100 Index Previous KSE-100 Index Change from last closing Change from last closing (%) KSE Market Cap. (Rs. bn) KSE Market Cap. (US$ bn) Total Volume (Shares mn) Traded Value (Rs. bn) Traded Value (US$ mn) KSE-30 Index Change from last closing Change from last closing (%) KSE Futures Volume (Shares mn) KSE Futures Value (Rs. mn) KSE Futures Spread Source: KSE 21,441.12 21,501.72 -60.60 -0.28% 5,206.63 52.85 484.56 12.23 124.17 16,627.45 -101.95 -0.61% 19.22 1,584.19 10.90%

NPL ratio grows by 1%QoQ to 10%

The banks deposit base declined by a single ppt to Rs451bn in 1Q2013 - with domestic CASA remaining firm at 69%. Net advances, too, contracted slightly to Rs233bn (vs Rs234bn in 1Q2012) with ADR increasing by 1ppts to 52%. As far as bad loans are concerned banks NPL ratio grew to 10% from 9% in December 2012 while coverage ratio fell significantly to 58% from 63% in December 2012.

Also in Focus
Rs261bn raised through treasury bills
Government raised Rs261bn in government papers against the target of Rs200bn. Cut off yields on 3-month, 6-month and 12-month paper were reduced by 5, 4 and 6 bps respectively.

KSE valuations 2013E 2014F 2015F P/E (x) P/BV (x) Div. Yield (%) Earnings growth Source: JS Research 7.8 1.7 6% 15% 7.1 1.6 7% 9% 6.7 1.5 7% 6%

JS Global Capital Limited

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This report has been prepared for information purposes by the Research Department of JS Global Capital Ltd. The information and data on which this report is based are obtained from sources which we believe to be reliable but we do not guarantee that it is accurate or complete. In particular, the report takes no account of the investment objectives, financial situation and particular needs of investors who should seek further professional advice or rely upon their own judgment and acumen before making any investment. This report should also not be considered as a reflection on the concerned companys management and its performances or ability, or appreciation or criticism, as to the affairs or operations of such company or institution. Warning: This report may not be reproduced, distributed or published by any person for any purpose whatsoever. Action will be taken for unauthorized reproduction, distribution or publication.

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