Earnings Report /
Pakistan

Bank Alfalah: 1QCY21 result review – strong earnings beat on lower provisions

  • BAFL has posted 1QCY21 consolidated EPS of PKR1.92, up 18%yoy and 57%qoq.

  • This is the second highest quarterly profit every recorded by BAFL

  • This was led by sharp decline in total provisions, a flattening NII and strong capital gains

Yusra Beg
Yusra Beg

Senior Investment Analyst

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Intermarket Securities
22 April 2021

BAFL has posted 1QCY21 consolidated NPAT of PKR3.4bn (EPS: PKR1.92), up 18%yoy and 57%qoq. This is the second highest quarterly profit every recorded by BAFL (after 4QCY19). We draw attention to (i) the sharp decline in total provisions to PKR216mn vs. a quarterly run-rate of PKR1.6bn since 2019, as asset quality pressures are evidently wearing off, (ii) flattening NII with tail-end margin compression being offset by balance sheet growth, and (iii) PKR1bn worth of capital gains, largely realized on the fixed income portfolio. BAFL has not announced any dividends as expected (BAFL usually does not announce quarterly dividends).

1QCY21 results highlights

NII has flattened sequentially to PKR10.3bn, (albeit down 12%yoy) vs. an expected contraction. This is led by a 2%qoq rise in interest earned which has helped offset a 4% rise in interest expenses. We understand this is due to strong balance sheet growth being deployed on the advances side.

Provisioning expenses have clocked in at PKR216mn – a remarkable shift from the quarterly run-rate of PKR1.6bn since 2019, as asset quality pressures evidently wear off. While we understand this includes a c. PKR50mn impairment reversal, asset quality pressures certainly appear to have waned after NPLs rose by 16%yoy in 2020. 

BAFL’s fee income has depicted a sharp rebound to PKR1.9bn (up 14%yoy) and slightly above our estimated PKR1.8bn. Capital gains are another key feature (as it has been for other banks in 1QCY21), rising to PKR1.1bn – realized mostly on the fixed income portfolio. Fx income has risen by a modest  5%qoq to PKR707mn (down 29%yoy).

Admin costs have grown by a modest 5%yoy and 5%qoq to PKR8.5bn, largely in line with expectations. That said, BAFL’s C/I has climbed to 60% vs. 55% SPLY, albeit lower vs. 62% in 4QCY20.

This result affirms our conviction on BAFL, which remains a top pick. BAFL is well placed to show margin expansion as interest rates begin to rise due to its high proportion of C/A and a domestic business-centered book. This should help deliver a double-digit EPS CAGR across CY21-25f, alongside a strong ROE pickup from less than 12% in CY20 to c 15% through the cycle. Within this backdrop, BAFL’s valuations are very attractive - CY21f P/B is 0.5x, P/E is 5.2x and the D/Y is 10%. We have a Dec'21 TP of PKR45/sh on the name.