Earnings Report /
Pakistan

Allied Bank: 1QCY21 review – Earnings beat but an underwhelming result versus peers

  • ABL has posted consolidated 1QCY21 EPS: PKR3.59, up 6%yoy but lower by 28%qoq.

  • While the result is stronger than expected, this is a less of a beat versus other banks on relatively weaker NII.

  • The earnings beat stems from modest provisioning reversals, strong rebound in fee and sizeable capital gains

Yusra Beg
Yusra Beg

Senior Investment Analyst

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Intermarket Securities
22 April 2021

ABL has posted consolidated 1QCY21 NPAT of PKR4.1bn (EPS: PKR3.59), up 6%yoy but lower by 28%qoq. While the result has come above our estimated EPS of PKR3.0, this is a less of a beat vs. the other banks due to relatively weaker NII. The earnings beat stems from (i) PKR139mn provisioning reversal vs. expectation of minor provisions, (ii) strong rebound in fee income (up 15%qoq, 6%yoy) and (iii) sizeable capital gains – excluding which this would have been an earnings miss. ABL announced interim dividend of PKR2.0 – in line with expectations.

Key highlights

  • ABL has reported NII of PKR10.8bn, down 8%yoy and 3%qoq slightly above our estimated PKR10.4bn. Relative to other banks which have reported results so far, this is a far weaker showing.

  • ABL has booked provisioning reversal of PKR139mn vs. our expectations of a minor PKR200mn expense. While this may include an element of impairment reversals (similar to other banks), ABL’s asset quality speaks for itself (NPL ratio CY20: 2.8%) led by high public sector and low consumer exposure.

  • Non-interest income has jumped 45%yoy and 11%qoq to PKR4.1bn (up 33%qoq). Fee income depicted a sharp 15%qoq to PKR1.8bn likely due to recovering trade commissions.  ABL has booked large capital gains of PKR1.5bn which provided bulk of the support to bottom-line, excluding which this would have been an earnings miss. Dividend income and Fx gains declined 36% and 33% qoq respectively – both coming below expectations.

  • Core admin expenses have remained sequentially flat at PKR8bn, although rising 11%yoy. That said, despite the apparent cost control, weak NII has maintained ABL’s C/I at 55% (at par with 4QCY20, but higher than 51% in SPLY).

  • Effective tax rate has normalised to 40% in 1QCY21 vs. 30% in 4QCY20 and 39% SPLY.

While ABL’s asset quality strength remains intact, this is a relatively weaker showing vs. peers. ABL has begun to deliver strong growth in NFI where the bank still holds substantial unrealised gains yet to be realised. Our current TP for ABL is PKR110/sh which implies a Buy rating.