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Habib Bank: 1QCY21 review – Strong earnings driven by NII

  • HBL posted 1QCY21 EPS of PKR5.68, more than doubling from SPLY and up a strong 46%qoq.
  • Result is significantly above our projections led by strong NII and rebound in fee due to improved trade commissions.
  • HBL announced an interim cash dividend of PKR1.75/sh, above our projected DPS of PKR1.25/sh.

HBL has posted 1QCY21 NPAT of PKR8.3bn (EPS: PKR5.68), more than doubling from SPLY and up a strong 46%qoq. The result is significantly above our projected EPS of PKR4.70 (as well as consensus estimates). The earnings beat is a function of (i) a surprising sequential increase in NII and (ii) strong rebound in fee likely due to improved trade commissions. HBL announced an interim cash dividend of PKR1.75/sh, above our projected DPS of PKR1.25/sh.

Key highlights

  • Net Interest Income came in much higher than projected at PKR32.5bn (up 16%yoy and 4%qoq). Interest earned remained flat at PKR63.5bn indicating that asset re-pricing towards lower rates has concluded, lifting instead due to rising KIBOR. Interest expenses however, declined 3%qoq to PKR31.0bn.

  • Provisioning expenses reported a significant 48% qoq decline to PKR1.9bn (in-line with estimates). We gather this is largely due to easing asset quality pressures (limited need to further increase general provisions), despite the SBP’s loan deferment facility expiring in March’2021.

  • Non-markup income rose by a sharp 42%yoy and 26%qoq to PKR8.2bn. This was led by a sharp 25%yoy rebound in fee income to PKR5.9bn likely due to higher trade related commissions and bancassurance fee. HBL reported strong fx gains of PKR896mn and derivative income of PKR1.1bn, led by the 4.5%CYTD appreciation of the PKR.

  • Core admin expenses declined 7%yoy to PKR23.9bn, inline with expectations. The combination of strong revenues (NII and NFI) and normalising expenses has reduced the Cost/Income to 59.6% vs. 63.5% in 4QCY20 and a massive 77.0% in SPLY.

This is a very strong set of results by HBL where the bank has continued to post positive surprises on NII, which we like. We expect HBL’s NII to continue growing on a sequential basis from here. The c 30% cash payout ratio also appears sustainable, in our view (vs. the 20% payout in CY20). HBL trades at a CY21f P/B and P/E of 0.6x/5.0x and is one of our top picks among covered banks. We reiterate our Buy stance with a Dec’21 TP of PKR160/sh.


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