Earnings Report /
Pakistan

Habib Bank: 1QCY22 review – Underperforming

  • HBL posted 1QCY22 EPS of PKR5.78, up 2%yoy, missing projected EPS of PKR6.60. The PKR2.25 DPS is a slight positive

  • Earnings miss is due to a sharp increase in admin expenses, taking Cost/Income to a high 66%

  • Valuations are cheap but the bank could operate below potential if it is unable to bring costs under control

Raza Jafri
Raza Jafri

Executive Director, Research

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Yusra Beg
Yusra Beg

Senior Investment Analyst

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Intermarket Securities
20 April 2022

HBL has posted consolidated 1QCY22 NPAT of PKR8.5bn (EPS: PKR5.78), up 2%yoy. The result was well below our projected EPS of PKR6.60, with the deviation primarily driven by a sharp increase in admin expenses. Despite the first interim dividend of PKR2.25/sh coming in above our projected PKR2.0/sh, the share price has reacted negatively post result announcement.

Key highlights include:

  • Net interest income of PKR36.3bn, up 12%yoy / 6%qoq. This is inline with our projections, in contrast to positive surprises posted by UBL and BAHL.

  • Non-interest income of PKR10.4bn is impressive, pushed up by both fee (+24%yoy) and fx income. Banks thus far have done well on fee, and HBL is no exception.

  • Total provisions have clocked in at PKR1.2bn, down 35%yoy, delivering a positive surprise in the process.

  • Core admin expenses of PKR30.4bn, up 27%yoy, are concerning and we await more clarity on this. Cost/Income is thus a high 66% in 1QCY22 vs. less than 60% across each of the last two years.

HBL has grappled with high costs in the last few years but the spike in C/I is still a surprise. We await clarity from management if this includes a one-off or is the new normal. HBL trades at a CY22f P/B of 0.5x and P/E of 4.1x while offering a D/Y of about 7.5%. Our Dec’22 TP is PKR150/sh but this assumes a consistent sub-60% Cost/Income.