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

Yusra Beg
Yusra Beg

Senior Investment Analyst

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.