Earnings Report /
Pakistan

Bank Alfalah: 2QCY22 Result Review - Very strong NII delivery

  • BAFL reported 2QCY22 EPS of PKR2.10, up 4%YoY - an earnings beat

  • Robust NII offset high admin and provisioning expense

  • BAFL is a top banking play in a higher interest rate setting, Buy!

Yusra Beg
Yusra Beg

Senior Investment Analyst

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Intermarket Securities
29 July 2022

BAFL has posted 2QCY22 consolidated NPAT of PKR3.7bn (EPS: PKR2.10), up 4%YoY but lower by 26%QoQ. This takes 1HCY22 NPAT to PKR8.8bn (EPS: PKR4.93), up 25%YoY. The result is higher than our estimated EPS of PKR1.85, with robust NII delivery, offsetting higher admin expenses and a sharp rise in provisions (higher discretionary general provisions instead of new infection). BAFL announced an interim cash dividend of PKR2.5/sh versus our expectation of PKR2.0/sh.

2QCY22 Results Highlights:

  • BAFL reported a sharp 25%QoQ rise in NII to PKR17.8bn, much higher than anticipated. BAFL has been largely positioned at the shorter end of investment book (c.85%), resulting in strong margin expansion. The book is yet to fully reprice, with NIM expansion to continue.

  • High provisioning charge of PKR3.7bn (versus PKR386mn in the previous quarter) is a function of large general provisions (PKR2.75bn) and not due to any fresh NPL infection. The bank has remained prudent in light of the tougher macroeconomic environment.

  • Fee income rose a strong 29%YoY to PKR2.8bn, led by strong trade volumes and card related business. Fx income more than doubled sequentially (c. 2.4xQoQ) courtesy exchange rate volatility and strong trade & remittance volumes.

  • Costs are on the rebound (+11%QoQ), which we understand is mostly due to higher inflation. However, cost-to-income ratio has reduced to 47% against 55% in the previous quarter and 56% during SPLY due to very strong interest income.

  • BAFL has reported a tax charge of PKR5.6bn vs. PKR2.8bn in the previous quarter as per changes in the Federal budget. The effective tax rate has therefore clocked in at 60% (in-line with projections).

Today’s result leads us to maintain our liking for the stock where we expect asset repricing to fully reflect in the coming quarters. BAFL is a top banking play in a higher interest rate setting, due to its high margin sensitivity. Valuations remain attractive - CY22f P/B is 0.5x and P/E is 3.0x. The stock also hit upper circuit for a while after result announcement. We have a Dec’22 TP of PKR50/sh.