Earnings Report /
Pakistan

Bank Alfalah: 3QCY22 Review: Strong NII offsets high opex; earnings beat

  • BAFL has posted 3QCY22 consolidated EPS of PKR3.10 (up 48% YoY, 48% QoQ) – an earnings beat

  • Sharp rise in NII has offset a spike in admin expenses and provisions.

  • We remain comfortable with our earnings estimates and maintain our liking for BAFL (TP: PKR50/sh)

Yusra Beg
Yusra Beg

Senior Investment Analyst

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Intermarket Securities
17 October 2022

BAFL has posted 3QCY22 consolidated NPAT of PKR5.5bn (EPS: PKR3.11), up 48% YoY and 48% QoQ. This takes 9MCY22 NPAT to PKR14.3bn (EPS: PKR8.03), up 33% YoY. Earnings came in higher than our estimated 3Q EPS of PKR2.90. Key takeaways from the result include strong rise in NII (up 84% and 22% QoQ) - as margin expansion comes through more fully - which offset a spike in admin expenses (+45% YoY) and higher provisions (+12% QoQ). We understand the latter may be driven by general provisions and subjective downgrades rather than new NPL formation. BAFL did not announce any cash dividend, as expected.  

3QCY22 Results Highlights:

  • BAFL reported a sharp 84% YoY and 22% QoQ rise in NII to PKR21.8bn, higher than anticipated. This is driven by repricing of its floater PIBs and strong balance sheet growth (gross advances and deposits up 16% YoY and 34% YoY, respectively). The book is yet to fully reprice, with NIM expansion to continue in coming quarters.

  • Total provisions remain elevated at PKR4.0bn (vs. PKR3.7bn in the previous quarter) - a function of large general provisions and subjective downgrades and not due to any fresh NPL infection.

  • BAFL reported strong growth in fee income, up 38% YoY to PKR2.9bn, led by strong trade volumes and card related business. Fx income remained elevated at PKR3.5bn, courtesy exchange rate volatility.

  • Admin expenses have jumped (up a sharp 45% YoY, 16% QoQ), which we understand is due to rise in inflation, salary increases, branch expansion and IT related expenditure. Cost-to-income ratio has however been maintained sequentially at 47%.

  • BAFL has reported a tax charge of PKR5.5bn (inline with estimates), with the effective tax rate coming off sequentially to c 50% vs. 60% in the previous quarter.

While this is a strong earnings beat by BAFL, a high base has been set for admin expenses, which may decelerate the medium-term earnings trajectory. That said, we remain comfortable with our earnings estimates and maintain our liking for BAFL as a top banking play given its highly attractive valuation stack (2023f P/B: 0.4x, P/E: 2.0x, D/Y: 14%). We have a TP of PKR50/sh on the name.