Earnings Report /

Bank Alfalah: 4QCY21 review – Strong NFI offsets high provisions and admin costs

  • BAFL has posted 4QCY21 consolidated EPS of PKR2.09, up 71% yoy and flat qoq, in line with our estimates

  • Higher than expected provisions and swift growth in admin expenses was offset by strong delivery in NFI

  • BAFL announced final DPS of PKR2.0/sh, in line with expectations, taking full year DPS to PKR4.0/sh.

Yusra Beg
Yusra Beg

Senior Investment Analyst

Intermarket Securities
2 February 2022

BAFL has posted 4QCY21 consolidated NPAT of PKR3.7bn (EPS: PKR2.09), up 71% yoy and flat qoq. This takes CY21 NPAT to PKR14.4bn (EPS: PKR8.12), up 33% yoy. The result is in line with our estimated 4Q EPS of PKR2.15. Key takeaways from the result include an in-line NII, higher than expected provisions of PKR893mn (which we understand is due to foreign securities and not fresh infection), and swift growth in admin expenses (21% yoy). This is offset by a very strong delivery in NFI courtesy higher than expected capital gains – mostly on foreign securities, strong fx and fee income. BAFL announced a final cash dividend of PKR2.0/sh, in line with expectations, taking full year DPS to PKR4.0/sh.

Results were accompanied with a notice of the Board’s intention to acquire 1.3% of the share capital of the bank’s subsidiary Alfalah CLSA Securities from a minority shareholder. The bank’s total shareholding will thus increase to 62.5% (or c. 25mn shares) in the same.

4QCY21 results highlights:

  • NII rose by 2% qoq and 19% yoy to PKR12.2bn, in line with our expectations. The muted sequential growth in NII is due mostly to a temporary timing difference in asset repricing of interest rates.

  • BAFL posted a higher than expected provisioning charge of PKR893mn vs. PKR269mn in the previous quarter. We understand this is led by an impairment charge on foreign securities and not due to an asset quality downturn.

  • BAFL reported a strong rebound in fee income (up 26% yoy), clocking in at PKR2.3bn – in line with estimates, led by strong trade volumes and card related fee. Fx income rose sharply (c. 2.2x yoy) courtesy exchange rate volatility and strong trade & Remittance volumes. Capital gains also reported a large jump (2.5x qoq to PKR919mn and much higher vs. SPLY), which we understand is due mostly to gains on sale of foreign securities. 

  • Costs are on the rebound (up 21% yoy, 6% qoq), and have come in above estimates at PKR9.8bn due to strong expansion (70 new branches opened in CY21). The cost-to-income ratio has however, inched downwards to 57% vs. 58% in the previous quarter and 62% SPLY due to very strong NFI.

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. Within this backdrop, valuations remain attractive - CY22f P/B is 0.6x and P/E is 4.2x. We have a Dec’22 TP of PKR50/sh on the name.