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Pakistan

Bank Alfalah: Q4 CY 19 review – In line with estimates; cost control evident

    Yusra Beg
    Yusra Beg

    Senior Investment Analyst

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    Intermarket Securities
    14 February 2020

    BAFL has posted 4QCY19 consolidated NPAT of PKR3,316mn (EPS: PKR1.87), up 62%yoy, taking CY19 NPAT to PKR13,047mn (EPS: PKR7.35), up 20%yoy. The result is in line with our projections, with lower-than-expected fee income offset by beats on fx income and capital gains. BAFL announced an inline final cash dividend of PKR2.0/sh, taking the full-year dividend to PKR4.0/sh (payout: 54%). The bank also announced the resignation of its CEO due to personal reasons, where we await details to guage future strategy of the bank. 

    Key Q4 highlights

    • NII came in at PKR11,60mn, up 33%yoy but surprisingly down 1%qoq. We understand the sequential reduction may be led by suspended markup income on some subjectively classified accounts and higher than expected year-end slippages in the deposit mix.
    • The total provisioning charge of PKR1,016mn, (up 16%yoy and flat qoq), came within our expectations. We understand this is attributable to subjective classification similar to the previous few quarters and not due to an increase in NPLs. 
    • Non-interest income rose 12%yoy but came in lower than expectations due to sharply lower fee income of PKR1,580mn (down 19%yoy and 14%qoq). We understand this may be due to a timing difference on G2P payments. This was, however, partially compensated by high capital gains and fx income. 
    • Focus on cost control continues with admin expenses clocking in at PKR7,582mn, up 11%yoy and flat qoq. This is a break from recent higher workforce and digital spending where 9M costs rose by a sharp 21%yoy. As a result, the cost-to-income ratio has remained stable at 53% (lower non-funded income has masked improvement in C/I).

    CY 19 highlights: (i) Strong 41%yoy growth in net interest income to PKR44,862mn, (ii) sharp rise in total provisions to PKR3,029mn vs. net provisioning reversal of PKR16mn in CY18, (iii) a 3%yoy decline in non-markup income and (iv) non-interest expenses of PKR29,203mn (up 18%yoy).

    We acknowledge BAFL’s efforts in reducing pace of admin cost buildup, where impact from suspended markup income is expected to normalize in the next few quarters. BAFL is well leveraged to rising interest rates, where we expect strong asset repricing to continue and more than offset deterioration in asset quality, which has held. BAFL trades at CY20/21f P/B of 0.91x/0.83x and is a top pick in our coverage universe. We have a Dec’20 TP of PKR58/sh with a Buy rating on the name.