BAFL has posted 3Q19 consolidated NPAT of PKR3,283mn (EPS: PKR1.85), up 23%yoy but flat qoq, taking the 9M19 NPAT to PKR9,735mn (EPS: PKR5.48), up 10%yoy (pre-tax: up 18%yoy). The 3Q19 result is slightly lower than our projected EPS of PKR1.99, with the difference largely led by higher than expected provisioning and a loss on disposal of securities. We understand that the higher provisioning may be due to a subjective charge on certain loans, alongside some impairment on the equities portfolio. BAFL did not announce any interim dividends, in-line with expectations.
3Q19 Key result highlights include:
- BAFL reported net interest income of PKR11,652mn, up 48%yoy, in-line with estimates. This was likely led by margin expansion and timing normalization (after some suspended markup income in 2Q19).
- Provisioning charge of PKR1,033mn came in higher than our projection of PKR534mn. We understand there is an element of subjective provisioning on the loan book, as well as some impairment on the equities portfolio.
- Non-funded income remained flat but core fee income rose 11%yoy to PKR1,840mn (in-line). Fx income rose to PKR642mn (up 20%yoy), while share of profit from associates continues to improve (contribution from the power sector asset). However, the positives were diluted by a capital loss of PKR374mn (possibly on equities).
- Although broadly inline with our estimates, admin expenses rose by a quick 25%yoy to PKR7,565mn (in 1H19 costs were up 19% yoy largely due to high salaries). That said, strong revenue levels helped maintain the cost-to-income ratio at 53% (vs. 58% in 3QCY18).
Detailed financials, when released, will shed more light on asset quality outlook; for now, we are not particularly perturbed by the miss on provisions. BAFL trades at a 2020f P/B of 0.81x on a sustainable ROE of more than 16%. Our Dec’20 target price of PKR51/sh implies a Buy stance.
Risks: (i) Greater than expected asset quality deterioration, and (ii) cost slippages.