BRAC Bank: Q1 2021 – 42% NPAT growth owing to 125% YoY increase in investment income
- BRAC reported BDT 1.2bn consolidated NPAT implying c42% growth
- bKash revenue increased by 18% but reported loss of BDT 241mn
- We reiterate our BUY rating with unchanged TP of BDT 66. At current market price it offers c36% return potential
BRAC Bank, our only recommended bank in Bangladesh, reported BDT 1.2bn NPAT in Q1 2021 against BDT 0.9bn of Q1 2020 implying c42% growth (excluding minority interest). The growth is driven by a 125% increase in investment income.
Our unchanged target price of BDT 66 represents a c36% expected total return (ETR). Risk to our valuation includes: i) continuation of pandemic lockdown for a prolonged period; ii) continuation of SME loan rate cap for a long period (we assumed no rate cap for SME from 2022); iii) if bKash fails to make a success of the P2P or P2B business.
BRAC improved its spread to 4.7% in Q1 2021 compared to 4.6% in 2020. However, it was 6.1% in Q1 2020. Due to the 9% rate cap spread fell YoY.
BRAC took a specific provision of BDT c988mn in Q1 2021. The bank’s cost of risk (Q1 annualized) stood at 1.6% compared to 1.3% of Q1 2020. It is to be noted that the central bank has relaxed the loan classification policy, hence BRAC had the option of keeping no specific provision. Bank also took BDT 90 mn provision against its off-balance sheet item.
BRAC improved its cost to income ratio (CIR) substantially. Its consolidated CIR improved to 64.5% in Q1 2021 compared to 69.3% of the same quarter the previous year. Its banking business (solo Bank) CIR also improved to 50.4% from 55.8% of the previous year same quarter.
Gross loans increased to BDT 274.1bn implying c6% YoY growth and deposit increased by c3% YoY to BDT 270.4.
bKash continued its revenue growth momentum as revenue increased by c18% in Q1 2021. Its gross margin improved to 26% from 23% of Q1 2020. As a result of this gross margin improvement, bKash gross profit increased by 27% YoY. However, due to a 17% YoY opex increase, bKash reported a loss of BDT 241mn compared to BDT 174 loss of Q1 2020.
BRAC EPL investment, the merchant bank subsidiary, reported a BDT 107.8mn loss in this quarter. On the other hand, The brokerage subsidiary reported a BDT 59.5mn profit for this Q1 2021.
Current ongoing lockdown can have a negative impact on the loan portfolio. However, BRAC is adequately making provision to overcome that impact if any.
The country’s private sector credit growth is subdued. Hence, BRAC will not have a high loan growth in this year as well. Besides, its deposit decreased QoQ (from Dec 2020) by 6% YoY.
bKash’s revenue growth is yet to be converted into NPAT. However, bKash is still in the growing stage so this kind of investment is necessary for the next phase of transformation.
BRAC numbers in chart
bKash numbers in chart
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The information contained in this report has been compiled by IDLC Securities Limited (IDLC-SL) from sources believed to be reliable, but no representation or warranty, express or implied, is made by ...