Earnings Report /
Pakistan

Habib Bank: Q1 CY 20 review: Disappointing results from high opex

  • HBL posted consolidated NPAT of PKR4,086mn (EPS: PKR2.79) in Q1 CY 20, up 34% yoy but down by 39% qoq

  • Admin expenses rose by a sharp 20% yoy to PKR25,639mn

  • We retain our Buy recommendation given the sharp CYTD share price correction; TP PKR191

Yusra Beg
Yusra Beg

Senior Investment Analyst

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Intermarket Securities
22 April 2020

HBL posted consolidated NPAT of PKR4,086mn (EPS: PKR2.79) in 1QCY20, up 34%yoy but down by 39%qoq. This was much below our projected EPS of PKR3.85, with the deviation driven by (i) lower than-expected fee income, (ii) higher-than-expected fx losses, and (iii) very high admin expenses (up 20%yoy and 10%qoq). Alongside the result, HBL announced an interim dividend of PKR1.25/sh, inline with our expectation. 

Key highlights:

  • Net interest income clocked in at PKR28,013mn, up 20%yoy and 3%qoq, inline with our expectations. So far, other banks such as MCB and ABL have posted sequentially lower NII
  • Total provisions of PKR625mn came in lower than expected. This may be due to lower than expected NPL provisioning. 
  • Non-markup income declined 13%yoy and 31%qoq to PKR5,778mn, despite strong capital gains of PKR2,280mn (likely on PIBs). Lower non-interest income was led by (i) a decline in fee (down 11%yoy), (ii) an fx loss of PKR1,474mn (including loss on derivatives) and (iii) a 66%yoy drop in profit from associates (incl. dividend income). Fx income may do better in the next quarter, with the PKR showing some strength, but fee income may come under more pressure. 
  • Admin expenses rose by a sharp 20%yoy to PKR25,639mn, much higher than expectation. We attribute this to likely tail-end costs related to formal closure of the New York branch, although we await confirmation from management on this. The cost/Income ratio in the quarter has thus jumped to 77% from 66% in 4Q19. 

While expenses are elevated this quarter, they should begin to normalise from 2QCY20 onwards. Having said that, HBL is likely to show relatively weak earnings in 2020f as asset quality pressures come through and margins come off. HBL trades at a 2020f P/B of 0.6x and we retain our Buy stance given the sharp CYTD share price correction.