Habib Bank

HBL has reported 2QCY23 EPS of PKR11.34, up 44% YoY / 28% QoQ. This is an earnings beat, led by better NII while provisioning expenses also remain in control. This is helping beef up the capital base. HBL trades at a CY24f P/B of 0.4x and P/E of 2.2x...

Expect a strong sequential pick-up in 3Q earnings - more prominent for HBL and BAFL. This is courtesy lower tax, asset repricing and absence of one offs. Despite the rally, banks are trading cheap. Remain Overweight.

CY23-24f EPS estimates raised by c. 12%, with subsequent earnings coming off as interest rates normalize. Asset quality is holding up, with quick revenue growth more than offsetting a high cost base. HBL is cheap on CY24f P/B of 0.4x and P/E of 2.3x...

HBL has reported 2QCY23 EPS of PKR8.86, up 3.8x YoY / flat QoQ – inline with expectations. Robust NFI (particularly fee) and resilient asset quality (NPLs have come off sequentially) are a key feature. Strong core revenues have raised T1/ CAR to a co...

Pre-tax 2QCY23 profits for our covered banks to rise 10%QoQ. Reported earnings may contract by 16%QoQ due to super tax. Coming quarters to see greater impact of margin expansion. Resilient asset quality backs strong core performance. Banks are still...

1QCY23 results indicate underlying profitability is strong, on rising margins and resilient asset quality. Our earnings estimates remain unchanged, even as we factor in a higher cost of risk and a 49% tax rate. Pakistan banks are cheap, trading at CY...

HBL posts 1QCY23 EPS of PKR9.00 0 - in line. However, the DPS of PKR1.50 falls short of our estimated PKR2.00. Core revenue generation and asset quality remain strong, but are masked by Fx losses and high legal costs. HBL trades at a CY23f P/B at 0.3...

HBL has reported 4QCY22 EPS of PKR7.27, up 28% YoY but lower by 7% QoQ - an earnings beat. HBL trades at a CY23f P/B of 0.3x and P/E of 2.7x and remains a top banking play. HBL trades at a CY23f P/B of 0.3x and P/E of 2.7x and remains a top banking p...

Pakistan banks may report sequentially flat profit in 4QCY22 (up 19% YoY). There is room for minor dividend misses. NII growth should be offset by normalized fx income and high opex. Asset quality is not a concern, for now. Valuations are very cheap...

SBP has reduced the additional CET-1 requirements for systemically important banks by 50bps. This is beneficial for HBL, NBP and MEBL, allowing more breathing room on capital. This is likely motivated by recent mark-to-market hits on bonds and IFRS-9...

HBL has reported 3QCY22 EPS of PKR7.85, up 27%YoY and 3.4x QoQ – an earnings beat. Strong NII, lower provisions and a lower effective tax rate have led the deviation. We maintain a Buy rating on HBL with a TP of PKR140/sh.

Normalized tax to lead to strong lift in earnings in 3Q. Expect margin expansion to continue alongside swift balance sheet growth. Best-in-class names are MEBL and UBL.

A US district court has dismissed primary liability claims against HBL but has sustained secondary liability claims. Civil proceedings may commence, but HBL has the room to renew its motion for dismissal on jurisdictional grounds. HBL is very cheap b...

The outlook for banks has improved, margins are rising and asset quality is resilient. Valuations are already much below normal cyclical troughs with significant room for ROE lift off. Our top picks are UBL (high c 20% D/Y), BAFL (strong growth prosp...

HBL has reported 2QCY22 NPAT of PKR3.4bn (EPS: PKR2.32), down sharp 63%YoY and 60%QoQ. This is due to one-off higher taxation after recent budgetary changes, taking effective tax rate for the quarter to 83%. HBL’s 1HCY22 NPAT comes to PKR11.9bn (EPS: PKR8.10), down 33%YoY. NII came in at PKR37.6bn, up 16%YoY and 4%QoQ, on strong balance sheet growth (total assets up c.20%YoY). Margin expansion has continued, and should reflect more fully in 2HCY22 and CY23, in our view. Fee income continues to impress (up 31%YoY and 5%QoQ), albeit in-line with projections. Admin expenses are up 25%YoY but lower by 5%QoQ to PKR28.7bn. Effective tax rate came in at 83% against our estimated 74%.

Pakistan's banks have seen a considerable improvement in loan quality over the past decade; non-performing loan (NPL) ratios are half of their 2011 levels and the cost of risk has remained manageable in recent years. That said, banks’ cautious approach to lending over the past decade and their low loans/deposits ratios could provide a buffer. Improvements in asset quality have been mainly driven by the banks’ cautious approach to lending; the advances/deposits ratio fell to 47% in 2021 from 54% in 2011 and 76% in 2008.

The exposure of emerging markets banks to sovereign debt is at an all-time high, and tighter financial conditions are putting pressure on government finances. Hefty fuel subsidies and delays in IMF negotiations are further worsening the situation. In the emerging markets context, Pakistan stands out as having high levels of sovereign indebtedness and bank exposure to government debt. Pakistan banks hold government securities worth 8.6x times of their tier 1 capital, compared with a median 1.4x for other emerging markets. The yield on Pakistan eurobonds (maturing in 2024) has jumped from 5.1% at the start of the year to 17.

Core revenue growth is impressive, with both funded and non-funded streams delivering strongly. Adjusted for the one-off impact of the VSS taken up by legacy union staff (PKR2.6bn), the result was in line with expectations. Our Dec’22 TP is unchanged at PKR150/sh and we retain our Buy rating. Net interest income rose by 12% yoy / 6% qoq in 1QCY22. With margins expected to further expand once April’s 250bps policy rate hike fully transmits, NII growth should be in the high teens this year and the next. Non-interest income is high quality, led by fees which is growing strongly across all major lines.

HBL has posted consolidated 1QCY22 NPAT of PKR8.5bn (EPS: PKR5.78), up 2%yoy. Net interest income of PKR36.3bn, up 12%yoy / 6%qoq. This is inline with our projections, in contrast to positive surprises posted by UBL and BAHL. Non-interest income of PKR10.4bn is impressive, pushed up by both fee (+24%yoy) and fx income. Total provisions have clocked in at PKR1.2bn, down 35%yoy, delivering a positive surprise in the process. HBL has grappled with high costs in the last few years but the spike in C/I is still a surprise. We await clarity from management if this includes a one-off or is the new normal. Our Dec’22 TP is PKR150/sh but this assumes a consistent sub-60% Cost/Income.

Balance sheet growth may sequentially moderate. Key highlights are expected to be: (i) 20%yoy NII growth, (ii) a sub-20bps cost of risk, (iii) flattish non-interest income and (iv) double-digit growth in admin expenses. We expect strong cash payouts to continue despite the possible implementation of IFRS 9. High dividend yield is also a feature, with banks such as MCB, UBL and BAFL easily offering double-digit D/Y. We expect this to remain unchanged even if IFRS 9 is implemented on private sector assets this year. Our top picks are HBL, UBL and MEBL.

We trim our EPS estimates for HBL by 7% on average, with the bank’s enhanced focus on digital coming at a cost (C/I rising to 55% through the cycle). HBL remains one of our top picks among banks. We expect fee / non-interest income to grow at a 12/10% CAGR. Importantly, PKR volatility no longer poses a threat to HBL’s open loan position, which is now manageable. HBL reported 4QCY21 NPAT of PKR8.3bn (EPS: PKR5.67) in 4QCY21, up 46% yoy but lower by 8% qoq.

HBL has reported 4QCY21 NPAT of PKR8.3bn (EPS: PKR5.67), up 46% yoy but lower by 8% qoq. The result is lower than our estimated 4Q EPS of PKR6.31. HBL has reported very high provisioning expenses (PKR2.6bn, up 47% qoq), sequentially higher admin expenses and a high effective tax rate of 46%, which has offset strong fee income (up 38% yoy) and fx income. We suspect this is a function of strong balance sheet growth. This could be due to a client-specific downgrade rather than a downturn in overall asset quality. We await clarity from management on this front. HBL remains a top pick, where we reiterate our Buy stance with a December 2022 TP of PKR165/sh.

This change would bring Pakistan more into line with international best practice, but our discussions with banks suggest that there is still no clarity on this matter, while recent comments by the finance minister indicate that there is government pressure on the SBP to continue granting the provisions exemption. Pakistan’s banks have been instructed to implement IFRS9, which stipulates the accounting treatment of financial instruments, from January 2022. Under the current regime in the country, banks are exempt from any credit provisioning on government exposures.

IMS Banking Universe is expected to report strong 47% yoy growth in earnings (albeit sequentially soft, up 4% qoq) in 4QCY21. Dividend payouts will stand out this quarter particularly for MCB (PKR5.0/sh), UBL (PKR4.0/sh) and BAHL (PKR4.0/sh). In terms of earnings we expect MEBL and UBL to outperform peers this result season. Strong balance sheet growth – particularly low-cost deposits and stable margins should help lift NII in 4Q (up 6% qoq and 13% yoy). While the 6M Kibor has far exceeded the Policy rate (10.7% vs. 9.75% policy rate), we expect the impact of asset repricing to reflect with a lag in coming quarters.

Margin expansion and strong balance sheet growth should help deliver a 15%+ EPS CAGR over the next 3 years. Provisioning coverage of 100% gives comfort on asset quality, while admin costs have normalized. Valuations are attractive (CY22f P/B of 0.61x and P/E of 4.7x) where we believe outflow from exiting passive EM funds in the upcoming MSCI event is an opportunity to add the name. Strong revenue growth coupled with an end to legacy issues, particularly the high admin costs, leads us to estimate a 15%+ EPS CAGR for HBL in the next 3 years. Valuations are very attractive where HBL trades at a CY22f P/B of 0.61x and P/E of 4.7x, vs. a mid-cycle ROE of c. 16%.