JS Securities Limited – Morning Briefing
Web Desk
Karachi, January 12, 2018 (PPI-OT): ABL: Earnings growth to outperform peers in 4Q2017, ‘Buy’ with TP of Rs118
We expect Allied Bank Ltd (ABL) earnings to clock-in 13% YoY lower at Rs12.55bn (EPS: Rs10.96), owing to 75% YoY drop in Gain on Sale of Securities.
The bank’s Net Interest Income (NII) decline is likely to clock-in at 4% YoY in 2017, where an impressive 14% YoY growth is anticipated in 4Q2017 (9M2017: -9% YoY) on the back of 20% YoY higher Advance during the year.
Hence in 4Q2017, we expect earnings to clock in at Rs2.82bn (EPS: Rs2.46), up 28% YoY, outperforming expected peers’ growth of -8% YoY.
Alongside result, we expect the bank to announce a final cash dividend of Rs1.75/share, taking cumulative payout in 2017 to Rs7.0/share.
We reiterate our ‘Buy’ rating on ABL, with a potential upside of 28% on offer from our Target Price of Rs118, alongside an attractive D/Y of 7%.
The bank trades at a discount of 22% to sector’s 2018F P/B of 1.3x, where its NIMs (3%) and potential Tier I ROE of 18% (5-year forward average), are both at par with the sector’s average.
4Q2017 earnings likely to outperform peers
We expect Allied Bank Ltd (ABL) earnings to clock-in 13% YoY lower at Rs12.55bn (EPS: Rs10.96), owing to 75% YoY drop in Gain on Sale of Securities. The bank’s Net Interest Income (NII) decline is likely to clock-in at 4% YoY in 2017, where an impressive 14% YoY growth is anticipated in 4Q2017. To recall, the bank’s NII was 9% YoY down during 9M2017. The growth in NII during the quarter is expected on the back of 20% YoY higher Advance during the year. The bank holds a Tier II CAR of 22%, presenting ample room for increase in risky weighted assets. Hence in 4Q2017, we expect earnings to clock in at Rs2.82bn (EPS: Rs2.46), up 28% YoY, outperforming expected peers’ growth of -8% YoY. Alongside result, we expect the bank to announce a final cash dividend of Rs1.75/share, taking cumulative payout in 2017 to Rs7.0/share (payout: 64%).
‘Buy’ intact with TP of Rs118; discount to peers unjustified
We reiterate our ‘Buy’ rating on ABL, with a potential upside of 28% on offer from our Target Price of Rs118, alongside an attractive D/Y of 7%. The bank trades at a discount of 22% to sector’s 2018F P/B of 1.3x, where its NIMs (3%) and potential Tier I ROE of 18% (5-year forward average), are both at par with the sector’s average. The bank also holds good asset quality with Gross Infection ratio of 5% (vs. sector’s average of 10%), while it also remains one of the major beneficiaries of potential increase in interest rates amongst top-tier banks given its higher (1) ADR and (2) Current Account mix. Key risks to our investment case are (1) delays in increase in interest rates and (2) lower-than-expected asset growth.
