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JS Securities Limited – Morning Briefing

Karachi, January 17, 2018 (PPI-OT): HMB: NII to witness robust growth, ‘Buy’ with TP of Rs50

We expect Habib Metropolitan Bank (HMB) to post 41% YoY lower earnings of Rs1.36bn (EPS: Rs1.30) for 4Q2017, as we expect the bank to book minimal gains of Rs365mn on sale of securities vis-à-vis Rs1.65bn gains booked during 4Q2016.

We highlight the bank is expected to continue robust growth in Net Interest Income (NII) and register 20% YoY growth in the same during 4Q2017 (9M2017: +18% YoY) as a result of declining cost of funds.

Hence, we expect 2017 earnings to clock in at Rs4.62bn (EPS: Rs4.41), down 25% YoY on the back of similar reasons cited above.

Alongside result, we expect HMB to announce annual cash dividend of Rs3.0/share for 2017.

We keep our ‘Buy’ rating intact on HMB with a Target Price of Rs50, offering a capital upside of 35% alongside a D/Y of 8%.

Absence of capital gains to overshadow NII growth in 2017

We expect Habib Metropolitan Bank (HMB) to post 41% YoY lower earnings of Rs1.36bn (EPS: Rs1.30) for 4Q2017, as we expect the bank to book minimal gains of Rs365mn on sale of securities vis-a-vis Rs1.65bn gains booked during 4Q2016. We highlight the bank is expected to continue robust growth in Net Interest Income (NII) and register 20% YoY growth in the same during 4Q2017 (9M2017: +18% YoY) as a result of declining cost of funds. We do not rule out a positive surprise on recovery front, resulting in reversals against provisioning expenses, however we incorporate provisioning expenses of Rs136mn during 4Q2017. Overall, we expect 2017 earnings to clock in at Rs4.62bn (EPS: Rs4.41), down 25% YoY on the back of similar reasons cited above, while cumulative NII for 2017 is expected to grow by 19% YoY. Alongside, we expect HMB to announce annual DPS of Rs3.0/share.

‘Buy’ intact with attractive D/Y

We keep our ‘Buy’ rating on HMB intact with a Target Price of Rs50, offering a capital upside of 35%. The stock trades at a 2018F P/B of 0.9x, and offers an attractive D/Y of 8%. We flag the bank pays annual dividends that make current cash yield attractive during the next 3-4 months. The stock has underperformed its peers by 2% with a return of 12% in the recent rally, whereas we expect the bank to outshine the sector in NII growth on the back of decline in cost of funds and higher PIB duration. Key risks to our investment thesis include (1) delays in potential interest rate hikes and (2) higher-than-expected NPLs accretion.

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