By: BMA Capital Management Limited
On‐going monetary easing and possible debut of ‘target rate’ has kept banking sector under pressure during last 3 months, resultantly the sector has shed 21%CYTD and underperformed the broader index by 16%. Askari Bank Limited (AKBL) which reported a remarkable turnaround in the earning in CY14, has also declined in tandem, shedding 24% over the same period. The near term sentiment in the sector may remain negative due to continued monetary easing given Mar’15 CPI at 2.7% (BMA estimate), translating into real interest rate of ~500bps. SBP has already slashed the discount rate by 200bps since Nov’14 to 8.0% (50bps cut in latest MPS) where we believe it will likely settle at 7.5% by year end. Resultantly, we have downward revised our earnings estimates by 8%‐12% across our investment horizon. Thus, our Dec’15 TP now stands at PKR21/sh (down 11%). Given stable long term fundamentals, we maintain our ‘BUY’ stance offering an upside of 28% along with a DY of 12% from last close.
Earnings rebounded sharply: Following a difficult CY13 (LPS: PKR6.35), as the bank underwent a big bath, AKBL’s profitability rebounded sharply in CY14, posting a full year earnings of PKR4.01bn (EPS: PKR3.19). The result was accompanied with a full year dividend of PKR1.0/sh, taking the total dividend for the year to PKR2.0/sh. The expansion in bottom‐line is a function of i) 38.3%YoY growth in Net Interest Income after provision (due to higher avg. DR and higher interest from PIBs) and ii) 48%YoY increase in non‐ interest income which was largely supported by healthy fee based income (up 23%YoY) and efficient trading of securities (capital gains of PKR1.8bn, up 1.2x). On the flip side, operating expenses grew by 16.4%YoY mainly because of 40 new branches that came into operation during CY14.