Habib Bank Limited: Lower reinvestment risk but high concerns on credit cost – By Shajar Research
Post announcement of Habib Bank limited (HBL) CY15 financial results and taking guidance from the conference call, we have incorporated 1) higher loan growth compared to its peers; 2) Lower reinvestment risk (Maturing PIBs/deposit ratio: 5%); 3) higher provisioning costs radiating from overseas advances (20% of total net advances) as evident from the 3ppt rise in infection ratio and, 4) Lower capital gain realization into our projections.
Likewise other banks, HBL would face muted earnings growth in the medium-term, as we exclude PkR3.35/sh gain realized on bond disposal from CY15 EPS. We have not incorporated one-offs such as compensation on tax refunds (EPS Impact: ~PkR2/sh), and realization of accumulated surplus on bonds (PkR7.38/sh) into our calculations.
Our Dec’16 TP of PkR217/sh arrived through Justified P/B methodology offers an upside of 19% and with an expected dividend yield of 8% sets to provide an aggregate return of 25%. We advise investors to remain prudent of the risk emerging from Middle East operations and the result of the inquiry of USA operations.
By: Shajar Capital Pakistan (Private) Limited