By: Ameet Daulat
Taurus Securities Limited
HBL posted net earnings of PKR5.7bn during 1QCY14 (PKE3.84/share), up by 12% YoY. Although PPOP remained flat inching up by a meager 1% during 1Q, material reduction in provisions during the period led to growth in the bottom line. The bank also declared PKR2/share interim cash dividend along with the result.
Although PPOP surged by only 1%, gross income rose by a handsome 14% on a YoY basis, driven by 8% jump in NII coupled with healthy 36% growth in NFI. Though the interest income of the bank remained flat during the period, despite 8% YoY growth in avg. earning assets as yields contracted by 63bps, favorable change in liability mix of the bank which led to 60bps decline in deposit cost, kept NIM of the bank unchanged at 3.82% during the period under review. In case of NFI, although all line items contributed in the surge, it was mainly due to stellar YoY growth in forex income and share of profit of associate. The bank, however, failed to keep its opex under control, as it rose massively by 30% YoY almost completely eroding the growth in gross income. Impetus came on the bank of lower provisions, down by 77% YoY, which made up for the significant increase in the administrative expenses.
During 1QCY14, HBL invested a massive PKR107bn in the first PIB auction increasing its exposure to 27.1% of total investments from 14.1% at CY13 end. We anticipate similar trend of shift in investments thenceforth, and estimate another PKR120-150bn investment in PIBs during 2Q by the bank. As a result of this material shift in investments towards PIBs, annualized earnings impact of PKR2.15/share is expected going forward. Consequently, we have revised our earning estimates of CY14/CY15/CY16 by 13%/21%/19%. We have revised our earning estimates incorporating the impact of PIB investments. At current levels, we have a HOLD stance on the scrip with a TP of PKR175.4share.