The
State Bank
of Pakistan (SBP)
announced a 50bps
hike in the discount
rate to 9.5%
in its September
2013 Monetary Policy Statement (MPS) against market
expectation of maintaining the status quo. This brings much awaited
relief for the banking sector specifically to the large banks which have seen a
continuous decline in core earnings due to tighter spreads on the back of monetary
easing of up to 300bps since July 2012. Rise
in inflation has been intimated by the SBP,
we anticipate further rise in discount
rate to 150bps by the end of 2014. We hereby revise our estimates incorporating
the hike of 50bps in our models.
Allied
Bank Limited (ABL)
is expected to post 28.37% higher earnings for 2014 on the back of increased
interest rates. Bank’s Non Performing
Loan’s (NPLs) declined 4% during 1HCY13 improving its asset quality. Going
forward, we expect limited asset quality deterioration despite increase in interest
rates. Allied Bank Limited (ABL) has
one of the best return on equities among the tier 1 bank while its lower beta
justifies a relatively higher P/Bv multiples. Please refer to the valuation matrix
below for key financials.
2QCY13 Result Highlights:
Allied
Bank Limited (ABL)
reported 11.6% higher Net Interest Income
(NII) after provisioning on relatively lowers provisioning against Non Performing Loan’s (NPLs) during the
2QCY13. However, the top-line growth was off-set by
decline in non-core
income witnessed during
the quarter under
review mainly because of
lower gains on
sale of securities
and dividend income.
Bank posted Rs. 2.59/share earnings translating into a PAT of Rs. 2.7bn
for the quarter. Furthermore, the bank also paid an interim dividend of Rs.
1.25/share.
Valuation:
The
stock is currently
trading at CY14(E)
P/Bv of 1.28x
resulting in significant potential upside
to its justified
P/BV multiple of 1.90x. We maintain a Positive stance for the stock
with Dec-14 TP of Rs. 117.51/share.
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