AKD Quotidian about — AKBL: The ‘Bad’ is already priced in
Karachi: Following poor 1HCY11 results (flat profits), AKD Securities cuts its earnings estimates across CY11F-CY15F by 20% on average, increase beta to 1.27 (3yr) and reduce our target price for AKBL to PkR11.50/share from PkRI4.Solshare previously.
According to AKD Securities, downward revision in estimates is primarily due to incorporation of higher credit costs where AKD Securities conservatively assumes that 50% of the availed FSV benefit (PkR4.4bn on pre-tax basis) will expire going forward. At the same time, capital constraints lead us to project both a PkR3bn rights issue going forward as well as a PkR3bn TFC rollover in CY13F. Understandably, cash payouts over the medium-term are likely to be sporadic at best. Despite these drawbacks, AKD Securities believes earnings for AKBL have troughed out where AKD Securities projects a 16% NPAT CAGR across CY11F-CY15F. Considering that the scrip has already shed 43%CYTD (37% underperformance vs. the Index) coupled with attractive valuations (CY11F P/B of 0.38x and PER of 4.65x), AKD Securities believes further downside in AKBL is limited. AKD Securities’ revised target price of PkR11.50/share offers an upside of 24.4% and implies a Buy stance.
Flat 1HCY11: Consolidated 1HCY11 NPAT registered at PkR731mn (EPS: PkR1.03), up just 3%YoY. Adjusted for the FSV benefit however, normalized 1HCY11 NPAT registered at PkR571mn (EPS: PkR0.81), down 13%YoY. Result highlights included 1) poor 4%YoY Nil growth, 2) 19%YoY increase in LLPs, 3) flat non-interest income and 4) contained 7%YoY increase in admin costs. 2QCY11 NPAT was recorded at PkR201mn (EPS: PkR0.28), down 62%QoQ. Although FSV-adjusted 2QCY11 NPAT arrives at PkR33Omn (EPS: PkRO.47), up 37%QoQ, the 30%QoQ decline in NII is alarming, in AKD Securities’ view. This was largely due to revenue suspensions against non- performing assets which shouldn’t recur going forward, according to management.
Weak capital base: CAR stood at 10.2% implying little room to expand the balance sheet on the present capital base. While free reserves should be just about sufficient to allow a 15% bonus issue for meeting CY12F MCR requirements, AKD Securities believes AKBL will have to announce a PKR3bn rights issue (not later than CY12F results) and will have to rollover PkR3bnin maturing TFCs in CY13F While this should ensure CAR remains above the 10% watermark going forward, providing the requisite room for asset expansion, cash payouts over the medium-term are likely to be sporadic at best.
The ‘Bad’ already priced in? AKD Securities cuts its earnings estimates across CY11F-CY15F by 20% on average primarily due to higher credit costs. So far AKBL has availed an FSV benefit of PkR4.4bn (pre-tax) where AKD Securities assumes that 50% of the benefit will gradually expire i.e. underlying collateral will not be disposed in time. Even so, AKD Securities believes earnings for AKBL have troughed where AKD Securities projects a CY11F-CY15F NPAT CAGR of 16%. Considering that AKBL has shed 43%CYTD and that valuations are near historical lows, AKD Securities believes risk-reward parameters are attractive. Accordingly, AKD Securities’ revised target price of PkR11.50/share offers upside of 24.4% and implies a Buy stance.
AKBL – Valuation Multiples
|Year end Dec 31||CYO9A||CY10A||CY11F||CY12F||CY13F|
|Tier I BVS (PkR)||18.62||20.96||22.81||25.22||26.27|
|P/BVS Tier I (X)||0.50||0.44||0.41||0.37||0.35|
|BVS (PkR) (Tier I+Tier I)||21.20||22.68||24.46||26.93||28.05|
|P/BVS (x) (Tier I+Tier II)||0.44||0.41||0.38||0.34||0.33|
|Loan to Deposit||66%||60%||54%||54%||53%|
|Yield on earning assets||11.65%||11.58%||11.75%||11.33%||10.96%|
|Cost of Funds||6.41%||6.84%||7.27%||7.04%||6.74%|
|Growth in Loan Book||5%||13%||4%||12%||12%|
|Growth in Deposits||23%||24%||15%||12%||12%|
|ROE (Tier- I) (average)||8.5%||6.6%||9.1%||10.0%||8.0%|
Source: Company Reports & AKD Research