News Column

The Bell about Pakistan Research - Elixir Securities Limited

September 4, 2014



Downgrade to HOLD factoring in growth slowdown

Management shifts focus from growth to consolidation:

BIPL's 1HCY14 EPS clocked in at PKR0.30, lower than our expectation of PKR0.37, due to lesser returns on Sukuk and limited availability of investment avenues. Deposit growth for 1HCY14 clocked in at 22% YoY, against our expectation of 30%, primarily on account of shift in management's focus from targeting aggressive balance sheet expansion to consolidation and cost rationalization. Focus has primarily changed on account of limited number of Islamic investment products to deploy excess liquidity.

CASA and asset quality reflect strong improvement: Pursuing consolidation and cost reduction, BIPL is focusing on increasing CASA and improving asset quality. 2Q CASA clocked in at 61.7%, up 8pp CYTD and 3pp higher from 1QCY14 levels.

However, it is likely that 2Q CASA might be inflated due to Ramadan effect. Moreover, with focus on asset quality, the bank has adopted a stringent lending policy and is trying to recover its non-performing loans. NPL reversals during 2QCY14 clocked in at PKR10mn, which would likely sustain during the remaining period of CY14.

Capital raising plan is already in place: BIPL falls short of SBP's minimum capital requirement by almost ~PKR4.7bn. The bank has decided to raise its share capital via right issue and has already submitted a capital raising plan to SBP. BIPL plans to raise its share capital by PKR400mn during CY14, PKR278mn of which has already been subscribed by the sponsors and would most likely be issued soon after regulatory approvals.

Estimates revised down; downgrade to HOLD: Elixir Securities Limited revises down our deposit growth assumption by 5pp from CY14-CY20 due to the reasons mentioned above. Factoring in changes in assumptions, Elixir Securities Limited revises down our CY14-16 EPS estimates by 26-49% and accordingly revise down our Jun-15 PT by 40% to PKR10/sh. At last closing, BIPL offers an upside of a mere 2%. Elixir Securities Limited downgrades our stance on the script from BUY to HOLD.

BIPL No. of shares: 528mn

PKR mn 2QCY13A 2QCY14A YoY 1HCY13A 1HCY14A YoY

Net Interest Income 672 782 17% 1,198 1,502 25%

Non-Interest Income 92 159 73% 177 328 85%

Fee and commission 70 91 30% 130 178 37%

Dividend - - Na - - Na

FX Income 12 48 297% 29 110 278%

Capital Gains - 22 Na 7 22 230%

Other Income 10 (2) Na 11 18 57%

Total Revenues 763 942 23% 1,374 1,830 33%

Total Provisions 56 (10) Na 74 3 -97%

Operating expenses 624 823 32% 1,248 1,582 27%

Profit Before Tax 83 129 55% 52 246 372%

Taxation 17 47 174% 25 88 258%

Profit After Tax 66 82 24% 27 157 474%

EPS (PKR) 0.13 0.16 24% 0.05 0.30 474%

Source: Elixir Research, Company Accounts

Management shifts focus from growth to consolidation

BIPL's 1HCY14 results remained weak as compared to our expectations. The bank posted 1HCY14 EPS of PKR0.30, up 4.7x YoY, against our expectation of PKR0.37, primarily because of lower spread earned due to lower availability of Islamic products.

Deposit growth for 1HCY14 clocked in at 22% YoY, against our expectation of 30%. Management shifted its focus from aggressive growth to consolidation and cost rationalization primarily because of limited availability of investment avenues for Islamic banks.

Higher advances increases the bank's risk weighted assets and hurts the capital adequacy ratio (CAR) while limited size of Ijara Sukuk market fails to absorb the available liquidity. Management of the bank is trying to improve its performance on the cost front, such as CASA improvement, along with strict monitoring of advances to improve asset quality and recover NPLs.

CASA and asset quality reflect strong improvement

Pursuing consolidation and cost reduction, BIPL is focusing on increasing CASA and improving asset quality. 2Q CASA clocked in at 61.7%, up 8pp CYTD and 3pp higher from 1QCY14. Sharp jump in the bank's current accounts can however be attributed to Ramadan impact as many people transfer their funds from savings to current accounts.

Moreover, with focus on asset quality, the bank has adopted a stringent lending policy and is trying to recover its non-performing loans. This is also done as the bank would now be focusing on cost rationalization rather than deposit mobilization. This has caused NPL stock to fall by 2% CYTD while recoveries against non-performing loans (NPLs) of PKR10mn were recorded in 2QCY14. Elixir Securities Limited expects that strict monitoring of loans shall cause NPL reversals to continue in CY14.

Capital raising plan is already in place

BIPL falls short of SBP's minimum capital requirement by almost ~PKR4.7bn and the bank has decided to raise its share capital via right issue. BIPL has already submitted their plan to SBP under which share capital would be raised by PKR400mn during CY14.

Of this total capital planned, PKR278mn has already been subscribed by the sponsors and would most likely be issued after regulatory approvals. Although SBP's requirement to meet minimum capital expires in Dec-14, BIPL plans to increase its share capital gradually over the next three years.

Estimates revised down; downgrade to HOLD

Elixir Securities Limited revises down our deposit growth assumption by 5pp from CY14-CY20 due to the reasons mentioned above. Factoring in these changes in assumptions, Elixir Securities Limited revises down our CY14-16 EPS estimates by 26-49% and accordingly revise down our Jun-15 PT by 40% to PKR10/sh. At last closing, BIPL offers upside of a mere 2%. Elixir Securities Limited downgrades our stance on the stock from BUY to HOLD.


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Source: Pakistan Press International


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