Bank Alfalah Financial Results for the Quarter Ended June 30, 2015

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• Bank AlFalah Limited (BAFL) Board Meeting is scheduled on 18th Aug-15 in Abu Dhabi, to discuss 2QCY15 financial results. Results will be announced on 19th Aug-15. ƒ
• We expect net profitability of the bank to show a 10%YoY growth to PKR 1.6bn (PKR 1.03/share). Higher taxation and provisioning charge to pull down quarterly earnings, while better IDR and CASA ratio will keep bank’s NIMs above >4.2% during the quarter ƒ
• Currently the scrip is trading at CY15 forward P/B of 0.9x and P/E of 6.6x. With a sustainable ROE of >14%, we target BAFL at PKR 31.8/share by Dec-15, offering 16% upside from its last closing of PKR 27.3/share. Hence we recommend a ‘Buy’.

BAFL – 2QCY15 EPS PKR 1.03 (down by 17%QoQ)

Bank Al-Falah Limited (BAFL) Board Meeting is scheduled on 18th Aug-15 in Abu Dhabi, to discuss 2QCY15 financial results. Results will be announced on 19th Aug-15. We expect net profitability of the bank to show a 10%YoY growth to PKR 1.6bn (PKR 1.03/share). On quarterly basis bank’s earnings will decline by 17%QoQ. As a result, 1HCY15 EPS of BAFL will come at PKR 2.3, up by 39%YoY.

Higher Taxation…

During the 2QCY15, higher taxation charge owing to one-time Super Tax of 4% – estimated PKR 340mn additional tax expense – and uniform tax charge on all income of bank is certain to prop-up bank’s tax charge by 77%YoY to PKR 1.4bn. As a result bank’s effective tax rate for quarter is estimated at 46% (compared to 35% in 1QCY15).

… and Provisioning Charge to Pull down Quarterly Earnings

In addition to higher taxation, accelerated retirements in lieu of Force-Sale Value (FSV) given bank’s high coverage ratio of 76.5% (1QCY15) is likely to keep provisioning charge higher during the 2QCY15. We do not see any material change in bank’s infection ratio, which as of latest stood at 6.4% (1QCY15) down by 40bps since 1QCY14.

High CASA mix and IDR to benefit bank NIMs

We expect bank’s high CASA ratio of 76.5% (1QCY15) will continue to benefit in terms of easing monetary policy rate. As of 1QCY15, bank’s cost of deposit stood at 4.9%, down 30bps back in 1QCY15. However, the bank has increased its IDR to 58% by 1QCY15 (46% in 1QCY14) with major concentration in PIBs, is likely to increase NIMs of the bank to 4.3% in 2QCY15 despite rate easing.

Recommendation

Currently the scrip is trading at CY15 forward P/B of 0.9x and P/E of 6.6x. With a sustainable ROE of >14%, we target BAFL at PKR 31.8/share by Dec-15, offering 16% upside from its last closing of PKR 27.3/share.

By: IGI Finex Securities Limited