Banks: HBL and NBP 1Q2014 earnings preview

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bank5-The board of directors of Habib Bank Limited (HBL) and National Bank of Pakistan (NBP) are scheduled to meet on April 25, 2014 to announce their respective 1Q2014 results.

-We expect HBL to report 1Q2014 PAT of Rs6.6bn (EPS: Rs4.50), up 44%YoY on the back of (1) higher Net Interest Income (NII) and (2) lower cumulative provision and write offs. We do not expect the bank to announce a cash payout alongside results.

1-For NBP we anticipate the board to announce 1Q2014 PAT of Rs2.7bn (EPS: Rs1.28), down 10%YoY with higher provisions and operating expenses putting pressure on the bottom line. We do not expect any payout with the result.

-We continue to maintain our ‘Sell’ calls on both the stocks with Target Prices of Rs141 and Rs49 respectively for HBL and NBP.

3HBL: 1Q2014 EPS expected at Rs4.50, up 44%YoY

HBL’s 1Q2014 earnings are anticipated to grow by 44%YoY to Rs6.6bn (EPS: Rs4.50) mainly on account of: 1. Higher NII, amidst low cost of deposits. To recall, cost of deposits for the banking sector has averaged at 5.17% in 1Q2014 so far compared to 5.33% in 1Q2013 which is likely to support NII. 2. Better non interest income (+46%YoY) on the back of higher fee and brokerage income (+45%YoY) and capital gains on sale of securities. Meanwhile, lower cumulative provisions and write off (down 75%YoY) are also expected to support the profitability. We maintain our ‘Sell’ rating on HBL with a target price of Rs141. Currently the stock is trading at 2014F PE and PBV of 11.3x and 2.0x compared to banking sector’s PE and PBV of 11.7x and 1.7x respectively. 

2NBP: 1Q2014 EPS expected at Rs1.28, down 10%YoY

We anticipate NBP’s 1Q2014 earnings to decline by 10%YoY to Rs2.7bn (EPS: Rs1.28) where (1) higher provisions of Rs3.2bn and (2) rising operating expenses of Rs10.8bn (+22%YoY) are likely to drag the bottom line. That said, Net Interest Income (NII) of the bank is likely to grow by 16%YoY mainly due to growth in earning assets (+7%YoY). Similarly, bank’s bottom line is also likely to get support from non interest income which is expected to grow by 42%YoY in 1Q2014. Better fee income (+47%YoY) and anticipated capital gains are likely to be major factors for growth in non interest income. With total return of -11% to our Target Price of Rs49, we continue to maintain our ‘Sell’ call on the stock. Currently, NBP is trading at 2014F PE and PBV of 10.2x and 0.8x while it offers a dividend yield of 10%.

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