HBL held its conference call today whereby they discussed the banks’ financials and its future outlook. The call was led by the President Mr. Muhammad Aurangzeb alongside the CFO Mr. Rayomond Kotwal.
Highlights:
· HBL announced earnings for 9MCY20 above expectations at PKR 25.2bn (EPS: PKR 17.17/share), depicting a staggering YoY surge of 192% and QoQ decline of 9% (3QCY20 EPS: PKR 6.85). The bank posted an impressive surge in its NII while also booking lower provisions sequentially. No dividend was announced as per SBP directives for capital conservation.
· The bank has posted impressive numbers with regards to its digital network growth: Mobile & Internet Banking transaction volumes are up 93% YoY, HBL Konnect volumes are up 157% YoY, and OTC transactions are down 30% YoY.
· Consumer lending of the bank has witnessed strong growth, rising 18% CYTD led by growth in the Autos segment.
· HBL branch in China is expected to be fully operational in October/November
· The bank conducted a survey of its corporate and commercial clients, majority of whom have responded that they are operating at pre-pandemic levels. The management is confident that once SBP relaxation on principal repayments expires there will not be a significant surge in NPLs. The bank has created adequate buffers. General Provisioning charge of PKR 6bn has been booked during 9MCY20, with coverage ratio standing at 100%.
· Domestic NPLs are down PKR 700mn while international NPLs are up PKR 400mn (however down by USD 11.3mn), YoY.
· The bank expects asset re-pricing to come in full swing in 4Q thereby severely contracting NIMs. Moreover some 1-Yr T-Bills maturity and PIB rollover will compress NIMs. The bank expects NIMs to come down by 1.25-1.5% since Jun’20. Domestic NIMs are currently at 5.9%, up 0.83% YoY.
· All investigations and look-backs in NY are over. However some nominal costs/fees will be incurred next few quarters
· Cost/Income ratio (CIR) is down to 57.2% in 9MCY20 against 76.8% SPLY while domestic CIR stands at 48% excluding capital gains. Management expects the ratio to approach 50% in a couple of years.
· Ambiguity persists with regards to Treasury Single Account implementation. However the bank is not a large depositor for the accounts that are expected to be transferred.
· The management said that capital strengthening continues to be a target for the bank and dividend payout is the board’s prerogative. CAR stands at 17.8% against 15.4% as at Dec’19.
Recommendation
· We expect the bank to close CY20 with an EPS of PKR 21.2. NII in the last quarter is expected to come under severe pressure. However we expect the bank to book capital gains on its fixed income portfolio and provide support to earnings. Surplus on AFS portfolio stands at PKR 19.2bn. Fee income is also expected to support NFI due to improved economic activity and trade volumes. With an encouraging trend on the asset quality front, we can expect provisioning to be lower sequentially as well. Moreover, with CAR continuously showing a strengthening trajectory we can expect the bank to resume its dividends and pay out its DPS for 2Q and 3Q as well. We expect a DPS of PKR 3.75 in 4Q, taking total DPS for the year to PKR 5.00. We have a “BUY” stance on the bank with a Jun’21 TP for the bank is PKR 171/share, an upside of 27% from current levels. (AHL Research)