· AKD’s Banking Universe’s profitability is estimated to post robust growth in 3QCY22, where cumulative growth in net profit will likely clock in at 22%QoQ/97%YoY on the back of i) better asset pricing and ii) normalized effective taxation. On the flipside, higher credit cost and admin expenses will keep the full scale growth in earnings in check.
· The payout from our coverage universe is also likely to remain robust with CY22 dividend yield to remain around 13% for the banks under our coverage. Robust payout comes on the back of adequate capitalization that most banks in our coverage maintain, with the only major exception of HBL whose CAR was reported at 11.4% last quarter.
· Nonetheless, the CAR of our coverage universe will likely recede on a QoQ basis owing to adverse interest rate movements in both the local and foreign currencies. Some support, however, will come from i) PkR depreciation witnessed in the quarter which will result in translation gains and ii) higher profitability during the quarter.
· We anticipate a bloated cost of risk of 30bps in 3QCY22, reflecting a nominal rise on QoQ basis, however, broader asset quality is expected to largely remain intact. We have built higher cost of credit for this quarter in our projections, owing to i) general slowdown in economic activity, ii) higher cost of credit and iii) higher general provisions.
· Valuations have opened up significantly over the past few months, as a result, our covered banks have shed 23% in CY22TD, making current valuations very attractive. Based on last close, our coverage universe is trading at a CY23 forward P/B of 0.62x.
We flag MEBL and BAFL as potential outperformers in the sector.
Courtesy – AKD Research