Bank Alfalah Detail Report

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    URL: www.we.com.pk

    February 2010

    BANKING SECTOR

    Company Update

    BANK AL FALAH LIMITED

    T IME TO B REAK THE C HAIN

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    Company Update

    Network

    Branches 321

    ATM 266

    Employees 7,584

    Total Assets Rs346 billionTotal Deposits 295 billion

    Total Loans & Advances 179 billion

    Market Share deposits 8.31%

    Market Share Advances 9.35%

    CAR Ratio 8.03%

    Credit Rating Long Term: AAShort Term: A1+

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    Company Flash Scan

    Bank Al Falah Ltd

    Banking Exposure

    General BankingFinancial ServicesConsumer Finance

    Treasury & International RemittancesIslamic Banking

    Subsidiaries

    Alfalah Securities Pvt. Ltd

    Associates

    Warid Telecom Pvt. LtdWateen Telecom Pvt. Ltd

    Alfalah Insurance Ltd Alfalah GHP Value Fund

    Alfalah Income Multiplier Fund Alfalah GHP Islamic Fund

    Alfalah GHP Investment Management Ltd

    Major Shareholders

    Directors 17.71%Banks DFIs other financial Institutions 11.51%General Public 45%Market Float 607 mn shares

    Head OfficeKarachi

    LaunchedJune 21, 1992

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    Company Update

    Continuing our coverage on BAFLwe recommend 'BUY' for scrip - Fair Value 20.71/-

    Upside potential of 57.9%

    We continue our coverage on BAFL and recommend 'BUY' for the stockbased on many favorable factors. The stock is under pressure since defreezing of market and trading below PBV 1.0x. Fair value of the bank isRs20.71/- and offers upside potential of 57.9% from current price level.Profitability is going to improve at CAGR of 16.57% (CY09-CY11).

    Bank is relieved of MCR requirement

    BAFL's rising profitability would improve its ROE gradually but downside journey will not be witnessed any more. Bank has a paid up capital of Rs13.4billion consequently reflecting weaker ROE compared to peer banks whoare sitting on Rs6-7 billion and posting double digit ROE. Bank has wiselyused the right share money in increasing branch network and streamliningits customer quality base.

    ADR ratio to strike 65% level

    Bank holds 61% ADR ratio much lower than CY07 & CY08 of 64.31% &66.11% respectively. We expect it to strike 65% level by CY11 and further improve going forward to be reflected on bottom line. CA/SA of bankimproved as bank would generate more of non remunerative funds goingforward to keep its spread over 5% mark.

    NPLs to slow down, reversal likely

    We expect NPLs to slow down CY10 onwards and there is low probability of defaults on new loans issued this would regain its balance sheet quality levelas it was in CY06. Bank's hard efforts to restructure substandard or badloans and helping its customer for repayment, would reverse some of thebad loans already reported in P&L.

    Valuation snap shot

    CY07 CY08 CY09 CY10 CY11EPS (diluted Rs) 2.32 0.96 1.65 1.87 2.25Book Value (Rs/ share) 10.20 18.27 15.44 17.31 19.56P/Ex 5.65 13.58 7.92 7.02 5.83P/BVx 1.28 0.72 0.85 0.76 0.67

    ADR(%) 64.31% 66.11% 62.52% 64.14% 64.79%IDR(%) 32% 25% 29% 26% 26%ROE(%) 25.72% 9.17% 12.59% 11.40% 12.19%ROA(%) 1.04% 0.38% 0.62% 0.68% 0.79%Source: Company Reports, WE Research

    Source: Company Reports, KSE, WE Research

    KEY DATA

    KATS Code BAFLReuters Code BAFL.KACurrent Price (Rs) 13.1112M High, Low (Rs) 15.49,9.29Beta 1.17Market Cap (Rs'bn) 17.68Market Cap (US$ mn) 208Shares Outstanding (mn) 1349.15Free Float (%) 45%Source: KSE, Reuters & WE Research

    Source: KSE & WE Research

    Relative performance of BAFL VS KSE 100

    0369

    12151821

    Jan-09 Mar-09 May-09 Jul-09 Sep-09 Dec-09 Feb-100

    2000

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    BAFL KSE 100

    BAFL: PBx Band Analysis

    -5.00

    10.0015.0020.0025.0030.0035.0040.0045.0050.0055.0060.0065.0070.0075.0080.0085.0090.00

    Jan-06 Jun-06 Nov-06 Apr-07 Sep-07 Feb-08 Jul-08 Dec-08 May-09 Oct-09

    Price 1x 2x 3x 4x 5x

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    Company Update

    Contents

    VALUATION-------------------------------------------------------------------------5

    BANK ALFALAH FLASH BACK----------------------------------------------6

    INDUSTRY HIGHLIGHTS-------------------------------------------------------7

    BALANCE SHEET POSITION: ADVANCES & DEPOSITS--------- 8

    FINANCIAL SIDE----------------------------------------------------------------10

    FINANCIALS----------------------------------------------------------------------16

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    Valuation:

    SOTP: Incorporating Telecom Investment i.e. Warid TelecomFor SOTP valuation, the Core business fair value of BAFL is Rs11.02/- per share. We have used ROE Tier 1 - 12.59%, Terminal growth rate of 3.5%,ROR of 19.52% (beta 1.17, RP 6%, RFR 12.50%). Justified Price to Bookvalue is 0.57 thus multiplying it by PBV of Rs19.43 we get core business per share value of Rs11.02/-.

    Warid Telcom Value:

    According to Jun'08 audited accounts, book value of Warid Telecom isRs16.40/- per share and we expect the break up value would be aroundRs19-20 per share according to audited accounts Jun' 09. We have consid-ered fair value of Rs14.22/- net of tax (i.e. 26.25%) for Warid Telecom.

    Warid sold off its 25% investment to SingTel in Mid 2007 at Rs46.6/- per

    share and earned net gain after tax of Rs27/- per share. We have used thesame worth per share of Warid Telecom because at that time there wasroom for subscriber base growth and current scenario is pretty different.Subscriber base is hovering around 90 million for quite many months androom for further growth is not as high as it was previously during SingTeldeal period. Telecom players can improve their topline only by offering com-petitive packages to improve their market share out of existing 900 millionsubscribers. Telecom war is now more of innovative packages and attractiveadvertisement to draw attention which is costly for companies compared topast scenario where advertisement cost was on lower side.

    Combine SOTP Fair value is Rs25.24/- per share.

    Price to Book Value incorporating 8 majors banks

    ROE/PB(X) PB x Tier 1 ROE tier 1

    BAFL 12.62 0.85 9.17%1st and 2nd tier banks* 8.98 1.66 14.65%Source: WE Research

    Comparing with 1st and 2nd tier banks, BAFL is trading at a very low levelfor many working weeks in the range of Rs12.50-14.25. Consensus P/BVxtier 1 of all banks is over 1.0 mark. Using the average P/BVx of 1.66 wearrive at BAFL fair value of Rs21.42 per share offering 95% upside from itscurrent level.

    * Banks incorporated to arr ive at fair value are (MCB, NBP, ABL, UBL, HBL,FABL, HMB, BAHL)

    Peers valuation Method

    In this valuation method P/BVx of three 2nd tier banks have been used toarrive at value of BAFL. Banks considered in this valuation are FABL, BAHL& HMB and their market value is on weighted avg. basis to arrive at P/BVxof 1.38. Applying this P/BVx we arrive at Fair value for BAFL of Rs18.09 per share.

    Finally the Weighted Avg. Fair value of all valuations is Rs20.71/- per share

    Weight Fair ValueSOTP 25% 25.24PBV method 25% 21.42Peers Valuation method 50% 18.09Weighted Average Fair Value 20.71Source: WE Research

    Source: Company Reports, KSE, WE Research

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    ROE vs Price to Book Value

    MCB

    ABL

    BAFL

    FABL

    NBP

    UBLHBL

    HMB

    BAHL

    -0.250.500.751.001.251.501.752.00

    2.252.502.75

    0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20% 22% 24%

    ROE

    P B V

    BAFL FABL MCB NBP ABL UBL HBL HMB BAHL

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    Company Update

    Bank Alfalah Flash Back

    The Bank is 6th largest in terms of deposits while it has expanded aggres-sively taking its branch network to 321 branches including 48 Islamic bank-ing. The bank is one the major player and holds market share in consumer finance services i.e. (credit cars, personal loans, car lease etc). With suchaggressive opening of branches in every nook and corner of the countrythere is definitely no looking back for BAFL. Management is now focused onimproving their deposit base in newly opened branches which are not reap-ing profits and it's a normal phenomena. Per branch avg. deposit comes at958 million approximately which is one of the best among top rated bankswho posses over 700 branches and deposit avg. per branch is way below1.0 billion mark. Bank has gone through rough phase lately when there wasliquidity crunch faced by banking sector of Pakistan and there were rumorsof default from BAFL which resulted in abrupt outflow of money from their valuable depositors. Banks deposits have received a bit of dent and they areconsolidating at current levels. Deposits touched highest mark ever of Rs300 billion and fell to Rs273 billion mark as on Sep 30, 2009.

    With economic activity slowing down and inflation unabated the propensityto consume of country's inhabitants has deteriorated which affects bankingsector too like any other sector. Bank's Advances slows down in particular for personal use as repayment capacity gets weaker and general psyche isto save in rough times rather to consume. On the other hand credit growthwas negative from corporate side too as they were retiring their loans insuch high interest rate scenario along with slow economy activity.Competing 1st tier and 2nd tier banks have enjoyed the advantage of improving their deposits as confidence of depositors shattered over smallbanks and the ones who were accused of default rumors.

    Bank Alfalah had 16.38% shares of WARID TELECOM which it sold of almost 15.4% (48.816 mn shares) to SingTel (Singapore) which reapedUSD37.7 million while the investment cost was Rs10/- per share. Net gainper share was Rs27/- with impact of 26.25% tax, while per share gain was

    Rs2.04/- on bottom line. It still holds 267.957 million shares with the report-ed break up price of Warid Telecom is Rs16.30/- according to Sep 30, 2009reports-BAFL.

    Concentration in Islamic banking by BAFL is good approach to tap the wideroom left for Islamic banking business. We have seen astounding growth inIslamic banking since its inception and its acceptability among the people.Deposits of the bank are around Rs30 billion which is 11% of BAFLConventional banking business and a good pie of total Islamic bankingdeposits.

    Source: SBP, WE Research

    Source: SBP, WE Research

    Source: SBP, WE Research

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    Share of Deposit

    93%

    7%

    BAFL INDUSTRY

    Share of Advances 5%

    95%BAFL INDUSTRY

    GROWTH PROFILE

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    CY05 CY06 CY07 CY08 9-Sep

    -20%-10%0%10%20%30%40%50%

    60%70%

    DEPOST ADVANCESINVESTMENTS DEPOSIT GROWTHADVANCES GROWTH INVESTMENT GROWTH

    R s

    i n b i l l i o n

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    INDUSTRY HIGHLIGHTS

    Industry deposits grew at CAGR of 16.27% from (CY05 - SEP' 09) to reachat Rs4.16 trillion largely supported by M2 at a CAGR of 12.55% (CY05 -SEP' 09). The growth till Sep'09 from CY08 is 9.48% from Rs3.8 trillion toRs4.16 trillion, 1) it's a sign when economy is in slow mode and more oppor-tunities are not arising the idle cash is locked in profitable schemes of pri-vate and public sectors banks, 2) the other option available is the residentsof country invest in foreign currencies by opening FC accounts 3) Countrywitnessed 2% GDP growth in FY09 along with hyper inflation scenario andpolitical + law n order instability is still prevailing. Business communityprefers to leave money in banks rather go for new venture or businessavenue, in uncertain country situation.

    On Advances front growth has been excellent with CAGR of 11.46% (CY05-Sep'09) to reach at Rs3.154 trillion on Sep' 09. Surprising fact is thatadvances have been stagnant and industry ADR again settled down inCY09. It crossed highest ever in CY08 to 82.63% now hovering at 75.78%.

    Advances witnessed decline in initial months of CY09 while now consolidat-ing on CY08 position. Corporate sector has retired their loans and hugeNPLs have been witnessed in the industry both from corporate and con-sumer side. Banks have adopted stringent policies before advancing anyloan all these factors along with slowing economy resulted in advances slowdown.

    Monthly Advances trend of Industry

    Rs in billionDec09 Jan09 Feb09 Mar09 Apr09 May09 Jun09 Jul09 Aug09 Sep093141 3127 3099 3061 3053 3174 3168 3147 3147 3154Source: SBP

    Industry ADR

    CY05 CY06 CY07 CY08 SEP'0976.79% 80.32% 74.36% 82.63% 75.78%

    Source: SBP

    Pvt. banks lending rates trend has been upward since CY05 with no respiteand one of the major reason for decline in advances growth. Cost of thefunds for the banks too moved upward subsequently cost of funds increasedfor banks since July 08, when 5% return on saving accounts made manda-tory for all banks before this order returns were in the range of 2-3% to sav-ing account holders. Spreads of Pvt. banks stands at 7.69% in CY09 wellabove of 7.31% CY08.

    Source: SBP

    Source: SBP, WE Research

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    Deposit & Advances position

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    DEPOSIT ADVANCES

    CY05 CY06 CY07 CY08 Sep-09

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    Kibor 6m/Lending/Deposit position

    0.00%

    2.00%

    4.00%

    6.00%8.00%

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    14.00%

    16.00%

    CY05 CY06 CY07 CY08 Dec-09

    KIBOR 6M LENDING RATE DEPOSIT RATE

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    Company Update

    BALANCE SHEET POSITION: ADVANCES & DEPOSITS

    BAFL Advances key to bank's bottom line growth Advances of BAFLstands at Rs179 billion as on SEP'09 with ADR of 60.81%,way below industry's ADR of 75.78% and bank's highest benchmark of 69.61% in CY04. It has huge room to improve advances and improve its inter-est earnings by exploiting its handsome branch network. BAFL is well knownfor consumer finance space and it's a major player among other 1st tier banks.This edge over peers also dented its balance sheet, subsequently P&L too.NPLs of the bank stands at 13.237 billion Sep'09 went up by 48.16% againstCY08 NPLs of Rs8.934 billion. We expect the NPLs growth would slow downfrom CY10 onwards similarly bank would increase its advances as it hasadopted and implemented stringent measures before loaning any customer.This would improve its balance sheet quality along with interest income. Onstuck up advances front bank is also in consultation with its substandard anddoubtful clients to facilitate them in repayment of loans. There is possibility of reversal from provisions reported in balance sheet and bank's management is

    confident over it to revert some of the NPLs.

    Source: Company Reports & WE Research

    ADR ratio to rebounce

    ADR ratio of BAFL compared to peer banks is fairly on lower side. This canbe increased from both sides- Islamic and Conventional banking. We expectgoing forward bank would rebound and initially try to catch its own standardaround 65%. Bank has lately introduced few consumer products and wouldunfold further in upcoming months to improve its advances base from con-sumer & corporate front.

    On corporate side there is some recovery with LSM numbers to be on bet-ter side for FY10 and bank is advancing on easy rates to sound groups.Trend of syndicated loan is appreciated by banks to minimize risk and cre-ate portfolio with numerous syndication.

    Source: Company Reports & WE Research

    Advances of BAFL stands at Rs179 bil-lion as on SEP'09 with ADR of 60.81%.

    ADR ratio of BAFL compared to peer banks is fairly on lower side. This can beincreased from both sides Islamic and conventional banking.

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    NPLs and Gross Advances position

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    GROSS Advances NPL/GROSS ADVANCES

    R s i n M i l l i o n

    ADR Ratio of BAFL

    63.56%64.31%

    66.11%

    60.81%

    64.14% 64.79%

    58.00%

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    62.00%

    64.00%

    66.00%

    68.00%

    CY06A CY07A CY08A CY09E CY10F CY11F

    ADR Ratio

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    Company Update

    Deposits base to expand from newly opened branchesBAFL deposit base would consolidate in CY09 at Rs300-307 billion level butgoing forward would grow at CAGR of 4.02% to Rs332.9 billion by CY11.Bank would not going to increase deposit aggressively at higher rates rather would prefer at lower cost to improve its NIM. Bank's large branch networkin small towns of city would attract deposits, and also bank's admin cost insmall town is lesser compared to metropolis. The very reason of BAFL toexpand branches in these areas is that it senses better advances anddeposit mobilization potential along with less stiff competition. Only BIG5banks possess large branch network and BAFL would only face these bankin smaller towns compared to more than 20 banks in metropolis businessstreets. Big privatized banks enjoy the edge of low admin cost owing to hugebranch network in smaller cities, along with low cost deposit which fetcheshigher spread margins.

    Source: Company Reports & WE Research

    Source: Company Reports & WE Research

    Source: Company Reports & WE Research

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    Comparison of ADR with peer banks

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    HBL UBL BAFL ABL FABL

    CY 06 CY 07 CY 08

    BAFL: Deposits position

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    BAFL: Deposit break up

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    CY06A CY07A CY08A CY09E CY10F CY11F

    Fixed deposits Saving Deposits Current accounts Others

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    Company Update

    FINANCIAL SIDE

    Net Interest Income to inch up to 69%Interest income is the core income of any bank and Net Interest Income over total revenue of the bank reflects the dominancy level of interest income ver-sus non interest income. We can compare that with other 1st and 2nd tier banks having better NII/TR ratio. BAFL has room to pull it to 70% however one reason for low NII/TR ratio is due to large penetration in consumer finance which generates Non Interest Income (NIR) at a sizeable rate. Bankgenerates hefty income in form of processing fee on consumer or corporateloan issuance, bi annual charges on both advances and deposit fronts andother facilities charges bolstered by large retail customer portfolio.

    Source: Company Reports & WE Research

    Net Interest Income to grow slowly owing to high base effect and it has

    crossed Rs10 billion in CY08 we expect growth would be 8.25% and 7.75%in CY10 & CY11 respectively and likely to be around Rs12.419 billion inCY11.

    Source: Company Reports & WE Research

    BAFL generates hefty income in form of processing fee on consumer or corporateloan issuance, bi annual charges on bothadvances and deposit fronts and other facilities charges bolstered by large retail customer portfolio.

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    Net Interest Income/Total Revenue

    76% 74% 73%

    60%55%

    67% 68%69%77% 73%

    0%10%20%30%40%50%60%70%80%

    90%

    HBL ABL UBL BAFL FABL

    CY07 CY08

    NII/Total Revenue & its growth

    65%

    60%

    67% 66%68%

    69%

    54%

    8%8%0%

    17%18%

    54%

    56%58%

    60%62%

    64%

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    70%

    CY06A CY07A CY08A CY09E CY10F CY11F-10%

    0%10%

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    50%60%

    70%

    NII/Total Revenue NII growth

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    Company Update

    Deceleration in Cost of Funds is most likely

    BAFL cost of funds has not surged compared to 1st tier banks who wereenjoying till announcement of 5% mandatory return on saving deposits,while BAFL already had costly deposits which improved its market shareand it was able to afford high cost of funds owing to high lending rates fromconsumer loan. The bank's spreads have been around 4.53% on average.Unfortunately spreads dipped in CY09 by 98 bps to 4.57% owing to moreemphasis on corporate and business loans at low lending rates to mitigatethe risk of bad loans witnessed previously from consumer side. Cost of funds likely to increase to 7.15% in CY09 with large deposits in saving andfixed accounts. Going forward we expect yielding assets return woulddecline minutely but cost of funds would drop back around 6.45% level, tocushion the net interest income.

    Source: Company Reports & WE Research

    CA/SA and spread position to consolidate

    By analyzing the deposit mix of BAFL back from 2001, the bank had verypoor CA/SA of 22.11% as it was in its establishment phase with very lowbranch network in main 7 cities. With the passage of time and growth phaseof 2002-2007 of economy bank expanded so as its CA/SA improved. Thereis positive relationship between CA/SA ratio against spread, with improve-ment in CA/SA spreads are rising and dropping when CA/SA is deteriorat-ing. We expect going forward it would stable around 70% level because inslow economy saving deposits rise from retail business segment. On savingaccounts the money is not locked and it's a checking account, the retail busi-ness segment doesn't require huge working capital in recessionary phasethus prefer to put money in savings account to earn soft interest. The caseis opposite when economy is growing and we witnessed in past banks usedto issue O/D to retail business and corporate segment for working capitalneeds and earn secure soft return.

    Source: Company Reports & WE Research

    Going forward we expect yielding assetsreturn would decline minutely but cost of funds would come back around 6.45%level, to cushion the net interest income.

    We expect going forward it would stablearound 70% level because in slow econ-omy saving deposits rise from retail busi-ness segment.

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    Yield on Earning Asset vs Cost of Funds

    0.00%2.00%4.00%6.00%8.00%

    10.00%12.00%14.00%

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    Yield on earning assets Cost of Funds

    CA/SA vs Spreads

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    CA/SA SPREAD

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    Company Update

    Non Interest Revenue backs bottom line

    Non Interest Revenue (NIR) is 36% of total revenue of the bank on avg.,while fee/brokerage income constitutes 48-50% of NIR and 18% is incomefrom dealing in foreign currencies. Going forward NIR would slightly declinein terms of percentage share against total revenue however would grow at8.2% CAGR from CY09-CY11. Income from foreign currency also dependson number of branches in metropolis business areas along with SBP FCrules, which for quite some time have been very stringent. This section of income would struggle and grow gradually going forward. Compared toother banks, NIR of BAFL is on much better side which is a very much favor-able and backup against slow down in Interest Income, particularly in roughphase NIR supports the bottom line and vice versa.

    Banks emphasis on trade finance is reflected from the growth witnessed inLC-business which rose to Rs41 billion in Sep'09 up from Rs21.4 billion inCY05 thus supports NIR significantly and going forward to be a sizeablecontributor.

    Source: Company Reports & WE Research

    Source: Company Reports & WE Research

    Banks emphasis on trade finance isreflected from the growth witnessed inLC-business which rose to Rs41 billion inSep'09 up from Rs21.4 billion in CY05

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    Non Interest Revenue vs Total Income

    Non Interest Income Total Revenue

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    Non Interest Revenue Break up

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    Company Update

    Costs & Expenses

    BAFL cost to income ratio has been on higher side like other 2nd tier and3rd tier banks 1) Branch network expansion expense, 2) Rents and taxesincreased significantly for branches' space 3) Inflationary pressures alongwith salary expense, 4) HR related Training & IT infrastructure developmentalong with its huge maintenance cost and all these costs are unavoidable instiff competition. As the banks income in terms of monetary value wouldgrow, but the percentage ratio would decelerate. On the other hand 1st tier privatized banks possess most of self owned branches which eases the rentexpense burden in cost section. If we compare per branch wise cost the cal-culation comes at Rs35-37 million per branch this is abnormal amount per branch compared to privatized banks of Rs12-17 million. BAFL's branchsetup ambiance is costly in order to create differentiation against traditionalstyle old banks and also to compete with foreign banks to leave long lastingimpression over even one time customer who just comes to pay utility bill.This benchmark and standard maintenance has its cost, because this spec-ification is not only in few branches but in all branches of the bank.

    Source: Company Reports & WE Research

    Source: Company Reports & WE Research

    BAFL's branch setup ambiance is costly in order to create differentiation against traditional style old banks and also tocompete with foreign banks to leave long lasting impression over even one timecustomer who just comes to pay utility bill.

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    COST/INCOME Comparison

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    HBL UBL BAFL ABL FABL

    CY07 CY08

    69.76% 64.63%

    85.55%78.41% 76.73% 74.17%

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    BAFL: Cost to Income Ratio

    Cost to Income Ratio

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    Company Update

    Asset Quality

    Bank's asset quality was most clean among peers till CY06 but it startedaggravating with rising NPLs from consumer loan portfolio and then in CY08from corporate front too. Sudden upward movement of discount rate inCY08 was never in mind of any smart risk management person in any busi-ness segment, this resulted in NPLs from all fronts. SBP allowed FSV ben-efit of 40% which is second revision in 10 months from 30% allowed in Jan'09. This would definitely support the balance sheet quality of all banks onthe other hand restructuring of loans from BAFL front is in process. The pos-sibility of reversal cannot be ruled out this would boost the earnings of thebanks and reflect on its stock price. Like all other banks BAFL has reformedand reviewed its Risk Management rules, took new measures with regard toloaning thus to avoid in future such deterioration in asset quality. Reversalrate over NPLs charged has improved to 11.92% CY08 to Rs1.064 billion upfrom Rs125 million in CY05 it is a positive signal and shows bank's commit-ment to restructure loans or with mutual agreement with customer set a timeframe rather to harass. This leaves the impression on customer "BAFL - the

    caring bank".

    Source: Company Reports & WE Research

    Source: Company Reports & WE Research

    Reversal rate over NPLs charged hasimproved to 11.92% CY08 to Rs1.064 bil-lion up from Rs125 million in CY05 it is a

    positive signal

    14

    BAFL: NPL vs Net Interest Income

    11.71%

    25.87%

    19.00%

    23.39%

    0%

    5%

    10%

    15%

    20%

    25%

    30%

    CY06A CY07A CY08A CY09E

    NPL % over NII

    0%1%2%3%4%5%6%7%8%

    CY06A CY07A CY08A CY09E CY10F CY11F

    BAFL: NPL/Advances

    NPL/Advances

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    Company Update

    Source: Company Reports & WE Research

    CAR and MCR

    Bank's Capital Adequacy Ratio (CAR) is 8.03% according to CY08 accountswhile it had CAR of 9.85% in CY07 largely supported from divestment inWARID which supported falling CAR of 9.48%. In CY08 bank announcedRight Share of 50% to support its falling CAR according to our estimatesCAR would be around 10.50% in CY09 and sufficient enough to meet SBPrequirements. MCR requirement is already fulfilled by bank of Rs6 billionpaid up capital by end of CY09 as its paid up capital is around Rs13.49 bil-lion significantly higher than target of Rs10 billion set by SBP for all bankstill 2013.

    Source: Company Reports & WE Research

    15

    BAFL: Loan duration break up

    42% 37% 33% 37% 38% 38%

    58% 63% 67% 63% 62% 62%

    0%

    20%

    40%

    60%

    80%

    100%

    120%

    CY06A CY07A CY08A CY09E CY10F CY11F

    LOAN >1 yr LOAN

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    Company Update

    FINANCIALS

    2007A 2008A 2009E 2010F 2011FIncome StatementInterest Income 25783.871 31046.583 35,049.67 34,401.19 35,461.90Interest Expense 16620.963 20331.194 24,365.95 22,867.56 23,041.99Provisions/diminution 2,376.71 3,543.36 2,365.63 2,184.82 2,201.71Net Interest Income After Provision 6,786.20 7,172.03 8,318.08 9,348.81 10,218.20Non Interest Income 6,038.47 5,245.43 5,386.58 5,900.00 6,310.28Non Interest Expense 8,289.11 10,622.74 10,755.87 11,700.55 12,258.55Profit Before Tax 4,535.55 1,794.72 2,948.60 3,548.26 4,269.92Profit After Tax 3,129.85 1,301.30 2,230.66 2,519.26 3,031.65EPS 2.32 0.96 1.66 1.87 2.25

    Balance Sheet 2007A 2008A 2009E 2010F 2011F Advances 171,199 192,671 192,361 203,431 215,673Total Assets 328,896 352,988 364,537 374,362 394,852Deposits 273,174 300,733 307,641 317,164 332,900Total Liabilities 312,675 331,946 341,134 348,311 365,635Share capital 6,500 11,993 13,492 13,492 13,492Total Equity 16,220 21,042 23,403 26,050 29,216

    Ratios 2007A 2008A 2009E 2010F 2011F Advances/Deposits 64.31% 66.11% 62.52% 64.14% 64.79%

    Investments/Deposits 32% 25% 29% 26% 26%NII/Total Income 39.72% 32.86% 33.52% 32.00% 31.00%Cost/Income 64.63% 85.55% 78.41% 76.73% 74.17%Cost/Assets 2.52% 3.01% 2.95% 3.13% 3.10%Spreads 4.82% 5.55% 4.57% 5.27% 5.01%ROE Tier 1 25.72% 9.17% 12.59% 11.40% 12.19%ROA 1.04% 0.38% 0.62% 0.68% 0.79%NPL/Loans 2.68% 4.49% 3.97% 2.71% 2.44%

    2007A 2008A 2009E 2010F 2011F

    EPS 2.32 0.96 1.65 1.87 2.25DPS 1.5 0 0 0 0BVPS Tier 1 10.20 18.27 15.44 17.31 19.56BVPS Tier 2 12.02 12.63 17.34 19.30 21.65P/Bx 1.28 0.72 0.85 0.76 0.67P/Ex 5.65 13.58 7.92 7.02 5.83Source: Company Reports & WE Research

    16

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