Dear Clients,

Bank Alfalah Limited (BAFL) held its conference call today to discuss financial performance of CY20 and company outlook going forward.

Key Highlights

– Bank Alfalah Limited (BAFL) reported profit (unconsolidated) of PkR10.5bn (EPS: PkR5.9/sh), down 17%Y/Y. The bank announced dividend payout of PkR2.0/sh that took the full payout to PkR4.0/sh.

– Provisioning expense clocked in at PkR7.6bn against PkR3.0bn recorded in 2019. As per the management, this was on account of i) PkR4.3bn general provision, ii) PkR2.0bn subjective provisioning and iii) PkR600mn of impairment reversal on equity. The management believes that the provisioning has been adequately accounted for CY20 and the annual net provisioning would remain in the range of PkR1.0bn – PkR2.0bn.

– Investment portfolio comprises 75% floating securities (T-bills and floaters) with a yield of 7.75% – 7.85%, while 25% is fixed rate bonds with a yield of 10.0%. The average duration of PIB is 2.4 years.

– In line with SBP COVID relief facilities, the bank has provided markup and p1rincipal payment deferment amounting to PkR54.5bn.

– BAFL added 32 new branches in CY20 and expect to add approximately 70 new branches in CY21 which would keep the operating expense higher in the short term.

– As per the bank, there is still ambiguity with regards to IFRS 9 implementation and is likely to be deferred by the SBP.

– Under SBP’s TERF facility, the bank has committed PkR50bn to over 100 borrowers and is in LC establishment stage. This has yet to be reflected in bank’s advances, likely to be seen in 1HCY21.

– With regards to interest rate outlook, the bank expects a cumulative hike of 200bps – 300bps by Jun2022 and the first hike of 50bps – 100bps to be seen in 3QCY21.

– The hike in interest rate would be mainly because of i) hike in international oil prices and ii) increase in machinery imports under TERF facility likely to be seen from 2QCY21.

– We have an Outperform rating on BAFL with a target price of PkR43/share. The stock offers a dividend yield of 11% and is currently trading at a one year forward P/Bv of 0.69x.

Regards,
KASB Research