Dear Clients,

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

Key Highlights

– Habib Bank Limited (HBL) reported Profit after Tax (PAT) of PkR30.9bn (EPS: PkR 21.0), up 99%Y/Y in CY20. The company announced a final cash dividend of PkR 3.0/sh that took the full payout to PkR 4.25/sh during CY20.

– Domestic deposits posted the highest growth of 18% Y/Y in 8yrs during CY20 clocking in at PkR 2.6trn. The CA/SA mix improved to 51.4%/34.4% from 50.8%/35.4% in CY19. The management expects the deposit to grow by 12% in CY21.

– Domestic advances crossed the mark of PkR 1.0trn in CY20 and the management expects a decent growth in mid teens for CY21.

– The management expects the ROE to increase to 19% over the next 3yrs as opposed to 14.4% in CY20.

– HBL’s investments increased by 41% Y/Y to PkR 1.9trn and the mix for PIBs and TBills stands at 53.3% and 32.5%, respectively. Out of the total investment in PIBs, 35% are floating rates and the rest is fixed rate PIBs. The average duration of fixed rate PIBs is 2yrs.

– The banks C/I improved to 58.5% in CY20 as opposed to 73.5% corresponding period last year. This is expected to further improve to 50% over the next 2yrs.

– HBL does not see any concerns in asset quality since the bank has prudently recorded general provisioning in CY20. To highlight, most of the sectors have started repaying due to better than anticipated business performance (notably cyclical sectors).

– The management expects a hike in policy rate from May’21 as inflation is expected to increase because of rise in international oil prices.

– The management expects slight compression in NIMs in CY21 averaging at 475bps.

– The bank would disburse around PkR 35bn – PkR 40bn under TERF facility and it has exceeded its Dec’20 targets for construction sector.

– Additionally, the management highlighted that the inauguration of Beijing Branch is expected in Mar’21.

– We have an Outperform rating on HBL with a target price of PkR176/sh since the bank has adequate capital buffer and strong asset quality. The stock offers a dividend yield of 7.5% and is currently trading at a one year forward P/Bv of 0.73x.

Regards,
KASB Research