BANKS ANALYSIS

April 3, 2006

Our banks detailed analysis for CY05 has made us

come up with four banks as our favourite picks for
the sector. The sector has outperformed for the
FY05 where the deposits have grown almost by
ABL @ 84 135% and the advances have increased by 40% for
Accumulate for the target the FY05 as compared to FY04. Despite of the
price of Rs. 115 maintained ADR, the Net interest income has grown
by 79% whereas the average Return on Equity
MCB @ 230 was 26% for the FY05 and the average P/BV
Buy on dips for the target stays at 2.98.
price of Rs. 300
(The above analysis excludes the smaller banks)
ACBL @ 100
Buy on dips for the target
price of Rs. 145
Relationship between ROE & P/BV
BOP @ 92
Buy for the target price Current Scenario ……
of Rs. 128

Research Department
Standard Capital 17% 26% 40%
Securities (Pvt) Ltd. ROE

705-706, 7th
Floor,Business Plaza, I .I
Cundrigar Rd, Khi.

Tel : 111-111-721
(Ext-107,108) ACBL 2.98 5
P/BV 1.95
& ABL
Fax : 2473302
BOP MCB
Website:
www.scsecurities.net

Email:
research@scsecurities.net

This report has been prepared by SC securities and is provided for information purposes only. Under no circumstances is to be used or
considered as an offer to sell or solicitation of any offer to buy. While all reasonable care has been taken to ensure that information provided is
not untrue however data has been collected from the reliable sources, we make no representation as to its accuracy
 SCS Bank Analysis CY05

ABL @ 84- Accumulate for the target price of Rs. 115

Allied Bank Limited has posted its ever-highest profit after tax in its history. The PAT has
increased from Rs 192 million in FY04 to Rs 3,033 million in FY05 showing phenomenal
growth in its PAT by 1,482 percent. The profit before tax for FY05 is Rs 4,777 million that
is an improvement of 892 percent over the profit before tax for the FY04. The diluted EPS
for the FY05 is 6.89, though in its
last quarter of Based on our projected earnings of Rs. 10.20 FY05 it posted an
EPS of Rs 2.28 for FY06, assuming 40% growth in net that is equal to the
EPS of 3Q05.
interest income against 150% growth for ABL is currently
trading at a PE multiple of 12 that
FY04-FY05, the bank is trading at the PE
is almost in line with the banking
sector PE multiple
of 8.24. Applying the multiple of 11.5, which based on FY05
earnings. is at premium to the sector’s average multiple of
11against 11.6 in the current scenario, as the
The BV of ABL is bank has out performed the sector in terms of Rs 29.59, with that
PBV multiple growth, the fair value may be computed to Rs. comes to about
2.87 whereas the 117, whereas applying the average P/BV of sector PBV
multiple stands at 2.98, prospective ROE of 26% and the 2.98. In terms of
PBV, ABL is earnings for FY06, the fair value comes currently trading
slightly below the around Rs. 115. sector multiple.

ABL showed an increase in its advances by 87 percent against the sector’s average growth of
40% whereas the deposits showed a growth of 128 percent. Its Advance/Deposit ratio
comes to 69 percent and he Net Interest Income of the bank has increased by 148 percent
that constitutes to about 79 percent of the Gross Income of ABL

The short term - long term ratio for the FY05 is 68:32 which is in line with the sector’s
average ratio of 68:32.

Recommendation:

Based on our analysis above, we may recommend to accumulate the share for the target
price of Rs. 115.
 SCS Bank Analysis CY05

ACBL @ 100- Accumulate for the target price of Rs. 145

The bank has posted the profit after tax of Rs 2,021 million in FY05 showing 5% growth
from FY04 mainly due to the heavy provisioning. The diluted EPS for the FY05 is 10.08.
ACBL is currently trading at a PE multiple of 9.9 which is at discount to the banking sector
PE multiple of 11.6 based on FY05 earnings consequential to he lower growth as compared
to the other banks in the sector.

Coming to P/BV Our projected earnings for FY06 is multiple, as the

ROE for he bank is Rs.13.2 assuming 28% growth in net slight below the
average ROE of the interest income the bank is trading at the sector, the bank is
currently trading at PE of 10.6, slight below the sector’s average the multiple of
2.32, which is also at multiple of 11, the fair value may be discount to the
sector’s multiple of computed to Rs. 140 whereas, applying the 2.98.
average P/BV of 2.98, prospective ROE
The ADR have been of 26% and the earnings for FY06, the fair reduced to 0.72 for
F05 from 0.84 for value comes around Rs. 151. the F04 which is in
line with the sector’s average, despite of
this fact the net interest income of
the bank has been increased by 27.7%, constituting 71.5% of the Gross income.

The advances have grown b 23.1 percent whereas the deposits showed a growth of 142.6
percent.

Recommendation:

Based on our analysis above, we may recommend to buy the share on dips for the target
price of Rs. 145.
 SCS Bank Analysis CY05

BOP @ 92- Buy on dips for the target price of Rs. 128

The bottom line has grown by 72% which translates into diluted EPS of Rs. 8.2 as compared
to Rs. 4.77 for FY04. The last quarter
have shown the outstanding
performance where The basis of our selection is the Net interest the EPS growth
was 18%. The bank income growth with which we have come up is trading at the PE
multiple of 11.2 with the earnings of Rs. 11.48 for FY06 based on the
diluted EPS for the based on which the bank is trading at the current year
whereas the sector PE of 8. Applying the sector’s average multiple stands at
11.6. multiple of 11 adopting conservative
approach, where the sector’s PE band has
Coming to P/BV been shifted upward inline with the resulted multiple, the history
suggest that the and expected growth, the fair value may be multiple between
2.5 – 3.0 is a good computed to Rs. 126 , whereas applying the measure for “Good
Days”. Our selected bank is currently
discounted average P/BV of 1.9,
trading at the multiple of 1.93,
prospective ROE of 18% and the earnings
which is at discount of approx 60% to
for FY06, the fair value comes around Rs.
the sector’s multiple of 2.98.
128. (We have taken the discounted P/BV
The ADR have been as the ROE for the bank is at the discount maintained to 0.72,
which is in line with to the sector’s average ROE.) the sector’s average
despite of this fact the net interest
income of the bank has been increased by 75%, constituting 70% of the Gross income.

The short term - long term ratio for the FY05 is 72:28 as compared to 65:35 for the FY04
whereas the sector’s average ratio is 68:32, this reduces the chance of liquidity crunch.

The advances have increased by 61% whereas the deposits have grown by 162%, both are
above the sector’s average.

Recommendation:

Based on our analysis above, we may recommend to buy the share on dips for the target
price of Rs. 128.
 SCS Bank Analysis CY05

MCB @ 230 – Buy for the target price of Rs. 300

The bottom line has grown by 268% which translates into diluted EPS of Rs. 17.8 as
compared to Rs. 4.83 For FY04. The
bank is trading at the PE multiple of 12.9
based on the diluted Based on our projected earnings of Rs. 26.7 EPS for the current
year whereas the for FY06, assuming 45% growth in net sector’s multiple
stands at 11.6. interest income against 105% growth for
FY04-FY05, the bank is trading at the
Coming to P/BV PE of 8.6. Applying the PE multiple of multiple, as the
ROE for the bank is 11.3, which is at premium to he sector’s above the average
ROE of he sector, average multiple of 11 being conservative, the bank is
currently trading at the fair value may be computed to Rs. 301 the multiple of 5,
which is also at the whereas, applying the P/BV of 4.5 which premium to the
sector’s multiple of is again at the premium to the sector’s 2.98.
average multiple of 2.98 (as the bank is
The ADR have above the average in terms of growth and been increased to
0.79 for FY05 from ROE as compared to other banks) 0.62 for the FY04
but is almost in line with the sector’s
prospective ROE of 40% and the earnings
average, despite of this fact the net
for FY06, the fair value comes around Rs.
interest income of the bank has been
300.
increased by 105%, constituting 71.9%
of the Gross income.

The advances have grown by 31 percent whereas the deposits showed a growth of 103.7
percent.

The short term - long term ratio for the FY05 is 71:29 whereas the sector’s average ratio is
68:32, this reduces the chance of liquidity crunch.

Recommendation:

Based on our analysis above, we may recommend to buy the share on dips for the target
price of Rs. 300.