Daily Call

Commercial Banks
January 27, 2023
Result Preview
REP- 300

CY22E: Higher NIMs to uplift earnings

Profitability of the banking sector in CY22 is expected to jump primarily due to higher Net AHL Banking Universe
interest margins. This growth in NIMS comes on the back of 625bps rate hike in the policy
Banks TP Upside Stance
rate during the year to 16%. Moreover, in the out-going year, heavy taxation was imposed on
the banking sector including: revised corporate tax, super tax and ADR-related tax. To recall, MCB 173.26 51% Buy
in 9MCY22 alone, total tax collected from banks amounted to PKR 273bn, marking a jump of UBL 154.92 52% Buy
101% YoY. In addition, profitability of the banks was also supported by Non-Markup income
BAFL 47.97 60% Buy
which was up mainly on the back of higher Fee income and FX income on the back of
HBL 102.44 40% Buy
increased trade volumes and volatile PKR exchange rate, respectively.
In the out-going quarter (4QCY22), earnings of the banking sector are likely to dip QoQ ABL 101.10 57% Buy

primarily due to deposit repricing reflecting in higher interest expense post Nov’22 monetary NBP 34.65 35% Buy
policy rate hike. However, banks with higher exposure to current account deposits will remain AKBL 29.61 45% Buy
shielded. Moreover, banks’ deposits were down by -1.5% QoQ by Dec’22 end, while advances
BOP 6.68 41% Buy
of the banks grew by +7.5% QoQ during the period, taking the overall ADR of the banking
sector to 53%. The jump in ADR came on the back of measures taken by banks to avoid ADR MEBL 165.16 73% Buy

related taxes. Moving forward, we expect banks to invest in high yielding bonds amid rising FABL 42.26 74% Buy
interest rate scenario, however, a slight uptick in provisioning is expected along with higher
Relative Performance
OPEX on sequential basis due to high inflationary pressure and economic turmoil. Despite the
downside risks, we believe the upside potential in the sector going forward will be driven by i) Banking Sector KSE100
Improving sensitivity to interest rates, ii) Higher NIMs led by high interest rates, and iii) Cheap 110%
valuations. For CY22, our AHL universe is expected to post a jump of 11% YoY in overall
102%
profitability with AKBL likely to show the highest earnings growth of +55% YoY, followed by
MEBL (+43% YoY), and BAFL (+39 %YoY). 95%

87%
Exhibit: Financial Highlights
(PKR mn) CY22e CY21a YoY 4QCY22e 4QCY21a YoY QoQ 80%
Earnings per Share
72%
HBL 23.2 23.9 -3% 7.3 5.7 28% -7%

Nov-22
Dec-22
Apr-22

Aug-22

Oct-22
Mar-22

Sep-22
Feb-22

Jul-22
May-22
Jan-22

Jun-22

Jan-23
UBL 20.2 24.8 -18% 5.2 7.1 -27% -3%
MCB 24.7 26.3 -6% 7.3 7.0 4% -6%
NBP 12.1 13.4 -10% 3.1 1.9 63% -5%
Source (s): PSX, AHL Research
ABL 15.8 15.3 3% 4.7 3.8 26% -7%
MEBL 22.6 15.8 43% 6.6 4.7 40% 3%
BAFL 11.3 8.1 39% 3.2 2.1 54% 4%
FABL 7.4 5.5 34% 2.2 1.4 57% -3%
AKBL 12.0 7.7 55% 3.4 2.3 49% -3%
BOP 3.2 4.2 -23% 0.7 1.3 -46% -7%
Dividend per Share
HBL 6.75 7.50 1.50 2.25
UBL 17.00 18.00 4.00 6.00
MCB 19.00 19.00 5.00 5.00
NBP 1.50 1.00 1.50 1.00
ABL 8.00 8.00 2.00 2.00
MEBL 7.50 6.00 2.00 1.50
Sana Tawfik | Muhammad Abrar
BAFL 5.00 4.00 2.50 2.00
D: +92 21 32462589
FABL 8.00 1.50 2.00 1.00
AKBL 1.00 - 1.00 - E: sana.tawfik@arifhabibltd.com
BOP - - - - E: muhammad.abrar@arifhabibltd.com
Source: Company Financials and AHL Research, @ current shares www.arifhabibltd.com

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 Daily Call
Commercial Banks
Result Preview January 27, 2023

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personal views of the analyst(s) about the subject security (ies) or sector (or economy), and no part of the compensation of the research analyst(s) was, is, or will be directly
or indirectly related to the specific recommendations and views expressed by research analyst(s) in this report. In addition, we currently do not have any interest (financial or
otherwise) in the subject security (ies). Furthermore, compensation of the Analyst(s) is not determined nor based on any other service(s) that AHL is offering. Analyst(s) are
not subject to the supervision or control of any employee of AHL’s non-research departments, and no personal engaged in providing non-research services have any influence
or control over the compensatory evaluation of the Analyst(s).

Equity Research Ratings

Arif Habib Limited (AHL) uses three rating categories, depending upon return form current market price, with Target period as Dec- 2023 for Target Price. In addition, return
excludes all type of taxes. For more details, kindly refer the following table;

Rating Description
BUY Upside* of subject security(ies) is more than +15% from last closing of market price(s)
HOLD Upside* of subject security(ies) is between -15% and +15% from last closing of market price(s)
SELL Upside* of subject security(ies) is less than -15% from last closing of market price(s)

Equity Valuation Methodology

AHL Research uses the following valuation technique(s) to arrive at the period end target prices;
 Discounted Cash Flow (DCF)
 Dividend Discount Model (DDM)
 Sum of the Parts (SoTP)
 Justified Price to Book (JPTB)
 Reserved Base Valuation (RBV)

Risks
The following risks may potentially impact our valuations of subject security (ies);
 Market risk
 Interest Rate Risk
 Exchange Rate (Currency) Risk

Disclaimer: This document has been prepared by Research analysts at Arif Habib Limited (AHL). This document does not constitute an offer or solicitation for the purchase or
sale of any security. This publication is intended only for distribution to the clients of the Company who are assumed to be reasonably sophisticated investors that understand
the risks involved in investing in equity securities. The information contained herein is based upon publicly available data and sources believed to be reliable. While every care
was taken to ensure accuracy and objectivity, AHL does not represent that it is accurate or complete and it should not be relied on as such. In particular, the report takes no
account of the investment objectives, financial situation and particular needs of investors. The information given in this document is as of the date of this report and there can
be no assurance that future results or events will be consistent with this information. This information is subject to change without any prior notice. AHL reserves the right to
make modifications and alterations to this statement as may be required from time to time. However, AHL is under no obligation to update or keep the information current. AHL
is committed to providing independent and transparent recommendation to its client and would be happy to provide any information in response to specific client queries. Past
performance is not necessarily a guide to future performance. This document is provided for assistance only and is not intended to be and must not alone be taken as the basis
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Disclosure required under Research Analyst Regulations, 2015:

In order to avoid any conflict of interest, we hereby disclosed that;
Arif Habib Limited (AHL) has shareholding in NBP and AKBL

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