StandardCapitalSecurities(Pvt)Ltd

October21,2011

KSE100 Closing 11685.15 (44.69 points)

PakistanResearch

ABLflyingwithitsearningsResultupdateTPRs93.4/sh |BUY

Banks|review

Synopsis

Analyst:
ZainSaleem*
research@scstrade.com
+9221111111721

ABLdemonstratedgrowthinthequarterlyfinancials.Whiledivertingitsfocusonthecautiouslending
strategyandeffectiveriskmanagement,itmanagedtoslowdownpaceofprovisionsonNPL.Hence,

indicatingahigherearningpropensity.Thisalongwiththecutindiscountrateby150bpsto12%
enabledustoupgradetargetpricetoRs93.4/shfromourlastcoverage,offering45%upsidefrom
currentprice.

Financialrundown
ABL9MCY11financialresultsareout,pronouncinggrowthof32%initsaftertaxprofitwhich
amountedtoRs7.73bn(DilutedEPS:Rs8.98/sh)asagainstRs5.85bn(DilutedEPS:Rs.6.80/sh)inthe

sameperiodlastyear.ABLsreportedearningsare5.5%higherfromourestimation.Wetherefore
upgradeourCY11earningsestimatebyRs0.68/sh(or18%)toRs12.03/sh.

Quarterly;ABLsprofitaugmentedby7%toRs3.13/shfromRs2.93/shin2QCY11.
Someofthenoticeablehighlightsareasfollows;

ABLclosingRs64.22/sh

HighRs65.88

LowRs63.53
Chg0.70%

52weekhiRs74.00/sh

PumpedupnetinterestearnedofRs37.23bnexhibitingyoyincreaseof12.0%.Thisrisingpace

ininterestincomeisapparentlyduetosoaringlendingrateswhichpersistedinthe1HCY11on
accountofhighdiscountrateduringthatperiod.

NetInterestIncome(NII)mountedtoRs18.62bnin9MCY11,depicting12.5%growthonyoy
basis.

52weeklowRs54.02/sh
Beta0.84
Total#ofsh.860.31mn
Freefloat78.21mn

NetInterestMarginsofABLisstandingintheterritoryof6.4%6.6%.

Escalatingpaceofprovisionscooldownbymorethanahalfattherateof54%inthe3QCY11.

Noncoreincomeelevatedby23.5%yoybasiscontributedbyaugmentedgrowthinincomefrom
foreigncurrencydealing(up130%yoy),dividendincome(up51%yoy)andhigherfees,
p
commissionandbrokerageincome(up8.6%yoy).

ABLProfit&Lossstatement

Rsmn
9MCY11
9MCY10
chg%
3QCY11 3QCY10

Markup/return/interestearned
37,234 33,254
12.0% 12,661 11,407
Markup/return/interestexpensed

(18,615)

(16,704)
11.4% (6,419) (5,436)

Netinterestincome
18,618 16,550
12.5% 6,242 5,971
Provisions
(1,304) (3,153)
58.6% (312) (1,025)
Netinterestafterprovisions
17,314 13,397
29.2% 5,930 4,946

NonMarkup/interestincome
4,514 3,656
23.5% 1,506 1,036
NonMarkup/interestexpenditure
(10,200) (8,304)
22.8% (3,372) (2,749)

Profitbeforetaxation
11,628 8,750
32.9% 4,064 3,232
Taxation
(3,900) (2,901)
34.4% (1,369) (1,003)
Profitaftertaxation
7,728 5,849
32.1% 2,695 2,229

Dilutedearningpershare(EPS)
8.98 6.80
32.1% 3.13 2.59
Source:KSEannouncement
Weexpectcementpricestoremainfirmedupgivenescalationofi

chg%
11.0%
18.1%
4.5%
69.6%
19.9%
45.4%
22.6%
25.8%
36.4%
20.9%
20.8%

*ACCAAffiliate

Disclaimer: ThisreporthasbeenpreparedbyStandardCapitalSecurities(Pvt)Ltdandisprovidedforinformationpurposesonly.Theinformationanddataonwhichthis
reportisbasedareobtainedfromsourceswhichwebelievetobereliablebutwedonotguaranteethatitisaccurateorcomplete.StandardCapitalSecurities(Pvt)Ltd
accepts no responsibility whatsoever for any direct or indirect consequential loss arising from any use of this report or its contents. Investors are advised to take
professionaladvicebeforemakinginvestmentsandStandardCapitalSecurities(Pvt)Ltddoesnottakeanyresponsibilityandshallnotbeheldliableforunduerelianceon
thisreport.Thisreportmaynotbereproduced,distributedorpublishedbyanyrecipientforanypurpose.

StandardCapitalSecurities(Pvt)Ltd

HighNIMsremainedonABLsside|Policyratecutmayinducecreditofftake

NetInterestIncome(NII)soaredby12.5%(yoybasis)toRs.18.6bnonaccountofhighNetInterest
Margins(NIMs)whichcurrentlystoodintheterritoryof6.4%6.6%.However,thegrowthinNII
seemstocooldownin3QCY11(onlyupby1%qoq),ostensiblyafterSBPsMonetaryPolicyDecision
todialbackpolicyrateby50bpsto13.5%inJuly30,2011.

Recently,marketobservedreductioninthepolicyrateby150bpsto12%.SBPciteddeclinein
inflationandgovernmentborrowingtobetheprimereasonforitsaction.Thisactionwasfollowed
bythedecliningtrendofKIBOR.WeexpectABLNIMstohovernear6.3%decliningfrom6.6%6.8%
in1HCY11.
1HCY11financialresultsshowedABLsstrategytoremaincautiousonthepartoflending.Thiswas
witnessedbydeclineinadvancesby4.5%fromRs253.1bninCY10toRs241.7bnin1HCY11.We
believe,thispolicyratecutcouldbeagoodomenforreboundintheprivatecreditofftakeand
advancesasawhole.ExpecteddownwardturninNIMscanbesetoffbyincreaseincreditofftake.

SlowingdownprovisionsbringcheerstoABL
ABLsprovisionsplungedby59%yoyin9MCY11,whileinthe3QCY11aloneitdeclinedby70%ony
oybasis.ABLseemstohavetameditsadvancesaswitnessedbydeceleratedprovisions.Quarterly;
provisionsaredownby54%.

ThisreductioninprovisionsisapparentlyduetoABLwatchfulapproachwhileatthesametime
preferringgovernmentpaperstobeasafewayofdivertingdeposits.Recentpolicyratecutmay
inducebankstotakeashiftfromgrowinginterestininvestmentsingovernmentsecuritiesto
allowingmoreadvances.Thusstringentapproachshouldbeusedtoexaminethecreditworthiness
ofanycompanytoavoidswellingnonperformingloans.
ValuationsummaryjustifiedP/BV1.8x|TargetpriceRs93.4/sh...
Wehavefinetunedourmodel,wherebyincorporatingtheeffectsofreductionindiscountrate
(currently12%,150bpsdown),coolingdowninthepaceofprovisionsandrelevantadjustmentswith
regardstocurrentresultupdates.

WeseehighearningpropensityinABL,aswitnessedbylatestresultswhichshowedslowingdown
provisionshencehigherprofitability.Moreover,ABListhrivingathighNIMsandrecentdeclinein
policyratemayinduceABLtoearnmoreonadvances.Aftermakingrelevantadjustments,we
arrivedatanewjustifiedPricetoBookvaluemultiple(PBV)of1.8xwhereintargetpriceisupgraded
toRs93.4/sh(45%upside).
WeexpectABLtobeafinaldividendplay,finalpayouttobeintherangeofRs2Rs2.5(20%25%),
summingupthetotalCY11payoutto45%50%.Thiscouldalsobeaccompaniedby10%20%
customarybonusissue.
WemaintainBuystanceonABL.

Disclaimer: ThisreporthasbeenpreparedbyStandardCapitalSecurities(Pvt)Ltdandisprovidedforinformationpurposesonly.Theinformationanddataonwhichthis
reportisbasedareobtainedfromsourceswhichwebelievetobereliablebutwedonotguaranteethatitisaccurateorcomplete.StandardCapitalSecurities(Pvt)Ltd
accepts no responsibility whatsoever for any direct or indirect consequential loss arising from any use of this report or its contents. Investors are advised to take
professionaladvicebeforemakinginvestmentsandStandardCapitalSecurities(Pvt)Ltddoesnottakeanyresponsibilityandshallnotbeheldliableforunduerelianceon
thisreport.Thisreportmaynotbereproduced,distributedorpublishedbyanyrecipientforanypurpose.