Karachi: NBP conducted its CY11 result analyst briefing yesterday.
According to AKD Securities, recall that on a consolidated basis, NBP posted flat NPAT of PkR17.7bn (fully-diluted EPS: PkR9.57) in CV11. That said, early indications are that NBP is poised for double-digit growth in CY12F with impetus likely to arise from capital gains. In this regard, we estimate that the KSE’s 20% CYTD return would have generated gains of at least PkR4.5bn for NBP in 1QCY12 where part realization of the same may potentially load to NPAT of PkR5bn (fully-diluted EPS: PkR2.70) in 1QCY12F. NBP trades at a CY12F P/B of 0.55x, P/E of 4.1x and D/Y of 18.6% while we remain cognizant of asset quality risks, these are undeniably highly attractive valuations. While we will look to formally update our financial model shortly, a target P/B multiple of 0.7x (ROE likely to be sticky in the mid-teens) would yield a fair value of PkR55/share while a target P/E multiple of 5x would yield a fair value of PkR52.5/share. In both cases, upside would stand above 20%.
CY11 Result Review: On a consolidated basis, NBP posted flat NPAT of PkR17.7bn (fully-diluted EPS: PkR9.57) in CY11 with income growth neutralized by higher admin expenses and a normalized effective tax rate. Alongside, NBP announced a cash dividend Dt PkR7.5/share as well as a 10% bonus issue. On the balance sheet side, both assets and deposits are up by -11%YoY, although the latter has come at the expense of CASA deterioration. NPLs stock at PkR88.2bn (NPL ratio: 14.9%, coverage: 76%) is up a contained 2%YoY but this is due to reduction in public-sector NPLs – private sector NPLs are up by PkR17.6bn or 25%YoY to PKR87.5bn in CY11. Total FSV backlog stands at a very high PkR9.7bn (in EPS terms: PkR3.40) although CAR at 16.8% provides comfort.
Analyst Briefing – Key Takeaways: The bank’s CASA has slipped by 5ppt in CY11 while private sector NPLs have continued to grow (incremental accretion atrributed to a few large borrowers). Accordingly, management intends to focus on CASA expansion and reduction in NPLs. At the same time, management is eyeing expansion in trade finance (upcoming Sri Lanka branch to complete trade corridor) as well as branch automation. Going forward, while compensation on delayed tax refunds from GoP will continue, this may be in the shape of PIBs i.e. income from this end will then be placed in the top line instead of other income. However, any move towards quarterly dividends does not appear to be a priority agenda for management at the moment.
Investment Perspective: While asset quality concerns remain, early indications are that NBP is poised for double-digit growth in CY12F with impetus likely to arise from capital gains. We believe NBP is well placed to post NPAT of -PkR5bn (EPS: PkR2.70) in 1QCY12F, up 17%YoV. Valuations remain attractive (CY12F P/B of 0.55x, P/E of 4.1x and D/Y of 18.6%) and, while we will formally look to update our finandal model shortly, preliminary workings suggest NBP share price may outperform in the near-term (run-up to 1QCY12 result announcement).