The AKD Banking Universe (ex-NBP) has posted combined NPAT of PkR78.4bn in CY11 against combined NPAT of PkR59.4bn in CYIO, translating into robust 32%VoV growth.
According to AKD Securities, outperformers i.e. banks with > 32%YoY growth include BAFL, MEBL, AKBL and UBL. Unsurprisingly, these are some of the best performing banking sector scrips on a CYTD basis (Bank are up 25.8%CYTD). Price performance has further been abetted by positive payout surprises particularly by UBL and BAFL. In AKD Securities’ view, while banks are likely to post more `normal’ YoY growth of 10%-15% in CY12F, strong capital bases in an environment of continued private sector crowding out (GOP exposure is zero risk- weighted) imply higher payouts could now become the norm. While AKD Securities remains selectively positive on Pakistan Banks, Mar’12 may provide profit taking opportunities. In this regard, over the last 5yrs, Banks have posted subdued price performance in Mar (post-floor CY09 being an exception) where similar dynamics could repeat this year as attention turns to stumbling macroeconomic fundamentals with results euphoria coming to an end.
Strong results & payouts: The AKD Banking Universe (ex-NBP) has posted combined NPAT of PkR78.4bn in CY11 against aggregate NPAT of PkR59.4bn in CY10, up 32%YoY. This robust bottom-line growth has been driven by higher Nil (asset growth) and lower credit costs. More of the same should persist in CY12F even as YoY profit growth is likely to fall in the 10%-15% range. AKD Securities draws attention to several payout surprises (by UBL and BAFL in particular) where sustained high CARs may lead to consistent high cash payouts over the next 2-3 years, particularly as the larger banks already meet CY13 MCR requirement of PkR10bn. This could ostensibly drive valuation rerating for select large and medium-sized banks.
Profit taking in Mar’12? Post-floor CY09 being an exception, Banks have generally been flat in March over the last 5yrs (average 1.1% return ex- CY09). While CGT concessions/very strong results maintain a strong euphoric hold, AKD Securities believes the next key checkpoints for investors will be politics and macros. Regarding the latter, rising int’l oil prices coupled with steady ME repayments have the potential to accelerate Balance of Payments slippage. As such, while AKD Securities retains a positive long-term stance on the larger banks, 25.8%CYTD returns for Banks have unveiled tempting profit taking opportunities, particularly for the more risk-averse investor.
Switch into underperformers: Banks have outperformed the KSE-100 Index by 1O.4%CYTD. In AKD Securities’ view, as long as macroeconomic concerns remain in the background, Banks as a group will continue to outperform. Within this backdrop, AKD Securities recommends switching from recent outperformers (e.g. AKBL) into underperformers where AKD Securities highlights AKD Securities’ preference for ABL (up 225%CYTD) and HBL (up 13.3%CYTD). In AKD Securities’ view, UBL may be an exception to the rule where very strong CY11 results (including an exceptionally high payout) may lead to further outperformance, at least in the near-term.