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ABL 1QCY10 result review: cost accretion dims earning momentum

On a consolidated basis, ABL has posted NPAT of PKR1.80bn (EPS-PkR2.3) in 1QCY10 as compared to PkR1.44bn (EPS-PkR1.85) in 1QCY09, a growth of 24%YoY. The result is below our expected NPAT of PkR1.98bn (EPS PkR2.54). A sharp anomalous 24.8%YoY increase in non-interest income explains the results deviation from our expectations. The bank booked total provisions of PkR1.26bn, broadly inline with consensus expectations.

Despite the sharp sequential slippage in cost to income ratio to 53% in 1QCY10 compared to 41% in 4QCY09, it is encouraging to note that the bank posted healthy growth of 24.4% in Net Interest Income (NII). This in our view highlights that the bank’s strategy of achieving greater loan book diversification and deposit restructuring is paying dividends in the shape of improved NIMs. Concurrently, ABL’s Non-Core Income is also gaining momentum, where earning growth rose to 32.7%YoY in 1QCY10. In non-interest income, Fee, Commission & Brokerage Income exhibited brisk 33.68%YoY rate of growth in 1QCY10.

Based on ABL’s attractive risk return dynamics, we have an accumulate stance on the stock. Our fair value of PkR78 per share implies an upside of 18.2% at current price level.
AKD Research
26 April 2010

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