We initiate coverage of Allied Bank Limited (ABL), the fifth largest commercial bank in Pakistan in terms of asset base, with a Buy rating and a target price of PkR80/share (22.3% upside). We believe the bank is well positioned to leverage the ongoing U-shaped domestic economic recovery. ABL’s earnings have increased by 35%YoY in 9MCY09, in sharp contrast to a decline of 3%YoY posted by the sector. As a result, ABL has outperformed the banking sector by 55%CYTD. We base our expectations of further price performance on our forecasted 3-year (CY08-CY11F) EPS CAGR of 25%, the highest within the AKD Banking Universe.
In our view, this growth will be driven by: 1) strong domestic corporate linkages and low asset quality drag, 2) likely effective entry in higher-yielding segments, 3) deposit restructuring leading to limited NIM erosion and 4) consistently increasing cost efficiencies. ABL is trading at a CY10F Tier-I P/B multiple of 1.43x and a PER of 7.24x. Our target price of PkR80/share implies upside of 22.3% from current levels. Buy!
AKD Research
December 02, 2009