HBL posted upbeat consolidated earnings of PRs3.74/sh in 1Q10, up 26% YoY, but primarily due to forced sale value (FSV) benefit of collateral against loan provisions.
Inline with sector trend and our thesis, net interest income growth is slowing due to decline in margins however lower operating provisions are keeping credit income growth buoyant.
Non-interest income, +45% YoY and +10% QoQ, was the key contributor to jump in operating profitability which was up 11% YoY and 4% QoQ in 1Q10.
The bank availed FSV benefit against loan loss provisions, down 38% YoY and 44% QoQ, of PRs1bn in 1Q10. This is in addition to PRs0.8bn taken in 4Q09.
NPLs inched up to PRs51.6bn, +PRs2.2bn QoQ, but we believe are nearing peak. CASA improved to 72%, crest of the last 2 years, and further improvement is not likely.
We maintain our Underperform rating on the stock where we believe the stock price; trading at 2010E P/B of 1.2x, is already integrating potential rebound in earning growth (+19%) and ROE (18%) of the bank.
KASB Securities and Economics Research
27 April 2010
