AKD Securities Limited - AKD Daily (February 21, 2023)

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AKD Securities Limited – AKD Daily (February 21, 2023)

February 21, 2023

Karachi, February 21, 2023 (PPI-OT): 4QCY22: 2QFY23: Banks and Cement previews

HBL – 4QCY22 earnings estimated at PkR7.1/sh: Habib Bank Limited (HBL) is scheduled to report its earnings on Friday, wherein we expect the bank to post NPAT of PkR10.5bn (EPS: PkR7.1), lower by 9%QoQ while higher by 17%YoY. This would take the full year earnings for the bank to PkR42.3bn or Pkr28.7/sh, higher by 19%YoY. Net interest income for 4QCY22 is expected to clock in at PkR48bn, higher by 14%QoQ and 40%YoY. NIMs are expected to enhance from ~4.1% in the earlier quarter to 4.7% in the last quarter of the year, as the bank continues to bring down its cost of deposit by trimming its high-cost Term Deposits. To note, the bank witnessed a 10.1%QoQ drop in deposits in 3QCY22, wherein the bank trimmed its Term Deposits to bring its CASA ratio up to ~81.3%. This is, however, expected to be offset by a 14%QoQ decline in non-interest income, driven by a substantial drop in FX income from PkR4.9bn in 3QCY22 to PkR2.9bn in the last quarter of the year. Earnings attrition during the quarter is also expected to be driven by higher provisioning charges, expected to come in at ~PkR2.8bn, 2.6x higher than the earlier quarter. Furthermore, alongside the earnings, we expect the bank to announce a cash dividend of PkR1.25/sh, taking the full year payout to PkR6.5/sh, representing a payout ratio of 22.7% on CY22 earnings.

UBL – 4QCY22 earnings to clock in at PkR5.4/sh: United Bank Limited (UBL) is slated to announce its 4QCY22 earnings tomorrow. We forecast for the bank to post NPAT of PkR6.7bn or PkR5.4/sh, compared to PkR5.3/sh posted in the earlier quarter. For CY22, we expect the bank to post NPAT of PkR25.5bn (EPS: PkR20.5). Net interest income for the quarter is expected to clock in at PkR27.0bn, lower by 7%QoQ. NIMs for the quarter are expected to come in at ~4.5%, compared to ~4.6% in the earlier quarter, with the drop in NIMs attributable to the relatively lower CASA ratio of the bank (73% in 3QCY22). UBL’s non-interest income is expected to clock in at PkR7.9bn, largely flat over the number reported in the earlier quarter. We are anticipating the provisions to drop by 10%QoQ to PkR4.9bn. To note, the bank recorded provisioning against its Sri Lankan book in the earlier quarter, leading to a provision of PkR5.5bn. Furthermore, we expect the bank to announce a cash dividend of PkR4/sh for the final quarter, taking the full year payout to PkR17/sh, representing a payout of 83% of total earnings.

FABL – 4QCY22 earnings to clock in at PkR2.66/sh: Faysal Bank Limited (FABL) is set to report its earnings for the 4QCY22 on Thursday. We anticipate the bank will post earnings of PkR4.0bn (EPS: PkR2.66), marking an increase of 23%/94% on a QoQ/YoY basis. For the full year CY22, the bank is expected to report earnings of PkR11.69bn (EPS: 7.71), a YoY increase of 43%. The sharp rise in quarterly earnings is attributed to expanding NIMs, which are expected to reach 5.25% by the end of the year, up from 4.46% in 3QCY22 and 3.27% in CY21. We expect Ijarah Sukuk (and other Islamic investments) to make up 90% of the total investment portfolio, up from 80% in 3QCY22, amid the bank fast-tracking its full Islamic conversion during Dec’22. Alongside the earnings, we expect the bank to announce a cash dividend of PkR1.0/sh for the final quarter, taking the full year payout to PkR7.0/sh (90% payout ratio). As the bank expands its presence in the Islamic banking space, we expect increased demand from Shariah-based investors, potentially leading to a significant re-rating of the stock in the coming future. For this reason, we have a ‘Buy’ stance on the stock with a Dec’23 TP of PkR49/sh, offering a potential upside of 101% from last close.

DGKC – earnings to clock in at PkR1.2/sh in 2QFY23: DGKC is slated to announce its 2QFY23 result tomorrow, where we expect the company to record an unconsolidated nominal profit of PkR0.53bn (EPS: PkR1.2) vs NPAT of PkR0.39bn (EPS: PkR0.9) in 1QFY23. For 2QFY23, the topline is expected to increase by ~20%/1% on QoQ/YoY basis. Quarterly increase in the revenue is attributed by increase in the cement offtakes that are up by ~21%QoQ which was offset by sequential price lower retention prices (down 2.0%QoQ). Furthermore, we expect the gross margins to clock in at 16.1% (vs. 15.3%/16.9% last quarter/last year), comparatively low margins against peers are due to high power cost as Gas/RLNG unavailability shifted power mix towards a relatively more expensive grid/RFO based power generation. Finance cost is expected to settle at PkR1.8bn (up by 15%QoQ) owing to high interest rates. Other income is expected to increase by 9%QoQ, owing to high dividend income from MCB in 1QFY23, which will help bolster the company’s bottomline. Overall, company is expected to post PAT of PkR0.92bn (EPS: 2.1) for 1HFY23, down 58%YoY.

PIOC – 2QFY23 EPS to stand at PkR4.2/sh: PIOC is scheduled to announce its 2QFY23 result on 23rd February, where we expect the company to record PAT of PkR0.95bn (EPS: PkR4.2), up by 63%/44% on QoQ/YoY basis. The topline for the quarter is expected to post robust growth of 21%QoQ, to settle at PkR10.1bn vs. PkR8.3bn in the previous quarter. Increase in the topline is largely driven by increased offtakes during the outgoing quarter (up 23%QoQ) vs. 1QFY23 as torrential floods and demand destruction bore its effects during the current period. Similarly, gross margins are likely to clock in at 24.7% vs 22.9% in 1QFY23, improvement in the margins are expected due to decrease in weighted average price of coal (~80% mix: Afghan and Local coal). Moreover, finance cost of the company is expected to clock in at PkR926mn (up by 1%/56% QoQ/YoY) owing to high interest rates. Overall, this will take 1HFY23 NPAT to PkR1.54bn (EPS: PkR6.8) against NPAT of PkR1.14bn (EPS: PkR5.0) in 1HFY22.