Karachi, July 15, 2021 (PPI-OT): HMB: Undemanding valuations!

Outperforming AKD banking universe by 6.6ppt, Habib Metropolitan Bank (HMB) still trades at an attractive CY22F P/B of 0.56x — at a significant discount of 37.5% compared to cluster exhibiting similar ROEs (CY22-24F avg. ROE: 15.3%).

Earnings are likely to sustain high watermark set in CY20 over the medium run through robust financing growth at the back of TERF/WC related loan disbursements (TERF: 1.3% of gross advances to date), particularly to textile sector (40.4% share in advances), and bank re-energizing efforts to trim high cost deposits (Mar’21: 35.0% vs. 37.2% in Dec’20).

The complete change of fortunes for textile players would not only fuel financing demand but also possibility of recoveries from legacy textile NPLs (PkR8.9bn—46.3% of outstanding NPLs, fully provided); HMB in the previous year has already settled certain receivables, recording PkR2.2bn in debt-asset swap.

Hence, we maintain our buy stance on the stock with Dec’22TP of PkR56.8/sh—offering an upside of 42.3%. Moreover, previewing 1HCY21 results, we expect the bank to post an earnings of PkR6.4bn (EPS: PkR6.0) compared to PkR3.3bn (EPS: PkR3.0) in the same period last year, with 2QCY21 EPS estimated at PkR2.86/sh, down 8.0%QoQ.