IGI Securities Limited - Day Break (18 July 23)

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IGI Securities Limited – Day Break (18 July 23)

July 18, 2023

Karachi, July 18, 2023 (PPI-OT): 2qCY23: Banks to Report Lower EPS Owing to Higher Taxation Charge

The banking sector outperformed the Pakistan Stock Index KSE-100 benchmark by 2.0% during 1HCy23 due to favourable interest rate cycles.

The recent finance bill 2023 enacted draws additional taxation expense to be paid in the form of a super tax of 10% on PBT. Banks during 1qCy23 charged 4% super tax, so an additional 6% retrospective will be charged on quarterly earnings.

Banking Sector: Deterioration in quarterly earnings likely owing to higher taxation expense charged during 2qCy23

For the 2qCy23, we expect sector earnings (IGI coverage banking universe) to post an earnings decline of 23%q/q to PKR 56.0bn compared to PKR 72.2bn last quarter, and up +2.7xy/y compared to PKR 20.7bn last year same period. Furthermore, the banking sector outperformed the Pakistan Stock Index KSE-100 benchmark by 2.0% during 1HCy23 due to favourable interest rate cycles.

The following factors to drive sector earnings in upcoming quarterly results:

Retrospective taxation: the recent finance bill 2023 enacted draws additional taxation expense to be paid in the form of super tax of 10% on PBT. Banks during 1qCy23 charged 4% super tax, so an additional 6% retrospective will be charged on quarterly earnings, bringing the effective tax rate to 55% for this quarter only. Going forward the effective tax charge will be close to 49%, pushing earnings upward on a quarterly basis.

Nims to enter the contraction phase as average deposit costs rise: we expect nims to enter the contraction cycle as average deposit rates have begun to outpace the rise in lending rates.

ADR to drop and IDR to rise: sector ADR has dropped down close to 48% from 53% and IDR increased to 81.9% from 79.7% since Jan-23 as the government repealed the ADR-related taxation policy that compelled banks to increase advances and reduce investments in their books.

OPEX to remain elevated owing to record inflation: elevated CPI figures to dampen quarterly earnings. CPI further inched up to +34.6% on average during the 2qCy23 compared to +31.5% during 1qCy23, and +16.2% during 2qCy22.

HBL: Earnings to drop by 14%q/q to PKR 7.75/share during 2QCY23

We expect Habib Bank Limited (HBL) to register quarterly earnings of PKR 11.4bn (EPS: PKR 7.8/share), up by +3.3xy/y during 2qCy23 compared to PKR 3.5bn (EPS: PKR 2.38/share) in the same period last year. In addition, the bank is expected to pay a dividend of PKR 1.5/share. The decline in earnings on a quarterly basis during 2qCy23 is likely to be limited owing to lower operating expense

UBL: Earnings to fall by 25%q/q to PKR 8.55/share during 2QCY23

We anticipate United Bank Limited (UBL) to register quarterly earnings of PKR 10.5bn (EPS: PKR 8.6/share), up by +4.5xy/y during 2qCy23 compared to PKR 2.3bn (EPS: PKR 1.91/share) in the same period last year. Moreover, the bank is expected to pay a dividend of PKR 8/share. We attribute this decline in earnings on a quarterly basis during 2qCy23 to a) a higher provision charge, b) a decline in NFI

MCB: Earnings to drop by 25%q/q to PKR 8.26/share during 2QCY23

MCB Bank Limited (MCB) is projected to register quarterly earnings of PKR 9.8bn (EPS: PKR 8.3/share), up by +4.4xy/y during 2qCy23 compared to PKR 2.2bn (EPS: PKR 1.87/share) in the same period last year. Furthermore, the bank is expected to pay a dividend of PKR 6/share.

BAFL: Earnings to drop by 24%q/q to PKR 5.15/share during 2QCY23

Bank Alfalah Limited (BAFL) is likely to register quarterly earnings of PKR 8.1bn (EPS: PKR 5.2), up by +2.2xy/y during 2qCy23 compared to PKR 3.7bn (EPS: PKR 2.3) in the same period last year. In addition, the bank is expected to pay a dividend of PKR 3/share.

FABL: Earnings to jump by +20%q/q to PKR 2.54/share during 2QCY23

We expect Faysal Bank Limited (FABL) to outperform all other banks and likely to register quarterly earnings of PKR 3.8bn (EPS: PKR 2.5/share), up by +71%y/y during 2qCy23 compared to PKR 2.2bn (EPS: PKR 1.5/share) in the same period last year. In addition to a jump in quarterly earnings, the bank is expected to pay a dividend of PKR 1.5/share. We attribute this incline in earnings on a quarterly basis during 2qCy23 to a) lower provision charge, b) higher nims benefitting from lower deposit yield, and c) rising deposits.

ABL: Earnings to drop by 17%q/q to PKR 5.49/share during 2QCY23

We expect Allied Bank Limited (ABL) to register quarterly earnings of PKR 6.3bn (EPS: PKR 5.49/share), up by +3.1xy/y during 2qCy23 compared to PKR 2.1bn (EPS: PKR 1.8/share) in the same period last year. In addition, the bank is expected to pay a dividend of PKR 2.5/share.

BAHL: Earnings to drop by 42%q/q to PKR 5.48/share during 2QCY23

We expect Bank AL Habib Limited (BAHL) to register quarterly earnings of PKR 6.1bn (EPS: PKR 5.5/share), up by +30%y/y during 2qCy23 compared to PKR 4.7bn (EPS: PKR 4.2/share) in the same period last year. In addition, the bank is not expected to pay a dividend this quarter.